SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL INFORMATION

AND OTHER INFORMATION

THREE AND SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2019



		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	7

	Consolidated Statements of Operations ~~and Comprehensive Income (Loss)~~ for the Three and Six Months Ended ~~March 31,~~June 30, 2019 and 2018	7

	Consolidated ~~Balance Sheets as~~Statements of ~~March 31,~~Comprehensive Loss for the Three and Six Months Ended June, 30, 2019 and ~~December 31,~~ 2018	8

	~~Condensed~~ Consolidated ~~Statements~~Balance Sheets as of ~~Cash Flows for the Three Months Ended March 31,~~June 30, 2019 and December 31, 2018	9

	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	10

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	3337

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4447

Item 4.	Controls and Procedures	4448

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	4448

Item 1A.	Risk Factors	4449

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4449

Item 3.	Defaults Upon Senior Securities	4449

Item 4.	Mine Safety Disclosures	4449

Item 5.	Other Information	4449

Item 6.	Exhibits	4550



Glossary of Terms
The following terms or acronyms used in this Quarterly Report on Form 10-Q are defined below:
Term or Acronym		Definition
2018 10-K		2018 Annual Report on Form 10-K filed with the SEC on February 28, 2019
2020 Notes		6.250% senior subordinated notes due 2020 issued by SGI
2021 Notes		6.625% senior subordinated notes due 2021 issued by SGI
2022 Secured Notes		7.000% senior secured notes due 2022 issued by SGI
2022 Unsecured Notes		10.000% senior unsecured notes due 2022 issued by SGI
2025 Secured Notes		5.000% senior secured notes due 2025 issued by SGI
2026 Secured Euro Notes		3.375% senior secured notes due 2026 issued by SGI
2026 Unsecured Euro Notes		5.500% senior unsecured notes due 2026 issued by SGI
2026 Unsecured Notes		8.250% senior unsecured notes due 2026 issued by SGI
AEBITDA		Adjusted EBITDA, our performance measure of profit or loss for our business segments (see Note 3)
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
B2C		business to consumer model
D&A		depreciation, amortization and impairments (excluding goodwill)
FASB		Financial Accounting Standards Board
Guarantor Subsidiaries		substantially all of SGC’s 100%-owned U.S. subsidiaries other than SGC’s ~~100%-owned U.S. Social gaming subsidiaries~~82% stake in SciPlay
LNS		Lotterie Nazionali S.r.l.
Non-Guarantor Subsidiaries		SGC’s U.S. subsidiaries that are not Guarantor Subsidiaries and SGC’s foreign subsidiaries
Note		a note in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, unless otherwise indicated
Participation		with 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
POS		percentage of retail sales
PTG		proprietary table games
R&D		research and development
RFP		request for proposal
RMG		real-money gaming
RSU		restricted stock unit
SciPlay		SciPlay Corporation, formerly referred to as our Social business segment
SEC		Securities and Exchange Commission
Secured Notes		refers to the 2022 Secured Notes, 2025 Secured Notes, and 2026 Secured Euro Notes, collectively
SG&A		selling, general and administrative
SGC		Scientific Games Corporation
SGI		Scientific Games International, Inc., a wholly-owned subsidiary of SGC
Shufflers		various models of automatic card shufflers, deck checkers and roulette chip sorters
Subordinated Notes		refers to the 2020 Notes and 2021 Notes, collectively
Unsecured Notes		refers to the 2022 Unsecured Notes, 2026 Unsecured Euro Notes and 2026 Unsecured Notes, ~~collecitvely~~collectively
U.S. GAAP		accounting principles generally accepted in the U.S.
VGT		video gaming terminal
VLT		video lottery terminal

Intellectual Property Rights

FORWARD-LOOKING STATEMENTS

Throughout this Quarterly Report on Form 10-Q, we make ~~“forward-looking~~��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” 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 Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. These statements are based upon management’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 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, 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;

SciPlay’s dependence ~~upon~~on certain key ~~providers in our Social gaming business;~~

providers;

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;

risks related to the initial public offering of a minority interest in our ~~social~~Social gaming business via the SciPlay initial public offering, including the possibility that the anticipated benefits of the initial public offering are not ~~realized or that we may not be able to utilize the proceeds of the initial public offering as expected;~~realized;

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 currency 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 considerable uncertainty around the U.K.’s withdrawal from the European Union (“EU”) and the possibility of the British parliament’s failure to approve the U.K.’s withdrawal from the EU, resulting in a “hard Brexit” or “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, 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;

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” in our 2018 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.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS ~~AND COMPREHENSIVE INCOME (LOSS)~~

(Unaudited, in millions, except per share amounts)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenue:
Services	$	457		$	438		$	916		$	876
Product sales	238			257			476			481
Instant products	150			150			290			300
Total revenue	845			845			1,682			1,657
Operating expenses:
Cost of services⁽¹⁾	135			124			268			246
Cost of product sales⁽¹⁾	111			121			218			226
Cost of instant products⁽¹⁾	75			71			142			141
Selling, general and administrative	174			174			360			346
Research and development	46			49			95			103
Depreciation, amortization and impairments	170			173			335			361
Restructuring and other	6			34			13			86
Operating income	128			99			251			148
Other (expense) income:
Interest expense	(147		)	(146		)	(301		)	(301		)
Earnings from equity investments	7			5			13			12
Loss on debt financing transactions	(60		)	—			(60		)	(93		)
(Loss) gain on remeasurement of debt	(3		)	34			2			33
Other income (expense), net	7			2			7			(1		)
Total other expense, net	(196		)	(105		)	(339		)	(350		)
Net loss before income taxes	(68		)	(6		)	(88		)	(202		)
Income tax expense	(7		)	—			(11		)	(6		)
Net loss	(75		)	(6		)	(99		)	(208		)
Less: Net income attributable to noncontrolling interest	2			—			2			—
Net loss attributable to SGC	$	(77	)	$	(6	)	$	(101	)	$	(208	)
Basic and diluted net loss attributable to SGC per share:
Basic	$	(0.83	)	$	(0.06	)	$	(1.09	)	$	(2.29	)
Diluted	$	(0.83	)	$	(0.06	)	$	(1.09	)	$	(2.29	)

Weighted average number of shares used in per share calculations:
Basic shares	93			91			93			91
Diluted shares	93			91			93			91
(1) Excludes D&A.
See accompanying notes to condensed consolidated financial statements.

