UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2018March 31, 2019
 
OR 
¨ 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)
Nevada 81-0422894
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)  
 
6601 Bermuda Road, Las Vegas, Nevada 89119
(Address of principal executive offices)
(Zip Code)
 
(702) 897-7150
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required 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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
 
Accelerated filer ¨
   
Non-accelerated filer ¨
 
Smaller reporting company ¨
(Do not check if a smaller company)
   
Emerging growth company  ¨
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.001 par valueSGMSNasdaq Global Select Market
The registrant has the following number of shares outstanding of each of the registrant'sregistrant’s classes of common stock as of July 31, 2018:May 6, 2019:
Common Stock: 91,425,16792,923,552


SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
AND OTHER INFORMATION
THREE AND SIX MONTHS ENDED JUNE 30, 2018MARCH 31, 2019
 
  Page
PART I.
FINANCIAL INFORMATION
 
   
Item 1.
Condensed Consolidated Financial Statements (unaudited)
67
   
 
Consolidated Statements of Operations and Comprehensive LossIncome (Loss) for the Three and Six Months Ended June 30,March 31, 2019 and 2018 and 2017

67
   
 
Consolidated Balance Sheets as of June 30, 2018March 31, 2019 and December 31, 20172018
78
   
 
Condensed Consolidated Statements of Cash Flows for the SixThree Months Ended June 30,March 31, 2019 and 2018 and 2017
8
Notes to Condensed Consolidated Financial Statements
9
   
Notes to Condensed Consolidated Financial Statements
10
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
3933
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
5244
   
Item 4.
Controls and Procedures
5344
   
PART II.
OTHER INFORMATION
 
   
Item 1.
Legal Proceedings
5444
   
Item 1A.
Risk Factors
5444
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
5444
   
Item 3.
Defaults Upon Senior Securities
5444
   
Item 4.
Mine Safety Disclosures
5444
   
Item 5.
Other Information
5444
   
Item 6.
Exhibits
5545



2



Glossary of Terms 
The following terms or acronyms used in this Quarterly Report on Form 10-Q are defined below:
Term or AcronymDefinition
20172018 10-K20172018 Annual Report on Form 10-K filed with the SEC on March 1, 2018
2018 Notes8.125% senior subordinated notes due 2018 issued by SGCFebruary 28, 2019
2020 Notes6.250% senior subordinated notes due 2020 issued by SGI
2021 Notes6.625% senior subordinated notes due 2021 issued by SGI
2022 Secured Notes7.000% senior secured notes due 2022 issued by SGI
2022 Unsecured Notes10.000% senior unsecured notes due 2022 issued by SGI
2025 Secured Notes5.000% senior secured notes due 2025 issued by SGI
2026 Secured Euro Notes3.375% senior secured notes due 2026 issued by SGI
2026 Unsecured Euro Notes5.500% senior unsecured notes due 2026 issued by SGI
2026 Unsecured Notes8.250% senior unsecured notes due 2026 issued by SGI
AEBITDAAttributableAdjusted EBITDA, our performance measure of profit or loss for our business segments (see Note 3)
ASCAccounting Standards Codification
ASUAccounting Standards Update
B2Cbusiness to consumer model
CSPD&ACooperative Services Program
D&Adepreciation, amortization and impairments (excluding goodwill)
FASBFinancial Accounting Standards Board
Guarantor Subsidiariessubstantially all of SGC’s 100%-owned U.S. subsidiaries other than SGC’s 100%-owned U.S. Social gaming subsidiaries
LNSLotterie Nazionali S.r.l.
Non-Guarantor SubsidiariesSGC’s U.S. subsidiaries that are not Guarantor Subsidiaries and SGC’s foreign subsidiaries
Notea note in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, unless otherwise indicated
NYXParticipationNYX Gaming Group Limited
NYX acquisitionthe acquisition of 100% of the ordinary shares of NYX by SGC on January 5, 2018
Participationwith respect to our Gaming business, refers to gaming machines provided to customers through service or leasing arrangements in which we earn revenues and are paid based on: (1) a percentage of the amount wagered less payouts; (2) fixed daily-fees; (3) a percentage of the amount wagered; or (4) a combination of (2) and (3), and with respect to our Lottery business, refers to a contract or arrangement in which we earn revenues and are paid based on a percentage of retail sales
POSpercentage of retail sales
PPUPTGprice-per-unit
PTGproprietary table games
R&Dresearch and development
RFPrequest for proposal
RMGreal-money gaming
RSUrestricted stock unit
SECSecurities and Exchange Commission
Secured Notesrefers to the 2022 Secured Notes, 2025 Secured Notes, and 2026 Secured Euro Notes, collectively
SG&Aselling, general and administrative
SGCScientific Games Corporation
SGIScientific Games International, Inc., a wholly-owned subsidiary of SGC
Shufflersvarious models of automatic card shufflers, deck checkers and roulette chip sorters
Subordinated Notesrefers to the 2020 Notes and 2021 Notes, collectively
Unsecured Notes10.000% senior unsecured notes duerefers to the 2022 issued by SGIUnsecured Notes, 2026 Unsecured Euro Notes and 2026 Unsecured Notes, collecitvely
U.S. GAAPaccounting principles generally accepted in the U.S.
U.S. jurisdictionsVGTthe 50 states in the U.S. plus the District of Columbia and Puerto Rico
VGTvideo gaming terminal
VLTvideo lottery terminal
WAPwide-area progressive
Intellectual Property Rights 
All ® notices signify marks registered in the United States. © 20182019 Scientific Games Corporation. All Rights Reserved.



3



FORWARD-LOOKING STATEMENTS
Throughout this Quarterly Report on Form 10-Q, we make "forward-looking statements"“forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as "may," "will," "estimate," "intend," "plan," "continue," "believe," "expect," "anticipate," "target," "should," "could," "potential," "opportunity," "goal"“may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “target,” “should,” “could,” “potential,” “opportunity,” “goal” 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 heading "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” but may be found in other locations as well. These statements are based upon management'smanagement’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:
competition;
U.S. and international economic and industry conditions;
slow growth of new gaming jurisdictions, slow addition of casinos in existing jurisdictions and declines in the replacement cycle of gaming machines;
ownership changes and consolidation in the gaming industry;
opposition to legalized gaming or the expansion thereof;thereof and potential restrictions on internet wagering;
inability to adapt to, and offer products that keep pace with, evolving technology, including any failure of our investment of significant resources in our R&D efforts;

inability to develop successful products and services and capitalize on trends and changes in our industries, including the expansion of internet and other forms of interactive gaming;
laws and government regulations, both foreign and domestic, including those relating to gaming, data privacy and security, including with respect to the collection, storage, use, transmission and protection of personal information and other consumer data, and environmental laws;laws, and those laws and regulations that affect companies conducting business on the internet, including online gambling;
the continuing evolution of the scope of data privacy and security regulations, and our belief that the adoption of increasingly restrictive regulations in this area is likely within the U.S. and other jurisdictions;
significant opposition in some jurisdictions to interactive social gaming, including social casinos and how such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming or social casinos specifically, and how this could result in a prohibition on interactive social gaming or social casinos altogether, restrict our ability to advertise our games, or substantially increase our costs to comply with these regulations;
legislative interpretation and enforcement, regulatory perception and regulatory risks with respect to gaming, especially internet wagering, social gaming and sports wagering;
reliance on technological blocking systems;
expectations of shift to regulated online gaming or sports wagering;
expectations of growth in total consumer spending on social casino gaming;
dependence upon key providers in our Social gaming business;


4



inability to win, retain or renew, or unfavorable revisions of, existing contracts, and the inability to enter into new contracts;
protection of our intellectual property, inability to license third-party intellectual property and the intellectual property rights of others;
security and integrity of our products and systems;
reliance on or failures in information technology and other systems;
security breaches and cyber-attacks, challenges or disruptions relating to the implementation of a new global enterprise resource planning system;
failure to maintain adequate internal control over financial reporting;
natural events that disrupt our operations or those of our customers, suppliers or regulators;
inability to benefit from, and risks associated with, strategic equity investments and relationships;


4



failurerisks related to achieve the intendedinitial public offering of a minority interest in our social gaming business, including the possibility that the anticipated benefits of our acquisitions, including the NYX acquisition;
initial public offering are not realized or that we may not be able to utilize the ability to successfully integrate our acquisitions, includingproceeds of the NYX acquisition;initial public offering as expected;
incurrence of restructuring costs;
implementation of complex new accounting standards;
changes in estimates or judgments related to our impairment analysis of goodwill or other intangible assets;
changes in demand for our products;
fluctuations in our results due to seasonality and other factors;
dependence on suppliers and manufacturers;
risks relating to foreign operations, including anti-corruption laws, fluctuations in F/Xcurrency rates, restrictions on the payment of dividends from earnings, restrictions on the import of products and financial instability, including the potential impact to our business resulting from the affirmative vote inconsiderable uncertainty around the U.K.’s withdrawal from the European Union (“EU”) and the possibility of the British parliament’s failure to withdrawapprove the U.K.’s withdrawal from the EU, and the potential impact to our instant lottery game concessionresulting in a “hard Brexit” or VLT lease arrangements resulting from the economic and political conditions in Greece;“no deal Brexit”;
possibility that the renewal of LNS’ concession to operate the Italian instant games lottery is not finalized (including as the result of a protest or any right of appeal on a court ruling on a protest);
the impact of the new U.K. legislation approving the reduction of fixed-odds betting terminals maximum stakes limit;
changes in tax laws or tax rulings, (including the recent comprehensive U.S. tax reform), or the examination of our tax positions;
difficulty predicting what impact, if any, the shutdown of the U.S. government or new tariffs imposed by and other trade actions taken by the U.S. and foreign jurisdictions could have on our business;
dependence on key employees;
litigation and other liabilities relating to our business, including litigation and liabilities relating to our contracts and licenses, our products and systems, our employees (including labor disputes), intellectual property, environmental laws and our strategic relationships;


5



level of our indebtedness, higher interest rates, availability or adequacy of cash flows and liquidity to satisfy indebtedness, other obligations or future cash needs;
inability to reduce or refinance our indebtedness;
restrictions and covenants in debt agreements, including those that could result in acceleration of the maturity of our indebtedness;
influence of certain stockholders, including decisions that may conflict with the interests of other stockholders; and
stock price volatility.
Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in our filings with the SEC, including under Part I, Item 1A "Risk Factors"“Risk Factors” in our 20172018 10-K. Forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no and expressly disclaim any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.
You should also note that this Quarterly Report on Form 10-Q may contain references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us and we do not make any representation as to the accuracy of that information. In general, we believe there is less publicly available information concerning the international gaming, lottery, social and digital gaming industries than the same industries in the U.S.


56

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSINCOME (LOSS)
(Unaudited, in millions, except per share amounts)
 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
Revenue:       
Services$438.1
 $385.8
 $875.6
 $748.3
Product sales256.5
 231.1
 480.6
 453.8
Instant products150.1
 149.4
 300.3
 289.6
Total revenue844.7
 766.3
 1,656.5
 1,491.7
Operating expenses:       
Cost of services (1)
124.2
 98.9
 246.1
 202.2
Cost of product sales (1)
120.4
 108.7
 225.5
 215.3
Cost of instant products (1)
71.3
 71.3
 141.0
 141.4
Selling, general and administrative173.9
 145.9
 345.5
 286.6
Research and development49.2
 48.1
 103.0
 90.5
Depreciation, amortization and impairments172.7
 175.0
 360.8
 340.1
Restructuring and other33.5
 1.1
 85.7
 10.3
Operating income99.5
 117.3
 148.9
 205.3
Other (expense) income:       
Interest expense(146.1) (151.2) (300.9)
(310.6)
Earnings from equity investments4.6
 3.1
 11.9
 12.6
Loss on debt financing transactions—
 —
 (93.2)
(29.7)
Gain on remeasurement of debt34.5
 —
 33.4
 —
Other income (expense), net1.7
 (1.9) (1.5)
5.6
     Total other expense, net(105.3) (150.0) (350.3) (322.1)
           Net loss before income taxes(5.8) (32.7) (201.4) (116.8)
Income tax expense—

(6.4) (6.2)
(23.1)
Net loss$(5.8) $(39.1) $(207.6) $(139.9)
Other comprehensive income (loss):       
Foreign currency translation (loss) gain(88.2) 32.1
 (37.3) 65.7
Pension and post-retirement gain (loss), net of tax1.0
 (0.4) 0.3
 (0.7)
Derivative financial instruments unrealized gain, net of tax3.8
 —
 5.7
 2.8
Other comprehensive (loss) income(83.4) 31.7
 (31.3) 67.8
Comprehensive loss$(89.2) $(7.4)
$(238.9)
$(72.1)
        
Basic and diluted net loss per share:   
  
  
Basic$(0.06) $(0.44) $(2.29) $(1.58)
Diluted$(0.06) $(0.44) $(2.29) $(1.58)
        
Weighted average number of shares used in per share calculations:   
  
  
Basic shares91.0
 89.1
 90.6
 88.6
Diluted shares91.0
 89.1
 90.6
 88.6
(1) Exclusive of D&A.       
See accompanying notes to condensed consolidated financial statements.
 Three Months Ended
 March 31,
 2019 2018
Revenue:   
Services$459
 $438
Product sales238
 224
Instant products140
 150
Total revenue837
 812
Operating expenses:   
Cost of services(1)
133
 122
Cost of product sales(1)
107
 105
Cost of instant products(1)
67
 70
Selling, general and administrative186
 172
Research and development49
 54
Depreciation, amortization and impairments165
 188
Restructuring and other7
 52
Operating income123
 49
Other (expense) income:   
Interest expense(154) (155)
Earnings from equity investments6
 7
Loss on debt financing transactions—
 (93)
Gain (loss) on remeasurement of debt5
 (1)
Other expense, net—
 (3)
Total other expense, net(143) (245)
Net loss before income taxes(20) (196)
Income tax expense(4) (6)
Net loss$(24) $(202)
Other comprehensive income (loss):   
Foreign currency translation gain, net of tax55
 51
Pension and post-retirement gain (loss), net of tax1
 (1)
Derivative financial instruments unrealized (loss) gain, net of tax(5) 2
Other comprehensive income51
 52
Comprehensive income (loss)$27
 $(150)
    
Basic and diluted net loss per share:   
Basic$(0.26) $(2.24)
Diluted$(0.26) $(2.24)
    
Weighted average number of shares used in per share calculations:   
Basic shares92
 90
Diluted shares92
 90
(1) Excludes D&A.   
See accompanying notes to condensed consolidated financial statements.


67


SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions, except par value)
 June 30, 2018 December 31, 2017
ASSETS   
Current assets:   
Cash and cash equivalents$118.6
 $788.8
Restricted cash33.3
 29.0
Accounts receivable, net562.3
 540.9
Notes receivable, net123.5
 143.5
Inventories231.9
 243.1
Prepaid expenses, deposits and other current assets248.8
 131.1
Total current assets1,318.4
 1,876.4
Non-current assets:   
   Restricted cash15.5
 16.3
   Notes receivable, net48.0
 52.8
   Property and equipment, net520.2
 568.2
   Goodwill3,312.8
 2,956.1
   Intangible assets, net1,797.4
 1,604.6
   Software, net315.8
 339.4
   Equity investments209.2
 253.9
   Other assets75.6
 57.6
Total assets$7,612.9
 $7,725.3
    
LIABILITIES AND STOCKHOLDERS' DEFICIT   
Current liabilities:   
Current portion of long-term debt$48.7
 $40.3
Accounts payable184.0
 190.4
Accrued liabilities454.8
 509.1
Total current liabilities687.5
 739.8
Deferred income taxes137.5
 73.1
Other long-term liabilities211.1
 203.1
Long-term debt, excluding current portion8,845.2
 8,736.3
Total liabilities9,881.3
 9,752.3
Commitments and contingencies (see Note 15)

 

Stockholders' deficit:   
Common stock, par value $0.001 per share(1): 199.3 shares authorized; 108.6 and 107.1 shares issued and 91.4 and 89.9 shares outstanding, respectively
1.1
 1.1
Additional paid-in capital816.2
 807.8
Accumulated loss(2,679.5) (2,461.0)
Treasury stock, at cost, 17.2 shares(175.2) (175.2)
Accumulated other comprehensive loss(231.0) (199.7)
Total stockholders' deficit(2,268.4) (2,027.0)
Total liabilities and stockholders' deficit$7,612.9
 $7,725.3
(1) Following the consummation of the reincorporation merger on January 10, 2018, each authorized, issued and outstanding share of Class A common stock of SGC, par value $0.01 per share automatically converted into one share of common stock of the surviving corporation, par value $0.001 per share. The change in par value had no impact on total number of authorized, issued and outstanding shares.
See accompanying notes to condensed consolidated financial statements.
 March 31, 2019 December 31, 2018
ASSETS   
Current assets:   
Cash and cash equivalents$1,213
 $168
Restricted cash41
 39
Accounts receivable, net621
 599
Notes receivable, net104
 114
Inventories229
 216
Prepaid expenses, deposits and other current assets238
 233
Total current assets2,446
 1,369
Non-current assets:   
   Restricted cash12
 13
   Notes receivable, net33
 40
   Property and equipment, net517
 547
   Operating lease right-of-use assets118
 —
   Goodwill3,301
 3,280
   Intangible assets, net1,745
 1,809
   Software, net277
 285
   Equity investments296
 298
   Other assets92
 77
Total assets$8,837
 $7,718
    
LIABILITIES AND STOCKHOLDERS’ DEFICIT   
Current liabilities:   
Current portion of long-term debt$1,046
 $45
Accounts payable200
 225
Accrued liabilities540
 477
Total current liabilities1,786
 747
Deferred income taxes109
 108
Operating lease liabilities98
 —
Other long-term liabilities330
 334
Long-term debt, excluding current portion8,937
 8,992
Total liabilities11,260
 10,181
Commitments and contingencies (see Note 16)

 

Stockholders’ deficit:   
Common stock, par value $0.001 per share: 199 shares authorized; 110 and 109 shares issued and 93 and 92 shares outstanding, respectively1
 1
Additional paid-in capital848
 835
Accumulated loss(2,848) (2,824)
Treasury stock, at cost, 17 shares(175) (175)
Accumulated other comprehensive loss(249) (300)
Total stockholders’ deficit(2,423) (2,463)
Total liabilities and stockholders’ deficit$8,837
 $7,718
See accompanying notes to condensed consolidated financial statements.


78

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
 Six Months Ended
 June 30,
 2018 2017
Cash flows from operating activities:   
Net loss$(207.6) $(139.9)
Adjustments to reconcile net loss to cash provided by operating activities482.2
 402.1
    Changes in working capital accounts, net of acquisitions(138.3) 12.6
    Changes in deferred income taxes and other(3.9) 4.7
Net cash provided by operating activities132.4
 279.5
Cash flows from investing activities:   
Capital expenditures(200.5) (140.2)
Acquisitions of businesses and assets, net of cash acquired(274.1) (52.1)
Distributions of capital from equity investments23.2
 22.4
Additions to equity method investments(75.2) —
Other—
 10.0
Net cash used in investing activities(526.6) (159.9)
Cash flows from financing activities:   
Borrowings under revolving credit facility185.0
 125.0
Repayments under revolving credit facility(380.0) (170.0)
Proceeds from issuance of senior notes and term loans2,512.4
 1,762.4
Repayment of senior notes and term loans (inclusive of redemption premium)(2,210.3) (1,693.4)
    Repayment of assumed NYX debt(288.2) —
Payments on long-term debt(14.5) (11.4)
    Payments of debt issuance and deferred financing costs(38.5) (27.7)
Payments on license obligations(14.0) (19.5)
Net redemptions of common stock under stock-based compensation plans and other(21.5) (3.9)
Net cash used in financing activities(269.6) (38.5)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2.9) 2.8
(Decrease) increase in cash, cash equivalents and restricted cash(666.7) 83.9
Cash, cash equivalents and restricted cash, beginning of period834.1
 156.9
Cash, cash equivalents and restricted cash, end of period$167.4
 $240.8
    
Supplemental cash flow information:   
   Cash paid for interest$365.5
 $284.9
   Income taxes paid15.4
 18.7
Supplemental non-cash transactions:   
   Non-cash rollover and refinancing of Term loans (see Note 11)3,274.6
 2,747.6
   Non-cash interest expense12.2
 13.3
   Non-cash additions to intangible assets related to license agreements—
 28.1
   NYX non-cash consideration transferred (inclusive of 2017 acquisition of ordinary shares) (see Note 1)93.2
 —
 See accompanying notes to condensed consolidated financial statements.
 Three Months Ended
 March 31,
 2019 2018
Cash flows from operating activities:   
Net loss$(24) $(202)
Adjustments to reconcile net loss to cash provided by operating activities179
 309
Changes in working capital accounts, net of effects of acquisitions6
 (78)
Changes in deferred income taxes and other6
 1
Net cash provided by operating activities167
 30
Cash flows from investing activities:   
Capital expenditures(67)
(88)
Acquisitions of businesses and assets, net of cash acquired—

(274)
Distributions of capital from equity investments3

2
Net cash used in investing activities(64) (360)
Cash flows from financing activities:   
Borrowings under revolving credit facility40
 —
Repayments under revolving credit facility(175) (295)
Proceeds from issuance of senior notes and term loans1,100

2,512
Repayment of senior notes and term loans (inclusive of redemption premium)—
 (2,210)
Repayment of assumed NYX debt—

(288)
Payments on long-term debt(12) (2)
Payments of debt issuance and deferred financing costs(14) (39)
Payments on license obligations(7) (7)
  Sale of future revenue11
 —
Net redemptions of common stock under stock-based compensation plans and other(1)
(17)
Net cash provided by (used in) financing activities942
 (346)
Effect of exchange rate changes on cash, cash equivalents and restricted cash1
 2
Increase (decrease) in cash, cash equivalents and restricted cash1,046
 (674)
Cash, cash equivalents and restricted cash, beginning of period220
 834
Cash, cash equivalents and restricted cash, end of period$1,266
 $160
    
Supplemental cash flow information:   
Cash paid for interest$80
 $161
Income taxes paid10
 7
Distributed earnings from equity investments4
 1
Supplemental non-cash transactions:   
Non-cash rollover and refinancing of Term loans$—
 $3,275
Non-cash interest expense7

6
NYX non-cash consideration transferred (inclusive of 2017 acquisition of ordinary shares)—
 93
 See accompanying notes to condensed consolidated financial statements.


89



SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in USD, table amounts in millions, except per share amounts)

(1) Description of the Business and Summary of Significant Accounting Policies
Description of the Business
We are a leading developer of technology-based products and services and associated content for the worldwide gaming, lottery, social and digital gaming industries. Our portfolio of revenue-generating activities primarily includes supplying gaming machines and game content, casino-management systems and table game products and services to licensed gaming entities; providing instant and draw-based lottery games,products, lottery systems and lottery content and services to lottery operators; providing social casino solutions to retail consumers and regulated gaming entities, as applicable;consumers; and providing a comprehensive suite of digital RMG and sports bettingwagering solutions, distribution platforms, content, products and services. We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments. Following the NYX acquisition and subsequent review of our business segments reporting structure, we now report our operations in four business segments—Gaming, Lottery, Social and Digital— with prior periods being recast to align with the current presentation.Digital.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The accompanying condensed consolidated financial statements include the accounts of SGC and its wholly owned subsidiaries, and those subsidiaries in which we have a controlling financial interest. Investments in other entities in which we do not have a controlling financial interest but we exert significant influence are accounted for in our condensed consolidated financial statements using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.
In the opinion of the CompanySGC and its management, we have made all adjustments necessary to present fairly our consolidated financial position, results of operations and comprehensive loss and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 20172018 10-K. Interim results of operations are not necessarily indicative of results of operations to be expected for a full year.
Significant Accounting Policies
There have been no changes to our significant accounting policies described within the Notes of our 20172018 10-K other than adoption of ASC 606842 described in Note 2.15.
Computation of Basic and Diluted Net Loss Per Share
Basic and diluted net loss per share were the same for all periods presented as all common stock equivalents would be anti-dilutive. We excluded 2.62 million and 2.83 million of stock options from the diluted weighted-average common shares outstanding for the three and six months ended June 30,March 31, 2019 and 2018, and 2017, respectively. We excluded 3.02 million and 3 million of RSUs from the calculation of diluted weighted-average common shares outstanding for the three and six months ended June 30,March 31, 2019 and 2018, and 4.4 million RSUs from such calculation for the three and six months ended June 30, 2017.
Acquisition of NYX Gaming Group Limited and Preliminary Purchase Price Allocation
On January 5, 2018, we completed the acquisition of all outstanding ordinary shares of NYX, creating a leading digital provider of sports betting, iGaming and iLottery technologies, platforms, content, products and services. We paid $665.8 million in cash to acquire ordinary shares and other securities and to redeem NYX's outstanding debt inclusive of $91.9 million paid during the fourth quarter of 2017 to acquire NYX ordinary shares and other securities. The fair value of our NYX non-controlling equity interest held immediately before the acquisition date was $90.4 million.
We accounted for this acquisition using the acquisition method of accounting allocating the total consideration transferred to acquired tangible and intangible assets and assumed liabilities based on estimated fair values. The fair value determination of the acquired assets and assumed liabilities (including the related determination of estimated lives of depreciable and amortizable tangible and intangible assets) requires significant judgments and estimates. The estimated fair values of the acquired assets and assumed liabilities and resulting goodwill are subject to adjustment as we finalize our purchase price accounting, and such adjustments could be material.



9



We incurred $7.7 million of NYX acquisition-related costs which were recorded in Restructuring and other for the six months ended June 30, 2018.

