10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.  20549

Form 10-Q

{Mark One}

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2007
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number:  0-13063

SCIENTIFIC GAMES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	81-0422894
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

750 Lexington Avenue, New York, New York 10022

(Address of principal executive offices)

(Zip Code)

(212) 754-2233

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x       No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x                    Accelerated filer  o                    Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
Yes o     No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of May 7, 2007:

Class A Common Stock:  92,536,365

Class B Common Stock:  None

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL INFORMATION

AND OTHER INFORMATION

THREE MONTHS ENDED MARCH 31, 2007

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of December 31, 2006 and March 31, 2007
	Consolidated Statements of Income for the Three Months Ended March 31, 2006 and 2007
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2007
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II.	OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.	Exhibits

2

Forward-Looking Statements

Throughout this Quarterly Report on Form 10-Q we make “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “anticipate,” “could” or the negatives thereof, variations thereon or similar terminology. The forward-looking statements contained in this Quarterly Report on Form 10-Q are generally located in the material set forth under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. These forward-looking statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of future results or performance.  Actual outcomes may differ from those projected in forward-looking statements due to a variety of risks and uncertainties and other factors, including related to the following:

·economic, competitive, demographic, business and other conditions in our local, regional and international markets;

·changes or developments in the laws, regulations or taxes in the gaming, racing and lottery industries;

·actions taken or omitted to be taken by third parties, including customers, suppliers, competitors, members and shareholders, as well as legislative, regulatory, judicial and other governmental authorities;

·changes in business strategy, capital improvements, development plans, including those due to environmental remediation concerns, or changes in personnel or their compensation, including federal, state and local minimum wage requirements;

·the availability and adequacy of our cash flow to satisfy our obligations, including our debt service obligations and our need for additional funds required to support capital improvements, development and acquisitions;

·an inability to enter into new contracts, renew existing contracts, or the early termination of our existing contracts;

·an inability to engage in or complete future acquisitions and integrate those businesses successfully;

·the loss of any license or permit, including the failure to obtain an unconditional renewal of a required gaming license on a timely basis; and

·resolution of any pending or future litigation in a manner adverse to us.

Actual future results may be materially different from what we expect.  We will not update forward-looking statements even though our situation may change in the future.

3

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 2006 and March 31, 2007

(Unaudited, in thousands, except per share amounts)

PART 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements

	December 31,			March 31,
	2006			2007
ASSETS
Current assets:
Cash and cash equivalents	$	27,791		$	33,231
Accounts receivable, net of allowance for doubtful accounts of $5,703 and $6,209 as of December 31, 2006 and March 31, 2007, respectively	178,445			193,512
Inventories	59,464			64,238
Deferred income taxes, current portion	8,960			9,992
Prepaid expenses, deposits and other current assets	70,042			59,482
Total current assets	344,702			360,455
Property and equipment, at cost	803,089			794,978
Less accumulated depreciation	(352,429		)	(343,387		)
Net property and equipment	450,660			451,591
Goodwill, net	633,730			642,000
Intangible assets, net	157,251			153,497
Other assets and investments	173,267			198,115
Total assets	$	1,759,610		$	1,805,658
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt	$	3,148		$	5,049
Accounts payable	60,566			46,767
Accrued liabilities	130,309			143,528
Total current liabilities	194,023			195,344
Deferred income taxes	43,143			43,684
Other long-term liabilities	81,113			78,926
Long-term debt, excluding current installments	913,253			919,021
Total liabilities	1,231,532			1,236,975
Commitments and contingencies
Stockholders’ equity:
Class A common stock, par value $0.01 per share, 199,300 shares authorized, and 91,628 and 92,510 shares issued and outstanding as of December 31, 2006 and March 31, 2007, respectively	916			925
Class B non-voting common stock, par value $0.01 per share, 700 shares authorized, none outstanding	—			—
Additional paid-in capital	477,261			492,760
Accumulated earnings	33,452			56,715
Treasury stock, at cost, 1,140 shares held as of  December 31, 2006 and March 31, 2007	(19,442		)	(19,442		)
Accumulated other comprehensive income	35,891			37,725
Total stockholders’ equity	528,078			568,683
Total liabilities and stockholders’ equity	$	1,759,610		$	1,805,658

See accompanying notes to consolidated financial statements.

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SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31, 2006 and 2007

(Unaudited, in thousands, except per share amounts)

	Three Months Ended March 31,
	2006			2007
Operating revenues:
Services	$	176,960		$	210,993
Sales	31,169			31,273
	208,129			242,266
Operating expenses:
Cost of services (exclusive of depreciation and amortization)	94,948			116,747
Cost of sales (exclusive of depreciation and amortization)	24,544			22,485
Selling, general and administrative expenses	32,392			39,145
Depreciation and amortization	19,292			29,078
Operating income	36,953			34,811
Other (income) expense:
Interest expense	7,202			12,892
Equity in net income of joint ventures	(1,576		)	(11,878		)
Other income, net	(643		)	(390		)
	4,983			624
Income before income tax expense	31,970			34,187
Income tax expense	9,600			9,428
Net income	$	22,370		$	24,759
Basic and diluted net income per share:
Basic net income per share	$	0.25		$	0.27
Diluted net income per share	$	0.24		$	0.26
Weighted-average number of shares used in per share calculations:
Basic shares	90,166			91,993
Diluted shares	93,172			95,288

See accompanying notes to consolidated financial statements.

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SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2006 and 2007

(Unaudited, in thousands, except per share amounts)

	Three Months Ended March 31,
	2006			2007
Net cash provided by operating activities	$	34,164		$	30,420
Cash flows from investing activities:
Capital expenditures	(4,239		)	(2,465		)
Wagering system expenditures	(31,248		)	(23,543		)
Other intangible assets and software expenditures	(17,320		)	(8,354		)
Change in other assets and liabilities, net	(2,888		)	(6,447		)
Business acquisitions, net of cash acquired	(57,564		)	(336		)
Net cash used in investing activities	(113,259		)	(41,145		)
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facility	66,000			(191,000		)
Net proceeds (repayments) of long-term debt	(564		)	198,665
Excess tax benefit from equity-based compensation plan	2,814			—
Net proceeds from issuance of common stock	8,602			8,360
Net cash provided by financing activities	76,852			16,025
Effect of exchange rate changes on cash and cash equivalents	506			140
Increase (decrease) in cash and cash equivalents	(1,737		)	5,440
Cash and cash equivalents, beginning of period	38,942			27,791
Cash and cash equivalents, end of period	$	37,205		$	33,231

See accompanying notes to consolidating financial statements.

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SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, in thousands, except per share amounts)

Notes to Consolidated Financial Statements

(1) Consolidated Financial Statements

Basis of Presentation

The consolidated balance sheet as of March 31, 2007, the consolidated statements of income for the three months ended March 31, 2006 and 2007, and the condensed consolidated statements of cash flows for the three months ended March 31, 2006 and 2007, have been prepared by Scientific Games Corporation (together with its consolidated subsidiaries, the “Company”) without audit.  In the opinion of management, all adjustments necessary to present fairly the consolidated financial position of the Company as of March 31, 2007 and the results of its operations for the three months ended March 31, 2006 and 2007 and its cash flows for the three months ended March 31, 2006 and 2007 have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2006 Annual Report on Form 10-K.  The results of operations for the period ended March 31, 2007 are not necessarily indicative of the operating results for a full year.

Basic and Diluted Net Income Per Share

The following represents a reconciliation of the numerator and denominator used in computing basic and diluted net income per share available to common stockholders for the three months ended March 31, 2006 and 2007:

	Three Months Ended March 31,
	2006		2007
Income (numerator)
Net income	$	22,370	$	24,759
Shares (denominator)
Basic weighted-average common shares outstanding	90,166		91,993
Effect of dilutive securities-stock options and preferred shares	3,006		3,295
Diluted weighted-average common shares outstanding	$	93,172	$	95,288
Basic and diluted per share amounts
Basic net income per share	$	0.25	$	0.27
Diluted net income per share	$	0.24	$	0.26

The weighted-average diluted shares outstanding for the three month periods ended March 31, 2006 and 2007 excludes the effect of approximately 185 and 1,142 out-of-the-money options, respectively, as their effect would be anti-dilutive.

The aggregate number of shares that the Company could be obligated to issue upon conversion of its $275,000, 0.75% convertible senior subordinated debentures due 2024 (the “Convertible Debentures”), which the Company sold in December 2004, is approximately 9,450. The Convertible Debentures provide for net share settlement upon exercise and the Company has purchased a bond hedge to mitigate the potential economic dilution from conversion.

During the first quarter of 2007, the average price of the Company’s common stock exceeded the specified conversion price. For the three months ended March 31, 2007, the Company has included 684 shares related to its Convertible Debentures in its diluted weighted-average common shares outstanding.  Such shares were excluded from the three months ended March 31, 2006 calculation, as they were anti-dilutive.  The Company has not included the offset from the bond hedge as it would be anti-dilutive; however, when the Convertible Debentures mature, the diluted share amount will decrease because the bond hedge will offset the economic dilution from conversion.

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(2) Acquisitions

In conjunction with the purchase of substantially all of the online assets of EssNet AB (“EssNet”) in March of 2006, the Company recorded approximately $27 million in liabilities, primarily related to involuntary employee terminations, termination of leases and termination of service contracts that will result from the integration. The table below summarizes the payments made to date, adjustments and the balance of the accrued integration costs from the closing date to March 31, 2007.

							Accrued				Accrued
	Accrued				Adjustments		Balance			Adjustments	Balance
	Costs at				to		December 31,			to	March 31,
	Closing		Payments		Goodwill		2006	Payments		Goodwill	2007
Severance pay and benefits	$	17,644	(6,576	)	(7,818	)	3,250	(1,107	)	234	2,377
Lease termination	1,475		(570	)	11		916	(191	)	39	764
Contractual obligations	7,598		(4,536	)	2,320		5,382	(398	)	4,075	9,059
	$	26,717	(11,682	)	(5,487	)	9,548	(1,696	)	4,348	12,200

(3) Operating Segment Information

Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”), defines operating segments to be those components of a business for which separate financial information is available that is regularly evaluated by management in making operating decisions and in assessing performance. SFAS 131 further requires that segment information be presented consistently with the basis and manner in which management internally disaggregates financial information for the purposes of assisting in making internal operating decisions.

The Printed Products Group provides instant ticket and related services that includes ticket design and manufacturing as well as value-added services, including game design, sales and marketing support, inventory management and warehousing and fulfillment services. Additionally, this division provides lotteries with licensed brand products and includes prepaid phone cards for cellular phone service providers. In addition, as a result of the acquisition of 80% of the common stock of International Lotto Corp., SRL (“ILC”) in December 2006, Printed Products now has an agreement with certain charities in Peru which gives the Company the right to participate in the operation of a lottery in Peru.  The Lottery Systems Group offers online, instant and video lottery products and online and instant ticket validation systems. Its business includes the supply of transaction processing software for the accounting and validation of both instant and online lottery games, point-of-sale terminal hardware sales, central site computers and communication hardware sales and ongoing support and maintenance for these products.  The Diversified Gaming Group provides services and systems to private and public operators in the wide area gaming markets and the pari-mutuel wagering industry.  The product offerings include fixed odds betting terminals (“FOBTs”), video lottery terminals (“VLTs”), monitor games, wagering systems for the pari-mutuel racing industry, sports betting systems and services and Amusement With Prize (“AWP”) and Skill With Prize (“SWP”) terminals.

8

The following tables represent revenues, profits, depreciation, amortization and selling, general and administrative expenses for the three month periods ended March 31, 2006 and 2007, by current reportable segments. Corporate expenses, including interest expense, other income, and corporate depreciation and amortization are not allocated to the reportable segments.

	Three Months Ended March 31, 2006
	Printed Products Group		Lottery Systems Group	Diversified Gaming Group	Totals
Service revenues	$	93,579	52,717	30,664	176,960
Sales revenues	14,121		14,699	2,349	31,169
Total revenues	107,700		67,416	33,013	208,129
Cost of services (exclusive of depreciation and amortization)	46,291		27,673	20,984	94,948
Cost of sales (exclusive of depreciation and amortization)	10,773		11,592	2,179	24,544
Selling, general and administrative expenses	11,356		7,449	2,441	21,246
Depreciation and amortization	5,185		10,493	3,396	19,074
Segment operating income	$	34,095	10,209	4,013	48,317
Unallocated corporate costs					$	11,364
Consolidated operating income					$	36,953

	Three Months Ended March 31, 2007
	Printed Products Group		Lottery Systems Group	Diversified Gaming Group	Totals
Service revenues	$	104,631	54,331	52,031	210,993
Sales revenues	9,262		11,049	10,962	31,273
Total revenues	113,893		65,380	62,993	242,266
Cost of services (exclusive of depreciation and amortization)	55,662		29,391	31,694	116,747
Cost of sales (exclusive of depreciation and amortization)	7,624		6,238	8,623	22,485
Selling, general and administrative expenses	11,481		7,997	5,348	24,826
Depreciation and amortization	8,400		14,131	6,322	28,853
Segment operating income	$	30,726	7,623	11,006	49,355
Unallocated corporate costs					$	14,544
Consolidated operating income					$	34,811

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The following table provides a reconciliation of segment operating income to the consolidated income before income tax expense for each period:

	Three Months Ended March 31,
	2006			2007
Reported segment operating income	$	48,317		$	49,355
Unallocated corporate costs	(11,364		)	(14,544		)
Consolidated operating income	36,953			34,811
Interest expense	(7,202		)	(12,892		)
Other income	643			390
Equity in income of joint venture	1,576			11,878
Income before income tax expense	$	31,970		$	34,187

In evaluating financial performance, the Company focuses on operating profit as a segment’s measure of profit or loss. Operating income is before interest income, interest expense, equity in net income in joint ventures, corporate expenses and income taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies except for accounting for income tax contingencies (see “Critical Accounting Policies” in this Form 10-Q for the three months ended March 31, 2007 and Note 1 of the Company’s Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006).