Three Months Ended
March 31,
2019 2018
Revenue:
Services $ 459
$ 438
Product sales 238
224
Instant products 140
150
Total revenue 837
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 administrative 186
172
Research and development 49
54
Depreciation, amortization and impairments 165
188
Restructuring and other 7
52
Operating income 123
49
Other (expense) income:
Interest expense (154 ) (155 )
Earnings from equity investments 6
7
Loss on debt financing transactions —
(93 )
Gain (loss) on remeasurement of debt 5
(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 tax 55
51
Pension and post-retirement gain (loss), net of tax 1
(1 )
Derivative financial instruments unrealized (loss) gain, net of tax (5 ) 2
Other comprehensive income 51
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 shares 92
90
Diluted shares 92
90
(1) Excludes D&A.
See accompanying notes to condensed consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in millions)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Net loss	$	(75	)	$	(6	)	$	(99	)	$	(208	)
Other comprehensive loss:
Foreign currency translation (loss) gain, net of tax	(39		)	(88		)	16			(37		)
Pension and post-retirement (loss) gain, net of tax	(1		)	1			—			—
Derivative financial instruments unrealized (loss) gain, net of tax	(11		)	4			(16		)	6
Total comprehensive loss	(126		)	(89		)	(99		)	(239		)
Less: comprehensive income attributable to noncontrolling interest	2			—			2			—
Comprehensive loss attributable to SGC	$	(128	)	$	(89	)	$	(101	)	$	(239	)

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except par value)


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	1,213		$	168		$	369		$	168
Restricted cash	41			39			44			39
Accounts receivable, net	621			599			616			599
Notes receivable, net	104			114			120			114
Inventories	229			216			238			216
Prepaid expenses, deposits and other current assets	238			233			198			233
Total current assets	2,446			1,369			1,585			1,369
Non-current assets:
Restricted cash	12			13			12			13
Notes receivable, net	33			40			42			40
Property and equipment, net	517			547			532			547
Operating lease right-of-use assets	118			—			113			—
Goodwill	3,301			3,280			3,279			3,280
Intangible assets, net	1,745			1,809			1,660			1,809
Software, net	277			285			265			285
Equity investments	296			298			273			298
Other assets	92			77			171			77
Total assets	$	8,837		$	7,718		$	7,932		$	7,718

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt	$	1,046		$	45		$	45		$	45
Accounts payable	200			225			201			225
Accrued liabilities	540			477			487			477
Total current liabilities	1,786			747			733			747
Deferred income taxes	109			108			108			108
Operating lease liabilities	98			—			95			—
Other long-term liabilities	330			334			312			334
Long-term debt, excluding current portion	8,937			8,992			8,802			8,992
Total liabilities	11,260			10,181			10,050			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, respectively	1			1			1			1
Additional paid-in capital	848			835			1,187			835
Accumulated loss	(2,848		)	(2,824		)	(2,925		)	(2,824		)
Treasury stock, at cost, 17 shares	(175		)	(175		)	(175		)	(175		)
Accumulated other comprehensive loss	(249		)	(300		)	(300		)	(300		)
Total SGC stockholders’ deficit							(2,212		)	(2,463		)
Noncontrolling interest							94			—
Total stockholders’ deficit	(2,423		)	(2,463		)	(2,118		)	(2,463		)
Total liabilities and stockholders’ deficit	$	8,837		$	7,718		$	7,932		$	7,718
See accompanying notes to condensed consolidated financial statements.

~~Argentina - Our notes receivable, net, from customers in Argentina at March 31, 2019 was~~ ~~$16 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~~ ~~$6 million~~ ~~of outstanding receivables from customers in Argentina during the three months ended March 31, 2019.~~


•	Mexico - Our notes receivable, net, from certain customers in Mexico at June 30, 2019 was $25 million. We collected $16 million of outstanding receivables from these customers during the six months ended June 30, 2019.


•	Peru - Our notes receivable, net, from certain customers in Peru at June 30, 2019 was $13 million. We collected $4 million of outstanding receivables from these customers during the six months ended June 30, 2019.


•	Argentina - Our notes receivable, net, from customers in Argentina at June 30, 2019 was $22 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 $9 million of outstanding receivables from customers in Argentina during the six months ended June 30, 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'~~customers’ ability to pay.

The following summarizes the components of total notes receivable, net:



	June 30, 2019			Balances over 90 days past due			December 31, 2018			Balances over 90 days past due
Notes receivable:
Domestic	$	71		$	12		$	55		$	6
International	114			23			123			25
Total notes receivable	185			35			178			31

Notes receivable allowance
Domestic	(5		)	(5		)	(6		)	(6		)
International	(18		)	(18		)	(18		)	(18		)
Total notes receivable allowance	(23		)	(23		)	(24		)	(24		)
Notes receivable, net	$	162		$	12		$	154		$	7

March 31, 2019 Balances over 90 days past due December 31, 2018 Balances over 90 days past due
Notes receivable:
Domestic $ 61
$ 8
$ 55
$ 6
International 99
26
123
25
Total notes receivable 160
34
178
31

Notes receivable allowance
Domestic (6 ) (6 ) (6 ) (6 )
International (17 )
(17 ) (18 ) (18 )
Total notes receivable allowance (23 ) (23 ) (24 ) (24 )
Notes receivable, net $ 137
$ 11
$ 154
$ 7

At ~~March 31,~~June 30, 2019, 8%7% of our total notes receivable, net, was past due by over 90 days, compared to 4% at December 31, 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 ~~three~~six month periods ended ~~March 31,~~June 30, 2019 and 2018 is as follows:



	Six Months Ended June 30,
	2019			2018
Beginning allowance for notes receivable	$	(24	)	$	(21	)
Provision	(3		)	(3		)
Charge-offs and recoveries	4			1
Ending allowance for notes receivable	$	(23	)	$	(23	)

Three Months Ended March 31,
2019 2018
Beginning allowance for notes receivable $ (24 ) $ (21 )
Provision (2 ) (3 )
Charge-offs and recoveries 3
1
Ending allowance for notes receivable $ (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 ~~March 31,~~June 30, 2019 and December 31, 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, 2019		December 31, 2018
Parts and work-in-process	$	146	$	131
Finished goods	92		85
Total inventories	$	238	$	216

March 31, 2019 December 31, 2018
Parts and work-in-process $ 139
$ 131
Finished goods 90
85
Total inventories $ 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:



	June 30, 2019			December 31, 2018
Land	$	20		$	15
Buildings and leasehold improvements	152			128
Gaming and lottery machinery and equipment	1,034			1,041
Furniture and fixtures	29			27
Construction in progress	21			17
Other property and equipment	251			240
Less: accumulated depreciation	(975		)	(921		)
Total property and equipment, net	$	532		$	547

March 31, 2019 December 31, 2018
Land $ 15
$ 15
Buildings and leasehold improvements 130
128
Gaming and lottery machinery and equipment 1,034
1,041
Furniture and fixtures 28
27
Construction in progress 15
17
Other property and equipment 245
240
Less: accumulated depreciation (950 ) (921 )
Total property and equipment, net $ 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
March 31,
2019
2018
Depreciation expense $ 58
$ 53



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018⁽¹⁾
Depreciation expense	$	64	$	55	$	122	$	127
(1) Includes assets held for sale impairment charges of $19 million.