The following table summarizes the preliminary allocation of the purchase price expected to be finalized by the end of 2018:
  January 5, 2018
Cash, cash equivalents and restricted cash $23.3
Accounts receivable and other current assets(1)
 55.2
Property and equipment and other non-current assets(1)
 22.1
Goodwill 376.4
Intangible assets 350.0
Total assets $827.0
Current liabilities(2)
 $82.0
Deferred income taxes 66.3
Assumed debt and other liabilities 299.7
Total liabilities $448.0
Total consideration transferred $379.0
(1) Inclusive of $43.0 million and $12.9 million of receivables and contract assets, respectively.
(2) Inclusive of $15.7 million of contract liabilities.

Cash, cash equivalents and restricted cash, accounts receivable and other current assets and most liabilities (other than as primarily related to deferred income taxes) were valued at the existing carrying values which approximated the estimated fair values. The estimated preliminary fair value of deferred income taxes was determined by applying the applicable enacted statutory tax rate to the temporary differences that arose on the differences between the financial reporting value and tax basis of the acquired assets and assumed liabilities. 

The fair value of intangible assets that have been preliminarily identified was determined using a combination of the relief from royalty method and the excess earnings method using level 3 inputs in the hierarchy as established by ASC 820. The discount rates used in the valuation analysis ranged between 10% and 14%, and the royalty rate used was 0.5%. The following table details the intangible assets that have been preliminarily identified:
 Fair ValueWeighted Average Useful Life (Years)
Customer relationships$214.0
7-10
Intellectual property(1)
126.5
7
Trade names9.5
7
(1) Primarily consists of core technology and content.

The factors contributing to the recognition of acquisition goodwill are based on enhanced financial and operational scale, market diversification, expected cost and operational synergies, assembled workforce, and other strategic benefits. None of the resultant goodwill is expected to be deductible for income tax purposes.

NYX revenue and net loss since the acquisition date included in our consolidated results were as follows:
 Three Months Ended Six Months Ended
 June 30, 2018
Revenue$50.6
 $99.8
Net loss8.1
 15.5

The acquired NYX business was combined with the business-to-business component of our previous Interactive business segment, forming the new Digital business segment.



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The following unaudited pro forma financial information for the three and six months ended June 30, 2018 and 2017 give effect to the NYX acquisition as if it had been completed on January 1, 2017:

 Three Months Ended Six Months Ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
Revenue$844.7
 $810.6
 $1,656.5
 $1,579.3
Net loss5.8
 52.8
 199.9
 168.7

The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been if the NYX acquisition had taken place on January 1, 2017, nor is it indicative of future operating results. The pro forma amounts include the historical operating results of SGC and NYX prior to the acquisition, with adjustments factually supportable and directly attributable to the NYX acquisition, primarily related to the effect of fair value adjustments and related depreciation and amortization, acquisition-related fees and expenses, interest expense related to additional borrowings used to complete the acquisition, and the effect of repayments of NYX historical debt as a result of the acquisition.

Other Acquisitions

On January 23, 2018, we acquired privately held Tech Art, Inc. and related entities (collectively, "Tech Art") for $9.6 million cash consideration. The transaction was accounted for as an asset acquisition, with substantially all of the cash consideration transferred allocated to intellectual property, which was assigned a 15-year useful life. Tech Art has been integrated into our Gaming business segment.

respectively.
New Accounting Guidance - Recently Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 combined with all subsequent amendments (collectively ASC 606) provides guidance outlining a single comprehensive revenue model in accounting for revenue from contracts with customers. ASC 606 supersedes existing revenue recognition guidance, including industry-specific guidance, and replaces it with a five-step revenue model with a core principle that "an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We adopted this guidance effective January 1, 2018 using a modified retrospective application approach. See our 2017 10-K Note 1 for the anticipated annual impact on our consolidated financial statements and Note 2 in this Quarterly Report on Form 10-Q for our revenue recognition policy and the quarterly impact of our adoption of ASC 606.
The FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business in 2017. The new guidance clarifies the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. We adopted this guidance effective January 1, 2018, and this adoption did not have a material effect on our consolidated financial statements.

The FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost in 2017.We adopted this guidance effective January 1, 2018. This guidance requires an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of operating income, if one is presented, which for us means that certain immaterial amounts will be classified within interest expense as compared to the previous classification within SG&A. We are also required to describe which line items are used to present the other components of net benefit cost if such financial statement line items are separately presented; otherwise, we must disclose the line items in which such costs are presented.

The FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities in 2017. We early adopted this guidance during the first quarter of 2018, which simplifies the application of hedge accounting guidance, and creates greater transparency for results presented on the face of the financial statements and footnotes. Our adoption did not have a material effect on our consolidated financial statements.

New Accounting Guidance - Not Yet Adopted


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The FASB issued ASU No. 2016-02, Leases (Topic 842) in 2016. The amended guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on theASU 2016-02 combined with all subsequent amendments (collectively, “ASC 842”) requires balance sheet recognition for all leases with a lease term greater than one year to be recorded as a lease liability (on a discounted basis) with a corresponding right-of-use asset. This guidance also expands the required quantitative and disclosing keyqualitative disclosures for lease arrangements and gives rise to other changes impacting certain aspects of lessee and lessor accounting. We adopted ASC 842 as of January 1, 2019 using the optional transition method provided by ASU 2018-11, and applied both the lessee package of practical expedients and the available lessor practical
expedients. During the first quarter of 2019, the FASB issued ASU 2019-01, Leases (Topic 842) to amend ASU 2016-02. This
amendment exempts both lessees and lessors from having to provide certain prior year interim disclosure information about leasing arrangements.in the fiscal year in which a company adopts the new leases standard. We have provided the related transition disclosures as of the beginning of 2019 in accordance with ASU 2019-1. See our 2018 10-K Note 1 for the impact on our consolidated financial statements and Note 15 in this Quarterly Report for our lease accounting policy and the quarterly impact of our adoption of ASC 842.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The standard allows companies to make an election to reclassify from Accumulated Other Comprehensive Income (AOCI) to retained earnings the stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017.


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This ASU is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The amendments in this updated guidance should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. corporate federal income tax rate in the Tax Act is recognized. We adopted this standard effective January 1, 2019. We elected not to reclassify the income tax effects of the Tax Cuts and Jobs Act from AOCI to retained earnings. The adoption of this guidance is expected to result in a significant portion of our operating leases, where we are the lessee, to be recognizeddid not have an effect on our consolidated balance sheet. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier adoption permitted. We are currently evaluating the impact of adopting this guidance.financial statements.
New Accounting Guidance - Not Yet Adopted

The FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) in 2016. The new guidance replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, we will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The new guidance will be effective for us beginning January 1, 2020, with early adoption permitted beginning January 1, 2018.2020. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of adopting this guidance.

In August 2018, the FASB issued ASU No. 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures on fair value measurements in ASC 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The new guidance will be effective for us beginning January 1, 2020, with early adoption permitted. We do not plan to early adopt this ASU, and we are currently evaluating the impact of adopting this guidance.
We do not expect that any other recently issued accounting guidance will have a significant effect on our consolidated financial statements.
Subsequent Events - Social Gaming Business Initial Public Offering

On May 7, 2019, our subsidiary SciPlay Corporation (“SciPlay”) completed an initial public offering (“IPO”) of a 17.4% minority interest in our Social gaming business. SciPlay has two classes of common stock - Class A common stock, which is traded on The NASDAQ Global Select Market under the symbol “SCPL,” and Class B common stock. On all matters submitted to a vote of SciPlay stockholders, Class B common stock entitles us to ten votes per share (for so long as the number of shares of SciPlay common stock beneficially owned by us represents at least 10% of SciPlay’s outstanding shares of common stock and, thereafter, one vote per share), and SciPlay Class A common stock entitles its owners to one vote per share. We own all of the outstanding Class B common stock, which represents approximately 82.6% of SciPlay’s total outstanding shares of common stock and approximately 97.9% of the combined voting power of both classes of SciPlay’s outstanding common stock. Accordingly, we continue to control shares representing a majority of the combined voting power in SciPlay and will continue to consolidate our Social gaming business.
(2) Revenue RecognitionThe corporate structure of the above transaction is commonly referred to as an “Up‑C” structure, which is often used by partnerships and limited liability companies when they undertake an initial public offering of their business. The Up‑C structure allows us to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for income tax purposes following the IPO. The Company currently maintains a full valuation allowance on its U.S. net deferred tax assets. We will continue to monitor and assess positive and negative evidence with respect to our ability to realize our deferred tax assets, and we recognize that this transaction could have an impact on the overall valuation allowance assessment, but these impacts are still being evaluated. Any taxable gain associated with the IPO transaction is expected to be fully offset by net operating loss carryforwards, resulting in a reduction of our valuation allowance by the same amount.
In connection with the SciPlay IPO we also entered into the following transactions:
A tax receivable agreement (“TRA”), which provides for the payment by SciPlay to us of 85% of the amount of tax benefits, if any, that SciPlay actually realizes (or in some circumstances is deemed to realize) as a result of (i) increases in the tax basis of assets of SciPlay Parent Company, LLC (“SciPlay Parent LLC”) (a) in connection with the SciPlay IPO, (b) resulting from any redemptions or exchanges of membership interests of SciPlay Parent LLC pursuant to the SciPlay Parent LLC Operating Agreement or (c) resulting from certain


11



distributions (or deemed distributions) by SciPlay Parent LLC and (ii) certain other tax benefits related to SciPlay’s making of payments under the TRA. 

An Intercompany Services Agreement, under which we provide to the Social gaming business certain corporate level general and administrative services, including but not limited to, finance, corporate development, human resources, legal (which could include liability related to litigation awards related to SciPlay), information technology and rental fees for shared assets. These expenses will be charged to the Social gaming business and settled in cash.

An intellectual property license agreement (“IP License Agreement”), pursuant to which the Social gaming business acquired the following licenses from a restricted subsidiary of SGC for a one-time payment of $255 million: (i) an exclusive (subject to certain limited exceptions), perpetual, non-royalty bearing license to use intellectual property created or acquired by Bally Gaming, Inc. (“Bally Gaming”) or its affiliates on or before the third anniversary of the date of the IP License Agreement (the date of the IP License Agreement, the “Effective Date”), in any of the Covered Games (defined as any of SciPlay’s currently available or future social games that are developed for mobile platforms, social media platforms, internet platforms or other interactive platforms and distributed solely via digital delivery); (ii) an exclusive (subject to certain limited exceptions and payment of royalties owed to third-party licensors for SciPlay's use of third-party licensed property) license to use third-party intellectual property licensed to Bally Gaming or its affiliates on or before the third anniversary of the Effective Date, to the extent permitted to be sublicensed to the Social gaming business, in any of the Covered Games; (iii) a non-exclusive, perpetual, non-royalty bearing license to use intellectual property created or acquired by Bally Gaming or its affiliates after the third anniversary of the Effective Date, but only in the Social gaming business’ currently available games; and (iv) a non-exclusive license to use third-party intellectual property licensed to Bally Gaming or its affiliates after the third anniversary of the Effective Date, to the extent permitted to be sublicensed to the Social gaming business, but only in the Social gaming business’ currently available games.

As a result of IP License Agreement described in Note 1, on January 1, 2018, we adopted ASC 606 usingabove, our Social gaming business will no longer be required to pay to Bally Gaming future royalties and or fees for use of intellectual property owned by Bally Gaming or its affiliates for the modified retrospective method, which was applied to customer contracts that were not completedSocial gaming business’ currently available games. Accordingly, and commencing with the effectiveness of the IP License Agreement as of January 1, 2018. In accordanceMay 7, 2019, our Gaming business segment AEBITDA will no longer benefit from these charges, while our Social gaming business segment AEBITDA will increase proportionately. The total amount of such IP charges for the three months ended March 31, 2019 and 2018 were $7.3 million and $6.2 million, respectively, and for the years ended December 31, 2018 and 2017 were $26 million and $24 million, respectively.
SciPlay Holding Company, LLC (“SciPlay Holding”), a subsidiary of SciPlay, entered into a $150 million revolving credit agreement (the “SciPlay Revolver”) by and among SciPlay Holding, as the borrower, SciPlay Parent LLC, as a guarantor, the subsidiary guarantors party thereto (which are all domestic entities that comprise our Social gaming business), the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent that matures in May 2024. The interest rate is either Adjusted LIBOR (as defined in the SciPlay Revolver) plus 2.250% (with one 0.250% leverage-based step-down to the margin and one 0.250% leverage-based step-up to the margin) or ABR (as defined in the SciPlay Revolver) plus 1.250% (with one 0.250% leverage-based step-down to the margin and one 0.250% leverage-based step-up to the margin) at the option of SciPlay Holding. SciPlay Holding is required to pay to the lenders a commitment fee of 0.500% per annum on the average daily unused portion of the revolving commitments through maturity, which fee varies based on the total net leverage ratio and is subject to a floor of 0.375%. The SciPlay Revolver provides for up to $15.0 million in letter of credit issuances, which requires customary issuance and administration fees, and a fronting fee of 0.125%.
The SciPlay Revolver contains covenants that, among other things, restrict SciPlay Holding’s, SciPlay Parent LLC’s and the subsidiary guarantors’ ability to incur additional indebtedness; incur liens; sell, transfer or dispose of property and assets; invest; make dividends or distributions or other restricted payments; and engage in affiliate transactions, with the modified retrospective transition method,exception of certain payments under the TRA and payments in respect of certain tax distributions under the SciPlay Parent LLC Operating Agreement.We currently do not expect the Social gaming business to declare or pay any cash dividends to us, other than tax distributions and certain cash distributions related to the impact of taxes pursuant to the TRA. If the Social gaming business discontinues the payment of, or is unable to pay, cash dividends to us, this will reduce our resultsavailable liquidity. Furthermore, the terms of operations beginning withindebtedness incurred by the first quarterSocial gaming business may, and the terms of 2018 are presented in accordance with ASC 606, while prior periods continue to be reported in accordance with the historical revenue recognition guidance as disclosed in our 2017 10-K.

The following table disaggregates our revenues by type within each of our business segments:
 Three Months Ended June 30, Six Months Ended June 30,
 2018
2017 2018 2017
Gaming       
  Gaming operations$159.9

$178.4
 $321.3

$350.8
  Gaming machine sales167.6

163.3
 312.4

319.5
Gaming systems84.3

67.1
 159.3

128.6
  Table products58.9

48.4
 120.7

98.3
    Total$470.7

$457.2
 $913.7

$897.2
        
Lottery       
  Instant products$150.1

$151.3
 $300.3

$293.0
  Lottery systems57.0

51.0
 108.5

98.4
    Total$207.1

$202.3
 $408.8

$391.4
        
Social       
  Social gaming$99.7
 $91.1
 $197.1
 $171.3
    Total$99.7

$91.1
 $197.1

$171.3
        
Digital       
Sports and platform$20.5

$—
 $46.4

$—
Gaming and other46.7

15.7
 90.5

31.8
    Total$67.2

$15.7
 $136.9

$31.8

General



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We evaluateSciPlay Revolver will, limit the recognition of revenue and rental income based on the criteria set forth in ASC 606 or ASC 840, as appropriate. Revenue is recognized when control of thepromised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. This condition normally is met when the product has been delivered or upon performance of services. Revenue is reported net of incentive rebates and discounts. We made an accounting policy election to exclude from the measurementability of the transaction price sales taxesSocial gaming business to pay dividends or make other distributions to us, or to amend the agreements between the Social gaming business and allus and our other items of a similar nature, and also elected to account for shipping and handling activities as a fulfillment of our promise to transfer the goods. Accordingly, shipping and handling costs are included in cost of sales.subsidiaries.

Our credit terms are predominately short term in nature. We also grant extended payment terms under certain contracts, primarily whereIn addition, the saleSciPlay Revolver requires that SciPlay maintain a maximum total net leverage ratio not to exceed 2.50:1.00 and maintain a minimum fixed charge coverage ratio of no less than 4.00:1.00. The SciPlay Revolver is secured by a (i) first priority pledge of the related equipment sold,equity securities of SciPlay Holding, SciPlay Parent LLC’s restricted subsidiaries and generally onlyeach subsidiary guarantor party thereto and (ii) first priority security interests in, certain Gaming segment contracts with customers. For these contracts with customers for which the financing component is determinedand mortgages on, substantially all tangible and intangible personal property and material fee-owned real property of SciPlay Parent LLC, SciPlay Holding and each subsidiary guarantor party thereto, in each case, subject to be significant to the contract, the contract transaction price is adjusted for the effect of a financing component (time value of money). We have not applied the significant financing component guidance to transactions with financing terms of 12 months or less.

Any sales commissions associated with the sale or placement of our products and services are expensed as incurred as contracts associated with sales commissions are generally completed within a one-year period.customary exceptions.

The primary typesentities that comprise our Social gaming business are unrestricted subsidiaries under our debt agreements and are therefore not subject to the covenants in our debt agreements. Conversely, only the entities that are parties to the SciPlay Revolver (which are all domestic entities that comprise our Social gaming business) and their respective restricted subsidiaries are subject to the covenants in the SciPlay Revolver. As a result, this will reduce our available liquidity and limit the ability of revenue impactedthe Social gaming business to pay dividends or make other distributions to us, or to amend the agreements between the Social gaming business and us and our other subsidiaries. In 2018, the amount of dividends declared and paid by the adoptionSocial gaming business to Bally Gaming, a wholly owned subsidiary of SGC, was $77 million.

As a result of these transactions, we received net proceeds of $301 million, which enables us to make substantial payments to reduce our debt.

(2) Revenue Recognition

The following table disaggregates revenues by type within each of our business segments:
 Three Months Ended March 31,
 2019
2018
Gaming   
  Gaming operations$152
 $161
  Gaming machine sales136
 145
Gaming systems74
 75
  Table products60
 62
    Total$422
 $443
    
Lottery   
  Instant products$140
 $150
  Lottery systems87
 52
    Total$227
 $202
    
Social   
  Mobile$97

$73
  Web and other21

24
    Total$118
 $97
    
Digital   
Sports and platform$30
 $26
Gaming and other40
 44
    Total$70
 $70

The amount of rental income revenue that is outside the scope of ASC 606 were Gaming operationswas $96 million and Lottery instant products. Each of these is described separately below. We had other balance sheet adoption impacts that, combined with the preceding, resulted in a net increase to opening accumulated loss of $10.9$67 million as of January 1, 2018. As part of the adoption of ASC 606, we increased contract liabilities by $9.7 million primarily associated with Lottery instant products licensing and player loyalty contracts for which we determined that the promises in the related contracts were part of a single performance obligation under ASC 606. In addition, we reduced previously recorded deferred costs net of newly established contract assets by $11.4 million related to licensing in certain customized lottery software contracts for which we concluded that we were unable to recognize revenue for delivered elements under ASC 985-605 due to the lack of vendor-specific objective evidence for undelivered elements and for which we were required to estimate the standalone selling price of delivered performance obligations under ASC 606. Combined, we expect all other adoption impacts other than Gaming operations and Lottery instant products to have less than a $10.0 million impact on revenue and operating income in the aggregate for the remainder of 2018.three months ended March 31, 2019 and 2018, respectively.

Contracts with Customers with Multiple Promised Goods and Services
We enter into contracts with customers that include multiple promises (such as gaming machines, gaming systems hardware and software, installation, service and maintenance, product support or lottery systems and hardware, installation and maintenance bundled promises). For such contracts, the transaction price is allocated to each distinct performance obligation using an estimate of stand-alone selling price. The stand-alone selling price is generally based on observable prices or a cost plus margin approach. We also use the residual method when observable prices are uncertain or highly variable, primarily with respect to certain of our software licenses. The establishment of stand-alone selling price requires judgment as to whether there is a sufficient quantity of items sold or substantively renewed on a stand-alone basis and those prices demonstrate an appropriate level of concentration to conclude that a stand-alone selling price exists.

The guidance in ASC 606 requires that we apply judgments or estimates to determine both the performance obligations and the stand-alone selling prices of identified performance obligations. Contracts with multiple promised goods and services described above will often involve significant judgment in determining whether each promise is distinct or should be combined with other promises in such contracts in concluding on the distinct performance obligations for such contracts. Such judgment generally requires an assessment of the level of integration and interdependency between individual components particularly in our gaming systems and certain digital contracts with customers. Associated with these same contracts, we also apply significant judgment to determine the stand-alone selling prices of the identified performance obligations. In certain contracts with customers, we bundle the selling price for multiple promised goods or services or we may license systems for which the solutions we provide are highly customized and therefore the prices we charge are either uncertain, highly variable, or both.

Gaming Operations

Gaming operations revenues are generated by providing customers access to proprietary land-based gaming equipment, table game products and VLTs under a variety of recurring operating, service, or rental contracts, for which consideration is based upon a percentage of Coin-in, a percentage of Net win, or a fixed daily/monthly fee, with variability generally resolved in the reporting period. For these contracts with customers, we generally transfer control and recognize revenue or rental income over time based on the amount we expect to receive as described and classify such revenue or rental income as services revenue. Payments from customers under these contracts are typically due on a monthly basis. Jackpot


13



expense for our WAP services is recorded as a reduction to revenue, which decreased revenue and cost of services by $6.5 million and $10.9 million for the three and six months ended June 30, 2018, respectively. This change in classification has no impact on operating income or net loss. There was $5.3 million and $12.4 million of such amounts presented as cost of services for the three and six months ended June 30, 2017, respectively.

Gaming Machine Sales

These contracts with customers include the sale of gaming machines, including game content, electronic table game products and parts (including game themes and conversion kits). We transfer control and recognize revenue from the sale of gaming machines at a point in time upon delivery of gaming machines to our customers or distributors pursuant to the terms of the contract. If the sale of gaming machines includes multiple promised goods and services, these contracts are accounted for as described in the "Contracts with Customers with Multiple Promised Goods and Services" section above. Our credit terms are predominately short term in nature.

Gaming Systems

Gaming systems contracts with customers can include a comprehensive suite of technology solutions provided to gaming operators, including perpetual licenses to core system solutions and non-core system solutions and other applications and tools. Gaming systems products also include the iVIEW® touch screen display, which facilitates the player experience, bonus features, customer service, and employee functions and ongoing hardware and software maintenance services and upgrades.

Determination of performance obligations and timing of the transfer of control varies by contract. Generally, these contracts contain multiple promised goods and services, including the following: (i) core system software license; (ii) non-core system software license(s); (iii) professional services; (iv) system-based hardware; (v) in-game hardware products; and (vi) software and hardware maintenance and product support.

Control transfers and we recognize revenue from the sale of perpetual gaming systems licenses and various hardware products at a point in time when the gaming system is available for use by a customer which is no earlier than the commencement of the license term, and for the hardware products upon delivery. For contracts that include new core gaming system installations, control is not considered transferred until control of the core gaming system license is transferred as the additional promises are generally highly dependent on the core gaming system. Software and hardware maintenance and product support services are considered stand-ready obligations, therefore control transfers and revenue is recognized over time over the term of the maintenance and support period. If a gaming systems contract includes multiple promised goods and services, these contracts are accounted for as described in the "Contracts with Customers with Multiple Promised Goods and Services" section above.

Table Products

Table products revenue is generated from supplying and maintaining or selling table game products, primarily including automatic card shufflers, deck checkers, table roulette chip sorters and other land-based table gaming equipment. We transfer control and recognize revenue from the sale of table products at a point in time upon delivery to our customers or distributors pursuant to the terms of the contract. Supply and maintenance contracts, for which consideration is primarily based on a fixed monthly fee, are considered stand-ready obligations, therefore control transfers and revenue is recognized over time over the term of the supply and maintenance period. Such contracts are generally short-term in nature. We also license our proprietary table games content, for which revenue is recognized at a point in time under the licensing of intellectual property guidance as such licenses are functional licenses.

Lottery Instant Products

Our instant products revenue is primarily generated under long-term contracts to supply instant products and provide related services to our Lottery customers. For instant products that are sold on a PPU and POS basis, we generally have a single performance obligation of a promise to supply the instant products. Control transfers and we recognize revenue from the sale of such instant products when the lotteries have taken delivery of shipments of instant products pursuant to the terms of the contract. For instant products that are sold on a POS basis, we are compensated based on retail sales, therefore the timing difference between the recognition of revenue, the billing of our customers and the receipt of payments depends on retail sales. Contract assets resulting from these contracts remain until we have the contractual ability to invoice and collect from customers (which occurs upon retail sales).


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For our CSP contracts in which we perform all of the services necessary to operate the associated lottery’s integrated instant product operations and for which we are compensated based on retail sales, our single performance obligation is a promise to perform a series of stand-ready services to operate and manage instant gaming programs for the lotteries in their entirety. Revenue is recognized over time as measured by an appropriate measure of progress toward satisfying our performance obligation, which we have determined to be when a lottery retailer activates any associated instant tickets, as this is the point at which we have transferred control over the associated instant tickets and perform no more services related to such instant tickets.

The guidance in ASC 606 requires that we apply judgment to determine the timing of control transfer of performance obligations in our Lottery instant products contracts. For instant products that are sold under POS contracts, we generally have a single performance obligation of a promise to supply the instant products. The determination of when control transfers requires significant judgment because lotteries take delivery of shipments of instant products, but we retain the risk of such inventory until retail sales of such tickets takes place. We have determined control transfers upon delivery to a lottery-controlled warehouse, because we do not have the ability to direct the use of such instant products subsequent to delivery.
As disclosed in the first quarter of 2018, there was an $8.1 million and $6.3 million increase in revenue and Lottery Business Segment AEBITDA, respectively, associated with instant products sold on a POS basis due to adopting the new revenue recognition guidance in the first interim period of adoption. We expect this favorable impact will be largely offset during the three quarters following the initial adoption. The impact for the second quarter of 2018 was in line with these expectations. We continue to expect the adoption of the new revenue recognition guidance will have less than a $10.0 million impact on POS revenue in the aggregate for 2018.
Revenue from any tickets sold under these arrangements that were in the lottery distribution channel at December 31, 2017 will not be recognized as retail sales occur, as both the revenue value of such tickets and the historical cost of such inventory at December 31, 2017 was reflected directly into shareholders’ deficit at adoption. The adoption of ASC 606 related to inventory in the distribution channel at December 31, 2017 resulted in an increase to contract assets (included in Prepaid expenses, deposits and other current assets) totaling $52.0 million, a reduction to inventory totaling $33.0 million and a decrease to accumulated net loss totaling $19.0 million. The impact of ASC 606 on our June 30, 2018 consolidated balance sheet was a $39.5 million decrease to inventories and a $45.4 million increase to contract assets included in Prepaid expenses, deposits and other current assets.
Lottery Systems

Our Lottery business segment offers our customers a number of related, value-added services as part of an integrated product offering. These services include lottery systems, including point-of-sale terminals and other equipment, software, data communication services and support and instant game validation systems, and software, hardware and related services for sports wagering and keno systems.

