SCIENTIFIC GAMES CORPORATION 2006 ANNUAL REPORT Delivering Serious Fun! 2006 REVENUE $897 MM DIVERSIFIED GAMING 23% LOTTERY SYSTEMS 28% PRINTED PRODUCTS 49% 2006 NEW CONTRACTS PRINTED PRODUCTS DIVERSIFIED GAMING Colorado (Instant) Atlantic City Race Course (Racing Systems) El Salvador (Traditional and Instant) Camarero Group of Puerto Rico (Racing Systems) Illinois (Instant) Delaware Park (Racing Systems) Massachusetts (Instant) Dubuque Greyhound Park (Racing Systems) New Hampshire (Instant) Evangeline Downs (Racing Systems) New York (Instant) Fair Grounds Race Course (Racing Systems) Nicaragua (Traditional and Instant) Gala Coral (FOBTs) Pennsylvania (CSP) Goodwood Racing OTB network / Trinidad (Venue Management) South Carolina (CSP) Ho-Chunk Casino (Venue Management) Venezuela (Phone cards - Mobilnet) Jamaica (Racing and Sports) Washington (Instant) New Jersey Sports and Exposition Authority (Racing Systems) West Virginia (Instant) Ocean Downs (Racing Systems) LOTTERY SYSTEMS Philadelphia Park (Racing Systems) Picov Downs Hessen (Internet) (Racing Systems) Pony Bar OTB network / St. Thomas, USVI Maryland (Lottery System) (Venue Management) Michigan (Linked Progressive Bingo) Royal Beach Casino race and sports book / St. Kitts (Venue Management) New Mexico (VLT System) Saratoga Raceway (Racing Systems) Norway (Sports Betting) TVG (Racing Systems) West Virginia (VLT System) Yonkers (Racing Systems) TO OUR SHAREHOLDERS Scientific Games continued to grow core business January of 2007, which and win new contracts in 2006, and we have been would equate to a run rate busy preparing for the future. These preparations of over 8.5 billion Euros and included three business acquisitions, several notable exceed expectations. We capital investments and strategic organizational debuted Major League changes. We believe the industries in which we are Baseball (MLB) instant a proven leader are about to experience significant games in 2006, which will growth phases, and properly positioning ourselves for grow in 2007 with at least this growth should create tremendous opportunities. 12 states committed to launching MLB games. In March of 2006, we completed the acquisition of The new UK printing press, the online lottery assests of EssNet, a longtime rival to which has a capacity of our Lottery Systems Group. In doing so, we acquired approximately 5 billion several key customers in Scandinavia, Europe and tickets, launched in 2006, Australia, positioning us to grow their existing markets and we are adding a similar and expand the presence of instant tickets. I am happy new press in Georgia in to report this was the most seamless integration 2007. These presses will be Scientific Games has ever undertaken. We quickly ready to meet the expected turned the business profitable and have improved demands of emerging margins every quarter since the deal closed. instant ticket markets in Furthermore, we promptly started adding value China and Mexico. to our newly acquired customers, as evidenced by new contract wins just three months after The Lottery Systems Group underwent a significant completing the acquisition. restructuring in 2006, which should result in margin improvement for years to come. Our plan focuses In April of 2006, we completed the acquisition of on efficiency, customer service, revenue growth for Global Draw, a horizontal entrée into the wide area existing customers, and bidding selectively on new gaming market. Global Draw’s primary business business. A highlight this year was the successful is supplying and servicing fixed odds betting terminals launch of a new system with over 4,000 terminals in (FOBTs) to bet shops in the United Kingdom. Maryland, which facilitated improved efficiency and In September of 2007, the gaming laws in the increased sales via the introduction of new content. UK will change to allow bet shops to be open longer hours and add new terminals known as “jackpot” The Diversified Gaming Group made several machines. These changes, in addition to Global Draw’s technological strides, including the launch of the anticipated expansion into markets outside of the Quantum™ Data Centers (QDCs) and the rollout of UK, give Global Draw a bright future. the new BetJet™ terminal. Margins improved in 2006 and should continue to do so as these products gain In December, we added to Global Draw’s core acceptance. We are seeing tremendous convergence competencies with our acquisition of Games Media, across this segment’s customer base, creating an a supplier of AWPs (Amusement with Prize), the abundance of cross-selling opportunities between our slot-like machines commonly found in pubs in the UK. pari-mutuel, sports betting and Global Draw services. The installed base of approximately 125,000 AWPs in the UK are