During the second quarter of ~~March 31,~~ 2019, ~~and December 31, 2018,~~ we ~~had $36 million of~~reclassified the assets held for sale ~~which are included within Prepaid expense, deposits~~to assets held and ~~other current assets.~~used at the carrying amount of $27 million (reflecting an impairment charge of approximately $9 million recorded during the second quarter of 2019) due to the assets no longer meeting assets held for sale criteria.

(8) Intangible Assets, net and Goodwill

Intangible Assets, net

The following tables present certain information regarding our intangible assets as of ~~March 31,~~June 30, 2019 and December 31, 2018.


	March 31, 2019							December 31, 2018							June 30, 2019							December 31, 2018
	Gross Carrying Value		Accumulated Amortization			Net Balance		Gross Carrying Value		Accumulated Amortization			Net Balance		Gross Carrying Value		Accumulated Amortization			Net Balance		Gross Carrying Value		Accumulated Amortization			Net Balance
Amortizable intangible assets:
Customer relationships	$	1,092	$	(321	)	$	771	$	1,084	$	(299	)	$	785	$	1,084	$	(341	)	$	743	$	1,084	$	(299	)	$	785
Intellectual property	935		(485		)	450		931		(453		)	478		931		(512		)	419		931		(453		)	478
Licenses	549		(273		)	276		546		(253		)	293		547		(291		)	256		546		(253		)	293
Brand names	124		(62		)	62		123		(59		)	64		123		(65		)	58		123		(59		)	64
Trade names	108		(25		)	83		108		(23		)	85		107		(27		)	80		108		(23		)	85
Patents and other	23		(14		)	9		23		(13		)	10		24		(14		)	10		23		(13		)	10
	2,831		(1,180		)	1,651		2,815		(1,100		)	1,715		2,816		(1,250		)	1,566		2,815		(1,100		)	1,715
Non-amortizable intangible assets:
Trade names	96		(2		)	94		96		(2		)	94		96		(2		)	94		96		(2		)	94
Total intangible assets	$	2,927	$	(1,182	)	$	1,745	$	2,911	$	(1,102	)	$	1,809	$	2,912	$	(1,252	)	$	1,660	$	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,
	2019		2018		2019		2018
Amortization expense	$	75	$	76	$	152	$	153

Three Months Ended
March 31,
2019
2018
Amortization expense $ 77
$ 77

Goodwill

In conjunction with integrating our recent Digital acquisitions, the implementation of ERP systems in the Digital segment and recent management changes, during the first quarter of 2019, in our Digital business segment, we reviewed our Digital operating segment in accordance with ASC 350 to determine if additional reporting units exist 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 two 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,~~SciPlay, Digital ~~Sports~~sports and ~~Platform~~platform and Digital ~~Gaming~~gaming and ~~Other.~~other.

The table below reconciles the change in the carrying value of goodwill by business segment for the period from

December 31, 2018 to ~~March 31,~~June 30, 2019.



Goodwill	Gaming		Lottery			SciPlay		Digital		Totals
Balance as of December 31, 2018	$	2,449	$	352		$	115	$	364	$	3,280
Foreign currency adjustments	—		(1		)	—		—		(1		)
Balance as of June 30, 2019	$	2,449	$	351		$	115	$	364	$	3,279

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:



	June 30, 2019			December 31, 2018
Software	$	1,146		$	1,101
Accumulated amortization	(881		)	(816		)
Software, net	$	265		$	285

March 31, 2019 December 31, 2018
Software $ 1,126
$ 1,101
Accumulated amortization (849 ) (816 )
Software, net $ 277
$ 285

The following reflects amortization of software included within D&A:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Amortization expense	$	31	$	42	$	61	$	81

Three Months Ended
March 31,
2019
2018
Amortization expense $ 30
$ 39

(10) Equity Investments

Equity investments totaled ~~$296~~$273 million and $298 million as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. We received distributions and dividends totaling $7$40 million and $3 $42 million during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, ~~respectively.~~respectively, primarily related to our LNS equity investment.

(11) Long-Term and Other Debt

2026 Unsecured Notes

On March 19, 2019, SGI issued $1,100 million in aggregate principal amount of its new 2026 Unsecured Notes at an issue price of 100.000% in a private offering. We used the net proceeds of the 2026 Unsecured Notes offering to redeem $1,000 million of our outstanding 2022 Unsecured Notes and pay accrued and unpaid interest thereon plus related premiums, fees, and costs, which redemption was completed on April 4, 2019, and ~~pay~~paid 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,

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 comprising our SciPlay business segment 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 2026 Unsecured Notes offering, we reflected $16 million in financing costs presented primarily as a reduction to long-term debt.

SciPlay Revolver

SciPlay Holding, a subsidiary of SciPlay, entered into the SciPlay Revolver, a $150 million revolving credit agreement that matures in May 2024, 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 SciPlay business segment), the lenders party thereto

and Bank of America, N.A., as administrative agent and collateral agent. 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 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, restricts SciPlay’s 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 exception of certain payments under the TRA and payments in respect of certain tax distributions and intercompany services under the SciPlay Parent LLC Operating Agreement.

In addition, the SciPlay 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 equity securities of SciPlay Holding, SciPlay Parent LLC’s restricted subsidiaries and each subsidiary guarantor party thereto and (ii) first priority security interests in, and 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 customary exceptions.