For our integrated lottery systems service contracts (described above), our single performance obligation is a promise to perform a series of stand-ready services to operate a fully-functional draw lottery. Revenue is recognized over time in an amount generally based on a percentage of sales of the related games, which represents our measure of progress toward satisfying our performance obligation.

For our perpetual licensing of customized lottery software contracts, we generally recognize revenue over time using costs incurred to date relative to total estimated completion costs to measure progress toward satisfying our performance obligations, which we believe best depicts the transfer of control to the customer. 

Maintenance on lottery software and lottery terminals is considered a stand-ready obligation, with control transferring and revenue being recognized over time ratably over the maintenance and support period. If a lottery systems contract includes multiple promised goods and services, these contracts are accounted for as described in the "Contracts with Customers with Multiple Promised Goods and Services" section above.

Social Gaming

Social gaming revenues are generated from the sale of virtual coins, chips or bingo cards (collectively referred to as "virtual currency"), which players can use to play casino-style slot and table games or bingo games (i.e., spin in the case of slot games, bet in the case of table games and use of bingo cards in the case of bingo games). Control transfers and we recognize revenues from player purchases of virtual currency as the virtual currency is consumed for game play, which is based on a


15



historical data analysis. Because we have control over the content and functionality of games before they are accessed by the end user, we have determined we are the principal and, as a result, revenues are recorded on a gross basis. Payment processing fees paid to platform providers (such as Facebook, Apple, Amazon and Google) on a revenue participation basis are recorded within cost of services.

Digital

Digital revenue is generated from professional services related to highly customized software design, development, licensing, maintenance and support services associated with a comprehensive suite of technology solutions, including sports books and betting markets across both fixed-odds and pari-mutuel betting styles. Additionally, through our integrated suite of various platform and technology solutions, we provide gaming operators optional portals for reporting and administrative functions, and access to a wide portfolio of content, including casino, lottery and bingo style games.
Determination of performance obligations and timing of the transfer of control vary based on the nature of the contract. Generally, these contracts contain multiple promises, including the following: (i) implementation of customized software solution and the associated software license; (ii) support services and unspecified software updates; (iii) professional development services; and (iv) access to the game content. Generally control transfers and we recognize revenue from the implementation of a customized software solution and the associated software license over time using costs incurred to date relative to total estimated completion costs to measure progress toward satisfying our performance obligations, which we believe best depicts the transfer of control to the customer. Support services and unspecified software updates are considered stand-ready obligations, therefore control transfers and revenue is recognized over time ratably over the term of the support period. Professional development services generally relate to post-go live development, and control transfers and revenue is recognized over time as services are rendered.
We also generate revenue from various content aggregation platforms, remote gaming servers, our SG Universe®platform and various other platforms, which deliver a wide spectrum of internally developed and branded games and popular third-party provided games to gaming operators. We provide daily access to these platforms and are typically compensated based on variable consideration, such as a percentage of net gaming revenue with variability generally resolved in the reporting period. All Digital revenue is classified as services revenue.
Contract Liabilities and Other Disclosures

The following table summarizes the activity in our contract liabilities for the reporting period:
 Six Months Ended June 30,Three Months Ended March 31,
 20182019
Contract liability balance, beginning of period(1)
 $88.2
$97
Liabilities recognized during the period 46.9
26
Amounts recognized in revenue from beginning balance (37.5)(22)
Contract liability balance, end of period(1)
 $97.6
$101
(1) Contract liabilities are included within accrued liabilities and other long-term liabilities in our consolidated balance sheet.
(1) Contract liabilities are included within Accrued liabilities and Other long-term liabilities in our March 31, 2019 consolidated balance sheet.(1) Contract liabilities are included within Accrued liabilities and Other long-term liabilities in our March 31, 2019 consolidated balance sheet.

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on our consolidated balance sheet. Other than contracts with customers with financing arrangements exceeding 12 months, revenue recognition is generally proximal to conversion to cash, except for Lottery instant products sold under percentage of salePOS contracts. As disclosed in "Lottery Instant Products" above, revenueRevenue is recognized for such contracts upon delivery to our customers, while conversion to cash is based on the retail sale of the underlying ticket to end consumers. As a result, revenue recognition under ASC 606 does not approximate conversion to cash in any periods post-adoption. Total revenue recognized under such contracts was $23.6$23 million and $57.8$34 million in the three and six months ended June 30,March 31, 2019 and 2018, respectively. The following table summarizes our opening and closing balances in these accounts for the periods indicated (other than contract liabilities disclosed above):


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 Receivables
Contract Assets(1)
Opening balance, January 1, 2018$724.7
$66.4
Closing balance, June 30, 2018733.8
90.6
(1) Contract assets are included primarily within Prepaid expenses, deposits and other current assets in our June 30, 2018 consolidated balance sheet.
Other than acquired contract assets and receivables and assumed contract liabilities resulting from the NYX acquisition (described in Note 1), we did not have any changes in these balances other than normal, recurring activity during the interim period ended June 30, 2018.
 Receivables 
Contract Assets(1)
Beginning of period balance$753
 $114
End of period balance, March 31, 2019758
 114
(1) Contract assets are included primarily within Prepaid expenses, deposits and other current assets in our March 31, 2019 consolidated balance sheet.
As of June 30, 2018, other than as described above,March 31, 2019, we did not have material unsatisfied performance obligations for contracts expected to be long-term or contracts for which we recognize revenue at an amount other than for which we have the right to invoice for goods or services delivered or performed.

(3) Business Segments
In connection with the NYX acquisition (see Note 1), in the first quarter of 2018, we reviewed our operating and business segments in light of certain changes in the organizational and operational structure of the Company. Based on this review, we determined that our Social gaming business, previously included in our Interactive business segment, is a separate business segment and the remaining business-to-business Interactive business component was integrated with the acquired NYX business, collectively forming the new Digital business segment.
As a result of the above changes, we nowWe report our operations in four business segments—Gaming, Lottery, Social and Digital—representing our different products and services. A detailed discussion regarding the products and services from which our Gaming and Lotteryeach reportable business segments generally derive theirsegment derives its revenue is included in Notes 2 and 3 in our 2017 10-K Note 2. Our Social business2018 10-K.
In evaluating financial performance, our Chief Operating Decision Maker focuses on AEBITDA as management’s segment provides social gaming services through our own B2C applications. Our Digital business segment provides highly customizable software design, development, licensing, maintenance and support services from a comprehensive suitemeasure of technology solutions to enable our customers to operate sports books, including betting markets across both fixed-odds and pari-mutuel betting styles, a distribution platform, full gaming process support services, brand and player management, including SG Universe services, and RMG services to online casino operators through our remote game servers. The products and services fromprofit or loss, which each reportable segment derives its revenues are further discussedis described in Note 2.
We also reviewed and considered the change3 in our Chief Executive Officer2018 10-K. As a result of the on-going initial public offering of a minority interest in our Social gaming business, which was subsequently completed during the second quarter of 2018, who is also our Chief Operating Decision Maker (CODM), and how resources are allocated and financial information is regularly reviewed to evaluate operating results and performance of our business segments. As a result of this change and starting with the second quarter of 2018,2019, we changed our calculation of Social business segment performance measureAEBITDA beginning with the first quarter of profit2019. Social business segment AEBITDA now reflects intercompany charges settled in cash for corporate services and certain royalties paid for by our Social business segment to other segments or loss from operating income (loss) to Attributable EBITDA (AEBITDA), which we have described below.Corporate (included in the “Unallocated and Reconciling Items” column in the tables below). Business segment information for the three and six months ended June 30, 2017March 31, 2018 has been recast to reflect these changes. Additionally, see Note 1for a description of the IP License Agreement executed in conjunction with the SciPlay IPO that will impact our Gaming business segment and Social business segment AEBITDA commencing with the effectiveness of the IP License Agreement as of May 7, 2019. The accounting policies of our business segments are the same as those described within the Notes in our 2017 10-K and in Note 1 and Note 2 (for revenue recognition) in this Quarterly Report on Form 10-Q.2018 10-K. The following tables present our segment information:


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 Three Months Ended June 30, 2018
 Gaming Lottery Social Digital 
Unallocated and Reconciling Items(1)
 Total
Total revenue$470.7
 $207.1
 $99.7
 $67.2
 $—
 $844.7
AEBITDA(2)
235.7
 99.4
 25.2
 13.2
 (33.1) 340.4
Reconciling items to consolidated net loss before income taxes:
D&A(121.0) (13.9) (6.5) (16.7) (14.6) (172.7)
Restructuring and other(1.5) 3.2
 (0.5) (4.4) (30.3) (33.5)
EBITDA from equity investments(2)
        (16.5) (16.5)
Earnings from equity investments        4.6
 4.6
Interest expense        (146.1) (146.1)
Gain on remeasurement of debt        34.5
 34.5
Other expense, net        (0.9) (0.9)
Stock-based compensation        (15.6) (15.6)
Net loss before income taxes          (5.8)
            
Assets as of June 30, 2018$5,210.7
 $1,146.3
 $190.5
 $862.2
 $203.2
 $7,612.9
(1) Includes amounts not allocated to the business segments (including corporate costs) and reconciling items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.
(2) AEBITDA is net income (loss) before the following adjustments: (1) restructuring and other, which includes charges or expenses attributable to: (i) employee severance; (ii) management changes; (iii) restructuring and integration; (iv) M&A and other, which includes: (a) M&A transaction costs, (b) purchase accounting, (c) unusual items (including certain litigation), and (d) other non-cash items; and (v) cost savings initiatives; (2) depreciation and amortization expense and impairment charges (including goodwill impairment charges); (3) change in fair value of investments and remeasurement of debt; (4) interest expense; (5) income taxes expense (benefit); (6) stock-based compensation; and (7) loss (gain) on debt financing transactions. In addition to the preceding adjustments, we exclude earnings from equity method investments and add (without duplication) our pro rata share of EBITDA of our equity investments, which represents our share of earnings (whether or not distributed to us) before income tax expense, depreciation and amortization expense, and interest (income) expense, net. AEBITDA is presented exclusively as our segment measure of profit or loss.

 Three Months Ended June 30, 2017
 Gaming Lottery Social Digital 
Unallocated and Reconciling Items(1)
 Total
Total revenue$457.2
 $202.3
 $91.1
 $15.7
 $—
 $766.3
AEBITDA(2)
226.9
 95.6
 21.9
 2.7
 (32.3) 314.8
Reconciling items to consolidated net loss before income taxes:
D&A(136.0) (13.3) (3.1) (1.3) (21.3) (175.0)
Restructuring and other(0.3) 1.1
 (0.2) (0.1) (1.6) (1.1)
EBITDA from equity investments(2)
        (13.1) (13.1)
Earnings from equity investments        3.1
 3.1
Interest expense        (151.2) (151.2)
Other expense, net        (3.1) (3.1)
Stock-based compensation        (7.1) (7.1)
Net loss before income taxes          (32.7)
            
Assets as of December 31, 2017$5,401.6
 $1,070.6
 $219.1
 $61.2
 $972.8
 $7,725.3
(1) Includes amounts not allocated to the business segments (including corporate costs) and reconciling items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.
(2) AEBITDA is described in footnote (2) to the first table in this Note 3.




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Six Months Ended June 30, 2018Three Months Ended March 31, 2019
Gaming Lottery Social Digital 
Unallocated and Reconciling Items(1)
 TotalGaming Lottery 
Social(2)
 Digital 
Unallocated and Reconciling Items(1)
 Total
Total revenue$913.7
 $408.8
 $197.1
 $136.9
 $—
 $1,656.5
$422
 $227
 $118
 $70
 $—
 $837
AEBITDA(2)
453.8
 193.5
 51.4
 30.4
 (68.6) 660.5
215
 104
 25
 13
 (29) $328
Reconciling items to consolidated net loss before income taxes:
D&A(260.4) (28.1) (13.1) (32.7) (26.5) (360.8)(112) (19) (2) (19) (13) (165)
Restructuring and other(2.9) 2.4
 (18.6) (10.1) (56.5) (85.7)(2) —
 (1) (3) (1) (7)
EBITDA from equity investments(2)
        (35.3) (35.3)        (17) (17)
Earnings from equity investments        11.9
 11.9
        6
 6
Interest expense        (300.9) (300.9)        (154) (154)
Loss on debt financing transactions        (93.2) (93.2)
Gain on remeasurement of debt        33.4
 33.4
        5
 5
Other expense, net        (6.9) (6.9)        (2) (2)
Stock-based compensation        (24.4) (24.4)        (14) (14)
Net loss before income taxes          (201.4)          $(20)
(1) Includes amounts not allocated to the business segments (including corporate costs) and reconciling items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.
(2) AEBITDA is described in footnote (2) to the first table in this Note 3.

(2) Our Social business segment information represents SciPlay operations (see Note 1), and starting with the second quarter of 2019 we will refer to our Social business segment as SciPlay.(2) Our Social business segment information represents SciPlay operations (see Note 1), and starting with the second quarter of 2019 we will refer to our Social business segment as SciPlay.

 Six Months Ended June 30, 2017
 Gaming Lottery Social Digital 
Unallocated and Reconciling Items(1)
 Total
Total revenue$897.2
 $391.4
 $171.3
 $31.8
 $—
 $1,491.7
AEBITDA(2)
436.6
 180.9
 39.8
 7.8
 (63.7) 601.4
Reconciling items to consolidated net loss before income taxes:
D&A(259.3) (27.2) (5.7) (2.7) (45.2) (340.1)
Restructuring and other(4.5) 0.8
 (1.0) (0.1) (5.5) (10.3)
EBITDA from equity investments(2)
        (29.1) (29.1)
Earnings from equity investments        12.6
12.6
12.6
Interest expense        (310.6) (310.6)
Loss on debt financing transactions        (29.7) (29.7)
Other income, net        2.0
 2.0
Stock-based compensation        (13.0) (13.0)
Net loss before income taxes          (116.8)
(1) Includes amounts not allocated to the business segments (including corporate costs) and reconciling items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.
(2) AEBITDA is described in footnote (2) to the first table in this Note 3.

The following table presents our recast quarterly selected segment financial data for 2017 and 2016:


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 Recast Quarterly Segment Financial Data
 2017 2016
 March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31
Total revenue               
Social$80.2
 $91.1
 $95.1
 $95.5
 $60.2
 $69.1
 $70.3
 $74.8
Digital16.1
 15.7
 16.3
 17.8
 12.4
 14.3
 14.9
 16.8
Previous Interactive Segment$96.3
 $106.8
 $111.4
 $113.3
 $72.6
 $83.4
 $85.2
 $91.6
Total Attributable EBITDA(1)
               
Social$17.9
 $21.9
 $20.1
 $21.8
 $13.2
 $16.0
 $10.9
 $15.4
Digital5.1
 2.7
 3.1
 5.1
 2.2
 2.2
 2.7
 4.3
(1) AEBITDA is described in (2) to the first table in this Note 3.
 Three Months Ended March 31, 2018
 Gaming Lottery 
Social(2)
 Digital 
Unallocated and Reconciling Items(1)
 Total
Total revenue$443
 $202
 $97
 $70
 $—
 $812
AEBITDA218
 94
 23
 17
 (32) $320
Reconciling items to consolidated net loss before income taxes:
D&A(139) (14) (7) (16) (12) (188)
Restructuring and other(1) (1) (18) (6) (26) (52)
EBITDA from equity investments        (19) (19)
Earnings from equity investments        7
 7
Interest expense        (155) (155)
Loss on debt financing transactions        (93) (93)
Loss on remeasurement of debt        (1) (1)
Other expense, net        (6) (6)
Stock-based compensation        (9) (9)
Net loss before income taxes          $(196)
(1) Includes amounts not allocated to the business segments (including corporate costs) and reconciling items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.
(2) Our Social business segment information represents SciPlay operations (see Note 1), and starting with the second quarter of 2019 we will refer to our Social business segment as SciPlay.

(4) Restructuring and other
Restructuring and other includes charges or expenses attributable to: (i) employee severance; (ii) management restructuring and related costs; (iii) restructuring and integration; (iv) cost savings initiatives; (v) major litigation; and (vi) acquisition costs and other unusual items. The following table summarizes pre-tax restructuring and other costs for the periods presented:


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 Three Months Ended June 30, Six Months Ended June 30, Three Months Ended March 31,
 2018 2017 2018 2017 2019 2018
Employee severance (1)
 $15.8
 $—
 $20.9
 $2.7
 $3
 $5
Acquisitions and related costs(2)
 (0.2) 0.8
 7.6
 4.2
 —
 8
Contingent consideration adjustment(3)
 —
 —
 18.0
 —
 —
 18
Legal and related 10.0
 —
 26.0
 —
 —
 16
Restructuring, integration and other 7.9
 0.3
 13.2
 3.4
 4
 5
Total $33.5
 $1.1
 $85.7
 $10.3
 $7
 $52
(1) Inclusive of employee severance and termination costs associated with restructuring and integration activities.
(2) Six months ended June 30, 2018 includes $7.7 million related to the NYX acquisition.
(3) Represents contingent consideration fair value adjustment (see Note 12).
(1) Includes employee severance and termination costs associated with restructuring and integration activities.(1) Includes employee severance and termination costs associated with restructuring and integration activities.
(5) Accounts and Notes Receivable and Credit Quality of Receivables
Accounts and Notes Receivable
The following table summarizes the components of current and long-term accounts and notes receivable, net:
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Current:      
Accounts receivable$575.4
 $551.5
$636
 $615
Notes receivable146.2
 164.1
127
 138
Allowance for doubtful accounts and notes(35.8) (31.2)(38) (40)
Current accounts and notes receivable, net$685.8
 $684.4
$725
 $713
Long-term:      
Notes receivable, net of allowance of $0.1 and $0.248.0
 52.8
Notes receivable, net of allowance33
 40
Total accounts and notes receivable, net$733.8
 $737.2
$758
 $753
Credit Quality of Receivables
The interest rates on our outstanding receivables bearing interest ranged from 3.0%3% to 10.0%10% at June 30, 2018,March 31, 2019 and 3.0% to 10.4% at December 31, 2017.2018.
We have certain concentrations of outstanding accounts and notes receivable in international locations that impact our assessment of the credit quality of those receivables. We monitor the macroeconomic and political environment in each of these locations in our assessment of the credit quality of our receivables. We have not identified changes in the aforementioned factors during the sixthree months ended June 30, 2018March 31, 2019 that require a reassessment of our receivable balances. The international locations with significant concentrations (generally deemed to be exceeding 10%) of our accounts and notes receivable are as follows:
Mexico - Our notes receivable, net, from certain customers in Mexico at June 30, 2018March 31, 2019 was $27.224 million. We collected $16.68 million of outstanding receivables from these customers during the sixthree months ended June 30, 2018.March 31, 2019.
Peru - Our notes receivable, net, from certain customers in Peru at June 30, 2018March 31, 2019 was $16.315 million. We collected $6.32 million of outstanding receivables from these customers during the sixthree months ended June 30, 2018.March 31, 2019.
Argentina - Our notes receivable, net, from customers in Argentina at June 30, 2018March 31, 2019 was $25.616 million denominated in USD. Our customers are required to, and have continued to, pay us in pesos at the spot exchange rate on the date of payment. We collected $15.76 million of outstanding receivables from customers in Argentina during the sixthree months ended June 30, 2018.March 31, 2019.
In addition to the macroeconomic and political factors noted above, we also evaluated recent payments, receivables aging, any additional security or collateral we had (bills of exchange, pledge agreements, etc.) and other facts and circumstances relevant to our customers' ability to pay.
The following summarizes the components of total notes receivable, net:


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June 30, 2018 Balances over 90 days past due December 31, 2017 Balances over 90 days past dueMarch 31, 2019 Balances over 90 days past due December 31, 2018 Balances over 90 days past due
Notes receivable:              
Domestic$75.4
 $9.8
 $93.5
 $9.2
$61
 $8
 $55
 $6
International118.8
 28.5
 123.6
 33.2
99
 26
 123
 25
Total notes receivable194.2
 38.3
 217.1
 42.4
160
 34
 178
 31
              
Notes receivable allowance              
Domestic(4.7) (4.6) (4.0) (4.0)(6) (6) (6) (6)
International(18.0)
(18.0) (16.8) (16.8)(17)
(17) (18) (18)
Total notes receivable allowance(22.7) (22.6) (20.8) (20.8)(23) (23) (24) (24)
Notes receivable, net$171.5
 $15.7
 $196.3
 $21.6
$137
 $11
 $154
 $7
At June 30, 2018, 9.2%March 31, 2019, 8% of our total notes receivable, net, was past due by over 90 days, compared to 11.0%4% at December 31, 2017.2018.
We evaluate our exposure to credit loss on notes receivable on both a collective and individual basis. In addition, we evaluate such notes receivable on a geographic basis and take into account any other factors (such as general economic conditions, other macroeconomic considerations, etc.) that could impact our collectability of notes receivable individually or in the aggregate. Accordingly, notes receivable may be evaluated under multiple methodologies, and the resulting allowance is not determined based on one specific methodology taking all factors into consideration. The activity in our allowance for notes receivable for each of the sixthree month periods ended June 30,March 31, 2019 and 2018 and 2017 is as follows:
 Six Months Ended June 30, Three Months Ended March 31,
 2018 2017 2019 2018
Beginning allowance for notes receivable $(20.8) $(15.0) $(24) $(21)
Provision (2.8) (4.4) (2) (3)
Charge-offs and recoveries 0.9
 1.1
 3
 1
Ending allowance for notes receivable $(22.7) $(18.3) $(23) $(23)

The fair value of notes receivable is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of June 30, 2018March 31, 2019 and


20

December 31, 2017,2018, the fair value of notes receivable, net, approximated the carrying value due to contractual terms of notes receivable generally being under 24 months.

(6) Inventories
Inventories consisted of the following as of the dates presented below:
 June 30, 2018 December 31, 2017 March 31, 2019 December 31, 2018
Parts and work-in-process $137.9
 $128.7
 $139
 $131
Finished goods 94.0
 114.4
 90
 85
Total inventories $231.9
 $243.1
 $229
 $216
Parts and work-in-process include parts for gaming machines, lottery terminals and instant lottery ticket materials, as well as labor and overhead costs for work-in-process associated with the manufacturing of instant lottery games and lottery terminals. Our finished goods inventory primarily consists of gaming machines for sale, instant products primarily for our Participation arrangements and our licensed branded merchandise.

(7) Property and Equipment, net    

Property and equipment, net consisted of the following:


17

 June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Land $20.4
 $35.7
$15
 $15
Buildings and leasehold improvements 120.7
 183.6
130
 128
Gaming and lottery machinery and equipment 996.6
 962.2
1,034
 1,041
Furniture and fixtures 30.4
 33.2
28
 27
Construction in progress 39.9
 27.7
15
 17
Other property and equipment 241.8
 236.9
245
 240
Less: accumulated depreciation (929.6) (911.1)(950) (921)
Total property and equipment, net $520.2
 $568.2
$517
 $547
Depreciation expense is excluded from Cost of services, Cost of product sales, Cost of instant products and Other operating expenses and is separately presented within D&A.
 Three Months Ended
Six Months Ended
 June 30,
June 30,
 2018
2017
2018
2017
Depreciation expense$54.7
 $70.0
 $107.8
 $136.9

Assets Held For Sale

 Three Months Ended
 March 31,
 2019
2018
Depreciation expense$58
 $53
As of June 30,March 31, 2019 and December 31, 2018, we had $55.1$36 million of assets held for sale, and none as of December 31, 2017. Assets held for sale primarily relate to our Gaming business segment and consist of certain properties in Las Vegas and Chicago that are actively being marketed for sale as a result of recent facility rationalization and integration activities. These assetswhich are included within Prepaid expenses,expense, deposits and other current assets and are reported at the lower of the carrying value or fair market value, less expected costs to sell. We measured the fair value of assets held for sale under a market approach and have categorized such measurements as Level 3 in the fair value hierarchy. Based on our fair value measurement during the first quarter of 2018, the book value related to our assets held for sale was reduced by approximately $19.0 million, which was recorded within D&A, with no material changes to such fair value during the second quarter of 2018.assets.