(4) Equity Investments in Joint Ventures

The Company is a member of Consorzio Lotterie Nazionali, a consortium consisting principally of the Company, Lottomatica S.p.A, and Arianna 2001, a company owned by the Federation of Italian Tobacconists. The consortium has a signed contract with the Italian Monopoli di Stato to be the exclusive operator of the Italian Gratta e Vinci instant lottery. The contract has an initial term of six years with a six year-extension option. Under our contract with the consortium, the Company is a supplier of instant lottery tickets, will participate in the profits or losses of the consortium as a 20% equity owner, and will assist Lottomatica S.p.A in the lottery operations.  The Company accounts for this investment using the equity method of accounting.  For the three months ended March 31, 2006 and 2007, the Company recorded income of approximately $1,674 and $11,563, respectively, representing its share of the earnings of the consortium for the indicated periods.

Effective February 28, 2007, the Company sold its racing communications business and its 70% interest in NASRIN, its data communications business, to Roberts Communications Network, LLC (“RCN”) in exchange for a 29.4% interest in the RCN consolidated business. RCN provides communications services to racing and non-racing customers using both satellite and terrestrial services.  Since the date of acquisition, the Company’s share of the earnings of RCN is reflected in the caption “Equity in net income of joint ventures” in the Consolidated Statements of Income. The Company’s carrying value in RCN, which is equal to the carrying value of the assets exchanged, is reflected in the caption “Other assets and investments” in the Consolidated Balance Sheets. The interest in RCN is not material to the Company’s operations. 

(5) Comprehensive Income

The following presents a reconciliation of net income to comprehensive income for the three month periods ended March 31, 2006 and 2007:

	Three Months Ended March 31,
	2006			2007
Net income	$	22,370		$	24,759
Other comprehensive income (loss)
Foreign currency translation gain	740			1,720
Unrealized gain (loss) on investments	(775		)	114
Other comprehensive income (loss)	(35		)	1,834
Comprehensive income	$	22,335		$	26,593

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(6) Inventories

Inventories consist of the following:

	December 31,		March 31,
	2006		2007
Parts and work-in-process	$	23,517	$	25,742
Finished goods	35,947		38,496
	$	59,464	$	64,238

Point of sale terminals manufactured by the Company may be sold to customers or included as part of a long-term wagering system contract. Parts and work-in-process includes costs for equipment expected to be sold. Costs incurred for equipment associated with specific wagering system contracts not yet placed in service are classified as construction in progress in property and equipment and are not depreciated.

(7) Long-Term Debt

During January 2007, the Company amended its existing credit agreement dated as of December 31, 2004, as amended and restated as of July 7, 2006 to provide for a new $200,000 senior secured term loan (the “Term Loan E”) and to make certain other changes (as amended in January 2007, the “January 2007 Amended and Restated Credit Agreement”). The proceeds from the Term Loan E were used to pay down approximately $188,000 of borrowings under the Company’s revolving credit facility due 2009 (the “Revolver”).  The Company paid approximately $600 to certain financial institutions for the January Amendment plus legal and other fees and costs.  The January 2007 Amended and Restated Credit Agreement will terminate on December 23, 2009.

Under the January 2007 Amended and Restated Credit Agreement, the interest rate with respect to the borrowings under the Revolver will vary, depending upon the Company’s consolidated leverage ratio, from 125 basis points to 225 basis points above LIBOR for Eurocurrency loans and from 25 basis points to 125 basis points above the higher of (i) the prime rate or (ii) the Federal Funds Effective Rate plus 0.50%, for base rate loans. The interest rate with respect to Term Loan C, Term Loan D and Term Loan E will vary, depending upon the Company’s consolidated leverage ratio, from 75 basis points to 175 basis points above LIBOR for Eurocurrency loans and from zero basis points to 75 basis points above the higher of (i) the prime rate or (ii) the Federal Funds Effective Rate plus 0.50%, for base rate loans. 

The January 2007 Amended and Restated Credit Agreement is secured by a first priority, perfected lien on: (i) substantially all the property and assets (real and personal, tangible and intangible) of the Company and its 100%-owned domestic subsidiaries; (ii) 100% of the capital stock of all of the direct and indirect 100%-owned domestic subsidiaries and 65% of the Company’s interest in the capital stock of the 100%-owned first-tier foreign subsidiaries of the Company; and (iii) all inter-company indebtedness owing between the Company and its 100%-owned domestic subsidiaries. The January 2007 Amended and Restated Credit Agreement is supported by guarantees provided by all of the Company’s direct and indirect 100%-owned domestic subsidiaries. 

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In addition, the January 2007 Amended and Restated Credit Agreement is subject to the following mandatory prepayments, with certain customary exceptions: (i) 100% of the net cash proceeds from the sale or issuance of debt securities; and (ii) 100% of the net proceeds from the sale of assets and casualty insurance proceeds, subject to a reinvestment exclusion limited to $80,000 per annum.

The January 2007 Amended and Restated Credit Agreement contains certain covenants that, among other things, limit the Company’s ability, and the ability of certain of the Company’s subsidiaries, to incur additional indebtedness, pay dividends or make distributions or certain other restricted payments, purchase or redeem capital stock, make investments or extend credit, engage in certain transactions with affiliates, engage in sale-leaseback transactions, consummate certain asset sales, effect a consolidation or merger, sell, transfer, lease or otherwise dispose of all or substantially all assets, or create certain liens and other encumbrances on assets. Additionally, the January 2007 Amended and Restated Credit Agreement contains the following financial covenants that are computed quarterly on a rolling four-quarter basis as applicable:

·A maximum Consolidated Leverage Ratio as follows:

3.75 through December 31, 2006

4.30 from January 1, 2007 through March 31, 2007

4.25 from April 1, 2007 through September 30, 2007

4.00 from October 1, 2007 through September 30, 2008

3.85 from October 1, 2008 through September 30, 2009

3.75 from October 1, 2009 until December 23, 2009

Consolidated Leverage Ratio means the ratio of (x) the aggregate stated balance sheet amount of the Company’s indebtedness determined on a consolidated basis in accordance with Generally Accepted Accounting Principles (“GAAP”) as of the last day of the fiscal quarter for which such determination is being made to (y) Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) for the four consecutive fiscal quarters ended on the last day of the fiscal quarter for which such determination is being made.

·A maximum Consolidated Senior Debt Ratio as follows:

2.50 through December 31, 2006

2.60 from January 1, 2007 to March 31, 2007

2.50 from April 1, 2007 through December 23, 2009

Consolidated Senior Debt Ratio means the ratio of (x) the aggregate stated balance sheet amount of the Company’s indebtedness, the amount of the Company’s 6.25% senior subordinated notes due 2012 and the Convertible Debentures determined on a consolidated basis in accordance with GAAP as of the last day of the fiscal quarter for which such determination is being made to (y) Consolidated EBITDA for the four consecutive fiscal quarters ended on the last day of the fiscal quarter for which such determination is being made.

·      A minimum Consolidated Interest Coverage Ratio of 3.50 through December 23, 2009.  Consolidated Interest Coverage Ratio means, as of any date of determination, the ratio computed for the Company’s four most recent fiscal quarters of (x) Consolidated EBITDA to (y) the total interest expense less non-cash amortization costs included in interest expense.

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For purposes of the foregoing limitations, Consolidated EBITDA means the sum of (i) consolidated net income, (ii) consolidated interest expense with respect to all outstanding indebtedness, (iii) provisions for taxes based on income, (iv) total depreciation expense, (v) total amortization expense and (vi) certain other one-time expenses and acquisition-related costs, in each case for the period being measured, all of the foregoing as determined on a consolidated basis for the Company and its subsidiaries in accordance with GAAP.

The Company was in compliance with its covenants as of March 31, 2007.

On March 31, 2007, the Company had approximately $249,321 available for additional borrowing or letter of credit issuance under the Revolver under the January 2007 Amended and Restated Credit Agreement.  There were no borrowings and $50,679 in outstanding letters of credit under the Revolver as of March 31, 2007.

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(8) Goodwill and Intangible Assets

The following disclosure presents certain information regarding the Company’s acquired intangible assets as of December 31, 2006 and March 31, 2007.  Amortizable intangible assets are amortized over their estimated useful lives, as indicated below, with no estimated residual values.

Intangible Assets	Weighted Average Amortization Period (Years)	Gross Carrying Amount		Accumulated Amortization		Net Balance
Balance as of December 31, 2006
Amortizable intangible assets:
Patents	13	$	8,839	(1,207	)	7,632
Customer lists	11	28,705		(12,179	)	16,526
Customer service contracts	15	3,691		(1,889	)	1,802
Licenses	10	49,751		(12,611	)	37,140
Intellectual property	4	21,622		(4,115	)	17,507
Lottery contracts	5	34,747		(19,889	)	14,858
	9	147,355		(51,890	)	95,465
Non-amortizable intangible assets:
Trade name		38,115		(2,118	)	35,997
Connecticut off-track betting system operating right		34,108		(8,319	)	25,789
		72,223		(10,437	)	61,786
Total intangible assets		$	219,578	(62,327	)	157,251
Balance as of March 31, 2007
Amortizable intangible assets:
Patents	13	$	8,853	(1,356	)	7,497
Customer lists	11	28,798		(13,213	)	15,585
Customer service contracts	15	3,733		(1,972	)	1,761
Licenses	10	51,811		(14,343	)	37,468
Intellectual property	4	21,717		(5,466	)	16,251
Lottery contracts	5	34,782		(21,710	)	13,072
	9	149,694		(58,060	)	91,634
Non-amortizable intangible assets:
Trade name		38,142		(2,118	)	36,024
Connecticut off-track betting system operating right		34,158		(8,319	)	25,839
		72,301		(10,438	)	61,863
Total intangible assets		$	221,995	(68,498	)	153,497

The aggregate intangible amortization expense for the three month periods ended March 31, 2006 and 2007 was approximately $2,700 and $7,300, respectively.

The table below reconciles the change in the carrying amount of goodwill, by reporting segment, for the period from December 31, 2006 to March 31, 2007.  In 2007, the Company recorded (a) a $1,113 increase in goodwill associated with the purchase price valuation and allocation adjustments associated with the acquisition of Games Media Limited (“Games Media”), (b) a $4,218 increase in goodwill associated with the final purchase price valuation and allocation adjustments associated with the acquisition of most of the online lottery assets of EssNet, (c) a $624 increase in goodwill associated with the purchase price valuation and allocation adjustments associated with the acquisition of 80% of the common stock of ILC, (d) a $136 increase in goodwill associated with the purchase price valuation and allocation adjustments associated with the acquisition of Printpool Honsel GmbH (“Honsel”), (e) a $17 increase in goodwill associated with the purchase price valuation and allocation adjustments associated with certain other acquisitions and (f) an increase in goodwill of $2,162 as a result of foreign currency translation.

Goodwill	Printed Products Group		Lottery Systems Group	Diversified Gaming Group	Totals
Balance as of December 31, 2006	$	259,710	184,509	189,511	633,730
Adjustments	970		5,233	2,067	8,270
Balance as of March 31, 2007	$	260,680	189,742	191,578	642,000

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(9) Pension and Other Post-Retirement Plans

The Company has two defined benefit pension plans. It has a defined benefit plan for its U.S. based union employees. Retirement benefits under this plan are based upon the number of years of credited service up to a maximum of 30 years for the majority of the employees. It also has a defined benefit plan for its U.K. based union employees. Retirement benefits under the U.K. plan are based on an employee’s average compensation over the two years preceding retirement. The Company’s policy is to fund the minimum contribution permissible by the respective tax authorities.

The following table sets forth the combined amount of net periodic benefit cost recognized for the three month periods ended March 31, 2006 and 2007.

	Three Months Ended March 31,
	2006			2007
Components of net periodic pension benefit cost:
Service cost	$	547		$	476
Interest cost	551			776
Expected return on plan assets	(562		)	(869		)
Amortization of actuarial gains/losses	289			241
Amortization of prior service costs	6			11
Net periodic cost	$	831		$	635

The Company has a 401(k) plan covering all U.S. based employees who are not covered by a collective bargaining agreement.  Under the plan, participants are eligible to receive matching contributions of 50 cents on the dollar from the Company for the first 6% of participant contributions for a match of up to 3% of eligible compensation.  The Company has a 401(k) plan for all union employees which does not provide for Company contributions.