Outstanding Debt and Finance Leases

The following table reflects our outstanding debt:


	As of														As of
	March 31, 2019											December 31, 2018			June 30, 2019										December 31, 2018
	Final Maturity	Rate(s)		Face value		Unamortized debt discount/premium and deferred financing costs, net			Book value			Book value			Final Maturity	Rate(s)	Face value		Unamortized debt discount/premium and deferred financing costs, net			Book value			Book value
Senior Secured Credit Facilities:
Revolver, varying interest rate	2020	variable		$	190	$	—		$	190		$	325
Revolver															2020	variable	$	45	$	—		$	45		$	325
Term Loan B-5	2024	variable		4,133		(69		)	4,064			4,071			2024	variable	4,122		(66		)	4,056			4,071
SciPlay Revolver															2024	variable	—		—			—			—
Senior Notes:
2025 Secured Notes⁽²⁾	2025	5.000	%	1,250		(17		)	1,233			1,233			2025	5.000%	1,250		(16		)	1,234			1,233
2026 Secured Euro Notes⁽³⁾	2026	3.375	%	367		(5		)	362			367			2026	3.375%	370		(5		)	365			367
2022 Unsecured Notes⁽⁴⁾	2022	10.000	%	2,200		(22		)	2,178			2,176
2022 Unsecured Notes															2022	10.000%	1,200		(11		)	1,189			2,176
2026 Unsecured Euro Notes⁽³⁾	2026	5.500	%	282		(4		)	278			282			2026	5.500%	285		(4		)	281			282
2026 Unsecured Notes	2026	8.250	%	1,100		(16		)	1,084			—			2026	8.250%	1,100		(15		)	1,085			—
Subordinated Notes:
2020 Notes	2020	6.250	%	244		(1		)	243			242			2020	6.250%	244		(1		)	243			242
2021 Notes	2021	6.625	%	341		(3		)	338			337			2021	6.625%	341		(3		)	338			337
Finance lease obligations as of March 31, 2019 payable monthly through 2019 and other⁽⁵⁾	2019	3.900	%	13		—			13			4
Finance lease obligations as of June 30, 2019 payable monthly through 2019 and other⁽⁴⁾															2019	3.900%	11		—			11			4
Total long-term debt outstanding				$	10,120	$	(137	)	$	9,983		$	9,037				$	8,968	$	(121	)	$	8,847		$	9,037
Less: current portion of long-term debt⁽⁴⁾									(1,046		)	(45		)
Less: current portion of long-term debt																						(45		)	(45		)
Long-term debt, excluding current portion									$	8,937		$	8,992									$	8,802		$	8,992
Fair value of debt⁽¹⁾				$	10,197												$	9,066

(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) Includes cross-currency interest rate swap agreements that we entered into in 2018 in the amount of $460 million U.S. Dollar-denominated 2025 Secured Notes to a fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946% (see Note 16 in our 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 ~~$63~~$58 million, of which a $5$3 million loss and a $2 million gain ~~was~~were recognized on remeasurement of debt in the Consolidated Statements of Operations ~~and Comprehensive Loss~~ for the three and six months ended ~~March 31, 2019.~~June 30, 2019, respectively.

(4) Includes ~~$1,000 million of the principal balance of the 2022 Unsecured Notes that were redeemed on April 4, 2019.~~

~~(5) Includes $11~~$10 million related to certain revenue transactions presented as debt in accordance with ASC ~~470-10-25.~~470.

We were in compliance with the financial covenants under all debt agreements as of ~~March 31,~~June 30, 2019.

For additional information regarding the terms of our credit agreements, Secured Notes, Unsecured Notes and Subordinated Notes, see Note 16 in our 2018 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 three and six months ended ~~March 31,~~June 30, 2019 and 2018:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Repayment and cancellation of principal balance at premium	$	50	$	—	$	50	$	110
Unamortized debt (premium) discount and deferred financing costs, net	10		—		10		(30		)
Third party debt issuance fees	—		—		—		13
Total loss on debt financing transactions	$	60	$	—	$	60	$	93

Three Months Ended March 31,
2019 2018
Repayment and cancellation of principal balance at premium $ —
$ 110
Unamortized debt (premium) discount and deferred financing costs, net —
(30 )
Third party debt issuance fees —
13
Total loss on debt financing transactions $ —
$ 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 of ~~March 31,~~June 30, 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.

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 million as of ~~March 31,~~June 30, 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:



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2019			2018		2019			2018
(Loss) gain recorded in accumulated other comprehensive loss, net of tax	$	(11	)	$	4	$	(16	)	$	6
Interest expense recorded related to interest rate swap contracts	—			1		—			2

Three Months Ended
March 31,
2019 2018
(Loss) gain recorded in accumulated other comprehensive income (loss), net of tax $ (5 ) $ 2
Interest expense recorded related to interest rate swap contracts —
1

We do not expect to reclassify material amounts from Accumulated other comprehensive ~~loss~~income (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:~~

operations:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	Interest expense						Interest expense
Total interest expense which reflects the effects of cash flow hedges	$	(147	)	$	(146	)	$	(301	)	$	(301	)
Hedged item	(5		)	(5		)	(10		)	(7		)
Derivative designated as hedging instrument	5			4			10			5

Three Months Ended March 31,
2019 2018
Interest 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 $ (154 ) $ (155 )
Hedged item (5 ) (2 )
Derivative designated as hedging instrument 5
1

Cross-Currency Interest Rate Swaps

In connection with the February 2018 Refinancing described in Note 16 of our 2018 10-K, we entered into certain cross-currency interest rate swap agreements to achieve more beneficial interest rates by effectively converting $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 million cross-currency interest rate swaps is reported in foreign currency translation gain (loss) in Accumulated other comprehensive ~~loss.~~income (loss). The cross-currency basis spread (along with other components of the cross-currency swap’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, 2019		December 31, 2018
Interest rate swaps ⁽¹⁾⁽³⁾	Other liabilities	$	17	$	—
Cross-currency interest rate swaps ⁽²⁾⁽³⁾	Other assets	29		18
(1) Losses of $11 million and $17 million for the three and six months ended June 30, 2019, respectively, are reflected in Derivative financial instrument unrealized (loss) gain in Other comprehensive loss.
(2) Loss of $5 million and gain of $11 million for the three and six months ended June 30, 2019, respectively, are reflected in Foreign currency translation gain (loss) in Other comprehensive loss.
(3) 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

~~For the first quarter of 2019, we~~

We designated ~~$255~~$270 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 Foreign currency translation gain (loss) in Other comprehensive ~~income,~~loss, and the remaining

remeasurement change is recognized in Gain (loss) on remeasurement of debt in our consolidated statements of ~~operations and comprehensive loss.~~operations. 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 $39 million.~~metrics. 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.

Contingent consideration liabilities as of ~~March 31,~~June 30, 2019 ~~and~~are $22 million of which $10 million is included in Accrued liabilities with the remainder included in Other long-term liabilities. Contingent consideration liabilities as of December 31, 2018 were $45 million of which $22 million ~~as of March 31, 2019 is~~was included in Accrued liabilities with the ~~remaining balance~~remainder included in Other long-term liabilities.

We did not have assets and liabilities measured at fair value on a non-recurring basis as of ~~March 31, 2019.~~June 30, 2019 other than disclosed in Note 7.

