SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2019~~2020

¨☐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~~001-11693

SCIENTIFIC GAMES CORPORATION

(Exact name of registrant as specified in its charter)

6601 Bermuda Road, Las Vegas, Nevada 89119

(Address of principal executive offices)

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

The registrant has the following number of shares outstanding of each of the registrant’s classes of common stock as of May ~~6, 2019:~~5, 2020:

Common Stock: ~~92,923,552~~

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL INFORMATION

AND OTHER INFORMATION

THREE MONTHS ENDED MARCH 31, ~~2019~~2020

Intellectual Property Rights

FORWARD-LOOKING STATEMENTS

~~Throughout~~ Throughout this Quarterly Report on Form 10-Q, we make “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”~~“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;~~•the impact of the COVID-19 pandemic and any resulting unfavorable social, political, economic and financial conditions, including the temporary closure of casinos and lottery operations on a jurisdiction-by-jurisdiction basis;

•natural events and health crises that disrupt our operations or those of our customers, suppliers or regulators;

•incurrence of restructuring costs;

•changes in demand for our products and services;

•dependence on suppliers and manufacturers;

•dependence on key employees;

•goodwill impairment charges including changes in estimates or judgments related to our impairment analysis of goodwill or other intangible assets;

•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;

•stock price volatility;

•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~~casino gaming and how such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming or social ~~casinos~~casino gaming specifically, and how this could result in a prohibition on interactive social gaming or social ~~casinos~~casino gaming 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;~~systems, including the impact of any security breaches or cyber-attacks;

•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~~•inability to ~~the initial public offering~~achieve some or all of ~~a minority interest in our social gaming business, including the possibility that~~ the anticipated benefits of ~~the initial~~SciPlay being a standalone public ~~offering are not realized or that we may not be able to utilize the proceeds of the initial public offering as expected;~~company;

~~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~~continuing 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”;~~Union;

•possibility that the renewal of ~~LNS’~~Lotterie Nazionali S.r.l. concession to operate the Italian instant games lottery is not finalized (including as the result of a pending third-party protest against the renewal of the concession, or any ~~right of~~ appeal ~~on a~~from existing court ~~ruling on a~~rulings relating to such third-party protest);

•the impact of ~~the new~~ U.K. legislation approving the reduction of fixed-odds betting terminals maximum stakes ~~limit;~~limit on LBO operators, including the related closure of certain LBO shops;

•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;~~•the discontinuation or replacement of LIBOR, which may adversely affect interest rates;

•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; and

~~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~~stockholders.

~~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 “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A ~~“Risk Factors”~~ in our ~~2018~~2019 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
	March 31,
	2020		2019
Revenue:
Services	$	422	$	459
Product sales	168		238
Instant products	135		140
Total revenue	725		837
Operating expenses:
Cost of services⁽¹⁾	130		133
Cost of product sales⁽¹⁾	91		107
Cost of instant products⁽¹⁾	73		67
Selling, general and administrative	198		186
Research and development	51		49
Depreciation, amortization and impairments	138		165
Goodwill impairment	54		—
Restructuring and other	22		7

Operating (loss) income	(32)		123
Other (expense) income:
Interest expense	(124)		(154)
(Loss) earnings from equity investments	(2)		6
Gain on remeasurement of debt	10		5
Other expense, net	(3)		—
Total other expense, net	(119)		(143)
Net loss before income taxes	(151)		(20)
Income tax expense	(4)		(4)
Net loss	(155)		(24)
Less: Net income attributable to noncontrolling interest	4		—
Net loss attributable to SGC	$	(159)	$	(24)

Basic and diluted net loss attributable to SGC per share:
Basic	$	(1.69)	$	(0.26)
Diluted	$	(1.69)	$	(0.26)

Weighted average number of shares used in per share calculations:
Basic shares	94		92
Diluted shares	94		92
(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) INCOME

(Unaudited, in millions)


	Three Months Ended
	March 31,
	2020		2019
Net loss	$	(155)	$	(24)
Other comprehensive (loss) income:
Foreign currency translation (loss) gain, net of tax	(83)		55
Pension and post-retirement gain, net of tax	2		1
Derivative financial instruments unrealized loss, net of tax	(16)		(5)
Total other comprehensive (loss) income	(97)		51
Total comprehensive (loss) income	(252)		27
Less: comprehensive income attributable to noncontrolling interest	4		—
Comprehensive (loss) income attributable to SGC	$	(256)	$	27
See accompanying notes to condensed consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except par value)


	As of
	March 31, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	334	$	313
Restricted cash	55		51
Receivables, net of allowance for credit losses of $61 and $36, respectively	624		755
Inventories	248		244
Prepaid expenses, deposits and other current assets	235		252
Total current assets	1,496		1,615
Non-current assets:
Restricted cash	11		11
Receivables, net of allowance for credit losses of $9 and $-, respectively	48		53
Property and equipment, net	474		500
Operating lease right-of-use assets	98		105
Goodwill	3,162		3,280
Intangible assets, net	1,429		1,516
Software, net	248		258
Equity investments	263		273
Other assets	229		198
Total assets	$	7,458	$	7,809