(10) Income Taxes

On January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return.  Additionally, FIN 48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. As a result of the implementation of FIN 48, the Company recognized an increase in the liability for unrecognized tax benefits of approximately $1,376, which was accounted for as a reduction to the Company’s accumulated earnings as of January 1, 2007.   The total amount of unrecognized tax benefits as of January 1, 2007 was approximately $4,113.   Of this amount, approximately $3,607, if recognized, would be included in the Company’s statement of operations and have an impact on the Company’s effective tax rate. Also as a result of the implementation of FIN 48, the Company recognized accrued interest related to unrecognized tax benefits of $120, which was accounted for as a reduction to the Company’s accumulated earnings as of January 1, 2007.  The Company recognizes interest accrued for unrecognized tax benefits in interest expense and recognizes penalties in income tax expense.  As of the date of adoption of FIN 48, the Company had accrued approximately $259 for the payment of interest and penalties.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2001.  The Company does not believe that the amount of uncertain tax positions will change by a significant amount within the next 12 months.  In the event of subsequent recognition, the entire amount recognized would impact the effective tax rate.

The effective tax rates for the three months ended March 31, 2006 and 2007 of 30.0% and 27.6%, respectively, were determined using an estimated annual effective tax rate, which was less than the federal statutory rate of 35% due to lower tax rates applicable to the increase in the Company’s earnings from operations outside the United States and the tax benefit of the 2004 debt restructuring.

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(11) Stockholders’ Equity

As of March 31, 2007, the Company had a total of 2,000 shares of preferred stock, $1.00 par value, authorized for issuance, including 229 authorized shares of Series A Convertible Preferred Stock and 1 authorized share of Series B Preferred Stock. No shares of preferred stock are currently outstanding.

The Company has two classes of common stock, consisting of Class A common stock and Class B non-voting common stock. All shares of Class A common stock and Class B common stock entitle holders to the same rights and privileges except that the Class B common stock is non-voting.  Each share of Class B common stock is convertible into one share of Class A common stock.  The following demonstrates the change in the number of Class A common shares outstanding during the fiscal year ended December 31, 2006 and during the three months ended March 31, 2007:

	December 31,		March 31,
	2006		2007
Shares issued and outstanding as of beginning of period	89,869		91,628
Shares issued as part of equity-based compensation plans and the ESPP, net of RSUs surrendered	2,054		882
Other shares issued	29		—
Shares repurchased into treasury stock	(324	)	—
Shares issued and outstanding as of end of period	91,628		92,510

On December 15, 2006, the Company entered into a licensing agreement with Hasbro, Inc. (“Hasbro”) for the use of certain Hasbro brands in multiple lottery platforms. Under the terms of the agreement, on February 28, 2007, the Company issued to Hasbro warrants (the “Warrants”) to purchase 40 shares of the Company’s Class A common stock for $32.98 per share. The Warrants may be exercised at any time before February 28, 2012. The fair value of the Warrants on the date of grant was $480. Such amount is reflected in the caption “Other assets and investments” in the Consolidated Balance Sheets.

(12) Stock-Based Compensation

As of March 31, 2007, the Company had approximately 1,808 share options or restricted stock units authorized to be granted under its equity-based compensation plans.

Stock Options

A summary of the changes in stock options outstanding under the Company’s equity-based compensation plans during the three months ended March 31, 2007 is presented below:

	Number of Options			Weighted Average Remaining  Contract Term (Years)	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding as of December 31, 2006	6,972			6.3	$	16.89	$	117,732
Granted	635				33.86		—
Exercised	(810		)		11.54		16,509
Canceled	(14		)		26.01		—
Options outstanding as of March 31, 2007	6,783			6.7	$	19.10	$	93,156
Options excercisable as of March 31, 2007	3,194			4.9	$	11.00	$	69,733
Weighted-average per share fair value of options granted during the three months ended:
March 31, 2007	$	13.70

For the three months ended March 31, 2006 and 2007, the Company recognized equity-based compensation expense of approximately $3,700 and $3,900 respectively, related to the vesting of stock options and the related tax benefit of approximately $1,700 and $1,100 respectively.  As of March 31, 2007, the Company had unearned compensation of approximately $31,400 relating to stock option awards that will be amortized over a weighted-average period of approximately two years.

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Restricted Stock Units

A summary of the changes in restricted stock units outstanding under the Company’s equity compensation plans during the three months ended March 31, 2007 is presented below:

	Number of Restricted  Stock		Weighted Average Grant Date Fair Value Per Share
Non-vested units as of December 31, 2006	977		$	30.93
Granted	376		$	33.54
Vested	(100	)	$	30.68
Canceled	(3	)	$	27.77
Non-vested units as of March 31, 2007	1,250		$	31.74

For the three months ended March 31, 2006 and 2007, the Company recognized equity-based compensation expense of approximately $700 and $3,200 respectively, related to the vesting of restricted stock units and the related tax benefit of approximately $300 and $900 respectively.  As of March 31, 2007, the Company had unearned compensation of approximately $32,000 relating to restricted stock units that will be amortized over a weighted-average period of approximately two years.

(13) Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

The Company conducts substantially all of its business through its domestic and foreign subsidiaries.  The 2004 Notes, the Convertible Debentures and the January 2007 Amended and Restated Credit Agreement are fully, unconditionally and jointly and severally guaranteed by substantially all of the Company’s 100% owned domestic subsidiaries (the “Guarantor Subsidiaries”).

Presented below is condensed consolidating financial information for (i) Scientific Games Corporation (the “Parent Company”), (ii) the 100% owned Guarantor Subsidiaries and (iii) the 100% owned foreign subsidiaries and the non-100% owned domestic and foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) as of December 31, 2006 and March 31, 2007 and for the three months ended March 31, 2006 and 2007. The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries, assuming the guarantee structure of the January 2007 Amended and Restated Credit Agreement, the Convertible Debentures and the 2004 Notes were in effect at the beginning of the periods presented.  Separate financial statements for Guarantor Subsidiaries are not presented based on management’s determination that they would not provide additional information that is material to investors.

The condensed consolidating financial information reflects the investments of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.  Corporate interest and administrative expenses have not been allocated to the subsidiaries.

17

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2006

(Unaudited, in thousands)

	Parent  Company			Guarantor Subsidiaries	Non- Guarantor Subsidiaries	Eliminating Entries		Consolidated
Assets
Cash and cash equivalents	$	—		4,070	23,721	—		27,791
Accounts receivable, net	—			125,598	52,847	—		178,445
Inventories	—			45,801	14,088	(425	)	59,464
Other current assets	36,937			20,511	21,554	—		79,002
Property and equipment, net	—			294,952	156,308	(600	)	450,660
Investment in subsidiaries	574,579			194,556	130,743	(899,878	)	—
Goodwill	183			302,144	331,403	—		633,730
Intangible assets	—			106,605	50,646	—		157,251
Other assets	43,630			109,738	25,947	(6,048	)	173,267
Total assets	$	655,329		1,203,975	807,257	(906,951	)	1,759,610
Liabilities and stockholders’ equity
Current installments of long-term debt	$	2,500		—	648	—		3,148
Current liabilities	15,779			90,423	84,594	79		190,875
Long-term debt, excluding current installments	912,000			—	1,253	—		913,253
Other non-current liabilities	5,069			86,652	32,529	6		124,256
Intercompany balances	(808,097		)	740,091	68,006	—		—
Stockholders’ equity	528,078			286,809	620,227	(907,036	)	528,078
Total liabilities and stockholders’ equity	$	655,329		1,203,975	807,257	(906,951	)	1,759,610

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SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

March 31, 2007

(Unaudited, in thousands)

	Parent Company			Guarantor Subsidiaries	Non- Guarantor Subsidiaries	Eliminating Entries		Consolidated
Assets
Cash and cash equivalents	$	—		12,436	20,795	—		33,231
Accounts receivable, net	—			134,270	59,242	—		193,512
Inventories	—			47,528	17,135	(425	)	64,238
Other current assets	22,052			23,427	23,995	—		69,474
Property and equipment, net	—			287,539	164,652	(600	)	451,591
Investment in subsidiaries	642,549			196,719	145,550	(984,818	)	—
Goodwill	183			302,149	339,668	—		642,000
Intangible assets	—			105,653	47,844	—		153,497
Other assets	43,889			126,257	34,007	(6,038	)	198,115
Total assets	$	708,673		1,235,978	852,888	(991,881	)	1,805,658
Liabilities and stockholders’ equity
Current installments of long-term debt	$	4,500		—	549	—		5,049
Current liabilities	29,316			71,160	89,740	79		190,295
Long-term debt, excluding current installments	917,875			—	1,146	—		919,021
Other non-current liabilities	5,070			85,370	32,164	6		122,610
Intercompany balances	(816,771		)	753,409	63,362	—		—
Stockholders’ equity	568,683			326,039	665,927	(991,966	)	568,683
Total liabilities and stockholders’ equity	$	708,673		1,235,978	852,888	(991,881	)	1,805,658

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SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended March 31, 2006

(Unaudited, in thousands)

	Parent Company			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminating Entries		Consolidated
Operating revenues	$	—		154,406		59,570		(5,847	)	208,129
Cost of services and cost of sales (exclusive of depreciation and amortization)	—			79,296		46,043		(5,847	)	119,492
Selling, general and administrative expenses	5,051			22,176		5,223		(58	)	32,392
Depreciation and amortization	—			14,580		4,712		—		19,292
Operating income	(5,051		)	38,354		3,592		58		36,953
Interest expense	6,797			256		149		—		7,202
Other (income) deductions	—			(2,207	)	55		(67	)	(2,219	)
Income (loss) before equity in income of subsidiaries, and income taxes	(11,848		)	40,305		3,388		125		31,970
Equity in income (loss) of subsidiaries	44,031			—		—		(44,031	)	—
Income tax expense	9,813			90		(303	)	—		9,600
Net income	$	22,370		40,215		3,691		(43,906	)	22,370

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended March 31, 2007

(Unaudited, in thousands)

	Parent  Company			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminating Entries		Consolidated
Operating revenues	$	—		159,929		84,657		(2,320	)	242,266
Cost of services and cost of sales (exclusive of depreciation and amortization)	—			86,493		54,960		(2,221	)	139,232
Selling, general and administrative expenses	872			30,725		7,647		(99	)	39,145
Depreciation and amortization	—			19,400		9,678		—		29,078
Operating income	(872		)	23,311		12,372		—		34,811
Interest expense	12,551			274		67		—		12,892
Other income	(209		)	(11,712	)	(347	)	—		(12,268	)
Income (loss) before equity in income of subsidiaries, and income taxes	(13,214		)	34,749		12,652		—		34,187
Equity in income (loss) of subsidiaries	46,654			—		—		(46,654	)	—
Income tax expense	8,681			33		714		—		9,428
Net income	$	24,759		34,716		11,938		(46,654	)	24,759

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SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2006

(Unaudited, in thousands)

	Parent Company			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminating Entries		Consolidated
Net cash provided by (used in) operating activities	$	(5,228	)	38,710		774		(92	)	34,164
Cash flows from investing activities:
Capital and wagering systems expenditures	—			(30,908	)	(4,579	)	—		(35,487	)
Business acquisitions, net of cash acquired	—			—		(57,564	)	—		(57,564	)
Other assets and investments	(70,275		)	(20,448	)	7,680		62,835		(20,208	)
Net cash provided by (used in) investing activities	(70,275		)	(51,356	)	(54,463	)	62,835		(113,259	)
Cash flows from financing activities:
Net proceeds/payments on long-term debt	65,750			—		(314	)	—		65,436
Net proceeds from stock issue	8,602			—		62,885		(62,885	)	8,602
Excess tax benefit from equity-based compensation plans	2,814			—		—		—		2,814
Other, principally intercompany balances	(1,663		)	3,909		(4,284	)	2,038		—
Net cash provided by (used in) financing activities	75,503			3,909		58,287		(60,847	)	76,852
Effect of exchange rate changes on cash	—			(100	)	2,502		(1,896	)	506
Increase (decrease) in cash and cash equivalents	—			(8,837	)	7,100		—		(1,737	)
Cash and cash equivalents, beginning of period	—			15,575		23,367		—		38,942
Cash and cash equivalents, end of period	$	—		6,738		30,467		—		37,205

21

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2007

(Unaudited, in thousands)

	Parent Company			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminating Entries		Consolidated
Net cash provided by operating activities	$	5,667		14,457		10,296		—		30,420
Cash flows from investing activities:
Capital and wagering systems expenditures	—			(8,860	)	(17,148	)	—		(26,008	)
Business acquisitions, net of cash acquired	—			—		(336	)	—		(336	)
Other assets and investments	(20,263		)	(8,355	)	(22,624	)	36,441		(14,801	)
Net cash provided by (used in) investing activities	(20,263		)	(17,215	)	(40,108	)	36,441		(41,145	)
Cash flows from financing activities:
Net proceeds/payments on long-term debt	7,875			—		(210	)	—		7,665
Net proceeds from stock issue	8,360			5		36,436		(36,441	)	8,360
Other, principally intercompany balances	(1,639		)	11,119		(9,308	)	(172	)	—
Net cash provided by (used in) financing activities	14,596			11,124		26,918		(36,613	)	16,025
Effect of exchange rate changes on cash	—			—		(32	)	172		140
Increase (decrease) in cash and cash equivalents	—			8,366		(2,926	)	—		5,440
Cash and cash equivalents, beginning of period	—			4,072		23,719		—		27,791
Cash and cash equivalents, end of period	$	—		12,438		20,793		—		33,231

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(14) Impact of Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”). This standard establishes a standard definition for fair value, establishes a framework under generally accepted accounting principles for measuring fair value and expands disclosure requirements for fair value measurements. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 is not expected to have a material impact on the Company’s consolidated financial statements.