(13) Stockholders’ Deficit

Changes in Stockholders’ Deficit

The following tables present certain information regarding our ~~stockholders'~~stockholders’ deficit as of ~~March 31,~~June 30, 2019 and ~~March 31, 2018.~~June 30, 2018:


	Three Months Ended March 31, 2019
	Common Stock		Additional Paid in Capital		Accumulated Loss			Treasury Stock			Accumulated Other Comprehensive Loss			Total			Common Stock		Additional Paid in Capital		Accumulated Loss			Treasury Stock			Accumulated Other Comprehensive Loss			Noncontrolling Interest		Total
January 1, 2019	$	1	$	835	$	(2,824	)	$	(175	)	$	(300	)	$	(2,463	)	$	1	$	835	$	(2,824	)	$	(175	)	$	(300	)	$	—	$	(2,463	)
Net proceeds of common stock in connection with stock options and RSUs	—		2		—			—			—			2			—		2		—			—			—			—		2
Stock-based compensation	—		11		—			—			—			11			—		11		—			—			—			—		11
Net loss	—		—		(24		)	—			—			(24		)	—		—		(24		)	—			—			—		(24		)
Other Comprehensive income	—		—		—			—			51			51
Other comprehensive income																	—		—		—			—			51			—		51
March 31, 2019	$	1	$	848	$	(2,848	)	$	(175	)	$	(249	)	$	(2,423	)	$	1	$	848	$	(2,848	)	$	(175	)	$	(249	)	$	—	$	(2,423	)
Net proceeds of common stock in connection with stock options and RSUs and other																	—		2		—			—			—					2
Sale of SciPlay common stock and related transactions																	—		328		—			—			—			91		419
Stock-based compensation																	—		9		—			—			—			1		10
Net loss																	—		—		(77		)	—			—			2		(75		)
Other comprehensive loss																	—		—		—			—			(51		)	—		(51		)
June 30, 2019																	$	1	$	1,187	$	(2,925	)	$	(175	)	$	(300	)	$	94	$	(2,118	)

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 )



	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 proceeds 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	)
Net proceeds of common stock in connection with stock options and RSUs	—		2			—			—			—			2
Stock-based compensation	—		15			—			—			—			15
Net loss	—		—			(6		)	—			—			(6		)
Other Comprehensive loss	—		—			—			—			(83		)	(83		)
June 30, 2018	$	1	$	817		$	(2,680	)	$	(175	)	$	(231	)	$	(2,268	)

SciPlay Stock Based Compensation

During the second quarter of 2019, SciPlay adopted the SciPlay Long-Term Incentive Plan (“SciPlay LTIP”). The SciPlay LTIP authorizes the issuance of up to 6.5 million shares of SciPlay’s Class A common stock to be granted in connection with awards of incentive and nonqualified stock options, restricted stock and stock units, stock appreciation rights and performance-based awards. As of June 30, 2019, there were 3.4 million of total time-based and performance-based SciPlay restricted stock units issued with an average grant price of $16.00 per share.

The following reflects total stock-based compensation expense recognized under all programs:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Related to SGC stock options	$	1	$	7	$	3	$	8
Related to SGC RSUs	5		8		17		16
Related to SciPlay RSUs	4		—		4		—
Total	$	10	$	15	$	24	$	24

Three Months Ended
March 31,
2019 2018
Related to stock options $ 2
$ 2
Related to RSUs 12
7
Total $ 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-~~

~~tax~~pre-tax losses for 2019, we maintain a valuation allowance for certain of our U.S. operations as of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2019 were (10)% and ~~2018 were (18%)~~(13)%, respectively, and 0% and (3%), for the three and six months ended June 30, 2018, 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~~certain U.S. net deferred tax assets, the effective tax rates for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 do not include the benefits of the U.S. tax losses, and we recorded an overall tax expense in both periods due to foreign pre-tax earnings. The change in the effective tax rates relates primarily to the overall mix of income in our foreign jurisdictions.

(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 three and six months ended ~~March 31,~~June 30, 2019 ~~and 2018~~ were $9$10 million and $7$19 million, respectively, and were $8 million and $15 million for the three and six months ended June 30, 2018, respectively. The total amount of variable and short term lease payments ~~incurred during the three months ended March 31, 2019 are immaterial.~~were immaterial for all periods presented.

Supplemental balance sheet and cash flow information related to operating leases is as follows:



	June 30, 2019
Operating lease right-of-use assets	$	113
Accrued liabilities	26
Operating lease liabilities	95
Total operating lease liabilities	$	121
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	5
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases for the six months period	$	17
Weighted average remaining lease term, years	6
Weighted average discount rate	5		%

March 31, 2019
Operating lease right-of-use assets⁽¹⁾
$ 118
Accrued liabilities 26
Operating lease liabilities 98
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, years 6
Weighted average discount rate 5 %
(1) Right-of use assets obtained in exchange for lease obligations during the first quarter of 2019 were immaterial.

Lease liability maturities:



	Remainder of 2019		2020		2021		2022		2023		Thereafter		Less Imputed Interest			Total
Operating leases	$	16	$	30	$	25	$	19	$	16	$	34	$	(19	)	$	121

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

As of ~~March 31,~~June 30, 2019, we did not have material additional operating leases that have not yet commenced.

(16) Litigation

We are involved in various routine and other specific legal proceedings, including the following which are described in Note 22 within our 2018 10-K: Colombia litigation, SNAI litigation, Washington State Matter, and the Raqqa Matter. There have been no material changes to these matters since the 2018 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 $3 million and $4 million for all of our legal matters that were contingencies as of ~~March 31,~~June 30, 2019 and December 31, ~~2018.~~

2018, respectively.

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 2018 10-K and this Note 16 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 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.

TCS John Huxley Matter

On March 15, 2019, TCS John Huxley America, Inc., TCS John Huxley Europe Ltd., TCS John Huxley Asia Ltd., and Taiwan Fulgent Enterprise Co., Ltd. brought a civil action in the United States District Court for the Northern District of Illinois against SGC, Bally Technologies, Inc. and Bally Gaming, Inc. In the complaint, the plaintiffs assert federal antitrust claims arising from ~~defendants'~~the defendants’ procurement of particular U.S. and South African patents. ~~Plaintiffs~~The plaintiffs allege that the defendants used those patents to create an allegedly illegal monopoly in the market for automatic card shufflers sold to regulated casinos in the United States. On 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 the plaintiffs advised that they intended to file an amended complaint. ~~Plaintiffs~~The plaintiffs filed their amended complaint on May 3, 2019, and on May 22, 2019, the defendants filed a motion to dismiss the plaintiffs’ amended complaint with prejudice, which has not yet been ruled upon by the district ~~court has set a status hearing for May 8, 2019 to discuss the matter further. Due to the early nature of this litigation, we~~court. 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 2018 10-K.