currently analog and long overdue for While this year had its challenges, we built a replacement. It is no coincidence that Games Media strong foundation to address our future growth is a pioneer in the development of digital AWPs, opportunities. Thank you to our customers and and Scientific Games plans to capitalize on this employees, without whom none of this would replacement cycle by converting customers to have been possible, a revenue sharing model using Global Draw’s existing service infrastructure. The Printed Products Group is off to another strong year, with Italy and licensed brands together leading A. Lorne Weil the way. The Italian joint venture reported a record Chairman and CEO month of 733 million Euros of instant ticket sales in PRINTED PRODUCTS INSTANT TICKETS Certain numbers underscore important milestones, industry trends and revolutionary breakthroughs and deserve to be singled out and showcased under the bright lights of investor awareness. Such was the case in 2006 with our Printed Products business segment. As growth of the instant lottery ticket category continues to change the manufacturing, finishing and game programming paradigm, suppliers have been challenged to step forward and invest in this new environment. Scientific Games has answered the challenge with a sweeping, multi-year, $45 million investment in new processes, new systems and new technology to enhance and extend our worldwide manufacturing operations, particularly in the U.S. and England. These forward-thinking investments mean we now have the 3 newest presses in the industry. In the $50-billion-plus U.S. lottery market, instant ticket category growth continues to outpace online lottery products. Our investment strategically aligns with this growth and coincides with a trend among lotteries internationally to lean more heavily on the instant category for incremental revenue. In 2006, our global TICKETS PRODUCED & SHIPPED manufacturing operations achieved new milestones, 30 producing and shipping +20.7% 24.5 billion tickets 20 24.5 (2'' x 4'' equivalents). billion This number exceeded 20.3 billion by 4.2 billion the total 10 ticket output of 20.3 billion tickets achieved in our 0 2005 2006 record-setting year of 2005. In 2006, we won new multi-year instant lottery ticket contracts in New York, Illinois, Colorado, Washington and New Hampshire, and received an important extension from the Massachusetts Lottery, the world leader in instant ticket per capita sales. Currently, we are the primary instant ticket provider for 8 of the top 10 U.S. lotteries, based on per capita sales. The new Illinois contract is based on a percentage of sales, a first for that state and further testament to our unparalleled marketing resource base and our ability to partner with customers to drive incremental sales and profits, benefiting both Scientific Games and the myriad of good causes lotteries support. In Latin America, we won both the traditional ticket and instant ticket contracts from Loteria Nacional de Beneficencia de El Salvador and Loteria Nacional de Nicaragua. It was the first time ever Nicaragua has chosen to award both contracts to one lottery company. Through the effective application of innovative products and technologies, Scientific Games is also charting the future in an instant. Our Spotlight Game concept was named Product of the Year at an annual industry conference honoring the best in lottery innovation. Considered the next-generation of instant tickets, Spotlight Games deliver more and bigger prizes, and, thus, generate more excitement among players. Nearly half of the 42 U.S. lotteries now include Spotlight Games in their instant product mix. If early customer responses are true measures of potential, Match & Win, a new and exciting scratch-off playstyle, may be on its way to becoming a third extended-play category, in line with the enduringly popular Bingo and Crossword categories. We have applied for, and received intellectual property protection for, this new product. After extensive developmental work and rigorous consumer testing in 2006, our new Magic Mark™ extended-play game marking system recently debuted in California. The perfect complement to Match & Win, Magic Mark™ is outperforming a leading competitor’s marking system. LICENSED PROPERTIES Lotteries continue to look to licensed property games to attract new players, win back infrequent and lapsed players, as well as generate excitement among regular players. A growing number of lotteries have begun to integrate and leverage the promotional and entertainment value of these brands into their Web sites. MDI Entertainment (MDI), our licensing subsidiary, is delivering on both levels. In 2006, we offered lottery customers and their players unprecedented variety.