In September 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force in Issue 06-5 Accounting for Purchases of Life Insurance – Determining the Amount That Could be Realized in Accordance with FASB Technical Bulletin 85-4 (“EITF 06-5”).  EITF 06-5 addresses determining the amount that could be realized under a life insurance contract in accordance with Technical Bulletin 85-4 and requires a policyholder to consider any additional amounts included in the contractual terms of the policy other than solely the cash surrender value in determining the amount that could be realized under the insurance contract. Policyholders should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy). Any amount that is ultimately realized by the policyholder upon the assumed surrender of the final policy (or final certificate in a group policy) shall be included in the amount that could be realized under the insurance contract. The accounting provisions of EITF 06-5 became effective on January 1, 2007. The adoption of EITF 06-5 had no impact on the Company’s consolidated financial statements.

In February, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007.  The Company is currently assessing the impact of SFAS 159 on its consolidated financial statements.

(15) Subsequent Event

On May 1, 2007, the Company acquired Oberthur Gaming Technologies (“OGT”).  OGT is a leading manufacturer of instant lottery tickets and operates three instant ticket plants located in Montreal, Canada; Sydney, Australia and San Antonio, Texas.  The purchase price was approximately $100,000 (approximately one-third of which is attributable to U.S. assets), subject to certain adjustments.  The Company expects its acquisition of OGT will allow it to strengthen its international presence in Canada and Australia and offer its customers an expanded array of products and services.  The Company has financed the acquisition through borrowings under its Revolver.  OGT will be included in the Printed Products segment beginning in the second quarter of 2007.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion addresses the results of operations of Scientific Games Corporation (together with its consolidated subsidiaries, “we” or the “Company”), for the three months ended March 31, 2007, compared to the corresponding period in the prior year. This discussion should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2006, included in our 2006 Annual Report on Form 10-K.

Our results may vary significantly from period to period depending on the addition or disposition of business units in each period.  The acquisition of most of the online lottery assets of EssNet AB (“EssNet”) in March 2006, the acquisitions of The Shoreline Star Greyhound Park and Simulcast Facility (“Shoreline”) and The Global Draw Limited and certain related companies (“Global Draw”) in April 2006, and the acquisitions of Games Media Limited (“Games Media”) and International Lotto Corp., SRL (“ILC”) in December 2006, affect the comparability of operations for the three month periods ended March 31, 2006 and 2007 (see Note 3 of the Company’s Notes to the Consolidated Financial Statements in the Company’s Annual Report of Form 10-K for the year ended December 31, 2006).

The first and fourth quarters of the calendar year traditionally comprise the weakest season for our Diversified Gaming segment. As a result of inclement weather during the winter months, a number of racetracks do not operate and those that do operate often experience missed racing days. This adversely affects the amounts wagered and our corresponding service revenues.  Additionally, the fourth quarter is the weakest quarter for Global Draw due to reduced wagering during the holiday season.  Wagering and lottery equipment sales and software license revenues usually reflect a limited number of large transactions, which do not recur on an annual basis. Consequently, revenues and operating results of our Lottery Systems Group can vary substantially from period to period as a result of the timing of revenue recognition for major equipment sales and software licensing transactions. In addition, Printed Products sales may vary depending on the season and timing of contract awards, changes in customer budgets, inventory ticket levels, lottery retail sales and general economic conditions.

Background

We operate primarily in three business segments: Printed Products Group, Lottery Systems Group and Diversified Gaming Group. Our revenues consist of two major components: services revenues and sales revenues.

Printed Products Group

We provide instant tickets and related services. Instant ticket and related services includes ticket design and manufacturing as well as value-added services, including game design, sales and marketing support, inventory management and warehousing and fulfillment services. Additionally, this division provides lotteries with over 80 licensed brand products, including Major League Baseball®, NASCAR®, National Basketball Association, Harley-Davidson®, Wheel-of-Fortune®, Hasbro®, Corvette®, World Poker Tour® and The World Series of Poker®. This division also includes promotional instant tickets and pull-tab tickets that we sell to both lottery and non-lottery customers.

We are a worldwide manufacturer of prepaid phone cards, which entitle cellular phone users to a defined value of airtime. Prepaid phone cards offer consumers a cost-effective way to purchase cellular airtime, without requiring phone companies to extend credit or consumers to commit to contracts.

Prepaid phone cards utilize the secure process that we employ in the production of instant lottery tickets. This helps to ensure integrity and reliability of the product, thus providing consumers in more than 50 countries with access to prepaid cellular phone service.

On December 28, 2006, we acquired 80% of the common stock of ILC.  ILC is a member of a consortium agreement with certain charities in Peru which gives them the right to participate in the operation of a lottery in Peru.  We expect that our acquisition of ILC will enable us to further expand into the Latin American market.  As consideration for the acquisition, we exchanged our approximately $16.0 million receivable due from ILC and contributed approximately $3.9 million in assets  The carrying value of our receivable from ILC and assets, totaling approximately $20.0 million, at December 31, 2006, was treated as the purchase price for accounting purposes.

Lottery Systems Group

Our lottery systems business includes the supply of transaction processing software for the accounting and validation of instant ticket, online and video lottery games, point-of-sale terminal hardware sales, central site computers and communication hardware sales, and ongoing support and maintenance services for these products. This business also includes software and hardware and support services for sports betting and operation of credit card processing systems.

On March 22, 2006, we acquired substantially all of the online lottery assets of Swedish firm EssNet which specializes in online lottery systems and terminals to run online lotteries, sports betting, instant tickets and mobile games on a national level. EssNet’s lottery customers include seven states in Germany, the national lottery of Norway, Golden Casket and Tattersall’s Lottery in Australia, and other national lotteries.  The purchase price was approximately $60 million in cash.

24

Diversified Gaming Group

Our Diversified Gaming Group provides services and systems to private and public operators in the wide area gaming markets and in the pari-mutuel wagering industry.  Our product offering includes fixed odds betting terminals (“FOBTs”), video lottery terminals (“VLTs”), monitor games, wagering systems for the pari-mutuel racing industry, sports betting systems and services, and Amusement With Prize (“AWP”) and Skill With Prize (“SWP”) terminals. Business units within the Diversified Gaming Group include Global Draw, a leading supplier of FOBTs and monitor games to licensed bookmakers, primarily in the United Kingdom (“U.K.”) and Austria; Scientific Games Racing LLC, a leading worldwide supplier of computerized systems for pari-mutuel wagering; Games Media, our AWP and SWP terminal supplier in the U.K. public house market, and our pari-mutuel gaming operations in Connecticut, Maine and the Netherlands.

Effective February 28, 2007, we sold our racing communications business and our 70% interest in NASRIN, our data communications business, to Roberts Communications Network, LLC (“RCN”) in exchange for a 29.4% interest in the RCN consolidated business. RCN provides communications services to racing and non-racing customers using both satellite and terrestrial services.   The acquisition of the interest in RCN was not material to our operations.

On December 22, 2006, we acquired Games Media. The purchase price was approximately $25 million (subject to adjustment), plus an earn-out based on the future performance of the business.

On April 20, 2006, we acquired Global Draw, a leading U.K. supplier of fixed odds betting terminals and systems, and interactive sports betting systems and terminals and betting systems in Austria and the U.K.  The purchase price was approximately $183 million, plus an earn-out to the selling shareholders, as well as contingent bonuses to certain members of the management team, which are based on the future financial performance of the business.

On April 5, 2006, we acquired certain assets of Shoreline located in Bridgeport, Connecticut. Additionally, the acquisition eliminates existing restrictions on our ability to simulcast live racing in certain portions of the state.  The purchase price was approximately $12 million, plus an earn-out, based on the future financial performance of the business.

Results of Operations

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

The following analysis compares the results of operations for the quarter ended March 31, 2007 to the results of operations for the quarter ended March 31, 2006.

Overview

Revenue Analysis

For the quarter ended March 31, 2007, total revenue was $242.3 million compared to $208.1 million for the quarter ended March 31, 2006, an increase of $34.2 million or 16%. Our service revenue for the quarter ended March 31, 2007 was $211.0 million compared to $177.0 million for the quarter ended March 31, 2006, an increase of $34.0 million, or 19%. The increase is primarily attributable to the acquisitions of EssNet in March 2006 and Global Draw in April 2006 and increased sales of instant lottery tickets.  Our sales revenue for the three months ended March 31, 2007 was $31.3 million compared to $31.2 million in the prior year quarter, an increase of $0.1 million. The increase primarily reflects sales resulting from the acquisition of Games Media in December 2006, partially offset by a reduction in terminal sales and a decrease in phone card sales.

Expense Analysis

Cost of services of $116.7 million for the quarter ended March 31, 2007 were $21.8 million or 23% higher than for the quarter ended March 31, 2006. The increase is primarily related to the acquisitions of EssNet and Global Draw and higher costs associated with increased ticket sales.  Cost of sales of $22.5 million for the quarter ended March 31, 2007 were $2.0 million or 8% lower than the quarter ended March 31, 2006 reflecting a change in the mix of product sales.

Selling, general and administrative expenses of $39.1 million for the quarter ended March 31, 2007 were $6.7 million or 21% higher than for the quarter ended March 31, 2006. This increase was primarily related to the acquisitions of EssNet, Global Draw and Games Media and higher incentive compensation costs incurred in the quarter ended March 31, 2007, partially offset by cost savings associated with employee reduction initiatives in 2006.

Depreciation and amortization expense of $29.1 million for the quarter ended March 31, 2007 increased $9.8 million from the same period in 2006, primarily due to the acquisition of Global Draw and the amortization of deferred installation costs on Lottery Systems contracts and licensed properties acquired during 2006.

Interest expense of $12.9 million for the quarter ended March 31, 2007 increased $5.7 million or 79% from the same period in 2006, primarily attributable to higher market rates on our floating rate debt and increased borrowings to fund our purchases of EssNet, Global Draw and Games Media.

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Equity in net income of joint ventures primarily reflects our share of the net income of the Italian joint venture in connection with the operation of the Italian Gratta e Vinci instant lottery. For the quarter ended March 31, 2007, our share of the Italian consortium’s net income totaled $11.6 million compared to $1.7 million in the quarter ended March 31, 2006. The increase in income for the quarter ended March 31, 2007 reflects the continued growth of instant ticket sales in Italy.

Income tax expense was $9.4 million for the quarter ended March 31, 2007 and $9.6 million for the quarter ended March 31, 2006.  The effective income tax rate for the quarter ended March 31, 2007 and 2006 was approximately 27.6% and 30.0% respectively.  The decrease in the effective income tax rate was primarily due to lower tax rates applicable to the increase in our earnings from operations outside the United States.

Segment Overview

Printed Products

For the quarter ended March 31, 2007, total revenue for Printed Products was $113.9 million compared to $107.7 million in the quarter ended March 31, 2006, an increase of $6.2 million or 6%. For the quarter ended March 31, 2007, service revenue for Printed Products was $104.6 million compared to $93.6 million in the corresponding period in the prior year, an increase of $11.0 million, or 12%. The increase was primarily attributable to increased sales of instant lottery tickets.

Printed Products sales revenue for the quarter ended March 31, 2007, was $9.3 million compared to $14.1 million for the quarter ended March 31, 2006, a decrease of $4.8 million, or 34%. The decrease was primarily the result of decreased phone card sales prices and quantities reflecting a continuing market driven shift to lower priced products.

Cost of services of $55.7 million for the quarter ended March 31, 2007 were $9.4 million or 20% higher than from the same period in 2006. This increase is due to higher operating costs as a result of increased ticket sales and costs associated with the acquisition of ILC.  Cost of sales of $7.6 million for the quarter ended March 31, 2007 were $3.2 million or 30% lower than the quarter ended March 31, 2006 primarily due to decreased phone card sales revenues.

Selling, general and administrative expenses of $11.5 million for the quarter ended March 31, 2007 were $0.1 million or 1% higher than in the quarter ended March 31, 2006.

Depreciation and amortization expense of $8.4 million for the quarter ended March 31, 2007 increased $3.2 million or 62%, as compared to the quarter ended March 31, 2006, primarily due to amortization of acquired licensed properties, new equipment for our U.S. manufacturing business and the acquisition of ILC in December 2006.

Lottery Systems

For the quarter ended March 31, 2007, total revenue for Lottery Systems was $65.4 million compared to $67.4 million in the quarter ended March 31, 2006, a decrease of $2.0 million, or 3%. Lottery Systems service revenue for the quarter ended March 31, 2007 was $54.3 million compared to $52.7 million for the quarter ended March 31, 2006, an increase of $1.6 million, or 3%. The increase was primarily due to the acquisition of EssNet ($3.4 million) and increased international lottery sales, partially offset by the absence of a large Powerball jackpot that occurred in the quarter ended March 31, 2006.

Lottery Systems sales revenue for the quarter ended March 31, 2007 was $11.0 million compared to $14.7 million for the quarter ended March 31, 2006, a decrease of $3.7 million, or 25%. The decrease was primarily due to the absence of a one-time sale of terminals in Germany that accounted for $8.2 million of revenue in the quarter ended March 31, 2006, partially offset by a $5.2 million sale of ticket checker machines in Canada.  Add-on sales of terminals and other equipment continue to suffer from legislative uncertainty in the German market.

Cost of services of $29.4 million for the quarter ended March 31, 2007 was $1.7 million or 6% higher than in the quarter ended March 31, 2006. This increase is due to additional operating costs as a result of the acquisition of EssNet and increased international lottery sales, partially offset by incremental costs associated with a large Powerball jackpot during the quarter ended March 31, 2006.  Cost of sales of $6.2 million for the quarter ended March 31, 2007 were $5.4 million or 47% lower than during the quarter ended March 31, 2006 reflecting a reduction in terminal and software sales and a decrease in phone card sales, partially offset by increased sales of ticket checker machines in Canada.