(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 ~~March 31,~~June 30, 2019, SGI’s obligations under the Secured Notes (other than the 2022 Secured Notes, which were redeemed in March 2018), the Unsecured Notes and the Subordinated Notes were fully and unconditionally and jointly and severally guaranteed by SGC and the Guarantor Subsidiaries other than SGI, and certain immaterial subsidiaries of SGC. The guarantees of our Secured Notes (other than the 2022 Secured Notes, which were redeemed in March 2018), Unsecured Notes and Subordinated 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.

Presented below is condensed consolidating financial information for (1) SGC, (2) SGI, (3) the Guarantor Subsidiaries and (4) the Non-Guarantor Subsidiaries as of ~~March 31,~~June 30, 2019 and December 31, 2018 and for the three and six months ended ~~March 31,~~June 30, 2019 and 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 Secured Notes (other than the 2022 Secured Notes, which were redeemed in March 2018), the Unsecured Notes and the Subordinated Notes were in effect at the beginning of the periods presented.

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 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.

2628

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

As of ~~March 31,~~June 30, 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		$	1,119		$	1		$	—	$	95	$	(2	)	$	1,213			$	235		$	—		$	—	$	141	$	(7	)	$	369
Restricted cash		—			1			33		7		—			41				—			1			35		8		—			44
Accounts receivable, net		—			102			204		315		—			621				—			100			195		321		—			616
Notes receivable, net		—			—			89		15		—			104				—			—			104		16		—			120
Inventories		—			45			89		109		(14		)	229				—			47			99		103		(11		)	238
Prepaid expenses, deposits and other current assets		3			60			95		79		1			238				—			61			61		75		1			198
Property and equipment, net		31			99			208		215		(36		)	517				34			96			231		204		(33		)	532
Operating lease right-of-use asset		1			24			35		58		—			118				1			25			33		54		—			113
Investment in subsidiaries		2,896			959			1,216		—		(5,071		)	—				3,136			1,163			1,427		—		(5,726		)	—
Goodwill		—			240			1,897		1,164		—			3,301				—			240			1,897		1,142		—			3,279
Intangible assets, net		40			34			1,239		432		—			1,745				37			34			1,186		403		—			1,660
Intercompany balances		—			7,096			74		—		(7,170		)	—				—			5,868			67		—		(5,935		)	—
Software, net		53			37			118		69		—			277				48			36			109		72		—			265
Other assets⁽²⁾		113			412			37		309		(438		)	433				95			419			41		376		(433		)	498
Total assets		$	4,256		$	9,110		$	5,334	$	2,867	$	(12,730	)	$	8,837			$	3,586		$	8,090		$	5,485	$	2,915	$	(12,144	)	$	7,932
Liabilities and stockholders’ (deficit) equity
Current portion of long-term debt		$	—		$	1,042		$	3	$	1	$	—		$	1,046			$	—		$	42		$	2	$	1	$	—		$	45
Other current liabilities		58			224			235		258		(35		)	740				52			173			242		255		(34		)	688
Long-term debt, excluding current portion		—			8,928			8		1		—			8,937				—			8,793			8		1		—			8,802
Operating lease liabilities		1			20			30		47		—			98				1			21			28		45		—			95
Other long-term liabilities		104			13			637		176		(491		)	439				96			23			605		168		(472		)	420
Intercompany balances		6,516			—			—		654		(7,170		)	—				5,649			—			—		286		(5,935		)	—
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
Total SGC stockholders’ (deficit) equity																			(2,212		)	(962		)	4,600		2,065		(5,703		)	(2,212		)
Noncontrolling interest																			—			—			—		94		—			94
Total liabilities and total stockholders’ (deficit) equity																			$	3,586		$	8,090		$	5,485	$	2,915	$	(12,144	)	$	7,932

(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.																	(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.



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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 par value	SGMS	Nasdaq Global Select Market



Large accelerated filerý	☒	Accelerated filer ¨	☐

Non-accelerated filer ¨	☐	Smaller reporting company ¨	☐

Emerging growth company ¨	☐



~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common Stock, $.001 par value~~	~~SGMS~~	~~Nasdaq Global Select Market~~


	Three Months Ended						Six Months Ended
	March 31,						June 30,
	2019			2018			2019			2018
Cash flows from operating activities:
Net loss	$	(24	)	$	(202	)	$	(99	)	$	(208	)
Adjustments to reconcile net loss to cash provided by operating activities	179			309			440			482
Changes in working capital accounts, net of effects of acquisitions	6			(78		)	(86		)	(138		)
Changes in deferred income taxes and other	6			1			7			(4		)
Net cash provided by operating activities	167			30			262			132
Cash flows from investing activities:
Capital expenditures	(67		)	(88		)	(132		)	(200		)
Acquisitions of businesses and assets, net of cash acquired	—			(274		)	—			(274		)
Distributions of capital from equity investments	3			2			18			23
Additions to equity method investments							(1		)	(75		)
Net cash used in investing activities	(64		)	(360		)	(115		)	(526		)
Cash flows from financing activities:
Borrowings under revolving credit facility	40			—			40			185
Repayments under revolving credit facility	(175		)	(295		)	(320		)	(380		)
Proceeds from issuance of senior notes and term loans	1,100			2,512			1,100			2,512
Repayment of senior notes and term loans (inclusive of redemption premium)	—			(2,210		)	(1,050		)	(2,210		)
Repayment of assumed NYX debt	—			(288		)	—			(288		)
Payments on long-term debt	(12		)	(2		)	(23		)	(14		)
Payments of debt issuance and deferred financing costs	(14		)	(39		)	(15		)	(39		)
Payments on license obligations	(7		)	(7		)	(13		)	(14		)
Sale of future revenue	11			—			11			—
Net proceeds from the sale of SciPlay common stock							342			—
Payments of deferred SciPlay common stock offering costs							(8		)	—
Net redemptions of common stock under stock-based compensation plans and other	(1		)	(17		)	(7		)	(21		)
Net cash provided by (used in) financing activities	942			(346		)	57			(269		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	1			2			1			(3		)
Increase (decrease) in cash, cash equivalents and restricted cash	1,046			(674		)	205			(666		)
Cash, cash equivalents and restricted cash, beginning of period	220			834			220			834
Cash, cash equivalents and restricted cash, end of period	$	1,266		$	160		$	425		$	168

Supplemental cash flow information:
Cash paid for interest	$	80		$	161		$	270		$	366
Income taxes paid	10			7			18			15
Distributed earnings from equity investments	4			1			22			19
Supplemental non-cash transactions:
Non-cash rollover and refinancing of Term loans	$	—		$	3,275		$	—		$	3,275
Non-cash interest expense	7			6			13			12
NYX non-cash consideration transferred (inclusive of 2017 acquisition of ordinary shares)	—			93
NYX non-cash consideration transferred (including 2017 acquisition of ordinary shares)							—			93
See accompanying notes to condensed consolidated financial statements.