(8) Intangible Assets, net and Goodwill
Intangible Assets, net
The following tables present certain information regarding our intangible assets as of June 30, 2018March 31, 2019 and December 31, 2017.2018.
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Gross Carrying Value Accumulated Amortization Net Balance Gross Carrying Value Accumulated Amortization Net BalanceGross Carrying Value Accumulated Amortization Net Balance Gross Carrying Value Accumulated Amortization Net Balance
Amortizable intangible assets:                      
Customer relationships$1,086.3
 $(257.6) $828.7
 $881.4
 $(214.8) $666.6
$1,092
 $(321) $771
 $1,084
 $(299) $785
Intellectual property919.8
 (397.6) 522.2
 788.1
 (332.7) 455.4
935
 (485) 450
 931
 (453) 478
Licenses417.8
 (236.4) 181.4
 419.5
 (206.9) 212.6
549
 (273) 276
 546
 (253) 293
Brand names124.7
 (53.2) 71.5
 125.7
 (46.5) 79.2
124
 (62) 62
 123
 (59) 64
Trade names107.9
 (18.6) 89.3
 98.7
 (14.7) 84.0
108
 (25) 83
 108
 (23) 85
Patents and other23.0
 (12.9) 10.1
 27.1
 (14.5) 12.6
23
 (14) 9
 23
 (13) 10
2,679.5
 (976.3) 1,703.2
 2,340.5
 (830.1) 1,510.4
2,831
 (1,180) 1,651
 2,815
 (1,100) 1,715
Non-amortizable intangible assets:                      
Trade names96.3
 (2.1) 94.2
 96.3
 (2.1) 94.2
96
 (2) 94
 96
 (2) 94
Total intangible assets$2,775.8
 $(978.4) $1,797.4
 $2,436.8
 $(832.2) $1,604.6
$2,927
 $(1,182) $1,745
 $2,911
 $(1,102) $1,809
 

The following reflects intangible amortization expense included within D&A:
 Three Months Ended Six Months Ended
 June 30, June 30,
 2018
2017 2018
2017
Amortization expense$75.6
 $68.9
 $152.7
 $130.8
 Three Months Ended
 March 31,
 2019
2018
Amortization expense$77
 $77
Goodwill
Following

18

In conjunction with integrating our recent Digital acquisitions, the NYX acquisition,implementation of ERP systems in the first quarter of 2018, we revised our operating segments as described in Note 3.
As a result of our resegmentationDigital segment and recent management changes, during the first quarter of 2018,2019, in our Digital business segment, we reviewed our Digital operating segmentssegment in accordance with ASC 350 to determine if additional reporting units exist within our operating segments based on the availability of discrete financial information that is regularly reviewed by segment management. We determined that in our Digital operating segment we now have ninetwo reporting units: (1) Digital sports and platform and (2) Digital gaming and other. The change in the Digital business segment reporting units resulted in the allocation of the previous Digital reporting unit goodwill balance as follows: $230 million to the new Digital sports and platform reporting unit and $134 million to the new Digital gaming and other reporting unit, which allocation was determined based on the relative fair value approach prescribed by ASC 350. As a result of this change we now have ten reporting units: Instant Products, U.S. Lottery Systems, International Lottery Systems, SG Gaming, legacy U.K. Gaming, Casino Management Systems, Table Products, Social Gaming, Digital Sports and SG Digital. The change in our reporting units resulted in the allocation of $116.9 million of the previous Interactive reporting unit goodwill balance to the new SocialPlatform and Digital Gaming reporting unit with the remaining $7.5 million allocated to the new SG Digital reporting unit, which allocation was determined based on the relative fair value approach in accordance with ASC 350.and Other.

The table below reconciles the change in the carrying value of goodwill by business segment for the period from
December 31, 20172018 to June 30, 2018.March 31, 2019.
Goodwill Gaming Lottery Interactive Social Digital Totals
Balance as of December 31, 2017 $2,475.5
 $356.2
 $124.4
 $—
 $—
 $2,956.1
Reporting unit reallocation adjustment

 —
 —
 (124.4) 116.9
 7.5
 —
Acquired goodwill (1)

 —
 —
 —
 —
 376.4
 376.4
Foreign currency adjustments (8.4) (1.8) —
 (1.8) (7.7) (19.7)
Balance as of June 30, 2018 $2,467.1

$354.4
 $—

$115.1
 $376.2
 $3,312.8
(1) Tentative and preliminary based on our preliminary purchase price allocation as described in Note 1.
Goodwill Gaming Lottery Social Digital Totals
Balance as of December 31, 2018 $2,449
 $352
 $115
 $364
 $3,280
Foreign currency adjustments 13
 (1) —
 9
 21
Balance as of March 31, 2019 $2,462

$351

$115
 $373
 $3,301

(9) Software, net
Software, net consisted of the following:


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 June 30, 2018 December 31, 2017 March 31, 2019 December 31, 2018
Software $1,054.9
 $1,003.2
 $1,126
 $1,101
Accumulated amortization (739.1) (663.8) (849) (816)
Software, net $315.8
 $339.4
 $277
 $285
The following reflects amortization of software included within D&A:
  Three Months Ended
Six Months Ended
  June 30,
June 30,
  2018
2017
2018
2017
Amortization expense $42.4
 $36.1
 $81.3
 $72.4
  Three Months Ended
  March 31,
  2019
2018
Amortization expense $30
 $39

(10) Equity Investments
Equity investments totaled $209.2$296 million and $253.9$298 million as of June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. We received distributions and dividends totaling $42.1$7 million and $41.0$3 million during the sixthree months ended June 30,March 31, 2019 and 2018, and 2017, respectively, primarily related to our LNS equity investment. During the second quarter of 2018, we made our second pro-rata concession funding payment to LNS of $74.3 million (€60.0 million) relating to extension of the concession for a period of up to nine years.respectively.

(11) Long-Term and Other Debt
February 2018 Refinancing Transaction2026 Unsecured Notes

On February 14, 2018, we successfully completed a series of financing transactions, including a private offering of an additional $900.0March 19, 2019, SGI issued $1,100 million in aggregate principal amount of our 2025 Secured Notes, €325.0 million of new 2026 Secured Euro Notes and €250.0 million ofits new 2026 Unsecured Euro Notes andat an amendment to our credit agreement to refinance our existing term loan B-4 facility and increase the term loans outstanding by $900.0 million underissue price of 100.000% in a new term loan B-5 facility (collectively referred to as the "February 2018 Refinancing").private offering. We used the net proceeds of the February 2018 Refinancing2026 Unsecured Notes offering to redeem $2,100.0$1,000 million of our outstanding 2022 SecuredUnsecured Notes prepay a portion of our revolver borrowings under our credit agreement and pay accrued and unpaid interest thereon plus related premiums, fees, and expenses. costs, which redemption was completed on April 4, 2019, and pay related fees and expenses of the 2026 Unsecured Notes offering. The redemption of the 2022 Unsecured Notes will result in an approximate $60 million loss on debt financing transactions during the second quarter of 2019.
The 2026 Unsecured Notes were issued pursuant to an indenture dated as of March 19, 2019 (the “2026 Unsecured Notes Indenture”). SGI may redeem some or all of the 2026 Unsecured Notes at any time prior to March 15, 2022 at a redemption price equal to 100% of the principal amount of the 2026 Unsecured Notes plus accrued and unpaid interest, if any,


19

to the date of the redemption plus a “make whole” premium. SGI may redeem some or all of the 2026 Unsecured Notes at any time on or after March 15, 2022 at the prices specified in the 2026 Unsecured Notes Indenture.
The 2026 Unsecured Notes are senior unsecured obligations of SGI, rank equally to all SGI’s existing and future senior debt and rank senior to all of SGI’s existing and future senior subordinated debt. The 2026 Unsecured Notes are guaranteed on a senior unsecured basis by SGC and all of its wholly owned U.S. subsidiaries (other than SGI, the unrestricted social gaming business entities and certain immaterial subsidiaries). The 2026 Unsecured Notes are structurally subordinated to all of the liabilities of our non-guarantor subsidiaries.
In connection with the amendment to our credit agreement, the interest rate on our term loans was decreased from LIBOR plus 3.25% to LIBOR plus 2.75%. We also increased the amount of the revolving credit agreement by $24.0 million to $620.2 million through October 18, 2018, with a step-down in availability at that time to $445.7 million until the extended maturity on October 18, 2020.
In connection with the February 2018 Refinancing,2026 Unsecured Notes offering, we reflected $25.8$16 million in financing costs presented primarily as a reduction to long-term debt.

Outstanding Debt and CapitalFinance Leases


22

The following table reflects our outstanding debt:
 As ofAs of
 June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
 Final Maturity Rate(s) Face value Unamortized debt discount/premium and deferred financing costs, net Book value Book valueFinal Maturity Rate(s) Face value Unamortized debt discount/premium and deferred financing costs, net Book value Book value
Senior Secured Credit Facilities:                    
2018 Revolver, varying interest rate 2018 variable
 $42.0
 $—
 $42.0
 $100.5
2020 Revolver, varying interest rate 2020 variable
 113.0
 —
 113.0
 249.5
Term Loan B-4 2024 variable
 —
 —
 —
 3,193.6
Revolver, varying interest rate2020 variable
 $190
 $—
 $190
 $325
Term Loan B-5 2024 variable
 4,164.1
 (78.1) 4,086.0
 —
2024 variable
 4,133
 (69) 4,064
 4,071
Senior Notes:                    
2022 Secured Notes 2022 7.000% —
 —
 —
 2,130.7
2025 Secured Notes(2)
 2025 5.000% 1,250.0
 (18.4) 1,231.6
 343.7
2025 5.000% 1,250
 (17) 1,233
 1,233
2026 Secured Euro Notes(3)
 2026 3.375% 379.4
 (5.5) 373.9
 —
2026 3.375% 367
 (5) 362
 367
Unsecured Notes 2022 10.000% 2,200.0
 (26.9) 2,173.1
 2,170.1
2022 Unsecured Notes(4)
2022 10.000% 2,200
 (22) 2,178
 2,176
2026 Unsecured Euro Notes(3)
 2026 5.500% 291.9
 (4.3) 287.6
 —
2026 5.500% 282
 (4) 278
 282
2026 Unsecured Notes2026 8.250% 1,100
 (16) 1,084
 —
Subordinated Notes:                    
2020 Notes 2020 6.250% 243.5
 (1.3) 242.2
 241.8
2020 6.250% 244
 (1) 243
 242
2021 Notes 2021 6.625% 340.6
 (4.0) 336.6
 336.0
2021 6.625% 341
 (3) 338
 337
Capital lease obligations, 3.9% as of June 30, 2018 payable monthly through 2019 2019 3.900% 7.9
 —
 7.9
 10.7
Finance lease obligations as of March 31, 2019 payable monthly through 2019 and other(5)
2019 3.900% 13
 —
 13
 4
Total long-term debt outstanding     $9,032.4
 $(138.5) $8,893.9
 $8,776.6
    $10,120
 $(137) $9,983
 $9,037
Less: current portion of long-term debt       (48.7) (40.3)
Less: current portion of long-term debt(4)
       (1,046) (45)
Long-term debt, excluding current portion       $8,845.2
 $8,736.3
       $8,937
 $8,992
Fair value of debt (1)
   $9,095.8
         $10,197
      
(1) Fair value of our fixed rate and variable interest rate debt is classified within level 2 in the fair value hierarchy and has been calculated based on the quoted market prices of our securities.
(2) In connection with the February 2018 Refinancing, we entered into certainIncludes cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting a portionthat we entered into in 2018 in the amount of the fixed-rate, $460.0$460 million U.S. Dollar-denominated 2025 Secured Notes including the semi-annual interest payments through October 2023, to a fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. These cross-currency swaps have been designated as a hedge of (see Note 16 in our net investment in certain subsidiaries.2018 10-K).
(3) We designated a portion of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the change in foreign currency exchange rates of the Euro relative to the U.S. Dollar (see Note 12 for additional information). The total change in the face value of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes due to changes in foreign currency exchange rates since the issuance was a reduction of $41.2$63 million, of which $34.5a $5 million and $33.4 million weregain was recognized as a Gain on remeasurement of debt in the Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2018, respectively.March 31, 2019.
(4) Includes $1,000 million of the principal balance of the 2022 Unsecured Notes that were redeemed on April 4, 2019.
(5) Includes $11 million related to certain revenue transactions presented as debt in accordance with ASC 470-10-25.


20



We were in compliance with the financial covenants under ourall debt agreements as of June 30, 2018.    
Term Loan B-5

The new term B-5 loans that were entered into as part of the February 2018 Refinancing mature in August 2024 and will amortize in quarterly installments in an amount equal to 1.00% per annum of the stated principal amount thereof, with the remaining balance due at final maturity. The applicable margin for the new term B-5 loans is 2.75% per annum for eurocurrency (LIBOR) loans and 1.75% per annum for base rate loans, compared to 3.25% per annum for eurocurrency (LIBOR) loans and 2.25% per annum for base rate loans under the previous term B-4 loan facility.

2026 Secured and Unsecured Euro Notes



23

In connection with the February 2018 Refinancing, SGI issued €325.0 million aggregate principal amount of its new 2026 Secured Euro Notes and €250.0 million aggregate principal amount of its new 2026 Unsecured Euro Notes. Interest on both of these notes is payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018. Both issuances were made at a price equal to 100.0% of the principal amount.

The 2026 Secured Euro Notes were issued pursuant to an indenture dated as of February 14, 2018 (the "2026 Secured Notes Indenture"). SGI may redeem some or all of the 2026 Secured Euro Notes at any time prior to February 15, 2021 at a redemption price equal to 100% of the principal amount of the 2026 Secured Euro Notes plus accrued and unpaid interest, if any, to the date of redemption plus a "make whole" premium. SGI may redeem some or all of the 2026 Secured Euro Notes at any time on or after February 15, 2021 at the prices specified in the 2026 Secured Notes indenture.

The 2026 Secured Euro Notes are senior secured obligations of SGI and are equally and ratably secured with SGI’s obligations under the credit agreement and the 2025 Secured Notes. The 2026 Secured Euro Notes are equal in rank to all of SGI’s existing and future senior debt and rank senior to all of SGI's existing and future senior subordinated debt. The 2026 Secured Euro Notes are guaranteed on a senior secured basis by SGC and all of its wholly owned U.S. subsidiaries (other than SGI, the unrestricted social gaming business entities and immaterial subsidiaries). The 2026 Secured Euro Notes are structurally subordinated to all of the liabilities of our non-guarantor subsidiaries.

The 2026 Unsecured Euro Notes were issued pursuant to an indenture dated as of February 14, 2018 (the "2026 Unsecured Notes Indenture"). SGI may redeem some or all of the 2026 Unsecured Euro Notes at any time prior to February 15, 2021 at a redemption price equal to 100% of the principal amount of the 2026 Unsecured Euro Notes plus accrued and unpaid interest, if any, to the date of redemption plus a "make whole" premium. SGI may redeem some or all of the 2026 Unsecured Euro Notes at any time on or after February 15, 2021 at the prices specified in the 2026 Unsecured Notes indenture.

The 2026 Unsecured Euro Notes are senior unsecured obligations of SGI and rank equally to all of SGI’s existing and future senior debt and rank senior to all of SGI's existing and future senior subordinated debt. The 2026 Unsecured Euro Notes are guaranteed on a senior unsecured basis by SGC and all of its wholly owned U.S. subsidiaries (other than SGI, the unrestricted social gaming business entities and immaterial subsidiaries). The 2026 Unsecured Euro Notes are structurally subordinated to all of the liabilities of our non-guarantor subsidiaries.

Effective April 30, 2018, the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes are listed on the Official List of The International Stock Exchange.

2025 Senior Secured Notes

In connection with the February 2018 Refinancing, SGI issued $900.0 million in aggregate principal amount of additional 2025 Secured Notes under the existing indenture governing the 2025 Secured Notes. Therefore the additional 2025 Secured Notes have the same terms as the previously issued $350.0 million in aggregate principal amount of 2025 Secured Notes initially issued in October 2017 except for the issue date and offering price. The additional 2025 Secured Notes and the initial 2025 Secured Notes are treated as a single series of debt securities for all other purposes under the indenture governing the 2025 Secured Notes.

March 31, 2019.
For additional information regarding the terms of our credit agreementagreements, Secured Notes, Unsecured Notes and 2025 SecuredSubordinated Notes, see Note 16 in our 20172018 10-K.

For additional information regarding the SciPlay Revolver that we entered into on May 7, 2019 in connection with the SciPlay IPO, see Note 1.
Loss on Debt Financing Transactions

The following are components of the loss on debt financing transactions resulting from debt extinguishment and modification accounting for the sixthree months ended June 30, 2018March 31, 2019 and 2017, none of which were incurred for the three-month comparable periods:


24

2018:
Six Months Ended June 30,Three Months Ended March 31,
2018 20172019 2018
Repayment and cancellation of principal balance at premium$110.3
 $—
$—
 $110
Unamortized debt (premium) discount and deferred financing costs, net(29.8) 25.8
—
 (30)
Third party debt issuance fees12.7
 3.9
—
 13
Total loss on debt financing transactions$93.2

$29.7
$—
 $93

(12) Fair Value Measurements
The fair value of our financial assets and liabilities is determined by reference to market data and other valuation techniques as appropriate. We believe the fair value of our financial instruments, which are principally cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts payable and accrued liabilities, approximates their recorded values. Our assets and liabilities measured at fair value on a recurring basis are described below.
Derivative Financial Instruments

We record derivative financial instruments on the balance sheet at their respective fair values. As described in Note 1, during the first quarter of 2018, we adopted ASU 2017-12. As of June 30, 2018,March 31, 2019, we held the following derivative instruments that were accounted for pursuant to ASC 815:

Interest Rate Swap Contracts

We currently use interest rate swap contracts as described below to mitigate gains or losses associated with the change in expected cash flows due to fluctuations in interest rates on our variable rate debt. Our interest rate swaps that we held as of December 31, 2017 expired in January 2018.
In February 2018, we entered into interest rate swap contracts to hedge a portion of our interest expense associated with our variable rate debt to effectively fix the interest rate that we pay. These interest rate swap contracts are designated as cash flow hedges under ASC 815. We pay interest at a weighted-average fixed rate of 2.4418% and receive interest at a variable rate equal to one-month LIBOR. The total notional amount of interest rate swaps outstanding was $800.0$800 million as of June 30, 2018.March 31, 2019. These hedges mature in February 2022.
These hedges are highly effective in offsetting changes in our future expected cash flows due to the fluctuation in the one-month LIBOR rate associated with our variable rate debt. We qualitatively monitor the effectiveness of these hedges on a quarterly basis. As a result of the effective matching of the critical terms on our variable rate interest expense being hedged to the hedging instruments being used, we expect these hedges to remain highly effective.
All gains and losses from these hedges are recorded in Other comprehensive income (loss) until the future underlying payment transactions occur. Any realized gains or losses resulting from the hedges are recognized (together with the hedged transaction) as interest expense. We estimate the fair value of our interest rate swap contracts by discounting the future cash flows of both the fixed rate and variable rate interest payments based on market yield curves. The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820.
The following table shows the gains (loss) and interest expense recognized on our interest rate swap contracts:


21

 Three Months Ended Six Months EndedThree Months Ended
 June 30, June 30,March 31,
 2018 2017 2018 20172019 2018
Gains recorded in accumulated other comprehensive loss, net of tax $3.8
 $—
 $5.7
 $2.8
(Loss) gain recorded in accumulated other comprehensive income (loss), net of tax$(5) $2
Interest expense recorded related to interest rate swap contracts 1.1
 2.0
 1.6
 4.1
—
 1
We do not expect to reclassify material amounts from Accumulated other comprehensive loss to interest expense in the next twelve months.

The following table shows the effect of interest rate swap contracts designated as cash flow hedges on the consolidated statements of operations and comprehensive loss:



25

 Three Months Ended Six Months Ended
 June 30, June 30,Three Months Ended March 31,
 2018 20182019 2018
 Interest expenseInterest expense
Total amounts of expense line item presented in the statements of operations and comprehensive loss in which the effects of cash flow hedges are recorded $(146.1) $(300.9)$(154) $(155)
Hedged item (5.0) (6.6)(5) (2)
Derivative designated as hedging instrument 3.9
 5.0
5
 1

Cross-Currency Interest Rate Swaps
In connection with the February 2018 Refinancing (seedescribed in Note 11),16 of our 2018 10-K, we entered into certain cross-currency interest rate swap agreements to achieve more attractivebeneficial interest rates by effectively converting $460.0$460 million of our fixed-rate U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. We have designated these cross-currency interest rate swap agreements as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.
We use the spot method to measure the effectiveness of our net investment hedge. Under this method, for each reporting period, the change in the fair value of the $460.0$460 million cross-currency interest rate swaps is reported in foreign currency translation gain (loss) in Accumulated other comprehensive loss. The cross-currency basis spread (along with other components of the cross-currency swap'sswap’s fair value excluded from the spot method effectiveness assessment) are amortized and recorded to interest expense. We evaluate the effectiveness of our net investment hedge at the beginning of each quarter.

The following table shows the fair value of our hedges:
 Balance Sheet Line Item June 30, 2018 December 31, 2017
Interest rate swaps (1)(3)
Other assets/(accrued liabilities) $7.6
 $(0.2)
Cross-currency interest rate swaps(2)(3)
Other assets 2.8
 —
(1) The gains of $5.0 million and $7.6 million for the three and six months ended June 30, 2018, respectively, are reflected in Derivative financial instrument unrealized gain, net of tax in Other comprehensive income.
(2) The gains of $23.6 million and $2.8 million for the three and six months ended June 30, 2018, respectively, are reflected in Foreign currency translation loss in Other comprehensive income.
(3) The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy.
 Balance Sheet Line Item March 31, 2019 December 31, 2018
Interest rate swaps (1)(3)
Other liabilities $6
 $—
Cross-currency interest rate swaps (2)(3)
Other assets 34
 18
(1) The loss of $6 million for the three months ended March, 31 2019 is reflected in Derivative financial instrument unrealized gross loss in Other comprehensive income.
(2) The gain of $16 million for the three months ended March, 31 2019 is reflected in Foreign currency translation loss in Other comprehensive income.
(3) The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy.

Net Investment Non-derivative Hedge - 2026 Secured Euro Notes
WeFor the first quarter of 2019, we designated $125.0$255 million of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.
We use the spot method to measure the effectiveness of our net investment non-derivative hedge. Under this method, for each reporting period, the change in the hedged portion of the carrying value of the 2026 Secured Euro Notes due to remeasurement is reported in foreignForeign currency translation gain (loss) in Other comprehensive income, and the remaining


22

remeasurement change is recognized in LossGain (loss) on remeasurement of debt in our consolidated statements of operations and comprehensive loss. We evaluate the effectiveness of our net investment non-derivative hedge at the beginning of each quarter, and the inputs used to measure the fair value of this non-derivative hedge are categorized as Level 2 in the fair value hierarchy.
Contingent Consideration Liabilities

In connection with our 2017 acquisitions, we have recorded certain contingent consideration liabilities, of which the values are primarily based on reaching certain earnings-based metrics, with a maximum payout of up to $38.5$39 million. The related liabilities were recorded at fair value on the acquisition date as part of the consideration transferred and are remeasured each reporting period. The inputs used to measure the fair value of our liabilities are categorized as Level 3 in the fair value hierarchy.

Based on the first quarter of 2018 remeasurement and as a result of changes in significant unobservable inputs primarily consisting of projected earnings-based measures and probability of achievement (categorized as Level 3 in the fair


26

value hierarchy as established by ASC 820), we increased the fair value of certain long-term contingent consideration by $18.0 million, which change was included in Restructuring and other, with no material changes during the second quarter of 2018. Contingent consideration liabilities as of June 30, 2018March 31, 2019 and December 31, 20172018 were $25.5$45 million and $7.5of which $22 million respectively, and are primarilyas of March 31, 2019 is included in otherAccrued liabilities with the remaining balance included in Other long-term liabilities.

We did not have assets and liabilities measured at fair value on a non-recurring basis as of June 30, 2018.March 31, 2019.
(13) Stockholders'Stockholders’ Deficit
Changes in Stockholders’ Deficit
The following tables present certain information regarding our stockholders' deficit as of March 31, 2019 and March 31, 2018.
 Three Months Ended March 31, 2019
 Common Stock Additional Paid in Capital Accumulated Loss Treasury Stock Accumulated Other Comprehensive Loss Total
January 1, 2019$1
 $835
 $(2,824) $(175) $(300) $(2,463)
Net proceeds of common stock in connection with stock options and RSUs—
 2
 —
 —
 —
 2
Stock-based compensation—
 11
 —
 —
 —
 11
Net loss—
 —
 (24) —
 —
 (24)
Other Comprehensive income—
 —
 —
 —
 51
 51
March 31, 2019$1
 $848
 $(2,848) $(175) $(249) $(2,423)
 Three Months Ended March 31, 2018
 Common Stock Additional Paid in Capital Accumulated Loss Treasury Stock Accumulated Other Comprehensive Loss Total
January 1, 2018$1
 $808
 $(2,461) $(175) $(200) $(2,027)
Net redemption of common stock in connection with stock options and RSUs—
 (15) —
 —
 —
 (15)
Stock-based compensation—
 7
 —
 —
 —
 7
Net loss—
 —
 (202) —
 —
 (202)
Adoption impact of ASC 606—
 —
 (11) —
 —
 (11)
Other Comprehensive income—
 —
 —
 —
 52
 52
March 31, 2018$1
 $800
 $(2,674) $(175) $(148) $(2,196)
Stock Based Compensation
The following reflects total stock-based compensation expense recognized under all programs:
 Three Months Ended Six Months EndedThree Months Ended
 June 30, June 30,March 31,
 2018 2017 2018 20172019 2018
Related to stock options $7.3
 $1.3
 $8.7
 $1.5
$2
 $2
Related to RSUs 8.3
 5.8
 15.7
 11.5
12
 7
Total $15.6
 $7.1
 $24.4
 $13.0
$14
 $9

(14) Income Taxes
We consider new evidence (both positive and negative) at each reporting date that could affect our view of the future realization of deferred tax assets. Based upon the evaluation of all available evidence, and considering the projected U.S. pre-taxpre-


23



tax losses for 2018,2019, we maintain a valuation allowance for our U.S. operations as of June 30, 2018.March 31, 2019. We maintained other valuation allowances for certain non-U.S. jurisdictions with cumulative losses.