Selling, general and administrative expenses of $8.0 million for the quarter ended March 31, 2007 were $0.6 million or 8% higher than in the quarter ended March 31, 2006 primarily due to increased incentive compensation cost, partially offset by reduced costs associated with cost reduction initiatives that occurred in 2006.

Depreciation and amortization expense of $14.1 million for the quarter ended March 31, 2007 increased $3.6 million or 34%, as compared to the quarter ended March 31, 2006, primarily due to the amortization of deferred installation costs of new Lottery Systems contracts in Maryland and Mexico and the acquisition of EssNet.

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Diversified Gaming

For the quarter ended March 31, 2007, total revenue for Diversified Gaming was $63.0 million compared to $33.0 million in the quarter ended March 31, 2006, an increase of $30.0 million, or 91%. Diversified Gaming service revenue for the first quarter of 2007 was $52.0 million compared to $30.7 million from the quarter ended March 31, 2006, an increase of $21.3 million, or 69%. The increase in service revenues primarily reflects the acquisitions of Global Draw ($19.7 million) in April 2006 and Shoreline ($2.1 million) in April 2006, partially offset by the sale of our racing communications business ($1.0 million) in March 2007.

The Diversified Gaming sales revenue for the quarter ended March 31, 2007 was $11.0 million compared to $2.3 million in the same fiscal quarter in the prior year, an increase of $8.7 million.  The increase was primarily due to the acquisition of Games Media ($10.3 million) in December 2006, partially offset by lower pari-mutuel equipment sales in 2007 ($1.9 million).

Cost of services of $31.7 million for the quarter ended March 31, 2007 were $10.7 million or 51% higher than the quarter ended March 31, 2006. This increase is primarily due to the acquisitions of Global Draw in April 2006 and Shoreline in April 2006.  Cost of sales of $8.6 million for the quarter ended March 31, 2007 were $6.4 million higher than the quarter ended March 31, 2006 due to the acquisition of Games Media in December 2006, partially offset by lower pari-mutuel sales in 2007.

Selling, general and administrative expenses of $5.3 million for the quarter ended March 31, 2007 were $2.9 million higher than in the quarter ended March 31, 2006. This increase is primarily due to the acquisition of Global Draw in April 2006 and Games Media in December 2006.

Depreciation and amortization expense, including amortization of service contract software, of $6.3 million for the quarter ended March 31, 2007 increased $2.9 million as compared to the quarter ended March 31, 2006, primarily due to the increased depreciation resulting from the acquisition of Global Draw in April 2006.

Critical Accounting Policies

On January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) and began accounting for income tax contingencies in accordance with the guidance provided in FIN 48.  Previous to the adoption of FIN 48, we accounted for income tax contingencies solely in accordance with the SFAS No. 5, Accounting for Contingencies (“SFAS 5”).  See Note 10 to the Consolidated Financial Statements in this Form 10-Q for additional information on FIN 48.

There have been no other material changes to our critical accounting policies from those discussed under the caption “Critical Accounting Policies” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Liquidity, Capital Resources and Working Capital

During January 2007, we amended our existing credit agreement dated as of December 31, 2004, as amended and restated as of July 7, 2006 to provide for a new $200,000 senior secured term loan (the “Term Loan E”) and to make certain other changes (as amended in January 2007, the “January 2007 Amended and Restated Credit Agreement”). The proceeds from the Term Loan E were used to pay down approximately $188 million of borrowings under our revolving credit facility due 2009 (the “Revolver”).  We paid approximately $0.6 million to certain financial institutions for the January Amendment plus legal and other fees and costs.  The January 2007 Amended and Restated Credit Agreement will terminate on December 23, 2009.

Under our January 2007 Amended and Restated Credit Agreement, the interest rate with respect to the borrowings under our Revolver will vary, depending upon our consolidated leverage ratio, from 125 basis points to 225 basis points above LIBOR for Eurocurrency loans and from 25 basis points to 125 basis points above the higher of (i) the prime rate or (ii) the Federal Funds Effective Rate plus 0.50%, for base rate loans. The interest rate with respect to Term Loan C, Term Loan D and Term Loan E will vary, depending upon our consolidated leverage ratio, from 75 basis points to 175 basis points above LIBOR for Eurocurrency loans and from zero basis points to 75 basis points above the higher of (i) the prime rate or (ii) the Federal Funds Effective Rate plus 0.50%, for base rate loans.

Our January 2007 Amended and Restated Credit Agreement is secured by a first priority, perfected lien on: (i) substantially all the property and assets (real and personal, tangible and intangible) of our Company and 100%-owned domestic subsidiaries; (ii) 100% of the capital stock of all of the direct and indirect 100%-owned domestic subsidiaries and 65% of our interest in the capital stock of our 100%-owned first-tier foreign subsidiaries; and (iii) all inter-company indebtedness owing amongst our Company and our 100%-owned domestic subsidiaries. The January 2007 Amended and Restated Credit Agreement is supported by guarantees provided by all of our direct and indirect 100%-owned domestic subsidiaries.

In addition, the January 2007 Amended and Restated Credit Agreement is subject to the following mandatory prepayments, with certain customary exceptions: (i) 100% of the net cash proceeds from the sale or issuance of debt securities; and (ii) 100% of the net proceeds from the sale of assets and casualty insurance proceeds, subject to a reinvestment exclusion limited to $80 million per annum.

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The January 2007 Amended and Restated Credit Agreement contains certain covenants that, among other things, limit our ability, and the ability of certain of our subsidiaries, to incur additional indebtedness, pay dividends or make distributions or certain other restricted payments, purchase or redeem capital stock, make investments or extend credit, engage in certain transactions with affiliates, engage in sale-leaseback transactions, consummate certain asset sales, effect a consolidation or merger, sell, transfer, lease or otherwise dispose of all or substantially all assets, or create certain liens and other encumbrances on assets. Additionally, the January 2007 Amended and Restated Credit Agreement contains the following financial covenants that are computed quarterly on a rolling four-quarter basis as applicable:

·A maximum Consolidated Leverage Ratio as follows:

3.75 through December 31, 2006

4.30 from January 1, 2007 through March 31, 2007

4.25 from April 1, 2007 through September 30, 2007

4.00 from October 1, 2007 through September 30, 2008

3.85 from October 1, 2008 through September 30, 2009

3.75 from October 1, 2009 until December 23, 2009

Consolidated Leverage Ratio means the ratio of (x) the aggregate stated balance sheet amount of our indebtedness determined on a consolidated basis in accordance with Generally Accepted Accounting Principles (“GAAP”) as of the last day of the fiscal quarter for which such determination is being made to (y) Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) for the four consecutive fiscal quarters ended on the last day of the fiscal quarter for which such determination is being made.

·A maximum Consolidated Senior Debt Ratio as follows:

2.50 through December 31, 2006

2.60 from January 1, 2007 to March 31, 2007

2.50 from April 1, 2007 through December 23, 2009

Consolidated Senior Debt Ratio means the ratio of (x) the aggregate stated balance sheet amount of our indebtedness, the amount of our 6.25% senior subordinated notes due 2012 and the Convertible Debentures determined on a consolidated basis in accordance with GAAP as of the last day of the fiscal quarter for which such determination is being made to (y) Consolidated EBITDA for the four consecutive fiscal quarters ended on the last day of the fiscal quarter for which such determination is being made.

·A minimum Consolidated Interest Coverage Ratio of 3.50 through December 23, 2009.  Consolidated Interest Coverage Ratio means, as of any date of determination, the ratio computed for our four most recent fiscal quarters of (x) Consolidated EBITDA to (y) the total interest expense less non-cash amortization costs included in interest expense.

For purposes of the foregoing limitations, Consolidated EBITDA means the sum of (i) consolidated net income, (ii) consolidated interest expense with respect to all outstanding indebtedness, (iii) provisions for taxes based on income, (iv) total depreciation expense, (v) total amortization expense and (vi) certain other non-cash expenses and acquisition-related costs, in each case for the period being measured, all of the foregoing as determined on a consolidated basis for our Company and our subsidiaries in accordance with GAAP.

We were in compliance with the covenants as of March 31, 2007.

On March 31, 2007, we had approximately $249.3 million available for additional borrowing or letter of credit issuance under the Revolver under the January 2007 Amended and Restated Credit Agreement.  There were no borrowings and $50.7 million in outstanding letters of credit under the Revolver as of March 31, 2007.

Our pari-mutuel wagering and online lottery systems service contracts require us to, among other things, maintain the central computing system and related hardware in efficient working order, provide added software functionality upon request, provide on-site computer operators, and furnish necessary supplies. Our primary expenditures associated with these services are personnel and related costs, which are expensed as incurred and are included in Cost of Services in the consolidated statements of income. Historically, the revenues we derive from our pari-mutuel wagering and lottery systems service contracts have exceeded the direct costs associated with fulfilling our obligations thereunder. We expect that we will continue to realize positive cash flow and operating income as we extend or renew existing service contracts. We also expect that we will enter into new contracts that are accretive to our cash flow. In addition, through advancements in technology, we are continually deploying more efficient and cost effective methods for manufacturing and delivering our products and services to our customers. We expect that technological efficiencies will continue to positively impact our future cash flows and operating results. We are not party to any other material short-term or long-term obligations or commitments pursuant to these service contracts.

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Periodically, we bid on new pari-mutuel and online lottery contracts. Once awarded, these contracts generally require significant up-front capital expenditures for terminal assembly, customization of software, software and equipment installation and telecommunications configuration. Historically, we have funded these up-front costs through cash flows generated from operations, available cash on hand and borrowings under our credit facilities. Our ability to continue to procure new contracts will depend on, among other things, our then present liquidity levels and/or our ability to borrow at commercially acceptable rates to finance the initial up-front costs. Once operational, long-term service contracts have been accretive to our operating cash flow.  The actual level of capital expenditures will ultimately largely depend on the extent to which we are successful in winning new contracts.  Furthermore, our pari-mutuel wagering network consists of approximately 26,000 wagering terminals. Periodically, we elect to upgrade the technological capabilities of older terminals and replace terminals that have exhausted their useful lives.  During the remainder of fiscal 2007, we expect to replace approximately 6,000 and 7,000 existing pari-mutuel and fixed odds betting terminals, respectively, for a total cost of approximately $47 million. Servicing our installed terminal base requires that we maintain a supply of parts and accessories on hand. We are also required, contractually in some cases, to provide spare parts over an extended period of time, principally in connection with our systems and terminal sale transactions. To meet our contractual obligations and maintain sufficient levels of on-hand inventory to service our installed base, we purchase inventory on an as-needed basis. We presently have no inventory purchase obligations, other than in the ordinary course of business.

On May 1, 2007, we acquired Oberthur Gaming Technologies (“OGT”) for $100 million. We financed the acquisition through borrowings under our Revolver.

As of March 31, 2007, our available cash and borrowing capacity totaled $282.6 million compared to $82.4 million as of December 31, 2006. The amount of our available cash fluctuates principally based on the timing of collections from our customers, cash expenditures associated with new and existing online lottery systems service and pari-mutuel and fixed odds wagering contracts, borrowings or repayments under our credit facilities and changes in our working capital position.

The $5.4 million increase in our available cash from the December 31, 2006 level principally reflects the net cash provided by operating activities for the three months ended March 31, 2007 of $30.4 million along with $7.7 million of additional net borrowings, offset by wagering and other capital expenditures and other investing activities totaling $40.8 million and acquisition related payments of $0.3 million and the effects of exchange rates. The $30.4 million of net cash provided by operating activities is derived from approximately $51.1 million of net cash provided by operations offset by approximately $20.7 million from changes in working capital. The working capital changes occurred principally from increases in accounts receivable and inventory, and a decrease in accounts payable, partially offset by an increase in accrued interest and other current liabilities. Capital expenditures of $2.5 million in the three months ended March 31, 2007 are less than similar expenditures totaling $4.2 million in the corresponding period in 2006. Wagering system expenditures totaled $23.5 million in the three months ended March 31, 2007, compared to $31.2 million in the corresponding period in 2006, and consisted primarily of new lottery contracts in Mexico, Michigan and Maryland and fixed odds betting terminals related to Global Draw contracts with its customers. Other intangible assets and software expenditures during the three months ended March 31, 2007 consisted primarily of licensed properties, lottery contracts in Mexico, Michigan and Maryland and gaming contracts related to Global Draw. Cash flow from financing activities principally reflects the borrowings under the January 2007 Amended and Restated Credit Agreement.

We believe that our cash flow from operations, available cash and available borrowing capacity under the January 2007 Amended and Restated Credit Agreement will be sufficient to meet our liquidity needs, including anticipated capital expenditures, for the foreseeable future; however, there can be no assurance that this will be the case. While we are not aware of any particular trends, our contracts periodically renew and there can be no assurance that we will be successful in sustaining our cash flow from operations through renewal of our existing contracts or through the addition of new contracts. In addition, lottery customers in the United States generally require service providers to provide performance bonds in connection with each state contract. Our ability to obtain performance bonds on commercially reasonable terms is subject to prevailing market conditions, which may be impacted by economic and political events. Although we have not experienced any difficulty obtaining such bonds, there can be no assurance that we will continue to be able to obtain performance bonds on commercially reasonable terms or at all. While we are not aware of any reason to do so, if we need to refinance all or part of our indebtedness, on or before maturity, or provide letters of credit or cash in lieu of performance bonds, there can be no assurance that we will be able to obtain new financing or to refinance any of our indebtedness, on commercially reasonable terms or at all.