	Three Months Ended March 31,
	2019		2018
Gaming
Gaming operations	$	152	$	161
Gaming machine sales	136		145
Gaming systems	74		75
Table products	60		62
Total	$	422	$	443

Lottery
Instant products	$	140	$	150
Lottery systems	87		52
Total	$	227	$	202

Social
Mobile	$	97	$	73
Web and other	21		24
Total	$	118	$	97

Digital
Sports and platform	$	30	$	26
Gaming and other	40		44
Total	$	70	$	70



	Six Months Ended June 30,
	2019
Contract liability balance, beginning of period⁽¹⁾	$	97
Liabilities recognized during the period	33
Amounts recognized in revenue from beginning balance	(30		)
Contract liability balance, end of period⁽¹⁾	$	100
(1) Contract liabilities are included within Accrued liabilities and Other long-term liabilities in our June 30, 2019 consolidated balance sheet.



	Receivables		Contract Assets⁽¹⁾
Beginning of period balance	$	753	$	114
End of period balance, March 31, 2019	758		114
(1) Contract assets are included primarily within Prepaid expenses, deposits and other current assets in our March 31, 2019 consolidated balance sheet.



	Three Months Ended June 30, 2019
	Gaming			Lottery			SciPlay			Digital			Unallocated and Reconciling Items⁽¹⁾			Total
Total revenue	$	427		$	231		$	118		$	69		$	—		$	845
AEBITDA⁽²⁾	215			103			33			12			(28		)	$	335
Reconciling items to consolidated net loss before income taxes:
D&A	(114		)	(20		)	(2		)	(19		)	(15		)	(170		)
Restructuring and other	(2		)	(1		)	(1		)	(1		)	(1		)	(6		)
EBITDA from equity investments													(18		)	(18		)
Earnings from equity investments													7			7
Interest expense													(147		)	(147		)
Loss on debt refinancing transactions													(60		)	(60		)
Loss on remeasurement of debt													(3		)	(3		)
Other income, net													4			4
Stock-based compensation													(10		)	(10		)
Net loss before income taxes																$	(68	)
(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) Gaming AEBITDA decreased and SciPlay AEBITDA increased compared to prior periods as the IP charges are no longer being allocated to SciPlay per the IP License Agreement discussed in Note 1. The three months ended June 30, 2019 includes $3 million in intellectual property royalties paid by the SciPlay business segment, which were terminated as of May 7, 2019 in connection with the IP License Agreement described in Note 1. The IP charges for the three months ended June 30, 2018 were $6 million.



	Three Months Ended June 30, 2018
	Gaming			Lottery			SciPlay			Digital			Unallocated and Reconciling Items⁽¹⁾			Total
Total revenue	$	471		$	207		$	100		$	67		$	—		$	845
AEBITDA	236			99			23			13			(31		)	$	340
Reconciling items to consolidated net loss before income taxes:
D&A	(121		)	(14		)	(6		)	(17		)	(15		)	(173		)
Restructuring and other	(2		)	3			(1		)	(4		)	(30		)	(34		)
EBITDA from equity investments													(16		)	(16		)
Earnings from equity investments													5			5
Interest expense													(146		)	(146		)
Gain on remeasurement of debt													34			34
Other expense, net													(1		)	(1		)
Stock-based compensation													(15		)	(15		)
Net loss before income taxes																$	(6	)
(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.


	Three Months Ended March 31, 2019																		Six Months Ended June 30, 2019
	Gaming			Lottery			Social⁽²⁾			Digital			Unallocated and Reconciling Items⁽¹⁾			Total			Gaming			Lottery			SciPlay			Digital			Unallocated and Reconciling Items⁽¹⁾			Total
Total revenue	$	422		$	227		$	118		$	70		$	—		$	837		$	849		$	458		$	236		$	139		$	—		$	1,682
AEBITDA(2)	215			104			25			13			(29		)	$	328		430			207			58			25			(57		)	$	663
Reconciling items to consolidated net loss before income taxes:
D&A	(112		)	(19		)	(2		)	(19		)	(13		)	(165		)	(226		)	(39		)	(4		)	(38		)	(28		)	(335		)
Restructuring and other	(2		)	—			(1		)	(3		)	(1		)	(7		)	(4		)	(1		)	(2		)	(4		)	(2		)	(13		)
EBITDA from equity investments													(17		)	(17		)													(35		)	(35		)
Earnings from equity investments													6			6															13			13
Interest expense													(154		)	(154		)													(301		)	(301		)
Loss on debt refinancing transactions																															(60		)	(60		)
Gain on remeasurement of debt													5			5															2			2
Other expense, net													(2		)	(2		)
Other income, net																															2			2
Stock-based compensation													(14		)	(14		)													(24		)	(24		)
Net loss before income taxes																$	(20	)																$	(88	)
(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.
(2) Gaming AEBITDA decreased and SciPlay AEBITDA increased compared to prior periods as the IP charges are no longer being allocated to SciPlay per the IP License Agreement discussed in Note 1. The six months ended June 30, 2019 includes $10 million in intellectual property royalties paid by the SciPlay business segment, which were terminated as of May 7, 2019 in connection with the IP License Agreement described in Note 1. The IP charges for the six months ended June 30, 2018 were $13 million.																			(2) Gaming AEBITDA decreased and SciPlay AEBITDA increased compared to prior periods as the IP charges are no longer being allocated to SciPlay per the IP License Agreement discussed in Note 1. The six months ended June 30, 2019 includes $10 million in intellectual property royalties paid by the SciPlay business segment, which were terminated as of May 7, 2019 in connection with the IP License Agreement described in Note 1. The IP charges for the six months ended June 30, 2018 were $13 million.



	Three Months Ended March 31, 2018
	Gaming			Lottery			Social⁽²⁾			Digital			Unallocated and Reconciling Items⁽¹⁾			Total
Total revenue	$	443		$	202		$	97		$	70		$	—		$	812
AEBITDA	218			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.