The effective income tax rates for the three and six months ended June 30,March 31, 2019 and 2018 were 0.0% and (3.1)%, respectively, and (19.5%(18%) and (19.8%(3%) for the three and six months ended June 30, 2017,, respectively, and were determined using an estimated annual effective tax rate after considering any discrete items for such periods. Due to the aforementioned valuation allowance against our U.S. deferred tax assets, the effective tax raterates for the sixthree months ended June 30,March 31, 2019 and 2018 doesdo not include the benefitbenefits of the current year U.S. tax losses. In the six months ended June 30, 2017,losses, and we recorded an overall tax expense in both periods due to the application of a full valuation allowance against the U.S. pre-tax losses coupled with a tax expense on foreign pre-tax earnings. The change in the effective tax rates relates primarily to the overall mix of income in our foreign jurisdictions.

As disclosed in our 2017 10-K Note 21, our accounting
(15) Leases
On January 1, 2019, we adopted ASC 842 using the optional transition method provided by ASU 2018-11. Our operating leases primarily consist of real estate leases such as offices, warehouses, and research and development facilities. Our leases have remaining lease terms ranging from 1 year to 11 years, some of which include options to extend the leases for up to 5 years or to terminate the leases within 1 year. Our finance leases are immaterial.

Our total operating lease expenses for the Tax Cutsthree months ended March 31, 2019 and Jobs Act (the "Tax Act")2018 were $9 million and $7 million, respectively. The total amount of variable and short term lease payments incurred during the three months ended March 31, 2019 are immaterial.

Supplemental balance sheet and cash flow information related to operating leases is incomplete; however,as follows:
 March 31, 2019
Operating lease right-of-use assets(1)
$118
   Accrued liabilities26
   Operating lease liabilities98
Total operating lease liabilities$124
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$8
Weighted average remaining lease term, years6
Weighted average discount rate5%
(1) Right-of use assets obtained in exchange for lease obligations during the first quarter of 2019 were immaterial.

Lease liability maturities:
 2019 2020 2021 2022 2023 Thereafter Less Imputed Interest Total
Operating leases$24
 $28
 $24
 $19
 $15
 $34
 $(20) $124

As of March 31, 2019, we were able to reasonably estimate certain effects, and consequently we recorded provisional adjustments associated with: (1) impact on deferred tax assets (DTAs) and deferred tax liabilities (DTLs) from reduction of U.S. federal corporate income tax rate; (2) the deemed repatriation transition tax; and (3) impact on valuation allowances. Additionally, as disclosed in our 2017 10-K Note 21, we weredid not have material additional operating leases that have not yet able to reasonably estimate the effects of the Tax Act for the Global Intangible Low Income Tax (GILTI). There were no changes to these items during the second quarter of 2018, as we continue to evaluate the impacts of the Tax Act.

Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy election of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into our measurement of deferred taxes (the “deferred method”). Our selection of an accounting policy related to the new GILTI tax rules will depend, in part, on analyzing projections of our global overall mix of income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, the expected impact. Because whether we expect to have future U.S. inclusions in taxable income related to GILTI depends on a number of different aspects of our estimated future global overall mix of income, we are not yet able to reasonably estimate the long-term effects of this provision of the Tax Act; therefore, we have not recorded any potential deferred tax effects related to GILTI in the consolidated financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI or to use the period cost method. We expect to complete our accounting within the prescribed measurement period.commenced.

(15)(16) Litigation


27

We are involved in various routine and other specific legal proceedings, including the following which are described in Note 22 within our 20172018 10-K: Colombia litigation, and SNAI litigation, Washington State Matter, and the Raqqa Matter. There have been no material changes to these matters since the 20172018 10-K was filed with the SEC, except as described below.
We record an accrual for legal contingencies when it is both probable that a liability has been incurred and the amount or range of the loss can be reasonably estimated (although, as discussed below, there may be an exposure to loss in excess of the accrued liability). We evaluate our accruals for legal contingencies at least quarterly and, as appropriate, establish new accruals or adjust existing accruals to reflect (1) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments, (2) the advice and analyses of counsel and (3) the assumptions and judgment of management. Legal costs associated with our legal proceedings are expensed as incurred. We had accrued liabilities of $29.1 million and $4.7$4 million for all of our legal matters that were contingencies as of June 30, 2018March 31, 2019 and December 31, 2017, respectively.2018.


24

Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies could result in losses in excess of amounts we have accrued. We may be unable to estimate a range of possible losses for some matters pending against us or our subsidiaries, even when the amount of damages claimed against us or our subsidiaries is stated because, among other things: (1) the claimed amount may be exaggerated or unsupported; (2) the claim may be based on a novel legal theory or involve a large number of parties; (3) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (4) there may be uncertainty as to the outcome of pending appeals or motions; (5) the matter may not have progressed sufficiently through discovery or there may be significant factual or legal issues to be resolved or developed; and/or (6) there may be uncertainty as to the enforceability of legal judgments and outcomes in certain jurisdictions. Other matters have progressed sufficiently that we are able to estimate a range of possible loss. For those legal contingencies disclosed in Note 22 in our 20172018 10-K and this Note 1516 as well as those related to the previously disclosed settlement agreement entered into in February 2015 with SNAI S.p.a., as to which a loss is reasonably possible, whether in excess of a related accrued liability or where there is no accrued liability, and for which we are able to estimate a range of possible loss, the current estimated range is up to approximately $14.0$14 million in excess of the accrued liabilities (if any) related to those legal contingencies. This aggregate range represents management’s estimate of additional possible loss in excess of the accrued liabilities (if any) with respect to these matters based on currently available information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherent uncertainties. For example, at the time of making an estimate, management may have only preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co‑defendants, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that management had not accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which we are not able to estimate a range of possible loss. Accordingly, the estimated aggregate range of possible loss does not represent our maximum loss exposure. Any such losses could have a material adverse impact on our results of operations, cash flows or financial condition. The legal proceedings underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.
Shuffle TechTCS John Huxley Matter
In April 2015, Shuffle Tech International, LLC, Aces Up Gaming,On March 15, 2019, TCS John Huxley America, Inc., TCS John Huxley Europe Ltd., TCS John Huxley Asia Ltd., and Poydras-Talrick Holdings LLCTaiwan Fulgent Enterprise Co., Ltd. brought a civil action in the United States District Court for the Northern District of Illinois against the Company,SGC, Bally Technologies, Inc., and Bally Gaming, Inc., alleging monopolization In the complaint, plaintiffs assert federal antitrust claims arising from defendants' procurement of particular U.S. and South African patents. Plaintiffs allege that defendants used those patents to create an allegedly illegal monopoly in the market for automatic card shufflers in violation of federal antitrust laws, fraudulent procurement of patents on card shufflers, unfair competition and deceptive trade practices. Specifically, the plaintiffs claim that the defendants used certain shuffler patents in a predatory mannersold to create and maintain a monopoly in the relevant shuffler market. The plaintiffs’ complaint seeks no less than $100.0 million in compensatory damages (which is subject to trebling), attorneys’ fees and costs, as well as injunctive and declaratory relief. In June 2015, the defendants filed a motion to dismiss. In October 2015, the district court dismissed all of the plaintiffs’ claims against the defendants with prejudice, except for the claims of violation of antitrust laws related to the fraudulent procurement of patents on card shufflers. In September 2017, the district court denied defendants’ motion for summary judgment, and the matter was scheduled for trial. On April 23, 2018, a court-ordered settlement conference before a magistrate judge was held, but no settlement was reached. On April 25, 2018, plaintiffs filed with the U.S. District Court an itemization of claimed damages, pursuant to which the plaintiffs, at trial, will seek to recover compensatory damages ranging from approximately $105.2 million to $139.5 million (which is subject to trebling), and also their reasonable attorneys’ fees and costs. Trial began July 16, 2018 and is scheduled to end on or about August 6, 2018. We are unable at this time to estimate a range of reasonably possible losses above the amount we have accrued for this matter due to the complexity of the plaintiffs’ claims, and the unpredictability of the outcome of the proceedings in the district court, and on any appeal therefrom.


28


Washington State Matter
On April 17, 2018, plaintiff Sheryl Fife filed a putative class action complaint against the Companyregulated casinos in the United States District Court for the Western District of Washington. In her complaint, plaintiff seeks to represent a putative class of all persons in the State of Washington who purchased and allegedly lost virtual coins playing the Company's online social casino games, including but not limited to Jackpot Party® Social Casino and Gold Fish® Casino. The complaint asserts claims for alleged violations of Washington's Recovery of Money Lost at Gambling Act, Washington's consumer protection statute, and for unjust enrichment, and seeks unspecified money damages (including treble damages as appropriate), the award of reasonable attorneys’ fees and costs, pre- and post-judgment interest, and injunctive and/or declaratory relief.States. On July 2, 2018, the Company filed a motion to dismiss the plaintiff's complaint with prejudice. Due to the very early nature of this litigation, we are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible loss.
Raqqa Matter
On May 4, 2018, plaintiffs Raqqa, Inc. Pittsburg Liquors, Inc., Omdev, Inc., Om Riya, Inc., E and B Liquors, Inc., Michael Cairo, and Jason Van Lente (collectively, “plaintiffs”) filed a putative class action complaint against Northstar Lottery Group LLC, IGT Global Solutions Corporation, and Scientific Games International, Inc. (collectively, “defendants”), in the United States District Court for the Southern District of Illinois. In their complaint, plaintiffs seek to represent two putative classes of persons: (1) all persons who were or are parties to a contract to sell at retail Illinois Lottery instant game tickets at any time between July 1, 2011 and the present; and (2) all natural persons who purchased one or more Illinois Lottery instant game tickets at any time between July 1, 2011 and the present. The complaint alleges that Northstar Lottery Group LLC discontinued certain Illinois instant-ticket lottery games before all grand prizes were awarded, and further alleges that those discontinuations caused economic harm to lottery players, and to lottery retailers who receive commissions on winning tickets. The complaint asserts claims for alleged tortious interference with contract, alleged tortious interference with prospective economic advantage, alleged common law fraud, alleged violation of Illinois’ Consumer Fraud and Deceptive Business Practices Act, alleged unjust enrichment and alleged civil conspiracy. The complaint seeks unspecified money damages and the award of plaintiffs’ attorneys’ fees and costs. On June 18, 2018,April 10, 2019, the defendants filed a motion to dismiss the plaintiffs’ complaint with prejudice. On April 25, 2019, the district court denied the defendants’ motion to dismiss without prejudice pursuant to the court’s local rules, after plaintiffs advised that they intended to file an amended complaint. Plaintiffs filed their amended complaint on May 3, 2019, and the district court has set a status hearing for May 8, 2019 to discuss the matter further. Due to the very early nature of this litigation, we are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible loss.
For additional information regarding our pending litigation matters, see Note 22 in our 20172018 10-K.

(16)(17) Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries
We conduct substantially all of our business through our U.S. and foreign subsidiaries. As of June 30, 2018, SGI'sMarch 31, 2019, SGI’s obligations under the 2020 Notes, the 2021 Notes, the 2025 Secured Notes (other than the 20262022 Secured Euro Notes, which were redeemed in March 2018), the Unsecured Notes and the 2026 Unsecured EuroSubordinated Notes were fully and unconditionally and jointly and severally guaranteed by SGC and the Guarantor Subsidiaries other than SGI. We redeemed all of the outstanding 2022 Secured Notes during the first quarter of 2018, which were previously issued by SGI, and fully and unconditionally and jointly and severally guaranteed by SGC and the Guarantor Subsidiaries other than SGI.certain immaterial subsidiaries of SGC. The guarantees of our Secured Notes (other than the 2022 Secured Notes, were released in connection with the redemption of the 2022 Secured Notes. We redeemed all of the outstanding 2018 Notes on March 17, 2017, which were previously issued by SGC and fully and unconditionally and jointly and severally guaranteed by the Guarantor Subsidiaries. The guarantees of our 2020 Notes, 2021 Notes, 2025 Secured Notes, 2026 Secured Euro Notes,redeemed in March 2018), Unsecured Notes and 2026 Unsecured EuroSubordinated Notes will terminate under the following customary circumstances: (1) the sale or disposition of the capital stock of the guarantor (including by consolidation or merger of the guarantor into another person); (2) the liquidation or dissolution of the guarantor; (3) the defeasance or satisfaction and discharge of the notes; (4) the release of the guarantor from any guarantees of indebtedness of SGC and SGI; and (5) the proper designation of the guarantor as an unrestricted subsidiary pursuant to the indenture governing the respective Notes.

notes.
Presented below is condensed consolidating financial information for (1) SGC, (2) SGI, (3) the Guarantor Subsidiaries and (4) the Non-Guarantor Subsidiaries as of June 30, 2018March 31, 2019 and December 31, 20172018 and for the three and six months ended June 30, 2018March 31, 2019 and 2017.2018. The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of SGC, SGI, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries assuming the current guarantee structures of the 2018Secured Notes the 2020 Notes, the 2021 Notes,(other than the 2022 Secured Notes, which were redeemed in March 2018), the Unsecured Notes the 2025 Secured Notes, the 2026 Secured Euro Notes, and the 2026 Unsecured EuroSubordinated Notes were in effect at the beginning of the periods presented.


25

     The condensed consolidating financial information reflects the investments of SGC in SGI and in the Guarantor Subsidiaries and Non-Guarantor Subsidiaries using the equity method of accounting. They also reflect the investments of the


29

Guarantor Subsidiaries in the Non-Guarantor Subsidiaries. Net changes in intercompany due from/due to accounts are reported in the accompanying Supplemental Condensed Consolidating Statements of Cash Flows as investing activities if the applicable entities have a net investment (asset) in intercompany accounts and as a financing activity if the applicable entities have a net intercompany borrowing (liability) balance.    


3026


SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2018March 31, 2019
 SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated
Assets                        
Cash and cash equivalents $44.9
 $—
 $—
 $83.3
 $(9.6) $118.6
 $1,119
 $1
 $—
 $95
 $(2) $1,213
Restricted cash —
 0.6
 28.0
 4.7
 —
 33.3
 —
 1
 33
 7
 —
 41
Accounts receivable, net —
 73.9
 201.9
 286.5
 —
 562.3
 —
 102
 204
 315
 —
 621
Notes receivable, net —
 —
 107.2
 16.3
 —
 123.5
 —
 —
 89
 15
 —
 104
Inventories —
 30.7
 92.0
 129.2
 (20.0) 231.9
 —
 45
 89
 109
 (14) 229
Prepaid expenses, deposits and other current assets 11.0
 66.1
 98.3
 73.2
 0.2
 248.8
 3
 60
 95
 79
 1
 238
Property and equipment, net 31.3
 111.4
 230.6
 174.8
 (27.9) 520.2
 31
 99
 208
 215
 (36) 517
Operating lease right-of-use asset 1
 24
 35
 58
 —
 118
Investment in subsidiaries 3,005.4
 929.3
 1,033.3
 —
 (4,968.0) —
 2,896
 959
 1,216
 —
 (5,071) —
Goodwill —
 240.2
 1,886.1
 1,186.5
 —
 3,312.8
 —
 240
 1,897
 1,164
 —
 3,301
Intangible assets, net 12.0
 34.5
 1,245.6
 505.3
 —
 1,797.4
 40
 34
 1,239
 432
 —
 1,745
Intercompany balances —
 5,852.9
 —
 —
 (5,852.9) —
 —
 7,096
 74
 —
 (7,170) —
Software, net 63.2
 36.1
 161.0
 55.5
 —
 315.8
 53
 37
 118
 69
 —
 277
Other assets(2)
 234.1
 406.3
 55.6
 235.4
 (583.1) 348.3
 113
 412
 37
 309
 (438) 433
Total assets $3,401.9
 $7,782.0
 $5,139.6
 $2,750.7
 $(11,461.3) $7,612.9
 $4,256
 $9,110
 $5,334
 $2,867
 $(12,730) $8,837
Liabilities and stockholders' (deficit) equity            
Liabilities and stockholders’ (deficit) equity            
Current portion of long-term debt $—
 $41.7
 $—
 $7.0
 $—
 $48.7
 $—
 $1,042
 $3
 $1
 $—
 $1,046
Other current liabilities 99.1
 123.1
 219.6
 240.2
 (43.2) 638.8
 58
 224
 235
 258
 (35) 740
Long-term debt, excluding current portion —
 8,844.2
 —
 1.0
 —
 8,845.2
 —
 8,928
 8
 1
 —
 8,937
Operating lease liabilities 1
 20
 30
 47
 —
 98
Other long-term liabilities 92.2
 10.2
 616.7
 198.6
 (569.1) 348.6
 104
 13
 637
 176
 (491) 439
Intercompany balances 5,479.0
 —
 29.8
 344.1
 (5,852.9) —
 6,516
 —
 —
 654
 (7,170) —
Stockholders' (deficit) equity (2,268.4) (1,237.2) 4,273.5
 1,959.8
 (4,996.1) (2,268.4)
Total liabilities and stockholders' (deficit) equity $3,401.9
 $7,782.0
 $5,139.6
 $2,750.7
 $(11,461.3) $7,612.9
Stockholders’ (deficit) equity (2,423) (1,117) 4,421
 1,730
 (5,034) (2,423)
Total liabilities and stockholders’ (deficit) equity $4,256
 $9,110
 $5,334
 $2,867
 $(12,730) $8,837
                        
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes, the 2025 Secured Notes, which were issued in October 2017, and the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes, which were issued in February 2018.
(2) Includes $14.8 million and $0.7 million in non-current restricted cash for Guarantor Subsidiaries and Non-Guarantor Subsidiaries, respectively.
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes and the Secured Notes.
(2) Includes $11 million and $1 million in non-current restricted cash for Guarantor Subsidiaries and Non-Guarantor Subsidiaries, respectively.
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes and the Secured Notes.
(2) Includes $11 million and $1 million in non-current restricted cash for Guarantor Subsidiaries and Non-Guarantor Subsidiaries, respectively.


3127

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 20172018
 SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated SGC (Parent) 
SGI (Issuer1)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 Consolidated
Assets                        
Cash and cash equivalents $732.6
 $—
 $—
 $59.4
 $(3.2) $788.8
 $74
 $1
 $—
 $94
 $(1) $168
Restricted cash —
 0.6
 28.3
 0.1
 —
 29.0
 —
 1
 32
 6
 —
 39
Accounts receivable, net 0.4
 68.1
 192.6
 279.8
 —
 540.9
 —
 79
 205
 315
 —
 599
Notes receivable, net —
 —
 121.1
 22.4
 —
 143.5
 —
 —
 101
 13
 —
 114
Inventories —
 40.7
 91.8
 131.8
 (21.2) 243.1
 —
 40
 82
 111
 (17) 216
Prepaid expenses, deposits and other current assets 6.5
 30.3
 41.6
 52.7
 —
 131.1
 6
 63
 92
 72
 —
 233
Property and equipment, net 28.8
 91.5
 295.6
 179.9
 (27.6) 568.2
 31
 112
 219
 218
 (33) 547
Investment in subsidiaries 3,098.7
 867.9
 987.7
 —
 (4,954.3) —
 2,836
 975
 1,093
 —
 (4,904) —
Goodwill —
 240.3
 1,880.4
 835.4
 —
 2,956.1
 —
 240
 1,897
 1,143
 —
 3,280
Intangible assets, net 15.7
 34.9
 1,335.3
 218.7
 —
 1,604.6
 43
 34
 1,291
 441
 —
 1,809
Intercompany balances —
 5,889.8
 —
 222.5
 (6,112.3) —
 —
 6,054
 —
 —
 (6,054) —
Software, net 67.2
 24.7
 199.0
 48.5
 —
 339.4
 58
 39
 128
 60
 —
 285
Other assets(2)
 234.4
 388.8
 62.0
 270.3
 (574.9) 380.6
 110
 404
 46
 308
 (440) 428
Total assets $4,184.3
 $7,677.6
 $5,235.4
 $2,321.5
 $(11,693.5) $7,725.3
 $3,158
 $8,042
 $5,186
 $2,781
 $(11,449) $7,718
Liabilities and stockholders' (deficit) equity            
Liabilities and stockholders’ (deficit) equity            
Current portion of long-term debt $—
 $32.8
 $—
 $7.5
 $—
 $40.3
 $—
 $42
 $—
 $3
 $—
 $45
Other current liabilities 67.6
 199.0
 254.2
 206.4
 (27.7) 699.5
 64
 162
 248
 254
 (26) 702
Long-term debt, excluding current portion —
 8,733.0
 —
 3.3
 —
 8,736.3
 —
 8,991
 —
 1
 —
 8,992
Other long-term liabilities 68.8
 11.3
 650.3
 110.9
 (565.1) 276.2
 106
 8
 637
 172
 (481) 442
Intercompany balances 6,074.9
 —
 37.4
 —
 (6,112.3) —
 5,451
 —
 49
 554
 (6,054) —
Stockholders' (deficit) equity (2,027.0) (1,298.5) 4,293.5
 1,993.4
 (4,988.4) (2,027.0)
Total liabilities and stockholders' (deficit) equity $4,184.3
 $7,677.6
 $5,235.4
 $2,321.5
 $(11,693.5) $7,725.3
Stockholders’ (deficit) equity (2,463) (1,161) 4,252
 1,797
 (4,888) (2,463)
Total liabilities and stockholders’ (deficit) equity $3,158
 $8,042
 $5,186
 $2,781
 $(11,449) $7,718
                        
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, the 2025 Secured Notes and the Unsecured Notes.
(2) Includes $16.1 million and $0.7 million in non-current restricted cash for Guarantor Subsidiaries and Non-Guarantor Subsidiaries, respectively.
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes (other than the 2026 Unsecured Notes, which were not issued until February 2019) and the Secured Notes.(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes (other than the 2026 Unsecured Notes, which were not issued until February 2019) and the Secured Notes.
(2) Includes $12 million and $1 million in non-current restricted cash for Guarantor Subsidiaries and Non-Guarantor Subsidiaries, respectively.(2) Includes $12 million and $1 million in non-current restricted cash for Guarantor Subsidiaries and Non-Guarantor Subsidiaries, respectively.



3228

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
Three Months Ended June 30, 2018March 31, 2019
 SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated
Revenue $—
 $136.0
 $404.4
 $376.3
 $(72.0) $844.7
 $—
 $158
 $358
 $385
 $(64) $837
Cost of services, cost of product sales and cost of instant products (2)
 —
 86.3
 131.4
 159.2
 (61.0) 315.9
 —
 101
 102
 152
 (48) 307
SG&A 43.3
 9.1
 51.5
 82.6
 (12.6) 173.9
 35
 11
 59
 94
 (13) 186
R&D —
 0.5
 21.9
 26.8
 —
 49.2
 —
 1
 23
 25
 —
 49
D&A 11.9
 7.4
 107.4
 49.5
 (3.5) 172.7
 12
 12
 99
 47
 (5) 165
Restructuring and other 30.2
 (3.4) 1.7
 5.0
 —
 33.5
 1
 —
 2
 4
 —
 7
Operating (loss) income (85.4) 36.1
 90.5
 53.2
 5.1
 99.5
 (48) 33
 73
 63
 2
 123
Interest expense —
 (146.1) —
 —
 —
 (146.1) —
 (154) —
 —
 —
 (154)
Gain on remeasurement of debt —
 34.5
 —
 —
 —
 34.5
 —
 5
 —
 —
 —
 5
Other income (expense), net 16.9
 131.9
 (119.1) (23.4) —
 6.3
 20
 132
 (124) (22) —
 6
Net (loss) income before equity in income of subsidiaries and income taxes (68.5) 56.4
 (28.6) 29.8
 5.1
 (5.8) (28) 16
 (51) 41
 2
 (20)
Equity in income (loss) of subsidiaries 25.8
 13.7
 (17.2) —
 (22.3) —
Income tax benefit (expense) 36.9
 (25.7) (3.9) (7.3) —
 —
Equity in income of subsidiaries 6
 7
 11
 —
 (24) —
Income tax (expense) benefit (2) (5) 13
 (10) —
 (4)
Net (loss) income $(5.8) $44.4
 $(49.7) $22.5
 $(17.2) $(5.8) $(24) $18
 $(27) $31
 $(22) $(24)
                        
Other comprehensive (loss) income (83.4) 29.3
 (35.8) (119.0) 125.5
 (83.4)
Comprehensive (loss) income $(89.2) $73.7
 $(85.5) $(96.5) $108.3
 $(89.2)
Other comprehensive income 51
 9
 2
 71
 (82) 51
Comprehensive income (loss) $27
 $27
 $(25) $102
 $(104) $27
                        
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes, the 2025 Secured Notes, which were issued in October 2017, and the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes, which were issued in February 2018.
(2) Exclusive of D&A.
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes and the Secured Notes.
(2) Exclusive of D&A.
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes and the Secured Notes.
(2) Exclusive of D&A.


3329

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS) INCOME
Three Months Ended June 30, 2017
  SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated
Revenue $—
 $128.3
 $420.5
 $284.8
 $(67.3) $766.3
Cost of services, cost of product sales and cost of instant products (2)
 —
 86.8
 129.0
 135.6
 (72.5) 278.9
SG&A 29.2
 8.5
 68.9
 52.1
 (12.8) 145.9
R&D 0.7
 2.4
 16.9
 28.1
 —
 48.1
D&A 16.9
 8.0
 122.8
 29.6
 (2.3) 175.0
Restructuring and other 1.5
 0.3
 (1.1) 0.4
 —
 1.1
Operating (loss) income (48.3) 22.3
 84.0
 39.0
 20.3
 117.3
Interest income (expense) 0.2
 (151.1) —
 (0.3) —
 (151.2)
Other (expense) income, net (18.1) 51.7
 (31.0) (1.4) —
 1.2
Net (loss) income before equity in income of subsidiaries and income taxes (66.2) (77.1) 53.0
 37.3
 20.3
 (32.7)
Equity in income of subsidiaries 18.8
 14.6
 6.1
 —
 (39.5) —
Income tax benefit (expense) 8.3
 28.9
 (27.4) (16.2) —
 (6.4)
Net (loss) income $(39.1) $(33.6) $31.7
 $21.1
 $(19.2) $(39.1)
             
Other comprehensive income 31.7
 0.3
 44.7
 30.2
 (75.2) 31.7
Comprehensive (loss) income $(7.4) $(33.3) $76.4
 $51.3
 $(94.4) $(7.4)
             
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes and the 2025 Secured Notes, which were issued in October 2017.
(2) Exclusive of D&A.