Further, the terms of the indenture governing the Convertible Debentures give holders the right to convert the Convertible Debentures when the market price of our Class A common stock exceeds a defined target market price. The terms of such indenture require us to pay cash for the face amount of the Convertible Debentures which have been presented for conversion, with the value of the difference between the stated conversion price and the prevailing market price payable by our issuance of additional shares of our Class A common stock. We cannot offer any assurance that we will have sufficient available cash to pay for the Convertible Debentures presented to us for conversion nor can we offer any assurance that we will be able to refinance all or a portion of the converted Convertible Debentures at that time.

Recent Developments

On May 1, 2007, we acquired Oberthur Gaming Technologies (“OGT”).  OGT is a leading manufacturer of instant lottery tickets and operates three instant ticket plants located in Montreal, Canada; Sydney, Australia and San Antonio, Texas.  The purchase price was approximately $100 million (approximately one-third of which is attributable to U.S. assets), subject to certain adjustments.  We expect our acquisition of OGT will allow us to strengthen our international presence in Canada and Australia and offer our customers an expanded array of products and services.  We financed the acquisition through borrowings under our Revolver.  OGT will be included in the Printed Products segment beginning in the second quarter of 2007.

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Impact of Recently Issued Accounting Standards

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, (“SFAS 157”). This standard establishes a standard definition for fair value, establishes a framework under generally accepted accounting principles for measuring fair value and expands disclosure requirements for fair value measurements. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 is not expected to have a material impact on our consolidated financial statements.

In September 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force in Issue 06-05 Accounting for Purchases of Life Insurance – Determining the Amount That Could be Realized in Accordance with FASB Technical Bulletin 85-4 (“EITF 06-5”).  EITF 06-5 addresses determining the amount that could be realized under a life insurance contract in accordance with Technical Bulletin 85-4 and requires a policyholder to consider any additional amounts included in the contractual terms of the policy other than solely the cash surrender value in determining the amount that could be realized under the insurance contract. Policyholders should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy). Any amount that is ultimately realized by the policyholder upon the assumed surrender of the final policy (or final certificate in a group policy) shall be included in the amount that could be realized under the insurance contract. The accounting provisions of EITF 06-5 became effective on January 1, 2007. The adoption of
EITF 06-5 had no impact on our consolidated financial statements.

In February 2007 the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007.  We are currently assessing the impact of SFAS 159 on our consolidated financial statements.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

We have no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2006.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Form 10-Q.  The evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in alerting management in a timely fashion to all material information required to be included in our periodic filings with the Securities and Exchange Commission.

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.   OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

On December 15, 2006, we entered into a licensing agreement with Hasbro, Inc. (“Hasbro”) for the use of certain Hasbro brands in multiple lottery platforms. Under the terms of the agreement, on February 28, 2007, we issued to Hasbro warrants to purchase 40,000 shares of our Class A common stock for $32.98 per share (the “Warrants”). The Warrants may be exercised at any time before February 28, 2012.  The securities were issued in a private transaction in reliance upon an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.  The shares underlying the Warrants were included in a Registration Statement on Form S-3 filed with the Securities and Exchange Commission on March 30, 2007 (Registration No. 333-141720).

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
1/1/2007 - 1/31/2007	—	$	—	—	$	190.2 million
2/1/2007 - 2/28/2007	27,734	$	33.20	—	$	190.2 million
3/1/2007 - 3/31/2007	194	$	32.77	—	$	190.2 million
Total	27,928	$	33.20	—	$	190.2 million

(1)The activity in this column reflects shares acquired from employees to satisfy the withholding taxes associated with the vesting of restricted stock awards during the three months ended March 31, 2007.

(2)On November 2, 2006, our Board of Directors approved a stock repurchase program under which we are authorized to repurchase, from time to time in the open market through December 31, 2007, shares of our outstanding common stock in an aggregate amount up to $200 million. The timing and amount of purchases will be determined by our management based on its evaluation of market conditions, share price and other factors.  The stock repurchase program may be discontinued at any time.  There were no shares repurchased as part of the publicly announced repurchase program during the three months ended March 31, 2007.

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Item 6.  Exhibits

Exhibit Number
10.1	Amendment and Restatement Agreement, dated as of January 24, 2007, including as Exhibit A thereto, the Amended and Restated Credit Agreement, dated as of December 23, 2004, as amended and restated as of January 24, 2007, among the Company, as Borrower, the several lenders from time to time parties thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 31, 2007).
10.2	Letter Agreement dated February 15, 2007 between the Company and MacAndrews & Forbes Holdings Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 16, 2007).
10.3	Employment Agreement dated March 1, 2007 by and between the Company and Stephen L. Gibbs. (†) *
31.1	Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (†)
31.2	Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (†)
32.1	Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (†)
32.2	Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (†)

* Management contracts and compensation plans and arrangements.

(†) Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SCIENTIFIC GAMES CORPORATION
(Registrant)
By:	/s/ DeWayne E. Laird
Name:	DeWayne E. Laird
Title:	Vice President and Chief Financial Officer (principal financial officer)

Dated: May 10, 2007

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INDEX TO EXHIBITS

Exhibit Number
10.1	Amendment and Restatement Agreement, dated as of January 24, 2007, including as Exhibit A thereto, the Amended and Restated Credit Agreement, dated as of December 23, 2004, as amended and restated as of January 24, 2007, among the Company, as Borrower, the several lenders from time to time parties thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 31, 2007).
10.2	Letter Agreement dated February 15, 2007 between the Company and MacAndrews & Forbes Holdings Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 16, 2007).
10.3	Employment Agreement dated March 1, 2007 by and between the Company and Stephen L. Gibbs. (†) *
31.1	Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (†)
31.2	Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (†)
32.1	Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (†)
32.2	Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (†)

* Management contracts and compensation plans and arrangements.

(†) Filed herewith.

34

EX-10.3

Exhibit 10.3

This EMPLOYMENT AGREEMENT (this “Agreement”) is made as of March 1, 2007 (the “Effective Date”), by and between SCIENTIFIC GAMES CORPORATION, a Delaware corporation (the “Company” or “SGC”), and Stephen L. Gibbs (“Executive”).

W I T N E S S E T H

WHEREAS, Executive has been employed pursuant to a letter agreement with the Company (the “Original Agreement”); and

WHEREAS, the Company and Executive desire that this Agreement replace and supersede the Original Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual benefits to be derived herefrom and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.             Termination of Existing Employment Agreements.  As of the Effective Date, all existing employment agreements between the parties, whether oral or written, including the Original Agreement, are hereby terminated and superseded.

2.             Employment; Term. The Company hereby agrees to employ Executive, and Executive hereby accepts employment with the Company, in accordance with and subject to the terms and conditions set forth herein. The term of employment of Executive under this Agreement (the “Term”) shall be the period commencing on the Effective Date and ending on February 28, 2009, as may be extended in accordance with this Section and subject to earlier termination in accordance with Section 5. The Term shall be extended automatically without further action by either party by one additional year (added to the end of the Term), and then on each succeeding annual anniversary thereafter, unless either party shall have given written notice to the other party at least ninety (90) days prior to the date upon which such extension would otherwise have become effective electing not to further extend the Term, in which case Executive’s employment shall terminate on the date upon which such extension would otherwise have become effective, unless earlier terminated in accordance with Section 5. It is also intended that Executive’s previous term of employment with the Company shall be included when calculating Executive’s tenure at the Company for all purposes.

3.             Offices and Duties. During the Term, the Executive will serve as Vice President and Chief Accounting Officer of the Company, and as an officer or director of any subsidiary or affiliate of the Company if elected to any such position by the shareholders or by the Board of Directors of the Company or any subsidiary or affiliate, as the case may be. In such capacities, the Executive shall perform such duties and shall have such responsibilities as are normally associated with such positions and as otherwise may be assigned to the Executive from time to time by the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer or upon the authority of the Board of Directors of the Company. Subject to Section 5(e), Executive’s functions, duties and responsibilities are subject to reasonable changes as the Company may in good faith determine. The Executive hereby agrees to accept such employment and to serve the Company to the best of the Executive’s ability in such capacities, devoting substantially all of the Executive’s business time to such employment.

4.             Compensation; Benefits

(a)           Base Salary.  During the Term the Company shall pay Executive a base salary (the “Base Salary”) at the initial rate of two hundred and twenty-five thousand dollars ($225,000) per annum, payable in accordance with the Company’s regular payroll policies and subject to all withholdings

that are legally required or are agreed to by Executive. In the event that the Company, in its sole discretion, from time to time determines to increase the Base Salary, such increased amount shall, from and after the effective date of the increase, constitute the “Base Salary” for purposes of this Agreement.

(b)           Incentive Compensation.  Executive shall have the opportunity annually to earn incentive compensation in amounts determined by the Compensation Committee of the Board of Directors of SGC (the “Compensation Committee”) in accordance with the applicable incentive compensation plan of the Company as in effect from time to time (“Incentive Compensation”). Under such plan, Executive shall have the opportunity to earn up to 35% of Base Salary as Incentive Compensation (“Target Bonus”).

(c)           Eligibility for Annual Equity Awards.  Executive shall be eligible to receive an annual grant of stock options or other equity awards, in the sole discretion of the Compensation Committee, in accordance with the applicable plans and programs for senior executives of the Company and subject to the Company’s right to at any time amend or terminate any such plan or program, so long as any such change does not adversely affect any accrued or vested interest under any such plan or program.

(d)           Expense Reimbursement.     The Company shall reimburse Executive for all reasonable and necessary travel, business entertainment and other business expenses incurred by Executive in connection with the performance of Executive’s duties under this Agreement, on a timely basis upon submission by Executive of vouchers therefore in accordance with the Company’s standard procedures.

(e)           Health and Welfare Benefits.   Executive shall be entitled to participate, without discrimination or duplication, in any and all medical insurance, group health, disability, life, accidental death, dismemberment insurance, 401(k) or other retirement, deferred compensation, profit sharing, stock ownership and such other plans and programs which are made generally available by the Company to its other executives in accordance with the terms of such plans and programs and subject to the Company’s right to at any time amend or terminate any such plan or program. Executive shall be entitled to paid vacation, holidays, and any other time off in accordance with the Company’s policies in effect from time to time.

(f)            Taxes and Internal Revenue Code 409A.  Payment of all compensation and benefits to Executive specified in this Section 4 and in Section 5 of this Agreement shall be subject to all legally required and customary withholdings. The Company makes no representations regarding the tax implications of the compensation and benefits to be paid to Executive under this Agreement, including, without limitation, under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable administrative guidance and regulations.  Internal Revenue Code Section 409A governs plans and arrangements that provide “nonqualified deferred compensation” (as defined under the Code) which may include, among others, nonqualified retirement plans, bonus plans, stock option plans, employment agreements and severance agreements.  The Company reserves the right to provide compensation and benefits under any plan or arrangement in amounts, at times and in a manner that minimizes taxes, interest or penalties as a result of Section 409A. In addition, in the event any benefits or amounts paid hereunder are deemed to be subject to Section 409A, including payments under Section 5 of this Agreement, Executive consents to the Company adopting such conforming amendments as the Company deems necessary, in its reasonable discretion, to comply with Section 409A (including, but not limited to, delaying payment until six months following termination of employment).

5.Termination of Employment.  Executive’s employment hereunder may be terminated prior to the end of the Term under the following circumstances:

(a)           Termination by Executive for Other than Good Reason.  Executive may terminate his employment hereunder for any reason or no reason upon 60 days’ prior written notice to the Company referring to this Section 5(a); provided, however, that a termination of Executive’s employment for “Good Reason” (as defined below) shall not constitute a termination by Executive for other than Good Reason pursuant to this Section 5(a). In the event the Executive terminates his employment for other than

Good Reason, the Executive shall be entitled only to the following compensation and benefits (collectively, the “Standard Termination Payments”):

(i)            Any accrued but unpaid Base Salary (as determined pursuant to Section 4(a)) for services rendered to the date of termination paid to Executive in accordance with regular payroll policies;

(ii)           All vested nonforfeitable amounts owing or accrued at the date of termination under benefit plans, programs, and arrangements set forth or referred to in Section 4 hereof in which Executive theretofore participated will be paid under the terms and conditions of such plans, programs, and arrangements (and agreements and documents thereunder);

(iii)          Except as provided in Section 6.6, all stock options and other equity awards will be governed by the terms of the plans and programs under which the options or other awards were granted; and

(iv)          Reasonable business expenses and disbursements incurred by Executive prior to such termination will be reimbursed in accordance with Section 4(d).

(b)           Termination by Reason of Death.  If Executive dies during the Term of this Agreement, the Company shall pay to the last beneficiary designated by the Executive by written notice to the Company or, failing such designation, to Executive’s estate, the following amounts:

(i)            The Standard Termination Payments (as defined in Section 5(a)); and

(ii)           A lump sum payment equal to Executive’s annual Base Salary, payable within 30 days of termination.