	Six Months Ended June 30, 2018
	Gaming			Lottery			SciPlay			Digital			Unallocated and Reconciling Items⁽¹⁾			Total
Total revenue	$	914		$	409		$	197		$	137		$	—		$	1,657
AEBITDA	454			193			46			30			(63		)	$	660
Reconciling items to consolidated net loss before income taxes:
D&A	(260		)	(28		)	(13		)	(33		)	(27		)	(361		)
Restructuring and other	(3		)	2			(19		)	(10		)	(56		)	(86		)
EBITDA from equity investments													(35		)	(35		)
Earnings from equity investments													12			12
Interest expense													(301		)	(301		)
Loss on debt financing transactions													(93		)	(93		)
Gain on remeasurement of debt													33			33
Other expense, net													(7		)	(7		)
Stock-based compensation													(24		)	(24		)
Net loss before income taxes																$	(202	)
(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.



	June 30, 2019			December 31, 2018
Current:
Accounts receivable	$	629		$	615
Notes receivable	143			138
Allowance for doubtful accounts and notes	(36		)	(40		)
Current accounts and notes receivable, net	$	736		$	713
Long-term:
Notes receivable, net of allowance	42			40
Total accounts and notes receivable, net	$	778		$	753



	March 31, 2019
Operating lease right-of-use assets⁽¹⁾	$	118
Accrued liabilities	26
Operating lease liabilities	98
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, years	6
Weighted average discount rate	5		%
(1) Right-of use assets obtained in exchange for lease obligations during the first quarter of 2019 were immaterial.


◦	We believe the IPO will provide greater flexibility to pursue additional growth initiatives specifically designed for SciPlay. We received $312 million in net proceeds from the offering (net of $30 million used by SciPlay to pay the Offering fees and balance retained for general corporate purposes) which enables us to make substantial payments to reduce our debt.


	Three Months Ended March 31,						Variance					Three Months Ended June 30,						Variance					Six Months Ended June 30,						Variance
($ in millions)	2019			2018			2019 vs. 2018					2019			2018			2019 vs. 2018					2019			2018			2019 vs. 2018
Total revenue	$	837		$	812		$	25		3	%	$	845		$	845		$	—		—	%	$	1,682		$	1,657		$	25		2	%
Total operating expenses	714			763			(49		)	(6	)%	717			746			(29		)	(4	)%	1,431			1,509			(78		)	(5	)%
Operating income	123			49			74			151	%	128			99			29			29	%	251			148			103			70	%
Net loss before income taxes	(20		)	(196		)	176			(90	)%	(68		)	(6		)	(62		)	nm		(88		)	(202		)	114			(56	)%
Net loss	$	(24	)	$	(202	)	$	178		(88	)%	(75		)	(6		)	(69		)	nm		(99		)	(208		)	109			(52	)%
Net loss attributable to SGC												$	(77	)	$	(6	)	$	(71	)	nm		$	(101	)	$	(208	)	$	107		(51	)%
nm = not meaningful.												nm = not meaningful.


	Three Months Ended March 31,					Factors Affecting Net Loss	Three Months Ended June 30,					Six Months Ended June 30,						Factors Affecting Net Loss Attributable to SGC
(in millions)	2019		2018			2019 vs. 2018	2019			2018		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).	$	(60	)	$	—	$	(60	)	$	(93	)	Loss on debt financing transactions consummated during the second quarter of 2019 includes a $50 million premium charge associated with the redemption of $1,000 million of the 2022 Unsecured Notes (see Note 11). Loss on debt financing transactions from our refinancing transactions consummated during the first quarter of 2018 includes a $110 million premium charge associated with the redemption of the 2022 Secured Notes.
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).
(Loss) gain on remeasurement of debt							(3		)	34		2			33			(Losses) and gains are attributable to remeasurement of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes and reflect changes in the Euro vs. the U.S. Dollar foreign exchange rates between the comparable periods.
Income tax expense							(7		)	—		(11		)	(6		)	The increase is primarily due to the overall mix of income in our foreign jurisdictions.
Net income attributable to noncontrolling interest							2			—		2			—			The three and six month periods for 2019 reflect SciPlay noncontrolling interest (see Note 1).


•	In January 2019, New Zealand Racing Board launched a sportsbook with our OpenBet^TM platform.


•	In May 2019, we announced a partnership with Big Time Gaming to combine our growing portfolio of games with the popular Megaways^TM mechanic.



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).

~~4.1~~		Indenture, dated as of March 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 4.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on March 19, 2019).

10.1		~~Amended and Restated Employment~~Tax Receivable Agreement, dated ~~as of January 1,~~May 7, 2019, by and ~~between Scientific Games~~among SciPlay Corporation, SciPlay Parent Company, LLC and ~~Patrick J. McHugh~~each of the Members (as defined therein) from time to time party thereto (incorporated by reference to Exhibit ~~10.55~~10.1 to Scientific Games Corporation’s ~~Annual~~Current Report on Form ~~10-K~~8-K filed on ~~February 28,~~May 8, 2019).*

10.2		Amendment to ~~Consulting~~Employment Agreement, dated as of ~~January 11,~~May 7, 2019, ~~(effective as of January 1, 2019),~~ by and between Scientific Games Corporation and ~~Richard Haddrill~~Barry L. Cottle (incorporated by reference to Exhibit ~~10.48~~10.2 to Scientific Games Corporation’s ~~Annual~~Current Report on Form ~~10-K~~8-K filed on ~~February 28,~~May 8, 2019).*

10.3		~~Amendment to Employment~~Social Award Agreement, dated as of ~~February 21,~~May 7, 2019, ~~(effective as of February 25, 2019),~~ by and between ~~Scientific Games~~SciPlay Corporation and ~~Michael Winterscheidt~~Barry L. Cottle (incorporated by reference to Exhibit ~~10.56~~10.3 to Scientific Games Corporation’s ~~Annual~~Current Report on Form ~~10-K~~8-K filed on ~~February 28,~~May 8, 2019).*

10.4		Second Amendment to Consulting Agreement, dated as of April 29, 2019, by and between Scientific Games Corporation and Richard Haddrill. (incorporated by reference to Exhibit 10.4 to Scientific Games Corporation’s Quarterly Report on Form 10-Q filed on May 8, 2019).*

10.5		Amendment to Amended and Restated Employment Agreement, dated as of May 28, 2019, by and between Scientific Games Corporation and Derik Mooberry.*(†)

10.6		Scientific Games Corporation 2003 Incentive Compensation Plan (Amended and Restated as of June 12, 2019) (incorporated by reference to Exhibit 10.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on June 14, 2019).*

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. (†)

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		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:	~~May 7,~~August 1, 2019