34

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
Six Months Ended June 30,March 31, 2018
 SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated
Revenue $—
 $265.6
 $791.3
 $745.2
 $(145.6) $1,656.5
 $—
 $130
 $387
 $369
 $(74) $812
Cost of services, cost of product sales and cost of instant products (2)
 —
 172.6
 249.8
 312.3
 (122.1) 612.6
 —
 86
 118
 154
 (61) 297
SG&A 81.1
 20.0
 108.9
 161.4
 (25.9) 345.5
 38
 11
 58
 79
 (14) 172
R&D —
 0.9
 44.8
 57.3
 —
 103.0
 —
 —
 23
 31
 —
 54
D&A 21.1
 15.0
 233.5
 97.9
 (6.7) 360.8
 9
 8
 126
 48
 (3) 188
Restructuring and other 56.3
 (2.6) 3.2
 28.8
 —
 85.7
 26
 1
 1
 24
 —
 52
Operating (loss) income (158.5) 59.7
 151.1
 87.5
 9.1
 148.9
 (73) 24
 61
 33
 4
 49
Interest expense —
 (300.5) —
 (0.4) —
 (300.9) —
 (155) —
 —
 —
 (155)
Loss on debt financing transactions —
 (93.2) —
 —
 —
 (93.2) —
 (93) —
 —
 —
 (93)
Gain on remeasurement of debt —
 33.4
 —
 —
 —
 33.4
Other income (expense), net 32.5
 269.1
 (252.0) (39.2) —
 10.4
 15
 136
 (133) (15) —
 3
Net (loss) income before equity in income of subsidiaries and income taxes (126.0) (31.5) (100.9) 47.9
 9.1
 (201.4) (58) (88) (72) 18
 4
 (196)
Equity in (loss) income of subsidiaries (58.1) 17.3
 (6.8) —
 47.6
 —
 (84) 4
 10
 —
 70
 —
Income tax (expense) benefit (23.5) 7.5
 21.4
 (11.6) —
 (6.2) (60) 33
 25
 (4) —
 (6)
Net (loss) income $(207.6) $(6.7) $(86.3) $36.3
 $56.7
 $(207.6) $(202) $(51) $(37) $14
 $74
 $(202)
                        
Other comprehensive (loss) income (31.3) 12.2
 (13.4) (45.9) 47.1
 (31.3)
Comprehensive (loss) income $(238.9) $5.5
 $(99.7) $(9.6) $103.8
 $(238.9)
Other comprehensive income (loss) 52
 (17) 22
 73
 (78) 52
Comprehensive income (loss) $(150) $(68) $(15) $87
 $(4) $(150)
                        
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes, the 2025 Secured Notes, which were issued in October 2017, and the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes, which were issued in February 2018.
(2) Exclusive of D&A.
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes (other than the 2026 Unsecured Notes, which were not issued until March 2019) and the Secured Notes.
(2) Exclusive of D&A.
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes (other than the 2026 Unsecured Notes, which were not issued until March 2019) and the Secured Notes.
(2) Exclusive of D&A.






35

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
Six Months Ended June 30 2017
  SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated
Revenue $—
 $246.3
 $820.3
 $549.4
 $(124.3) $1,491.7
Cost of services, cost of product sales and cost of instant products (2)
 —
 169.7
 252.7
 257.4
 (120.9) 558.9
SG&A 58.9
 18.0
 117.7
 114.5
 (22.5) 286.6
R&D 1.2
 3.8
 51.1
 34.4
 —
 90.5
D&A 37.2
 15.5
 234.7
 57.4
 (4.7) 340.1
Restructuring and other 5.3
 0.5
 3.1
 1.4
 —
 10.3
Operating (loss) income (102.6) 38.8
 161.0
 84.3
 23.8
 205.3
Interest expense (4.3) (305.7) —
 (0.6) —
 (310.6)
Loss on debt financing transactions (1.1) (28.6) —
 —
 —
 (29.7)
Other (expense) income, net (38.9) 102.4
 (56.5) 11.2
 —
 18.2
Net (loss) income before equity in income of subsidiaries and income taxes (146.9) (193.1) 104.5
 94.9
 23.8
 (116.8)
Equity in income of subsidiaries 23.5
 31.9
 21.5
 —
 (76.9) —
Income tax (expense) benefit (16.5) 72.3
 (48.0) (30.9) —
 (23.1)
Net (loss) income $(139.9) $(88.9) $78.0
 $64.0
 $(53.1) $(139.9)
             
Other comprehensive income 67.8
 4.3
 66.2
 59.7
 (130.2) 67.8
Comprehensive (loss) income $(72.1) $(84.6) $144.2
 $123.7
 $(183.3) $(72.1)
             
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes and the 2025 Secured Notes, which were issued in October 2017.
(2) Exclusive of D&A.



36

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SixThree Months Ended June 30, 2018March 31, 2019
 SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated
Net cash (used in) provided by operating activities $(50.5) $(59.1) $84.7
 $163.7
 $(6.4) $132.4
 $(15) $55
 $63
 $65
 $(1) $167
Cash flows from investing activities:  
  
  
  
  
    
  
  
  
  
  
Capital expenditures (22.1) (46.1) (89.3) (43.0) —
 (200.5) (3) (10) (25) (29) —
 (67)
Acquisitions of businesses and assets, net of cash acquired —
 —
 (9.6) (264.5) —
 (274.1)
Distributions of capital from equity investments —
 —
 —
 23.2
 —
 23.2
 —
 —
 —
 3
 —
 3
Additions to equity method investments —
 (0.9) —
 (74.3) —
 (75.2)
Other, principally change in intercompany investing activities —
 48.0
 —
 —
 (48.0) —
 —
 (986) (47) —
 1,033
 —
Net cash (used in) provided by investing activities (22.1) 1.0
 (98.9) (358.6) (48.0) (526.6)
Net cash used in investing activities (3) (996) (72) (26) 1,033
 (64)
Cash flows from financing activities:                        
Proceeds net of payments on long-term debt —
 96.6
 —
 (4.0) —
 92.6
Repayment of assumed NYX debt —
 —
 —
 (288.2) —
 (288.2)
Proceeds from long-term debt, net of payments —
 955
 —
 (2) —
 953
Payments of debt issuance and deferred financing costs —
 (38.5) —
 —
 —
 (38.5) —
 (14) —
 —
 —
 (14)
Payments on license obligations (13.8) —
 (0.2) —
 —
 (14.0) (7) —
 —
 —
 —
 (7)
Sale of future revenue —
 —
 11
 —
 —
 11
Net redemptions of common stock under stock-based compensation plans and other (19.7) —
 (1.8) —
 —
 (21.5) 1
 —
 (2) —
 —
 (1)
Other, principally change in intercompany financing activities (581.6) —
 15.1
 518.5
 48.0
 —
 1,069
 —
 —
 (36) (1,033) —
Net cash (used in) provided by financing activities (615.1) 58.1
 13.1
 226.3
 48.0
 (269.6)
Net cash provided by (used in) financing activities 1,063
 941
 9
 (38) (1,033) 942
Effect of exchange rate changes on cash, cash equivalents and restricted cash —
 —
 —
 (2.9) —
 (2.9) —
 —
 —
 1
 —
 1
(Decrease) increase in cash, cash equivalents and restricted cash (687.7) —
 (1.1) 28.5
 (6.4) (666.7)
Increase in cash, cash equivalents and restricted cash 1,045
 —
 —
 2
 (1) 1,046
Cash, cash equivalents and restricted cash, beginning of period 732.6
 0.6
 43.9
 60.2
 (3.2) 834.1
 74
 2
 44
 101
 (1) 220
Cash, cash equivalents and restricted cash end of period $44.9
 $0.6
 $42.8
 $88.7
 $(9.6) $167.4
 $1,119
 $2
 $44
 $103
 $(2) $1,266
                        
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes, the 2025 Secured Notes, which were issued in October 2017, and the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes, which were issued in February 2018.
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes and the Secured Notes.(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes and the Secured Notes.


3731

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SixThree Months Ended June 30, 2017March 31, 2018

 SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated SGC (Parent) 
SGI (Issuer1)
 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Eliminating
Entries		 Consolidated
Net cash (used in) provided by operating activities $(101.1) $(125.1) $327.9
 $177.4
 $0.4
 $279.5
 $(32) $(25) $34
 $55
 $(2) $30
Cash flows from investing activities:  
  
  
  
  
    
  
  
  
  
  
Capital expenditures (25.1) (8.9) (67.9) (38.3) —
 (140.2) (8) (17) (45) (18) —
 (88)
Acquisition of business, net of cash acquired —
 —
 (26.3) (25.8) —
 (52.1)
Acquisitions of businesses and assets, net of cash acquired —
 —
 (9) (265) —
 (274)
Distributions of capital from equity investments —
 —
 —
 22.4
 —
 22.4
 —
 —
 —
 2
 —
 2
Changes in other assets and liabilities and other —
 —
 7.5
 2.5
 —
 10.0
Other, principally change in intercompany investing activities —
 (102.9) —
 (166.3) 269.2
 —
 —
 74
 —
 —
 (74) —
Net cash used in investing activities (25.1) (111.8) (86.7) (205.5) 269.2
 (159.9)
Net cash (used in) provided by investing activities (8) 57
 (54) (281) (74) (360)
Cash flows from financing activities:                        
Net payments of long-term debt including proceeds and repurchases of senior notes and term loans (250.0) 265.7
 —
 (3.1) —
 12.6
Proceeds net of payments on long-term debt —
 7
 —
 (2) —
 5
Repayment of assumed NYX debt —
 —
 —
 (288) —
 (288)
Payments of debt issuance and deferred financing costs —
 (27.7) —
 —
 —
 (27.7) —
 (39) —
 —
 —
 (39)
Payments on license obligations (17.0) —
 (2.5) —
 —
 (19.5) (7) —
 —
 —
 —
 (7)
Net redemptions of common stock under stock-based compensation plans (3.9) —
 —
 —
 —
 (3.9)
Net redemptions of common stock under stock-based compensation plans and other (15) —
 (2) —
 —
 (17)
Other, principally change in intercompany financing activities 507.1
 —
 (237.9) —
 (269.2) —
 (630) —
 22
 534
 74
 —
Net cash provided by (used in) financing activities 236.2
 238.0
 (240.4) (3.1) (269.2) (38.5)
Net cash (used in) provided by financing activities (652) (32) 20
 244
 74
 (346)
Effect of exchange rate changes on cash, cash equivalents and restricted cash —
 —
 —
 2.8
 —
 2.8
 —
 —
 —
 2
 —
 2
Increase (decrease) in cash, cash equivalents and restricted cash 110.0
 1.1
 0.8
 (28.4) 0.4
 83.9
(Decrease) increase in cash, cash equivalents and restricted cash (692) —
 —
 20
 (2) (674)
Cash, cash equivalents and restricted cash, beginning of period 32.7
 1.7
 41.0
 82.6
 (1.1) 156.9
 732
 1
 44
 60
 (3) 834
Cash, cash equivalents and restricted cash end of period $142.7
 $2.8
 $41.8
 $54.2
 $(0.7) $240.8
 $40
 $1
 $44
 $80
 $(5) $160
                        
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes and the 2025 Secured Notes, which were issued in October 2017.
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes (other than the 2026 Unsecured Notes, which were not issued until March 2019) and the Secured Notes.(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes (other than the 2026 Unsecured Notes, which were not issued until March 2019) and the Secured Notes.


3832

Item 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to enhance the reader's understanding of our operations and current business environment and should be read in conjunction with the description of our business included under Part I, Item 1 "Condensed“Condensed Consolidated Financial Statements"Statements” and Part II, Item 1A "Risk Factors"“Risk Factors” in this Quarterly Report on Form 10-Q and under Part I, Item 1 "Business,"“Business,” and Item 1A "Risk Factors"“Risk Factors” and Part II, Item 7 "Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” included in our 20172018 10-K.
This "Management's“Management's Discussion and Analysis of Financial Condition and Results of Operations" ("Operations” (“MD&A"&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the disclosures and information contained and referenced under "Forward-Looking Statements"“Forward-Looking Statements” and "Risk Factors"“Risk Factors” included in this Quarterly Report on Form 10-Q and "Risk Factors"“Risk Factors” included in our 20172018 10-K. As used in this MD&A, the terms "we," "us,"“we,” “us,” “our” and "our"the “Company” mean SGCScientific Games Corporation together with its consolidated subsidiaries.

BUSINESS OVERVIEW
We are a leading developer of technology‑basedtechnology-based products and services and associated content for the worldwide gaming, lottery, social and digital gaming industries. Our portfolio of revenue-generating activities primarily includes supplying gaming machines and game content, casino managementcasino-management systems and table game products and services to licensed gaming entities; providing instant and draw‑baseddraw-based lottery games,products, lottery systems and lottery content and services to lottery operators; providing social casino solutions to retail consumers and regulated gaming entities as applicable;consumers; and providing a comprehensive suite of digital RMG and sports bettingwagering solutions, distribution platforms, content, products and services. We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments.
Recent Events
On June 1, 2018, Barry L. Cottle succeeded Kevin M. Sheehan as SGC’s PresidentMarch 19, 2019, we completed a private offering of $1,100 million of the 2026 Unsecured Notes. We used the net proceeds of the 2026 Unsecured Notes offering to redeem $1,000 million of our outstanding 2022 Unsecured Notes, which redemption was completed on April 4, 2019. The 2026 Unsecured Notes offering allowed us to extend the maturity of $1,000 million of our debt from 2022 to 2026 and Chief Executive Officer, after previously having served as the Company's Chief Executive, SG Interactive.

reduce expected future cash paid for interest.
On May 14, 20187, 2019, we completed an initial public offering of a 17.4% minority interest in our Social gaming business, the Supreme Court of“SciPlay IPO”, which we believe will provide greater flexibility to pursue additional growth initiatives specifically designed for our Social gaming business. SGC received $301 million in proceeds from the United States overturned the Professional and Amateur Sports Protection Act (PASPA), a decision that opens up a pathoffering, which enables us to legalization of sports betting across the country.

make substantial payments to reduce our debt.
Segments
Beginning in the first quarter of 2018, weWe report our operations in four business segments —- Gaming, Lottery, Social and Digital —- representing our different products and services. Additionally, asAs a result of our Chief Executive Officer changethe SciPlay IPO and starting with the secondfirst quarter of 2018,2019, we changed ourthe calculation of Social business segment measure of profitAEBITDA, which now reflects corporate services obtained under an intercompany services agreement and certain royalties paid by the Social business segment to other segments or loss from operating income (loss) to Attributable EBITDA.Corporate under an intercompany intellectual property license agreement. Business segment information for the three months ended March 31, 2018 has been recast to reflect these changes.  See "Consolidated"- Business Segments Results" below and Note 3 for additional business segment information.
Foreign Exchange
Our results are impacted by changes in foreign currency exchange rates used in the translation of foreign functional currencies into USD and the re-measurementremeasurement of foreign currency transactions or balances. The impact of foreign currency exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity. Our exposure to foreign currency volatility on revenue is as follows:


33

Three Months Ended Six Months EndedThree Months Ended
June 30, June 30,March 31,
2018
2017 2018 20172019
2018
($ in millions)Revenue% Consolidated Revenue Revenue% Consolidated Revenue Revenue% Consolidated Revenue Revenue% Consolidated RevenueRevenue % Consolidated Revenue Revenue % Consolidated Revenue
Foreign Currency:                  
British Pound Sterling$79.9
9.5% $50.7
6.6% $163.2
9.9% $102.1
6.8%$85
 10% $83
 10%
Euro59.0
7.0% 33.7
4.4% 113.2
6.8% 66.8
4.5%56
 7% 54
 7%
Australian Dollar28.1
3.3% 34.6
4.5% 52.8
3.2% 58.5
3.9%16
 2% 25
 3%
We also have foreign currency exposure related to certain of our equity investments, cross-currency interest rate swaps, and Euro-denominated debt. See "Risk Factors"“Risk Factors” under Item 1A and "Consolidated“Consolidated Results — Other Factors Affecting 2018, 2017 and 2016 Net Loss Comparability— Foreign exchange"exchange” under Item 7 in our 20172018 10-K and Item 3 "Quantitative“Quantitative and Qualitative


39

Disclosures about Market Risk"Risk” in this Quarterly Report on Form 10-Q. Foreign currency had a positive impact of $7.5 million and $19.6 million on revenue for the three and six months ended June 30, 2018, respectively.

CONSOLIDATED RESULTS
 Three Months Ended 
 June 30,		 Variance Six Months Ended June 30, Variance Three Months Ended 
 March 31,		 Variance
($ in millions) 2018
2017 2018 vs. 2017 2018 2017 2018 vs. 2017 2019
2018 2019 vs. 2018
Total revenue $844.7
 $766.3
 $78.4
 10 % $1,656.5
 $1,491.7
 $164.8
 11 % $837
 $812
 $25
 3 %
Total operating expenses 745.2
 649.0
 96.2
 15 % 1,507.6
 1,286.4
 221.2
 17 % 714
 763
 (49) (6)%
Operating income 99.5
 117.3
 (17.8) (15)% 148.9
 205.3
 (56.4) (27)% 123
 49
 74
 151 %
Net loss before income taxes (5.8) (32.7) 26.9
 (82)% (201.4) (116.8) (84.6) 72 % (20) (196) 176
 (90)%
Net loss $(5.8) $(39.1) $33.3
 (85)% $(207.6) $(139.9) $(67.7) 48 % $(24) $(202) $178
 (88)%

Three and Six Months Ended June 30, 2018March 31, 2019 Compared to Three and Six Months Ended June 30, 2017March 31, 2018
Revenue
 Three Months Ended June 30, Variance Six Months Ended June 30, Variance Three Months Ended March 31, Variance
($ in millions) 2018
2017 2018 vs. 2017 2018 2017 2018 vs. 2017 2019
2018 2019 vs. 2018
Gaming $470.7
 $457.2
 $13.5
 3% $913.7
 $897.2
 $16.5
 2% $422
 $443
 $(21) (5)%
Lottery 207.1
 202.3
 4.8
 2% 408.8
 391.4
 17.4
 4% 227
 202
 25
 12 %
Social 99.7
 91.1
 8.6
 9% 197.1
 171.3
 25.8
 15% 118
 97
 21
 22 %
Digital 67.2
 15.7
 51.5
 328% 136.9
 31.8
 105.1
 331% 70
 70
 —
 — %
Total revenue $844.7
 $766.3
 $78.4
 10% $1,656.5
 $1,491.7
 $164.8
 11% $837
 $812
 $25
 3 %

Gaming revenue increased for both comparable periodsdecreased primarily due to higherlower gaming systems and table products sales, partially offset byoperations revenue coupled with lower WAP and premium game service and Other Participation and leased units revenue.gaming machine sales. The decrease in WAP and premium game service and Other Participation and leased units revenue isgaming operations was primarily due to the lower U.S. and Canadian ending installed base andunits coupled with lower average daily revenue perfor International units, while the decrease in gaming machine sales was primarily due to lower international unit sales coupled with the impact of ASC 606 adoption. The three and six months ended June 30, 2018 reflect $6.5 million and $10.9 million, respectively, in jackpot charges for our WAP services recorded as a reduction to revenue, which was reflected as a cost of services in the prior-year comparable periods. The Gaming revenue increase included a favorable foreign currency impact of $3.8 million and $12.9 million in the three and six months ended June 30, 2018, respectively.lower average sales price per new unit.
Lottery revenue increased for both comparable periods primarily due to higher lottery systems revenue for the three-month comparable period and higher lottery systems revenue and instant products revenue for the six-month comparable period. The increase in lottery systems revenue is due todriven by domestic equipment sales coupled with organic domestic growth partially offset by lower international terminal and software sales. Lottery revenue increases included a favorable foreign currency impact of $3.1 million and $6.1 million for the three and six months ended June 30, 2018, respectively.growth.
Social revenue increased for both comparable periods primarily due to continued growth in our Social gamingmobile platform business, reflecting the ongoing popularity of Jackpot Party®Casino, MONOPOLYSlots, Bingo Showdown®,88 Fortunes®, and Quick Hit® Slots Bingo ShowdownTM.and the success of more recent apps, such as the introduction of the MONOPOLYthemed casino app featuring new innovative style of play characteristics, which was launched during the second quarter of 2018.
Digital revenue increased primarily due to the impact of the NYX acquisition completed on January 5, 2018, which comprised $50.6 million and $99.8 million in revenue for the three and six months ended June 30, 2018, respectively.
Operating expenses


4034

Three Months Ended June 30, Variance Six Months Ended June 30, VarianceThree Months Ended March 31, Variance
($ in millions)2018
2017 2018 vs. 2017 2018
2017 2018 vs. 20172019
2018 2019 vs. 2018
Operating expenses:                      
Cost of services$124.2
 $98.9
 $25.3
 26 % $246.1
 $202.2
 $43.9
 22%$133
 $122
 $11
 9 %
Cost of product sales120.4
 108.7
 11.7
 11 % 225.5
 215.3
 10.2
 5%107
 105
 2
 2 %
Cost of instant products71.3
 71.3
 -
 -
 141.0
 141.4
 (0.4) -
67
 70
 (3) (4)%
SG&A173.9
 145.9
 28.0
 19 % 345.5
 286.6
 58.9
 21%186
 172
 14
 8 %
R&D49.2
 48.1
 1.1
 2 % 103.0
 90.5
 12.5
 14%49
 54
 (5) (9)%
D&A172.7
 175.0
 (2.3) (1)% 360.8
 340.1
 20.7
 6%165
 188
 (23) (12)%
Restructuring and other33.5
 1.1
 32.4
 2,945 % 85.7
 10.3
 75.4
 732%7
 52
 (45) (87)%
Total operating expenses$745.2
 $649.0
 $96.2
 15 % $1,507.6

$1,286.4
 $221.2
 17%$714
 $763
 $(49) (6)%
Cost of revenue
Total cost of revenue for the three-month comparable period increased primarily due to: (1)to a $25.3$9 million increase in Social business cost of services, largely due to the impact of the NYX acquisition coupledwhich is correlated with a higher Social business segment cost of services commensurate with revenue growth, partially offset by $5.3 million in prior period jackpot expense for our WAP services recorded as a reduction to revenue previously reflected as a cost of services in the prior-year comparable period; and (2) an $11.7 million increase in cost of products primarily driven by higher unit sales of gaming machines.growth.
Total cost of revenue for the six-month comparable period increased primarily due to: (1) a $43.9 million higher cost of services commensurate with the overall increase in services revenue, coupled with the impact of the NYX acquisition; and inclusive of the effect of $12.4 million in jackpot charge for our WAP services recorded as expense in the prior year now being reflected as a reduction of revenue; and (2) a $10.2 million higher cost of product sales commensurate with an overall increase in Gaming product sales.
SG&A
The increase inSG&A for both comparable periods is largelyprimarily due to the impact of the NYX acquisition coupled with higher stock-based compensation attributable to a $9.7 million incremental expense related to acceleration of equity awards associated with recent executive changes, and higher Social business segmentSG&A driven by higher marketing costs.
R&D
The increase in R&D for the six-month comparable period was primarily attributableand player acquisition costs to the impact of the NYX acquisition amounting to $15.9 million, which was partially offset by lower Gaming business segment R&D spending for certain projects and more efficient business operations.support ongoing growth initiatives.
D&A    
The decrease in D&A for the three-month comparable period was primarily due to: (1)to certain Gaming segment acquired intangible assets becoming fully depreciated during 2017; partially offset by (2)the first quarter of 2018 and a $13.5 million increase due to the impact of the NYX acquisition.
The increase in D&A for the six-month comparable period was primarily due to: (1) a $26.1 million increase due to the impact of the NYX acquisition; (2) a $19.0$19 million impairment charge related to our assets held for sale (see Note 7); partially offset by (3) certain Gaming segment acquired intangible assets becoming fully depreciatedrecorded during 2017.the first quarter of 2018.
Restructuring and other
The increasedecrease in Restructuring and other for both comparable periods wasis primarily due to higher severance and related charges associated with management changes coupled with NYX integration related costs and an increase in our legal reserve for legal matters. The six-month comparable period is impacted by the following items reflected in the current year period:to: (1) an $18.0$18 million non-cash fair value contingent consideration remeasurement charge in 2018 (see Note 12); (2) a $25.0$15 million legal reserve;reserve for the Shuffle Tech legal matter in 2018; and (3) $20.9$8 million in employee severance; and (4) $7.7 million of NYX related acquisition costs.costs in 2018, with no such comparable expenses in the current-year period.
Other Factors Affecting Net Loss Comparability


41

  Three Months Ended June 30, Six Months Ended June 30, Factors Affecting Net Loss
(in millions) 2018 2017 2018 2017 2018 vs. 2017
Interest expense $(146.1) $(151.2) $(300.9) $(310.6) Lower cash interest costs primarily resulting from 2017 and 2018 refinancing transactions, partially offset by higher outstanding debt principal balances (further discussed in “Liquidity, Capital Resources and Working Capital” and Note 11).
Loss on debt financing transactions —
 —
 (93.2) (29.7) Loss on debt financing transactions from our refinancing transactions consummated during the 2018 first quarter, inclusive of a $110.3 million premium charge associated with the redemption of the 2022 Secured Notes (see Note 11).
Gain on remeasurement of debt 34.5
 —
 33.4
 —
 The gain is attributable to remeasurement of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes and reflective of weakening of the Euro vs. the U.S. dollar since the issuance of these notes (1.24 exchange rate at issuance vs. 1.17 as of June 30, 2018).
Income tax expense —
 (6.4) (6.2) (23.1) The reduction is primarily due to the overall mix of income in our foreign jurisdictions.
  Three Months Ended March 31, Factors Affecting Net Loss
(in millions) 2019 2018 2019 vs. 2018
Loss on debt financing transactions $—
 $(93) Loss on debt financing transactions from our refinancing transactions consummated during the 2018 first quarter, including a $110 million premium charge associated with the redemption of the 2022 Secured Notes (see Note 11).
Gain (loss) on remeasurement of debt 5
 (1) The three-month period gain is attributable to remeasurement of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes and reflects weakening of the Euro vs. the U.S. Dollar since December 31, 2018 (1.14 exchange rate at December 31, 2018 vs. 1.13 as of March 31, 2019).