(c)           Termination By Reason of Total Disability.  Executive and the Company agree that Executive may not reasonably be expected to be able to perform his duties and the essential functions of his office in the event of the Executive’s “Total Disability.” For purposes of this Agreement, “Total Disability” shall mean Executive’s (a) becoming eligible to receive benefits under any long-term disability insurance program or (b) failure to perform the duties and responsibilities contemplated under this Agreement for a period of more than 180 days during any consecutive 12-month period due to physical or mental incapacity or impairment. In the event that Executive’s employment is terminated by reason of Total Disability, the Company shall pay the following amounts, and make the following other benefits available, to Executive:

(i)            The Standard Termination Payments (as defined in Section 5(a));

(ii)           An amount equal to the sum of (A) Executive’s annual Base Salary and (B) Executive’s “Severance Bonus Amount” (as defined below) payable over a period of twelve (12) months after termination in accordance with Section 5(f) of this Agreement, provided such amount shall be reduced by any disability payments provided to Executive as a result of any disability plan sponsored by the Company or its affiliates providing benefits to Executive. For purposes of this Agreement, “Severance Bonus Amount” shall mean  an amount equal to the highest annual Incentive Compensation paid to Executive in respect of the two most recent fiscal years of the Company but not more than the Executive’s Target Bonus for the-then current fiscal year;

(iii)          In lieu of any Incentive Compensation for the year in which such termination of employment occurs, payment of an amount equal to (A) the highest annual Incentive Compensation paid to Executive in respect of the two most recent fiscal years of the Company but not more than Executive’s Target Bonus for the year of termination, multiplied by (B) a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination, payable as and when such Incentive Compensation would otherwise have been payable under Section 4(b); and

(iv)          If Executive elects to continue medical coverage under the Company’s group health plan in accordance with COBRA, the Company shall pay the monthly premiums for such coverage for a period of twelve (12) months.

(d)           Termination by the Company for Cause.  The Company may terminate Executive’s employment hereunder for “Cause” upon written notice to Executive referring to this Section 5(d). For purposes of this Agreement, the term “Cause” shall mean (i) gross neglect by the Executive of the Executive’s duties hereunder; (ii) conviction (including conviction on a nolo contendere plea) of the Executive of any felony; (iii) conviction (including conviction on a nolo contendere plea) of the Executive of any non-felony crime or offense involving the property of the Company or any of its subsidiaries or affiliates or evidencing moral turpitude; (iv) willful misconduct by the Executive in connection with the performance of the Executive’s duties hereunder; (v) intentional breach by the Executive of any material provision of this Agreement; (vi) material violation of material provision of the Company’s Code of Conduct; or (vii) any other willful or grossly negligent conduct on the part of the Executive which would make the Executive’s continued employment by the Company materially prejudicial to the best interests of the Company.  In the event that Executive’s employment is terminated by the Company for Cause, the Executive shall be entitled to receive only the Standard Termination Payments (as defined in Section 5(a)).

(e)           Termination by the Company Without Cause or by Executive for Good Reason.  The Company may terminate Executive’s employment hereunder at any time, without Cause, for any reason or no reason, and Executive may terminate his employment hereunder for “Good Reason.” For purposes of this Agreement, “Good Reason” shall mean that without Executive’s prior written consent, any of the following shall have occurred:  (i) a material change, adverse to Executive, in Executive’s positions, titles, offices, or duties as provided in Section 3, except, in such case, in connection with the termination of Executive’s employment for Cause, Total Disability or death; (ii) an assignment of any significant duties to Executive which are inconsistent with Executive’s positions or offices held under Section 3; (iii) a decrease in Base Salary or material decrease in Executive’s incentive compensation opportunities provided under this Agreement; and (iv) any other failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Agreement; provided, however, that a termination by Executive for Good Reason under any of clauses (i) – (iv) of this Section 5(e) shall not be considered effective unless Executive shall have provided the Company with written notice of the specific reasons for such termination within thirty (30) days after he has knowledge of the event or circumstance constituting Good Reason and the Company shall have failed to cure the event or condition allegedly constituting Good Reason within thirty (30) days after notice has been given to the Company. In the event that Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason, the Company shall pay the following amounts, and make the following other benefits available, to Executive:

(i)            The Standard Termination Payments (as defined in Section 5(a));

(ii)           An amount equal to the sum of (A) Executive’s annual Base Salary and (B) Executive’s Severance Bonus Amount payable over a period of twelve (12) months after termination in accordance with Section 5(f) of this Agreement;

(iii)          Except to the extent otherwise provided at the time of grant under the terms of any equity award made to Executive, all stock options, deferred stock, restricted stock and other equity-based awards held by Executive at termination will become fully vested and non-forfeitable, and, in all other respects, all such options and other awards shall be governed by the plans and programs and the agreements and other documents pursuant to which the awards were granted;

(iv)          In lieu of any Incentive Compensation for the year in which such termination of employment occurs, payment of an amount equal to (A) the highest annual Incentive Compensation paid to Executive in respect of the two most recent fiscal years of the Company but not more than the Executive’s Target Bonus for the year of termination, multiplied by (B) a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of

which is the total number of days in the year of termination, payable as and when such Incentive Compensation would otherwise have been payable under Section 4(b); and

(v)           If Executive elects to continue medical coverage under the Company’s group health plan in accordance with COBRA, the Company shall pay the monthly premiums for such coverage for a period of twelve (12) months.

(f)            Timing of Certain Payments Under Section 5.  Payments pursuant to Sections 5(c)(ii) or 5(e)(ii) of this Agreement, if any, shall be payable in equal installments in accordance with the Company’s standard payroll practices over a period of twelve (12) months following the date of termination; provided, however, that if necessary to comply with Section 409A of the Code, and applicable administrative guidance and regulations, such payments shall be made as follows:  (1) no payments shall be made for a six-month period following the date of termination, (2) an amount equal to the aggregate sum that would have been otherwise payable during the initial six-month period shall be paid in a lump sum six months following the date of termination, and (3) during the period beginning six months following the date of termination through the remainder of the twelve-month period, payment of the remaining amount due shall be payable in equal installments in accordance with the Company’s standard payroll practices. In addition, notwithstanding any other provision with respect to the timing of payments under this Agreement, if necessary to comply with Section 409A of the Code, and applicable administrative guidance and regulations, amounts payable following termination of employment in a lump sum, including pursuant to Sections 5(c)(iii) and 5(e)(iv) of this Agreement, shall instead be paid six months following the date of termination.

(g)           No Obligation to Mitigate.  The Executive shall have no obligation to mitigate damages pursuant to this Section 5, but shall be obligated to promptly advise the Company regarding any compensation earned or any payments that will become due with respect to services provided to another employer during any period of continued payments pursuant to this Section 5. The Company’s obligation to make continued payments to the Executive shall be reduced by any compensation earned by the Executive during the severance period (without regard to when such compensation is paid).

(h)           Set-Off.  To the fullest extent permitted by law, any amounts otherwise due the Executive hereunder (including, without limitation, any payments pursuant to this Section 5) shall be subject to set-off with respect to any amounts the Executive otherwise owes the Company or any subsidiary or affiliate thereof.

(i)            No Other Benefits or Compensation.  Except as may be provided under this Agreement, under any other written agreement between Executive and the Company, or under the terms of any plan or policy applicable to Executive, Executive shall have no right to receive any other compensation from the Company, or to participate in any other plan, arrangement or benefit provided by the Company, with respect to any future period after such termination or resignation.

(j)            Release of Employment Claims; Compliance with Section 6.  Executive agrees, as a condition to receipt of any termination payments and benefits provided for in Section 5 (other than the Standard Termination Payments), that Executive will execute a general release agreement, in a form reasonably satisfactory to the Company, releasing any and all claims arising out of Executive’s employment (other than enforcement of this Agreement).  The Company’s obligation to make any termination payments and benefits provided for in Section 5 (other than the Standard Termination Payments) shall immediately cease if Executive willfully and materially breaches Section 6.1, 6.2 , 6.3, 6.4, or 6.8.

6.             Noncompetition; Nonsolicitation; Nondisclosure; etc.

6.1           Noncompetition; Nonsolicitation .

(a)           Executive acknowledges the highly competitive nature of the Company’s business and that access to the Company’s confidential records and proprietary information renders Executive

special and unique within the Company’s industry. In consideration of the amounts that may hereafter be paid to Executive pursuant to this Agreement (including, without limitation, Sections 4 and 5), Executive agrees that during the Term (including any extensions thereof) and during the Covered Time (as defined in Section 6.1(e)), Executive, alone or with others, will not, directly or indirectly, engage (as owner, investor, partner, stockholder, employer, employee, consultant, advisor, director or otherwise) in any Competing Business. For purposes of this Section 6, “Competing Business” shall mean any business: (i) involving design and production of instant lottery tickets and the management of related marketing and distribution programs; manufacture, sale, operation or management of on-line lottery systems (Lotto-type games), video gaming, including fixed odds betting terminals and video lottery terminals; development and commercialization of licensed and other proprietary game entertainment for all lottery product channels; provision of wagering (whether pari-mutuel (pooled) or otherwise) or venue management services for racetracks and off-track betting facilities; production of prepaid cellular phone cards; or any other business in which the Company or its affiliates is then or was within the previous twelve (12) months engaged or in which the Company, to Executive’s knowledge, intends to engage during the Term or the Covered Time (as defined below); (ii) in which the Executive was engaged or involved (whether in an executive or supervisory capacity or otherwise) on behalf of the Company or with respect to which the Executive has obtained proprietary or confidential information; and (iii) which was conducted anywhere in the United States or in any other geographic area in which such business was conducted or planned to be conducted by the Company.

(b)           In further consideration of the amounts that may hereafter be paid to Executive pursuant to this Agreement (including, without limitation, Sections 3, 4 and 5), Executive agrees that during the Term (including any extensions thereof) and during the Covered Time Executive shall not, directly or indirectly, (i) solicit or attempt to induce any of the employees, agents, consultants or representatives of the Company to terminate his, her, or its relationship with the Company; (ii) solicit or attempt to induce any of the employees, agents, consultants or representatives of the Company to become employees, agents, consultants or representatives of any other person or entity; (iii) solicit or attempt to induce any customer, vendor or distributor of the Company to curtail or cancel any business with the Company; or (iv) hire any person who, to Executive’s actual knowledge, is, or was within 180 days prior to such hiring, an employee of the Company.

(c)           During the Term (including any extensions thereof) and during the Covered Time, Executive agrees that upon the earlier of Executive’s (i) negotiating with any Competitor (as defined below) concerning the possible employment of Executive by the Competitor, (ii) responding to (other than for the purpose of declining) an offer of employment from a Competitor, or (iii) becoming employed by a Competitor, (x) Executive will provide copies of Section 6 of this Agreement to the Competitor, and (y) in the case of any circumstance described in (iii) above occurring during the Covered Time, and in the case of any circumstance described in (i) or (ii) above occurring during the Term or during the Covered Time, Executive will promptly provide notice to the Company of such circumstances. Executive further agrees that the Company may provide notice to a Competitor of Executive’s obligations under this Agreement. For purposes of this Agreement, “Competitor” shall mean any entity (other than the Company, its subsidiaries or affiliates) that engages, directly or indirectly, in the United States in any Competing Business.

(d)           Executive understands that the restrictions in this Section 6.1 may limit Executive’s ability to earn a livelihood in a business similar to the business of the Company but nevertheless agrees and acknowledges that the consideration provided under this Agreement (including, without limitation, Sections 4 and 5) is sufficient to justify such restrictions. In consideration thereof and in light of Executive’s education, skills and abilities, Executive agrees that Executive will not assert in any forum that such restrictions prevent Executive from earning a living or otherwise should be held void or unenforceable.

(e)           For purposes of this Section 6.1, “Covered Time” shall mean the period beginning on the date of termination of Executive’s employment (the “Date of Termination”) and ending twelve (12) months after the Date of Termination.

6.2           Proprietary Information; Inventions.

(a)           Executive acknowledges that during the course of Executive’s employment with the Company Executive necessarily will have (and during any employment by the Company prior to the Term has had) access to and make use of proprietary information and confidential records of the Company. Executive covenants that Executive shall not during the Term or at any time thereafter, directly or indirectly, use for Executive’s own purpose or for the benefit of any person or entity other than the Company, nor otherwise disclose to any individual or entity, any such proprietary information, unless such disclosure has been authorized in writing by the Company or is otherwise required by law. The term “proprietary information” means: (i) the software products, programs, applications, and processes utilized by the Company; (ii) the name and/or address of any customer or vendor of the Company or any information concerning the transactions or relations of any customer or vendor of the Company with the Company; (iii) any information concerning any product, technology, or procedure employed by the Company but not generally known to its customers or vendors or competitors, or under development by or being tested by the Company but not at the time offered generally to customers or vendors; (iv) any information relating to the Company’s computer software, computer systems, pricing or marketing methods, sales margins, cost of goods, cost of material, capital structure, operating results, borrowing arrangements or business plans; (v) any information identified as confidential or proprietary in any line of business engaged in by the Company; (vi) any information that, to Executive’s actual knowledge, the Company ordinarily maintains as confidential or proprietary; (vii) any business plans, budgets, advertising or marketing plans; (viii) any information contained in any of the Company’s written or oral policies and procedures or manuals; (ix) any information belonging to customers, vendors or any other person or entity which the Company, to Executive’s actual knowledge, has agreed to hold in confidence; and (x) all written, graphic, electronic data and other material containing any of the foregoing. Executive acknowledges that information that is not novel or copyrighted or patented may nonetheless be proprietary information. The term “proprietary information” shall not include information generally known or available to the public or generally known or available to the industry or information that becomes available to Executive on an unrestricted, non-confidential basis from a source other than the Company or its directors, officers, employees, or agents (without breach of any obligation of confidentiality of which Executive has actual knowledge at the time of the relevant disclosure by Executive).