See "Business“Business Segments Results"Results” below for a more detailed explanation of the significant changes in our components of revenue within the individual segment results of operations.

BUSINESS SEGMENTS RESULTS

GAMING
Our Gaming business segment designs, develops, manufactures, markets and distributes a comprehensive portfolio of gaming products and services. We provide our Gaming portfolio of products and services to commercial casinos, Native


35

American casinos, wide-area gaming operators such as licensed betting offices ("LBOs"(“LBOs”), arcade and bingo operators in the U.K. and continental Europe, and government agencies and their affiliated operators.
We generate Gaming revenue from both services and product sales. Our services revenue includes revenue earned from WAP, premium and daily-fee Participation gaming machines, other leased gaming machines (including VLTs and electronic table games), supplied table products and services (including Shufflers), casino management technology solutions and systems, and other services revenues. Our product sales revenue includes the sale of new and used gaming machines, electronic table games, VLTs and VGTs, casino-management technology solutions and systems, table products, PTG licensing, conversion kits (including game, hardware or operating system conversions) and spare parts. For additional information, refer to the Gaming primary business activities summary included within "Business“Business Segment Results"Results” under Item 7 of our 20172018 10-K.

Current Year Update

We expect to continue to face pricing pressure in our Gaming business segment. We anticipate that replacement demand for gaming machines and constraints on capital spending by gaming operators will continue at current levels. We anticipate that demand for our gaming systems products and services will remain at a constant level due to several Canadian contracts and related new systemsystems implementations anticipated to continue during the second half of 2018;throughout 2019; however, timing can fluctuate based on timing of installations of the solutions.systems. We believe we have begun to stabilize the erosion in the installed base of WAP, premium and daily-feeour Participation gaming machines. In 2017,During the first quarter of 2019, we demonstrated a significant breadth and depth of innovative new products that we expect to launch during 2018 to support our target of growingdeployed the overall category. These products were headlined by three JAMES BOND themed games showcased on our new Gamefield2.0TM, TwinStar J43TMiReels, and Twinstar®V75 Wave XLcabinets, which begun launch in June of 2018.

During the second quarter of 2018, we signed a new seven-year agreement with Ladbrokes Coral Group as an addition to continue to supply terminals, content and related services, which represents a significant portion of our U.K. LBO server-based gaming business.

In May 2018, the U.K. government approved the reduction of fixed-odds betting terminals maximum stakes limit from £100 to £2, however the implementation date has not been defined and is pending parliamentary approval.Gaming Operations platform.

Results of Operations and Key Performance Indicators for Gaming
  Three Months Ended March 31, Variance
($ in millions) 2019 2018 2019 vs. 2018
Total revenue $422
 $443
 $(21) (5)%
Total operating expenses 329
 371
 (42) (11)%
AEBITDA 215
 218
 (3) (1)%

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
Revenue


4236

  Three Months Ended 
 June 30,		 Variance Six Months Ended June 30, Variance
($ in millions) 2018 2017 2018 vs. 2017 2018 2017 2018 vs. 2017
Total revenue $470.7
 $457.2
 $13.5
 3 % $913.7
 $897.2
 $16.5
 2%
Total operating expenses 362.6
 371.3
 (8.7) (2)% 733.5
 733.8
 (0.3) -
AEBITDA 235.7
 226.9
 8.8
 4 % 453.8
 436.6
 17.2
 4%

Three and Six Months Ended June 30, 2018 Compared to Three and Six Months Ended June 30, 2017
Revenue
 Three Months Ended June 30, Variance Six Months Ended June 30, VarianceThree Months Ended March 31, Variance
($ in millions) 2018 2017 2018 vs. 2017 2018 2017 2018 vs. 20172019 2018 2019 vs. 2018
Revenue:                       
Gaming operations $159.9
 $178.4
 $(18.5) (10)% $321.3
 $350.8
 $(29.5) (8)%$152
 $161
 $(9) (6)%
Gaming machine sales 167.6
 163.3
 4.3
 3 % 312.4
 319.5
 (7.1) (2)%136
 145
 (9) (6)%
Gaming systems 84.3
 67.1
 17.2
 26 % 159.3
 128.6
 30.7
 24 %74
 75
 (1) (1)%
Table products 58.9
 48.4
 10.5
 22 % 120.7
 98.3
 22.4
 23 %60
 62
 (2) (3)%
Total revenue $470.7
 $457.2
 $13.5
 3 % $913.7
 $897.2
 $16.5
 2 %$422
 $443
 $(21) (5)%
                       
F/X impact on revenue $3.8
 $(4.9) 

 

 $12.9
 $(10.0)    $(4) $9
 

 

                       
KPIs:                       
WAP, premium and daily-fee Participation units:                
U.S. and Canadian units(1):
       
Installed base at period end 20,671
 20,956
 (285) (1)% 20,671
 20,956
 (285) (1)%32,958
 35,336
 (2,378) (7)%
Average daily revenue per unit (exclusive of WAP jackpot expense) $50.31
 $52.30
 $(1.99) (4)% $50.16
 $51.76
 $(1.60) (3)%
Average daily revenue per unit$38.46
 $38.39
 $0.07
 — %
                       
Other Participation and leased units:                
International units(1):
       
Installed base at period end 47,991
 48,645
 (654) (1)% 47,991
 48,645
 (654) (1)%33,950
 33,075
 875
 3 %
Average daily revenue per unit $14.16
 $14.94
 $(0.78) (5)% $14.31
 $14.95
 $(0.64) (4)%$11.43
 $12.33
 $(0.9) (7)%
                       
Gaming machine unit sales:                       
U.S. and Canadian new unit shipments 5,749
 4,367
 1,382
 32 % 10,416
 10,229
 187
 2 %4,801
 4,667
 134
 3 %
International new unit shipments 2,492
 3,411
 (919) (27)% 4,693
 5,908
 (1,215) (21)%2,083
 2,201
 (118) (5)%
Total new unit shipments 8,241
 7,778
 463
 6 % 15,109
 16,137
 (1,028) (6)%6,884
 6,868
 16
 — %
Average sales price per new unit $17,699
 $17,550
 $149
 1 % $17,710
 $17,278
 $432
 3 %$17,140
 $17,722
 $(582) (3)%
(1) Effective the first quarter of 2019, we changed our gaming operations KPIs, which now reflect installed base and average daily revenue per unit by geography, as we believe this presentation presents gaming operations units in categories that are more similar than previous presentations and aligns more closely with how management evaluates the operating performance of the business segment.(1) Effective the first quarter of 2019, we changed our gaming operations KPIs, which now reflect installed base and average daily revenue per unit by geography, as we believe this presentation presents gaming operations units in categories that are more similar than previous presentations and aligns more closely with how management evaluates the operating performance of the business segment.

Gaming Operations
Gaming operations revenue decreased for the three-month comparable period primarily due to: (1) $6.5 million in jackpot charge for our WAP services recorded asto a reduction to revenue as a result of ASC 606 adoption; (2) a 285-unit2,378-unit decrease in the ending installed base of WAP, premiumU.S. and daily-fee Participation gaming machines andCanadian units coupled with a 654-unit decrease in average daily revenue for International units. This decrease was partially offset by an 875-unit increase in the ending other installed base for Other ParticipationInternational units and leased units; and (3) a decreasean increase in the average daily revenue per WAP, premiumfor U.S. and daily-fee Participation units and Other Participation and leased units revenue.
Gaming operations revenue decreased for the six-month comparable period primarily due to: (1) $10.9 million in jackpot expense for our WAP services recorded as a reduction to revenue as a result of ASC 606 adoption; (2) a 285-unit decrease in the ending installed base of WAP, premium and daily-fee Participation gaming machines and a 654-unit decrease in


43

the ending other installed base for Other Participation and leased units; and (3) a decrease in the average daily revenue per WAP, premium and daily-fee Participation units and Other Participation and leased units revenue.Canadian units.
Gaming Machine Sales

Gaming machine unit sales increased for the three-month comparable period due to higher new unit sales coupled with a 1% increase in the average sales price per unit to $17,699, reflecting a more favorable mix of gaming machines. Gaming machine unit salesrevenue decreased for the six-month comparable period primarily due to lower unit salesinternational units shipments resulting from fewer casino openings and expansions during the first part of the year. Theperiod coupled with a decrease in unit sales was partially offset by a 3% increase in the average sales price per unit, to $17,710, reflecting a moreless favorable mix of gaming machines. This decrease was partially offset by the increase in U.S. and Canadian new unit shipments, which were largely driven by the Encore Boston Harbor opening. The following table summarizes the change in Gaming machine unit sales:sales changes:


37

  Three Months Ended June 30, Variance Six Months Ended June 30, Variance
  2018 2017 2018 vs. 2017 2018 2017 2018 vs. 2017
U.S. and Canadian unit shipments:                
Replacement units 4,388
 3,773
 615
 16 % 8,131
 6,912
 1,219
 18 %
Casino opening and expansion units 1,361
 594
 767
 129 % 2,285
 3,317
 (1,032) (31)%
   Total unit shipments 5,749
 4,367
 1,382
 32 % 10,416
 10,229
 187
 2 %
                 
International unit shipments:                
Replacement units 2,492
 3,357
 (865) (26)% 4,432
 5,430
 (998) (18)%
Casino opening and expansion units —
 54
 (54) (100)% 261
 478
 (217) (45)%
   Total unit shipments 2,492
 3,411
 (919) (27)% 4,693
 5,908
 (1,215) (21)%
Gaming Systems
Gaming systems revenue increased for both comparable periods primarily due to increased hardware sales, driven by placements of the iView 4 player-interface display units coupled with ongoing installations of new systems to casinos in the provinces of Alberta and Ontario.
Table Products

Table products revenue increased for both comparable periods primarily due to increased Shuffler sales, coupled with the impact of the acquisition of Tech Art, which closed in January 2018.

 Three Months Ended March 31, Variance
 2019 2018 2019 vs. 2018
U.S. and Canadian unit shipments:       
Replacement units3,194
 3,743
 (549) (15)%
Casino opening and expansion units1,607
 924
 683
 74 %
   Total unit shipments4,801
 4,667
 134
 3 %
        
International unit shipments:       
Replacement units2,083
 1,940
 143
 7 %
Casino opening and expansion units—
 261
 (261) (100)%
   Total unit shipments2,083
 2,201
 (118) (5)%
Operating Expenses
TheOperating expenses decreased primarily due to a $15 million decrease in operating expenses forcost of revenue correlated with the three-month comparable period is due to lower unit shipments coupled with a $27 million reduction in D&A of $15.0 million as a result of certain acquired intangible assets becoming fully depreciated during 2017 coupled with $6.62018 and a $19 million lower R&D and SG&A combined, primarily due to more efficient business operations, which was partially offset by higher cost of revenue of $11.7 million correlated with the revenue increase. The total operating expensesassets held for the six-month comparable period is relatively flat, with the current year period reflective of a $19.0 millionsale impairment charge recorded during the first quarter of 2018 related to assets held for sale (see Note 7).2018.
AEBITDA
The increase in AEBITDA for both comparable periods isdecreased primarily as a result of higherlower revenue (described above) and a more profitable revenue mix, primarily driven by Gaming system sales coupled with more efficient business processes driving a 0.5 percentage points and 1.0 percentage points improvement inwhile AEBITDA as a percentage of revenue ("(“AEBITDA margin"margin”) for the threeincreased by 2 percentage points as a result of a more profitable business mix and six months comparable periods, respectively.improved operating leverage.

LOTTERY

Our Lottery business segment is primarily comprised of our instant products business and our systems-based services and product sales business. Our instant products business generates revenue from the manufacture and sale of instant products,


44

as well as the provision of value-added services such as game design, sales and marketing support, specialty games and promotions, inventory management, warehousing, fulfillment services, as well as full instant product category management. In addition, we provide licensed games, promotional entertainment and internet-based marketing services to the lottery industry. These revenues are presented as instant products revenue.
Our systems-based services and product sales business provides customized computer software, software support, equipment and data communication services, and keno to lotteries. In the U.S., we typically provide the necessary point-of-sale terminals and equipment, software and maintenance services on a Participation basis under long-term contracts that typically have an initial term of at least five years. Internationally, we typically sell our point of sale terminals and/or computer software to lottery authorities and may provide ongoing fee-based systems maintenance and software support services. Refer to the Lottery primary business activities summary included within "Business“Business Segment Results"Results” under Item 7 of our 20172018 10-K.
Our equity investments in LNS and other less significant equity investments are included in our Lottery business segment.
Current Year Update
We believe we will continue to face intense price-based competition in our Lottery business in 2018.2019. In the near term, we also expect to see an increase in the number of jurisdictions that seek to privatize or outsource lottery operations and to face strong competition from both traditional and new competitors with respect to these opportunities. In addition, we anticipate that lottery RFPs, specifically those for private management agreements and certain of our international customers, could increasingly include terms that expose us to increased risk, such as requiring the guarantee of specific income thresholds or significant upfront payments. During the second quarter of 2018,

On March 4, 2019, we won the eight-yeara 10-year sports betting joint-venture contract to be the primary instant gamessupplier and service provider forto Turkey, Europe’s largest state-sponsored sports betting market and among the State of New Mexico.top three in the world in sales.

Results of Operations and Key Performance Indicators for Lottery
  Three Months Ended 
 June 30,		 Variance Six Months Ended June 30, Variance
($ in millions) 2018 2017 2018 vs. 2017 2018 2017 2018 vs. 2017
Total revenue $207.1
 $202.3
 $4.8
 2% $408.8
 $391.4
 $17.4
 4%
Total operating expenses 134.7
 132.0
 2.7
 2% 275.3
 265.0
 10.3
 4%
AEBITDA 99.4
 95.6
 3.8
 4% 193.5
 180.9
 12.6
 7%

Three and Six Months Ended June 30, 2018 Compared to Three and Six Months Ended June 30, 2017
Revenue


4538

  Three Months Ended June 30, Variance Six Months Ended June 30, Variance
($ in millions) 2018 2017 2018 vs. 2017 2018 2017 2018 vs. 2017
Revenue:                
Instant products $150.1
 $151.3
 $(1.2) (1)% $300.3
 $293.0
 $7.3
 2%
Lottery systems 57.0
 51.0
 6.0
 12 % 108.5
 98.4
 10.1
 10%
Total revenue $207.1
 $202.3
 $4.8
 2 % $408.8
 $391.4
 $17.4
 4%
                 
F/X impact on revenue $3.1
 $(2.2) 

 

 $6.1
 $(4.2)    
                 
KPIs:                
Change in retail sales of U.S. lottery instant products customers(1)(2)
 5.1% 5.3 % (0.2)pp
 nm
 4.7% 3.8 % 0.9pp
 nm
                 
Change in retail sales of U.S. lottery systems contract customers(1)(3)
 3.0% (1.0)% 4.0pp
 nm
 4.4% (7.3)% 11.7pp
 nm
                 
Change in Italy retail sales of instant products(1)
 2.4% (0.8)% 3.2pp
 nm
 2.7% (0.7)% 3.4pp
 nm
  Three Months Ended 
 March 31,		 Variance
($ in millions) 2019 2018 2019 vs. 2018
Total revenue $227
 $202
 $25
 12%
Total operating expenses 158
 141
 17
 12%
AEBITDA 104
 94
 10
 11%
nm = not meaningful.
pp = percentage points.Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
(1) Information provided by third-party lottery operators.
(2) U.S. instant products customers' retail sales include only sales of instant products.Revenue
(3) U.S. lottery systems customers' retail sales primarily include sales of draw games, keno and instant products validated by the relevant system.
  Three Months Ended March 31, Variance
($ in millions) 2019 2018 2019 vs. 2018
Revenue:        
Instant products $140
 $150
 $(10) (7)%
Lottery systems 87
 52
 35
 67 %
Total revenue $227
 $202
 $25
 12 %
         
F/X impact on revenue $(2) $3
 

 


Primary factors driving the three-month comparable period revenue increase were: (1)were a $6.0$35 million increase in lottery systems revenue driven by domestic equipment sales coupled with organic domestic growth, which was partially offset by (2) a $1.2$10 million decrease in instant product revenue, primarily related to lower licensing related revenue. Lottery revenue included favorable foreign currency impact totaling $3.1 million for the three-month comparable period.
Primary factors driving the six-month comparable period revenue increase were a $10.1 million increase in lottery systems revenue, driven by organiclower domestic growth partially offset by international terminal and software sales, andrevenue as a $7.3 million increaseresult of a change in instant product revenue, driven by higher revenue in domestic Participation contracts. Lottery revenue included favorable foreign currency impact totaling $6.1 million for the six-month comparable period.mix shipment volumes among our contract types.
Operating Expenses
The increase in operatingOperating expenses for both comparable periods isincreased primarily due to higher cost of revenue correlated withon hardware sales, which drove the revenue growth.increase.
AEBITDA
The increase in AEBITDA for both comparable periods is theincreased primarily due to higher revenue (as described above), and AEBITDA margin decreased by 1 percentage point as a result of higher overall revenue (described above) and more profitable business mix, partially offset by a related increase in cost of revenue and higher SG&A expense, collectively driving a 0.7 percentage points and 1.1 percentage points improvement in AEBITDAthe lower margin for the three and six months comparable periods, respectively.on hardware sales.
SOCIAL
SOCIAL
OurIn our Social business, segment generateswe generate substantially all of our revenue from the sale of virtual coins, chips orand bingo cards, which players can use to play slot, table games or bingo games (i.e., spin in the case of slot games, bet in the case of table games and use of bingo cards in the case of bingo games). The games are primarily our WMS®, Bally®, Barcrest®, SHFL®, Dragonplay® and Bingo Showdown branded games. We offer both third-party branded games and original content. AllSubstantially all of our Social revenue is comprised of B2C transactions.
Our apps include Jackpot Party Social Casino, Gold Fish®Casino, Slots, Quick Hit Slots, and Hot Shot Casino®, Dragonplay Slots, Dragonplay Poker, Blazing 7s Slots®Bingo Showdown, 88 Fortunes, aand MONOPOLY themed casino app and Bingo Showdown Slots on various platforms which include: include, Facebook, Apple, Google Play, and Amazon Kindle.    


46

.
Current Year Update
We continue to pursue our multi-product strategy in our Social gaming business. A new MONOPOLY themed casino app, featuringOn May 7, 2019, we completed an initial public offering of a new innovative style of play characteristics, was launched worldwide during the second quarter of 2018.17.4% minority interest in our Social gaming business (see Business Overview section and Note 1).

Results of Operations and Key Performance Indicators for Social


39

 Three Months Ended 
 June 30,		 Variance Six Months Ended June 30, Variance Three Months Ended 
 March 31,		 Variance
($ in millions) 2018 
2017(1)
 2018 vs. 2017 2018 
2017(1)
 2018 vs. 2017 2019 2018 2019 vs. 2018
Total revenue $99.7
 $91.1
 $8.6
 9% $197.1
 $171.3
 $25.8
 15% $118
 $97
 $21
 22 %
Operating expenses 81.2
 73.6
 7.6
 10% 178.8
 140.3
 38.5
 27% 98
 100
 (2) (2)%
AEBITDA 25.2
 21.9
 3.3
 15% 51.4
 39.8
 11.6
 29% 25
 23
 2
 9 %
(1) Business segment information has been recast to reflect current segments - see Note 3.

Three and Six Months Ended June 30, 2018March 31, 2019 Compared to Three and Six Months Ended June 30, 2017March 31, 2018

Revenue
  Three Months Ended June 30, Variance Six Months Ended June 30, Variance
($ in millions) 2018 
2017(1)
 2018 vs. 2017 2018 
2017(1)
 2018 vs. 2017
Revenue:                
Social gaming $99.7
 $91.1
 $8.6
 9% $197.1
 $171.3
 $25.8
 15 %
                 
KPIs:                
Social gaming:                
Mobile Penetration(2)
 77% 72% 5pp
 nm
 76% 72% 4pp
 nm
Average MAU(3)
 8.2
 7.5
 0.7
 9% 8.1
 7.6
 0.5
 7 %
Average DAU(4)
 2.5
 2.5
 —
 —
 2.4
 2.5
 (0.1) (4)%
ARPDAU(5)
 $0.44
 $0.40
 $0.04
 10% $0.45
 $0.39
 $0.06
 15 %
nm = not meaningful.
pp = percentage points.
(1) Business segment information has been recast to reflect current segments - see Note 3.
(2) Mobile penetration as defined by percentage of B2C social gaming revenue generated from mobile platforms.
(3) MAU = Monthly Active Users, a count of unique visitors to our sites during a month.
(4) DAU = Daily Active Users, a count of unique visitors to our sites during a day.
(5) ARPDAU = Average daily revenue per DAU is calculated by dividing revenue for a period by the DAU for the period by the number of days for the period.
  Three Months Ended March 31, Variance
($ in millions) 2019 2018 2019 vs. 2018
Revenue:        
  Mobile $97
 $73
 $24
 33 %
  Web and other 21
 24
 (3) (13)%
Total revenue $118
 $97
 $21
 22 %
         
KPIs:        
Social gaming:        
Mobile Penetration(1)
 82% 75% 7pp
 nm
Average MAU(2)
 8.4
 8.1
 0.3
 4 %
Average DAU(3)
 2.7
 2.6
 0.1
 4 %
ARPDAU(4)
 $0.48
 $0.42
 $0.06
 14 %
nm = not meaningful.
pp = percentage points.
(1) Mobile penetration is defined as the percentage of B2C social gaming revenue generated from mobile platforms.
(2) MAU = Monthly Active Users is a count of visitors to our sites during a month. An individual who plays two different games or from two different devices may, in certain circumstances, be counted twice. However, we use third-party data to limit the occurrence of double counting.
(3) DAU = Daily Active Users is a count of visitors to our sites during a day. An individual who plays two different games or from two different devices may, in certain circumstances, be counted twice. However, we use third-party data to limit the occurrence of double counting.
(4) ARPDAU = Average revenue per DAU is calculated by dividing revenue for a period by the DAU for the period by the number of days for the period.

The increase in SocialMobile platform revenue isincreased primarily attributabledue to the ongoing popularity of our Jackpot PartyCasino, MONOPOLYSlots, Bingo Showdown, 88 Fortunes, game,and Quick HitsHit Slots,, 88 Fortunes, Gold Fish Casino Slots, which collectively represented substantially all of the revenue increase. Web platform and the recently launched MONOPOLY themed casino app featuringother revenue decreased due to a new innovative styledecline in player levels as a result of play.player preferences causing a continued migration to mobile platforms

Operating Expenses
The increase in operatingOperating expenses for both comparable periods isdecreased primarily due to lower contingent consideration remeasurement charges recorded in 2019 ($18 million was recorded in the first quarter of 2018), partially offset by higher cost of revenue correlated with the revenue growth, coupled with higher SG&A as a result of higher marketing and player acquisition costs associated with supporting newer apps such as the Bingo Showdown app and MONOPOLY themedcasino app. The total operating expenses for the six-month comparable period is impacted by an $18.0 million non-cash fair value contingent consideration remeasurement charge recorded during the first quarter of 2018 (see Note 12).to support ongoing growth initiatives.
AEBITDA
The increase in AEBITDA for both comparable periods is the result of aincreased primarily due to continued rapid growth in revenue (as described above) and improved operating leverage, partially offset by higher SG&A as described above. AEBITDA margin for the three and six months comparable periods improveddeclined by 1.32 percentage points primarily due to higher marketing and 2.9 percentage points, respectively.player acquisition costs described above.



47

DIGITAL

Our Digital segment provides a comprehensive suite of digital gaming and sports betting solutions and services, including digital RMG and sports bettingwagering solutions, distribution platforms, content, products and services. A portion of our


40

Digital revenue consists of professional services related to highly customizable software design, development, licensing, maintenance and support services, which are derived from a comprehensive suite of technology solutions. These technology solutions allow our customers to operate sports books, which can offer sport (or non-sport) events and betting markets across both fixed-odds and pari-mutuel betting styles. We also provide the Open Platform System (OPS) which offers a wide range of reporting and administrative functions and tools providing operators full control over all areas of digital gaming operations. Additionally, we derive revenue from our content aggregation platforms, including Open Gaming System (OGS), remote gaming servers, SG Universe® platform and various other platforms, which can deliver a wide spectrum of internally developed and branded casino-style games and popular third-party provider casino-style games to gaming operators. Generally, we host the play of our game content on our centrally-located servers that are integrated with the online casino operators'operators’ websites.