(b)           Executive agrees that all process­es, technologies and inventions (collectively, “Inven­tions”), including new contributions, improvements, ideas and discov­eries, whether patentable or not, conceived, developed, invented or made by Executive during the Term (and during any employment by the Company prior to the Term) shall belong to the Company, provided that such Inventions grew out of the Executive’s work with the Company or any of its subsidiaries or affiliates, are related in any manner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made on the Company’s time or with the use of the Com­pany’s facilities or materials. Executive shall further:  (i) promptly disclose such Inventions to the Company; (ii) assign to the Company, without additional compensation, all patent and other rights to such Inventions for the United States and foreign countries; (iii) sign all papers necessary to carry out the foregoing; and (iv) give testimony in support of the Executive’s inventorship. If any Invention is described in a patent appli­cation or is disclosed to third parties, directly or indirectly, by the Executive within two years after the termination of the Executive’s employment by the Company, it is to be pre­sumed that the Invention was con­ceived or made during the Term. Executive agrees that Execu­tive will not assert any rights to any Invention as having been made or acquired by Executive prior to the date of this Agreement, except for Inventions, if any, disclosed in Exhibit A to this Agreement.

6.3           Confidentiality and Surrender of Records.  Executive shall not during the Term or at any time thereafter (irrespective of the circumstances under which Executive’s employment by the Company terminates), except as required by law, directly or indirectly publish, make known or in any fashion disclose any confidential records to, or permit any inspection or copying of confidential records by, any individual or entity other than in the course of such individual’s or entity’s employment or retention by the Company, nor shall Executive retain, and will deliver promptly to the Company, any of the same following termination of Executive’s employment hereunder for any reason or upon request by the Company. For purposes hereof, “confidential records” means those portions of correspondence, memoranda, files, manuals, books, lists, financial, operating or marketing records, magnetic tape, or electronic or other media or equipment of any kind in Executive’s possession or under Executive’s control

or accessible to Executive which contain any proprietary information. All confidential records shall be and remain the sole property of the Company during the Term and thereafter.

6.4           Nondisparagement.  Executive shall not, during the Term and thereafter, disparage in any material respect the Company, any affiliate of the Company, any of their respective businesses, any of their respective officers, directors or employees, or the reputation of any of the foregoing persons or entities. Notwithstanding the foregoing, nothing in this Agreement shall preclude Executive from making truthful statements that are required by applicable law, regulation or legal process.

6.5           No Other Obligations.  Executive represents that Executive is not precluded or limited in Executive’s ability to undertake or perform the duties described herein by any contract, agreement or restrictive covenant. Executive covenants that Executive shall not employ the trade secrets or proprietary information of any other person in connection with Executive’s employment by the Company without such person’s authorization.

6.6           Forfeiture of Outstanding Options. The provisions of Section 5 notwithstanding, if Executive willfully and materially fails to comply with Section 6.1, 6.2, 6.3, 6.4, or 6.8, all options (whether granted prior to, contemporaneous with, or subsequent to this Agreement) to purchase common stock granted by the Company and held by Executive or a transferee of Executive shall be immediately forfeited and cancelled.

6.7           Enforcement.  Executive acknowledges and agrees that, by virtue of Executive’s position, services and access to and use of confidential records and proprietary information, any violation by Executive of any of the undertakings contained in this Section 6 would cause the Company immediate, substantial and irreparable injury for which it has no adequate remedy at law. Accordingly, Executive agrees and consents to the entry of an injunction or other equitable relief by a court of competent jurisdiction restraining any violation or threatened violation of any undertaking contained in this Section 6. Executive waives posting of any bond otherwise necessary to secure such injunction or other equitable relief. Rights and remedies provided for in this Section 6 are cumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any other agreement or applicable law.

6.8           Cooperation with Regard to Litigation.  Executive agrees to cooperate reasonably with the Company, during the Term and thereafter (including following Executive’s termination of employment for any reason), by being available to testify on behalf of the Company in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative. In addition, except to the extent that Executive has or intends to assert in good faith an interest or position adverse to or inconsistent with the interest or position of the Company, Executive agrees to cooperate reasonably with the Company, during the Term and thereafter (including following Executive’s termination of employment for any reason), to assist the Company in any such action, suit, or proceeding by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, in each case, as reasonably requested by the Company. The Company agrees to pay (or reimburse, if already paid by Executive) all reasonable expenses actually incurred in connection with Executive’s cooperation and assistance including, without limitation, reasonable fees and disbursements of counsel, if any, chosen by Executive if Executive reasonably determines in good faith, on the advice of counsel, that the Company’s counsel may not ethically represent Executive in connection with such action, suit or proceeding due to actual or potential conflicts of interests.

6.9           Survival.  The provisions of this Section 6 shall survive the termination of the Term and any termination or expiration of this Agreement.

6.10         Company.  For purposes of this Section 6, references to the “Company” shall include the Company and each subsidiary and/or affiliate of the Company.

7.             Code of Conduct.  Executive acknowledges that he has read the Company’s Code of Conduct and agrees to abide by such Code, as amended or supplemented from time to time, and other policies applicable to employees and executives of the Company.

8.             Indemnification.  The Company shall indemnify Executive to the full extent permitted under the Company’s Certificate of Incorporation or By-Laws and pursuant to any other agreements or policies in effect from time to time in connection with any action, suit or proceeding to which the Executive may be made a party by reason of the Executive being an officer, director or employee of the Company or of any subsidiary or affiliate of the Company.

9.             Assignability; Binding Effect.  Neither this Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution and as specified below. The Company may assign this Agreement and the Company’s rights and obligations hereunder, and shall assign this Agreement and such rights and obligations, to any Successor (as hereinafter defined) which, by operation of law or otherwise, continues to carry on substantially the business of the Company (or a business unit of the Company for which Executive provided services) prior to the event of succession, and the Company shall, as a condition of the succession, require such Successor to agree in writing to assume the Company’s obligations and be bound by this Agreement. For purposes of this Agreement, “Successor” shall mean any person that succeeds to, or has the practical ability to control, the Company’s business directly or indirectly, by merger or consolidation, by purchase or ownership of voting securities of the Company or all or substantially all of its assets or those relating to a particular business unit of the Company to which Executive provides services, or otherwise. The Company may also assign this Agreement and the Company’s rights and obligations hereunder to any affiliate of the Company, provided that upon any such assignment the Company shall remain liable for the obligations to Executive hereunder. This Agreement shall be binding upon and inure to the benefit of Executive, Executive’s heirs, executors, administrators, and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns.

10.           Complete Understanding; Amendment; Waiver.  This Agreement constitutes the complete understanding between the parties with respect to the employment of Executive and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof, and no statement, representation, warranty or covenant has been made by either party with respect thereto except as expressly set forth herein. This Agreement shall not be modified, amended or terminated except by a written instrument signed by each of the parties. Any waiver of any term or provision hereof, or of the application of any such term or provision to any circumstances, shall be in writing signed by the party charged with giving such waiver. Waiver by either party of any breach hereunder by the other party shall not operate as a waiver of any other breach, whether similar to or different from the breach waived. No delay by either party in the exercise of any rights or remedies shall operate as a waiver thereof, and no single or partial exercise by either party of any such right or remedy shall preclude other or further exercise thereof.

11.           Severability.  If any provision of this Agreement or the application of any such provision to any person or circumstances shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement, or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be enforced to the fullest extent permitted by law. If any provision of this Agreement, or any part thereof, is held to be invalid or unenforceable because of the scope or duration of or the area covered by such provision, the parties hereto agree that the court making such determination shall reduce the scope, duration and/or area of such provision (and shall substitute appropriate provisions for any such invalid or unenforceable provisions) in order to make such provision enforceable to the fullest extent permitted by law and/or shall delete specific words and phrases, and such modified provision shall then be enforceable and shall be enforced. The parties hereto recognize that if, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants contained in this Agreement, then that invalid or unenforceable covenant contained in this Agreement shall be deemed eliminated from these provisions to the extent necessary to permit the remaining separate covenants to be enforced. In the event that any court determines that the time period or the area, or both, are unreasonable and that any of the covenants is to that extent invalid or unenforceable, the parties hereto agree that such covenants will remain in full force and effect, first, for the greatest time period, and second, in the greatest geographical area that would not render them unenforceable.

12.           Survivability.  The provisions of this Agreement which by their terms call for performance subsequent to termination of Executive’s employment hereunder, or of this Agreement, shall so survive such termination, whether or not such provisions expressly state that they shall so survive.

13.           Governing Law; Arbitration.

(a)           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be wholly performed within that State, without regard to its conflict of laws provisions.

(b)           Arbitration.  The Executive and the Company agree that, except for claims for Workers’ Compensation, Unemployment Compensation, and any other claim that is non-arbitrable under applicable law, final and binding arbitration shall be the exclusive forum for any dispute or controversy between them, including, without limitation, disputes arising under or in connection with this Agreement, Executive’s employment, and/or termination of employment, with the Company; provided, however, that the Company shall be entitled to commence an action in any court of competent jurisdiction for injunctive relief in connection with any alleged actual or threatened violation of any provision of Section 6. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. For purposes of entering such judgment or seeking injunctive relief with regard to Section 6, the Company and Executive hereby consent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the Southern District of New York; (ii) the Supreme Court of the State of New York, New York County; or (iii) any other court having jurisdiction; provided, that damages for any alleged violation of Section 6, as well as any claim, counterclaim or crossclaim brought by the Executive or any third-party in response to, or in connection with any court action commenced by the Company seeking said injunctive relief shall remain exclusively subject to final and binding arbitration as provided for herein. The Company and Executive hereby waive, to the fullest extent permitted by applicable law, any objection which either may now or hereafter have to such jurisdiction, venue and any defense of inconvenient forum.  Thus, except for the claims carved out above, this Agreement includes all common-law and statutory claims (whether arising under federal state or local law), including, but not limited to, any claim for breach of contract, fraud, fraud in the inducement, unpaid wages, wrongful termination, and gender, age, national origin, sexual orientation, marital status, disability, or any other  protected status.

(c)           Any arbitration under this Agreement shall be filed exclusively with the American Arbitration Association in New York, New York before three arbitrators, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association in effect at the time of submission to arbitration.  The Company and Executive hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  The Company shall pay all costs uniquely attributable to arbitration, including the administrative fees and costs of the arbitrators.  Each party shall pay that party’s own costs and attorney fees, if any, unless the arbitrators rule otherwise.  The Executive understands that he is giving up no substantive rights, and this Agreement simply governs forum.  The arbitrators shall apply the same standards a court would apply to award any damages, attorney fees or costs.  The Executive shall not be required to pay any fee or cost that he would not otherwise be required to pay in a court action, unless so ordered by the arbitrators.

(d)           BY SIGNING THIS AGREEMENT, EXECUTIVE AND THE COMPANY ACKNOWLEDGE THAT THE RIGHT TO A COURT TRIAL AND TRIAL BY JURY IS OF VALUE, AND KNOWINGLY AND VOLUNTARILY WAIVE THAT RIGHT FOR ANY DISPUTE SUBJECT TO THE TERMS OF THIS ARBITRATION PROVISION.

14.           Titles and Captions.  All paragraph titles or captions in this Agreement are for convenience only and in no way define, limit, extend or describe the scope or intent of any provision hereof.

15.           Joint Drafting.  In recognition of the fact that the parties hereto had an equal opportunity to negotiate the language of, and draft, this Agreement, the parties acknowledge and agree that there is no single drafter of this Agreement and therefore, the general rule that ambiguities are to be construed against

the drafter is, and shall be, inapplicable.  If any language in this Agreement is found or claimed to be ambiguous, each party shall have the same opportunity to present evidence as to the actual intent of the parties with respect to any such ambiguous language without any inference or presumption being drawn against any party.

16.           Notices.  All notices and other communications to be given or to otherwise be made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument delivered in person or duly sent by certified mail or by a recognized national courier service, postage or charges prepaid, (a) to Scientific Games Corporation, Attn General Counsel, at 750 Lexington Avenue, 25th Floor, New York, NY 10022, (b) to the Executive, at the last address shown in the Company’s records, or (c) to such other replacement address as may be designated in writing by the addressee to the addressor.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement on February 8, 2007, to be deemed effective as of the date first above written.

SCIENTIFIC GAMES CORPORATION
By:
Name:	DeWayne Laird
Title:	Vice President and Chief Financial Officer
EXECUTIVE
Name: Stephen L. Gibbs

EXHIBIT A

LIST OF PRE-EXISTING INVENTIONS OF EXECUTIVE

EX-31.1

Exhibit 31.1

Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, A. Lorne Weil, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Scientific Games Corporation;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2007

/s/ A. Lorne Weil

A. Lorne Weil

Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, DeWayne E. Laird, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Scientific Games Corporation;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2007

/s/ DeWayne E. Laird

DeWayne E. Laird

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Scientific Games Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, A. Lorne Weil, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ‘ § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ A. Lorne Weil

A. Lorne Weil

Chief Executive Officer

May 10, 2007

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Scientific Games Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, DeWayne E. Laird, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ DeWayne E. Laird

DeWayne E. Laird

Chief Financial Officer

May 10, 2007