Current Year Update

On May 14, 2018 the Supreme Court
In January 2019, New Zealand Racing Board launched a sportsbook with our OpenBet platform.
In April 2019, we announced a partnership with Wynn Resorts to support their launch of the United States overturned the Professionalboth iGaming and Amateur Sports Protection Act (PASPA), a decision that opens up a path to legalization of sports betting across the country. Following this ruling, New Jersey, Pennsylvania and Delaware legalized sports betting with a number of states being in the process of establishing their regulations. We believe we are well-positioned for future growth in the digital gaming industry due to our game content, platform technology, and distribution capabilities, which provide comprehensive solutions for our customers. With established brand-name customers already using our products and services powered by the integrated content and technology, our platform is capable of further deployment with large operators and technology providers and the expansion into new jurisdictions, including the U.S. sports book market as it becomes regulated more broadly.

During the second quarter of 2018, we successfully launched our gaming content across 7 new client sites and signed 8 new customers. We also signed a sports betting partnerships with Caesars to launch sports wagering in New Jersey and Mississippi and a multi-year contract with the British Columbia Lottery Corporation to provide expanded sportsbook solutions. We believe that our revenue pipeline remains strong.

Results of Operations for Digital

 Three Months Ended 
 June 30,		 Variance Six Months Ended June 30, Variance Three Months Ended 
 March 31,		 Variance
($ in millions) 2018 
2017(1)
 2018 vs. 2017 2018 
2017(1)
 2018 vs. 2017 2019 2018 2019 vs. 2018
Total revenue $67.2
 $15.7
 $51.5
 328% $136.9
 $31.8
 $105.1
 331% $70
 $70
 $—

— %
Operating expenses 75.2
 14.4
 60.8
 422% 149.4
 26.8
 122.6
 457% 78
 74
 4
 5 %
AEBITDA 13.2
 2.7
 10.5
 389% 30.4
 7.8
 22.6
 290% 13
 17
 (4) (24)%
(1) Business segment information has been recast to reflect current segments - see Note 3.

Three and Six Months Ended June 30, 2018March 31, 2019 Compared to Three and Six Months Ended June 30, 2017March 31, 2018

Revenue
  Three Months Ended June 30, Variance Six Months Ended June 30, Variance
($ in millions) 2018 
2017(1)
 2018 vs. 2017 2018 
2017(1)
 2018 vs. 2017
Revenue:                
Sports and platform $20.5
 $—
 $20.5
 nm
 $46.4
 $—
 $46.4
 nm
Gaming and other 46.7
 15.7
 31.0
 197% 90.5
 31.8
 58.7
 185%
Total revenue $67.2
 $15.7
 $51.5
 328% $136.9
 $31.8
 $105.1
 331%
(1) Business segment information has been recast to reflect current segments - see Note 3.
nm = not meaningful.


48

The increase in revenue is primarily attributable to the NYX acquisition, which contributed $50.6 million and $99.8 million in revenue for the three- and six-months ended June 30, 2018, respectively.
  Three Months Ended March 31, Variance
($ in millions) 2019 2018 2019 vs. 2018
Revenue:        
Sports and platform $30
 $26
 $4
 15 %
Gaming and other 40
 44
 (4) (9)%
Total revenue $70
 $70
 $—
 — %
         
F/X impact on revenue $(4) $2
    
         
KPIs:        
Gaming - Key Performance Indicators:        
Wagers processed through OGS (in billions) $8.9
 $8.9
 $—
 — %

Operating Expenses and AEBITDA
The increase in operating expenses is due to higher cost of revenue from third-party platforms coupled with higher D&A from platforms and enhancements developed in 2018. AEBITDA and AEBITDA for both comparable periods ismargin decreased primarily due to the resultprior year including the sale of the inclusion of NYX.certain intellectual property.

RECENTLY ISSUED ACCOUNTING GUIDANCE
For a description of recently issued accounting pronouncements, see Note 1.  



41

CRITICAL ACCOUNTING ESTIMATES
For a description of our policies regarding our critical accounting estimates, see "Critical“Critical Accounting Estimates"Estimates” in "Item“Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations” included in our 20172018 10-K.
Other than the application of business combinations policy for the NYX acquisition, the adoption of ASC 606 andour update to our goodwill impairment assessment critical estimatesthe Digital business segment reporting units described below,in Note 8, there have been no significant changes in our critical accounting estimate policies or the application or the results of the application of those policies to our condensed consolidated financial statements from those presented in "Item“Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations” included in our 20172018 10-K.

Business Combinations

We account for business combinations in accordance with ASC 805. This standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination.
Determining the fair value of assets acquired and liabilities assumed requires management judgment, the utilization of independent valuation experts and often involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items. Any changes in the underlying assumptions can impact the estimates of fair value by material amounts, which can in turn materially impact our results of operations. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these fair values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate D&A expense. If our estimates of the economic lives change, D&A expense could be accelerated or slowed. See Note 1 for "Acquisition of NYX and Preliminary Purchase Price Allocation" completed during the first quarter of 2018, which is subject to adjustment as we finalize our purchase price accounting, and such adjustments could be material.

Revenue Recognition

As described in Note 1, on January 1, 2018, we adopted ASC 606 using the modified retrospective method, which was applied to customer contracts that were not completed as of January 1, 2018. Our revenue recognition policies described fully in Note 2 require us to make significant judgments and estimates. The guidance in ASC 606 requires that we apply judgments or estimates to determine the performance obligations, the stand-alone selling prices of our performance obligations to customers, and the timing of transfer of control of the respective performance obligations. The evaluation of each of these criteria in light of contract specific facts and circumstances is inherently judgmental, but certain judgments could significantly affect the timing or amount of revenue recognized if we were to reach a different conclusion than we have. The critical judgments we are required to make in our assessment of contracts with customers that could significantly affect the timing or amount of revenue recognized are:

Contracts with Multiple Promised Goods and Services - because we enter into contracts with customers that involve promises to transfer multiple products and services, the determination of the distinct performance obligations in contracts with multiple promises requires significant judgment. Our total gaming systems, lottery systems and digital revenue that often contain multiple promised goods and services was $243.7 million for the six months ended June 30, 2018, or approximately 15 percent of consolidated revenue, a portion of which would not be recognized if we had reached a different conclusion.


49

Determination of stand-alone selling prices - the guidance in ASC 606 requires that we determine the stand-alone selling price for our goods and services as a basis for allocating the transaction price to the identified distinct performance obligations in our contracts with customers. Because we often bundle the selling price for multiple promised goods or services or we may license systems for which the solutions we provide are highly customized and therefore the prices we charge are either uncertain, highly variable, or both, the determination of a stand-alone selling price or the relative range requires significant judgment. Our total gaming systems, lottery systems and digital revenue that could be subject to this judgment and thus allocated to distinct performance obligations differently was a portion of $243.7 million for the six months ended June 30, 2018, or approximately 15 percent of consolidated revenue.
Transfer of control in Lottery POS contracts - the guidance in ASC 606 requires that we recognize revenue when or as control over a performance obligation transfers to a customer. In instant products contracts under POS terms, instant products are delivered to lottery customers but we retain the risk of such inventory until retail sales of such tickets takes place. Because those shipments are to a lottery-controlled warehouse and we do not have the ability to direct the use of such instant products subsequent to this delivery, we have determined that control transfers upon delivery. This conclusion requires the use of judgment. If we concluded that control transferred upon retail sales when the end customer obtained control over the instant tickets, revenue would decrease by $4.9 million for the six months ended June 30, 2018.
Goodwill

A substantial portion of our legacy U.K. Gaming reporting unit revenue is concentrated with Ladbrokes Coral Group, which operates LBOs in the U.K. In October 2017, the U.K. government published its consultation on the review of stakes and prizes for all gaming terminals in the U.K. gaming sector recommending a reduction in stakes on certain gaming machines. In May 2018, the U.K. government published its decision concluding that fixed-odds betting terminals maximum stakes limit should be reduced from £100 to £2. The implementation date has not been defined and the final regulation is pending parliamentary approval.
Based upon our current projections and analysis and assuming the recommended changes to stakes limits are effective in the second half of 2019, we do not believe that it is more likely than not that the fair value of our legacy U.K. Gaming reporting unit is less than its carrying amount. This analysis includes significant uncertainty and incorporates highly subjective projections as to the ultimate impact of the regulatory change on our customers and our U.K. gaming business if and when enacted into law. Although we have currently concluded that it is not more likely than not that the fair value of our legacy U.K. Gaming reporting unit is less than its carrying amount, adverse changes in projected revenue, profit margin or capital expenditures, or changes in weightings between the income approach and market approaches we have historically applied could change this conclusion and lead to future impairments, which could be material. As of June 30, 2018, our legacy U.K Gaming reporting unit carrying amount of goodwill was $183.1 million.

LIQUIDITY, CAPITAL RESOURCES AND WORKING CAPITAL
Sources of Liquidity
As of June 30, 2018,March 31, 2019, our principal sources of liquidity, other than cash flows provided by operating activities, were cash and cash equivalents and amounts available under our revolving credit facility discussed below under "Credit“Credit Agreement and Other Debt."”
On February 14, 2018,March 19, 2019, we successfully completed a series of financing transactions, including a private offering of an additional $900.0 million principal amount of our 2025 Secured Notes, €325.0$1,100 million of new 2026 Secured Euro Notes and €250 million of newthe 2026 Unsecured Euro Notes andat an amendment to our credit agreement to refinance our existing term loan B-4 facility and increase the term loans outstanding by $900.0 million under a new term loan B-5 facility (collectively referred to as the "February 2018 Refinancing")issue price of 100.000%. We used the net proceeds of the February 2018 Refinancing2026 Unsecured Notes offering to redeem $2,100.0$1,000 million of our outstanding 2022 SecuredUnsecured Notes prepay a portion of our revolver borrowings under our credit agreement and pay accrued and unpaid interest thereon plus any related premiums, fees and expenses. In connection with the amendment to our credit agreement, the interest ratecosts, which redemption was completed on our term loans was decreased from LIBOR plus 3.25% to LIBOR plus 2.75%. We also increased the amountApril 4, 2019, and pay related fees and expenses of the revolving credit agreement by $24.0 million to $620.2 million through October 18, 2018, with a step-down in availability at that time to $445.7 million until the extended maturity on October 18, 2020.2026 Unsecured Notes offering.
Cash and Available Revolver Capacity


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 As of As of
($ in millions) June 30, 2018 December 31, 2017 March 31, 2019 December 31, 2018
Cash and cash equivalents(1) $118.6
 $788.8
 $1,213
 $168
Revolver capacity 620.2
 596.2
 621
 621
Revolver capacity drawn or committed to letters of credit (180.2) (375.6) (215) (350)
Total $558.6
 $1,009.4
 $1,619
 $439
(1) Includes $1,084 million that was used for the 2022 Unsecured Notes redemption on April 4, 2019.(1) Includes $1,084 million that was used for the 2022 Unsecured Notes redemption on April 4, 2019.
The amount of our available cash and cash equivalents fluctuates principally based on borrowings or repayments under our credit facilities, investments, acquisitions and changes in our working capital position. The amount of our cash and cash equivalents as of March 31, 2019 includes $1,084 million of cash that was used to complete the redemption of $1,000 million of 2022 Unsecured Notes and pay accrued and unpaid interest thereon plus any related premiums, fees and costs on April 4, 2019. The borrowing capacity under our revolving credit facility will depend on the amount of outstanding borrowings and letters of credit issued and on us remaining in compliance with the covenants under our credit agreement, including a maintenance covenant based on consolidated net first lien leverage. We were in compliance with the covenants under our credit agreement as of June 30, 2018.March 31, 2019.
We believe that our cash flow from operations, available cash and cash equivalents and available borrowing capacity under our existing or anticipated financing arrangements will be sufficient to meet our liquidity needs for the foreseeable future; however, we cannot assure that this will be the case. We believe that substantially all cash held outside the U.S. is free from legal encumbrances or similar restrictions that would prevent it from being available to meet our global liquidity needs.
Total cash held by our foreign subsidiaries was $80.1$87 million and $92 million as of June 30, 2018.March 31, 2019 and December 31, 2018, respectively.
Our Gaming Participationoperations and Lottery systems businesses generally require significant upfront capital expenditures, and we may need to incur additional capital expenditures in order to retain or win new contracts. Our ability to make payments on and to refinance our indebtedness and other obligations depends on our ability to generate cash in the future. We may also, from time to time, repurchase or otherwise retire or refinance our debt, through our subsidiaries or otherwise. In the event we pursue significant acquisitions or other expansion opportunities, we may need to raise additional capital. If we do not have adequate liquidity to support these activities, we may be unable to obtain financing for these cash needs on favorable terms or at all. For additional information regarding our cash needs and related risks, see Item 1A "Risk Factors"“Risk Factors” in our 20172018 10-K.   
In addition, Lottery customers in the U.S. generally require service providers to provide performance bonds in connection with the relevant contract. As of June 30, 2018,March 31, 2019 our outstanding performance bonds totaled $234.6$237 million. Our


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ability to obtain performance bonds on commercially reasonable terms is subject to our financial condition and to prevailing market conditions, which may be impacted by economic and political events. Although we have not experienced difficulty in obtaining such bonds to date, we cannot assure that we will continue to be able to obtain performance bonds on commercially reasonable terms, or at all. For additional information regarding our surety or performance bonds in connection with our contracts, see Item 1A "Risk Factors"“Risk Factors” in our 20172018 10-K.

DuringAs described in Note 1, on May 7, 2019, our subsidiary SciPlay Corporation (“SciPlay”) completed an initial public offering of a 17.4% minority interest in our Social gaming business. SGC received $301 million in proceeds from the secondoffering, which enables us to make substantial payments to reduce our debt. We currently do not expect the Social gaming business to declare or pay any cash dividends, other than tax distributions and certain cash distributions related to the impact of taxes pursuant to a tax receivable agreement. If the Social gaming business discontinues the payment of, or is unable to pay, such distributions to us, this will reduce our available liquidity. Furthermore, the terms of indebtedness incurred by the Social gaming business may, and the terms of the SciPlay Revolver will, limit the ability of the Social gaming business to pay dividends or make other distributions to us, or to amend the agreements between the Social gaming business and us and our other subsidiaries. In 2018, the amount of dividends declared and paid by the Social gaming business to Bally Gaming, Inc., a wholly owned subsidiary of SGC, was $77 million. No such dividends have been declared or paid by our Social gaming business during the first quarter of 2018, we made our second pro-rata concession funding payment to LNS of $74.3 million (€60.0 million) related to extension2019.

The consummation of the concession foroffering resulted in a period17.4% reduction of up to nine years.our economic interest in the Social gaming business, and as a result, we will only benefit from a portion of any profits and growth of that business, and from a portion of any dividends and other distributions from that business.
SixThree Months Ended June 30, 2018March 31, 2019 Compared to SixThree Months Ended June 30, 2017March 31, 2018

Cash Flow Summary
 Six Months Ended June 30, Variance Three Months Ended March 31, Variance
($ in millions) 2018 2017 2018 vs. 2017 2019 2018 2019 vs. 2018
Net cash provided by operating activities $132.4
 $279.5
 $(147.1) $167
 $30
 $137
Net cash used in investing activities (526.6) (159.9) (366.7) (64) (360) 296
Net cash used in financing activities (269.6) (38.5) (231.1)
Net cash provided by (used in) financing activities 942
 (346) 1,288
Effect of exchange rates on cash, cash equivalents and restricted cash (2.9) 2.8
 (5.7) 1
 2
 (1)
(Decrease) increase in cash, cash equivalents and restricted cash $(666.7) $83.9
 $(750.6)
Increase (decrease) in cash, cash equivalents and restricted cash $1,046
 $(674) $1,720
Cash flows from operating activities


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 Six Months Ended June 30, Variance Three Months Ended March 31, Variance
($ in millions) 2018 2017 2018 vs. 2017 2019 2018 2019 vs. 2018
Net loss $(207.6) $(139.9) $(67.7) $(24) $(202) $178
Adjustments to reconcile net loss to cash flows from operations 482.2
 402.1
 80.1
 179
 309
 (130)
Changes in working capital accounts (138.3) 12.6
 (150.9) 6
 (78) 84
Changes in deferred income taxes and other (3.9) 4.7
 (8.6) 6
 1
 5
Net cash provided by operating activities for the six months ended June 30, 2018 decreasedincreased primarily due to favorable changes in working capital accounts partially offset by a $12.4 million increase in incremental net earnings after reconciling adjustments. Unfavorable change in our working capital accounts was primarily due to the change in accrued interest due to the February 2018 Refinancing and timing of interest payments, higher NYX acquisition related payments, coupled with higher Restructuring and other charges during the first half of 2018.a lower net loss. The changes in our working capital accounts duringfor the sixthree months ended June 30, 2018March 31, 2019 were primarily driven by the following:
$154.8a $66 million decreasefavorable change in accountsinterest payable, and accrued liabilities as a result of timing and amount of interest payments and other expenditures, inclusive of expenditures associated with the NYX acquisition;
$28.3 million net increase in contract assets and other current assets and liabilities, inclusive of an impact of ASC 606 adoption;which was partially offset by
$44.8 million decrease changes in other working capital accounts, primarily accounts receivable and notes receivables due to strong collections during the six-month period primarily driven by our Gaming and Lottery business segments.accounts payable.
Cash flows from investing activities
Net cash used in investing activities increaseddecreased primarily due to the NYX acquisition described2018 business acquisitions with no comparable activities in Note 1 and the second pro-rata concession funding payment to LNS of $74.3 million (€60.0 million) described in Note 102019 coupled with higherlower capital expenditures. Higher capital expenditures are driven by our Gaming business segment due to anticipated acceleration of our gaming operations installed base of participation games and Lottery business segment associated with the new lottery contracts, combined with capital expenditures attributable to the NYX operations. Capital expenditures are composed of investments in systems, equipment and other assets related to contracts, property and equipment, intangible assets and software.
Cash flows from financing activities


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Net cash used inprovided by financing activities increased primarily due to repaymentthe private offering of assumed NYX$1,100 million of 2026 Unsecured Notes during the first quarter of 2019, lower debt of $288.2 million, higher payments ofissuance and deferred financing fees associated with the February 2018 Refinancing,costs and higher net redemptions of common stock under stock-based compensation plans, partially offset by higher proceeds associated with the refinancing activities.lower revolving credit facility payments.
Credit Agreement and Other Debt
For additional information regarding our credit agreement and other debt, interest rate risk and interest rate hedging instruments, see Notes 1, 16 and 17 and Item 7A "Quantitative“Quantitative and Qualitative Disclosures About Market Risk"Risk” in our 20172018 10-K, as well as Note 11 in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
As of June 30, 2018,March 31, 2019, we did not have any significant off-balance sheet arrangements.
Contractual Obligations
Other than completionthan: (i) the private offering of the NYX and Tech Art acquisitions$1,100 million of 2026 Unsecured Notes described in Note 1, the February 2018 Refinancing described in Note 11, and the second pro-rata concession funding payment to LNS of $74.3 million (€60.0 million) described in Note 10, there have been no material changes to our contractual obligations disclosed under Item 7 "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity, Capital Resources and Working Capital — Contractual Obligations"Obligations” in our 20172018 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign exchange rates and commodity prices. The following are our primary exposures to market risks:


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Interest Rate Risk    

As of June 30, 2018,March 31, 2019, the face value of long term debt was $9,032.4$10,120 million, including $4,319.1$4,323 million of variable-rate obligations. Assuming a constant outstanding balance for our variable-rate long term debt, a hypothetical 1% change in interest rates would decrease/increase interest expense by approximately $43.2$43 million. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes.
    
We have attempted to limit our exposure to interest rate risk by using interest rate swap contracts to mitigate interest rate risk associated with a portion of our variable rate debt instruments. The objective of our interest rate swap contracts, which are designated as cash flow hedges of the future interest payments, is to eliminate the variability of cash flows attributable to the LIBOR component of interest expense to be paid on a portion of our variable rate debt.

Cross-Currency Interest Rate Swaps

In connection with the February 2018 Refinancing (see Note 11)16 in our 2018 Form 10-K), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting $460.0$460 million of our fixed-rate U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to a fixed-rate Euro-denominated debt, with a fixed annual weighted interest rate of approximately 2.946%. We have designated these cross-currency interest rate swap agreements as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar.
    
As of June 30, 2018,March 31, 2019, if these cross-currency interest rate swap agreements were ineffective, the fluctuations in the exchange rates between the Euro and the U.S. Dollar would impact the amount of U.S. Dollars that we would require to settle the Euro-denominated debt at maturity of these agreements. A hypothetical 10% change in the U.S. Dollar in comparison to the Euro exchange rate upon inception of the cross-currency interest rate swap would have increased/decreased our obligation to cash settle the exchanged principal portion in U.S. Dollars by approximately $46.0$46 million.

Net Investment Non-derivative Hedge - 2026 Secured Euro Notes
In February 2018, we designated a portion of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar.
    
Fluctuations in the exchange rates between the Euro and the U.S. Dollar will impact the amount of U.S. Dollars that we will require to settle the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes at maturity. A hypothetical 10% change in U.S. Dollar in comparison to the Euro as of June 30, 2018,March 31, 2019, would have increased/decreased our obligation to cash settle the principal portion of the 2026 Secured and Unsecured Euro Notes in U.S. Dollars by approximately $67.1$65 million.

For additional information regarding interest rate swap contracts, cross-currency interest rate swaps and net investment non-derivative hedges see Note 12.

Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule


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13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

In January 2018,During the first quarter of 2019, we completed the NYX acquisition (see Note 1) and are in the process of integrating NYX andimplemented changes to our internal controls overto address the adoption of ASC 842, including controls to enable the preparation of financial reporting. In conjunction with these integration activities, we are implementing an ERP system and continue to evaluate certain controls, some of which are likely to be revised. However, those changes in internal controls over financial reporting resulting from these implementation and integration activities have not, as of yet, been incorporated into our evaluation of the effectiveness of the Company’s internal control over financial reporting as they remain incomplete at this time.information.
Except as noted above, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2018March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION
Item 1. Legal Proceedings
For a description of our legal proceedings, see Note 1516 in this Quarterly Report on Form 10-Q and Note 22 in our 20172018 10-K.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed under Item 1A "Risk Factors"“Risk Factors” included in our 20172018 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There was no stock repurchase activity during the sixthree months ended June 30, 2018.March 31, 2019.

Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.


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Item 6. Exhibits
Exhibit
Number
 Description
3.1(a) 
Articles of Merger filed with the Secretary of State of the State of Nevada on January 10, 2018 (incorporated by reference to Exhibit 3.3 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).
   
3.1(b) 
Certificate of Merger filed with the Secretary of State of the State of Delaware on January 10, 2018 (incorporated by reference to Exhibit 3.4 to Scientific Games Corporation's Current Report on Form 8-K filed on January 10, 2018).
   
3.1(c) 
Amended and Restated Articles of Incorporation of Scientific Games Corporation, filed with the Secretary of State of the State of Nevada on January 10, 2018 (incorporated by reference to Exhibit 3.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).
   
3.2 
Amended and Restated Bylaws of Scientific Games Corporation, effective as of January 10, 2018 (incorporated by reference to Exhibit 3.2 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).
   
10.14.1 
Amendment to Employment Agreement, effectiveIndenture, dated as of April 9, 2018, between Larry Potts andMarch 19, 2019, among Scientific Games International, Inc., as issuer, Scientific Games Corporation and the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the 8.250% Senior Unsecured Notes due 2026 (incorporated by reference to Exhibit 10.44.1 to Scientific Games Corporations’ QuarterlyCorporation’s Current Report on Form 10-Q8-K filed on May 2, 2018)March 19, 2019).
10.1
Amended and Restated Employment Agreement, dated as of January 1, 2019, by and between Scientific Games Corporation and Patrick J. McHugh (incorporated by reference to Exhibit 10.55 to Scientific Games Corporation’s Annual Report on Form 10-K filed on February 28, 2019).*
   
10.2 
EmploymentAmendment to Consulting Agreement, dated as of May 4, 2018,January 11, 2019 (effective as of January 1, 2019), by and between Scientific Games Corporation and Barry Cottle.Richard Haddrill (incorporated by reference to Exhibit 10.48 to Scientific Games Corporation’s Annual Report on Form 10-K filed on February 28, 2019).*(†)
   
10.3 
Amendment to Employment Agreement, dated as of May 14, 2018,February 21, 2019 (effective as of February 25, 2019), by and between Scientific Games Corporation and Doug Albregts.Michael Winterscheidt (incorporated by reference to Exhibit 10.56 to Scientific Games Corporation’s Annual Report on Form 10-K filed on February 28, 2019).*(†)
   
10.4 
Amended and Restated EmploymentSecond Amendment to Consulting Agreement, dated as of May 14, 2018,April 29, 2019, by and between Scientific Games Corporation and Derik Mooberry.*(†)
10.5
Agreement and General Release, dated as of June 19, 2018, by and between Scientific Games Corporation and Kevin Sheehan.*(†)
10.6
Amendment to Consulting Agreement, dated as of May 2, 2018, by and between Scientific Games Corporation and Michael Gavin Isaacs.Richard Haddrill.*(†)
   
31.1 
Certification of the Chief Executive Officer of Scientific Games Corporation pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (†)
   
31.2 
Certification of the Chief Financial Officer of Scientific Games Corporation pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (†)
   
32.1 
Certification of the Chief Executive Officer of Scientific Games Corporation pursuant to Rule 13a-14(b) and 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 Scientific Games Corporation pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (†)
   
101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase
   
101.DEF XBRL Taxonomy Definition Label Linkbase
   
101.LAB XBRL Taxonomy Extension Label Linkbase
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase
(†) Filed herewith.
*Management contracts and compensation plans and arrangements.


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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/ Michael A. Quartieri
  Name:Michael A. Quartieri
  Title:Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary
    
  By:/s/ Michael F. Winterscheidt
  Name:Michael F. Winterscheidt
  Title:Senior Vice President and Chief Accounting Officer
Dated:August 1, 2018May 7, 2019  


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