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt	$	45	$	45
Accounts payable	215		226
Accrued liabilities	475		495
Total current liabilities	735		766
Deferred income taxes	87		91
Operating lease liabilities	81		88
Other long-term liabilities	293		292
Long-term debt, excluding current portion	8,620		8,680
Total liabilities	9,816		9,917
Commitments and contingencies (Note 16)
Stockholders’ deficit:
Common stock, par value $0.001 per share: 199 shares authorized; 112 and 111 shares issued and 94 and 94 shares outstanding, respectively	1		1
Additional paid-in capital	1,216		1,208
Accumulated loss	(3,119)		(2,954)
Treasury stock, at cost, 17 shares	(175)		(175)
Accumulated other comprehensive loss	(389)		(292)
Total SGC stockholders’ deficit	(2,466)		(2,212)
Noncontrolling interest	108		104
Total stockholders’ deficit	(2,358)		(2,108)
Total liabilities and stockholders’ deficit	$	7,458	$	7,809
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 cash 41
39
Accounts receivable, net 621
599
Notes receivable, net 104
114
Inventories 229
216
Prepaid expenses, deposits and other current assets 238
233
Total current assets 2,446
1,369
Non-current assets:
   Restricted cash 12
13
   Notes receivable, net 33
40
   Property and equipment, net 517
547
   Operating lease right-of-use assets 118
—
   Goodwill 3,301
3,280
   Intangible assets, net 1,745
1,809
   Software, net 277
285
   Equity investments 296
298
   Other assets 92
77
Total assets $ 8,837
$ 7,718

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt $ 1,046
$ 45
Accounts payable 200
225
Accrued liabilities 540
477
Total current liabilities 1,786
747
Deferred income taxes 109
108
Operating lease liabilities 98
—
Other long-term liabilities 330
334
Long-term debt, excluding current portion 8,937
8,992
Total liabilities 11,260
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, respectively 1
1
Additional paid-in capital 848
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.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)

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 activities 179
309
Changes in working capital accounts, net of effects of acquisitions 6
(78 )
Changes in deferred income taxes and other 6
1
Net cash provided by operating activities 167
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 investments 3

2
Net cash used in investing activities (64 ) (360 )
Cash flows from financing activities:
Borrowings under revolving credit facility 40
—
Repayments under revolving credit facility (175 ) (295 )
Proceeds from issuance of senior notes and term loans 1,100

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 revenue 11
—
Net redemptions of common stock under stock-based compensation plans and other (1 )
(17 )
Net cash provided by (used in) financing activities 942
(346 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash 1
2
Increase (decrease) in cash, cash equivalents and restricted cash 1,046
(674 )
Cash, cash equivalents and restricted cash, beginning of period 220
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 paid 10
7
Distributed earnings from equity investments 4
1
Supplemental non-cash transactions:
Non-cash rollover and refinancing of Term loans $ —
$ 3,275
Non-cash interest expense 7

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


	Three Months Ended
	March 31,
	2020		2019
Cash flows from operating activities:
Net loss	$	(155)	$	(24)
Adjustments to reconcile net loss to cash provided by operating activities	243		179
Changes in working capital accounts, net of effects of acquisitions	25		6
Changes in deferred income taxes and other	7		6
Net cash provided by operating activities	120		167

Cash flows from investing activities:
Capital expenditures	(53)		(67)
Distributions of capital from equity investments	—		3

Proceeds from sale of asset and other	22		—
Net cash used in investing activities	(31)		(64)

Cash flows from financing activities:
Borrowings under SGI revolving credit facility	50		40
Repayments under SGI revolving credit facility	(90)		(175)
Proceeds from issuance of senior notes and term loans	—		1,100

Payments on long-term debt	(10)		(12)
Payments of debt issuance and deferred financing costs	—		(14)
Payments on license obligations	(8)		(7)
Sale of future revenue and other	(1)		10

Net cash (used in) provided by financing activities	(59)		942
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(5)		1
Increase in cash, cash equivalents and restricted cash	25		1,046
Cash, cash equivalents and restricted cash, beginning of period	375		220
Cash, cash equivalents and restricted cash, end of period	$	400	$	1,266


Supplemental cash flow information:
Cash paid for interest	$	110	$	80
Income taxes paid	6		10
Distributed earnings from equity investments	4		4
Supplemental non-cash transactions:


Non-cash interest expense	$	5	$	7


See accompanying notes to condensed consolidated financial statements.

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 products, lottery systems and lottery content and services to lottery operators; providing social casino gaming solutions to retail consumers; and providing a comprehensive suite of digital RMG and sports wagering solutions, distribution platforms, content, products and services. We report our operations in four business segments—Gaming, Lottery, ~~Social~~SciPlay and 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, 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 SGC and its management, we have made all adjustments necessary to present fairly our consolidated financial position, results of operations, ~~and~~ comprehensive ~~loss~~(loss) income 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 ~~2018~~2019 10-K. Interim results of operations are not necessarily indicative of results of operations to be expected for a full year.

Impact of COVID-19

In March 2020, the World Health Organization declared the rapidly spreading COVID-19 outbreak a pandemic. In response to the COVID-19 pandemic, governments across the world implemented a number of measures to prevent its spread, including but not limited to, the temporary closure of a substantial number of gaming operations establishments and disruptions to lottery operations, travel restrictions, and cancellation of sporting events, which are affecting our business segments in a number of ways. These disruptions to our business segments as a result of COVID-19 have had and continue to have an adverse impact on our results of operations, cash flows and financial condition.

Based on our current estimates regarding the magnitude and length of the disruptions to our business, we do not anticipate these disruptions will impact our ability to meet our obligations when due or our ability to maintain compliance with our debt covenants for at least the next 12 months. However, the ultimate magnitude and length of time that the disruptions from COVID-19 will continue is highly uncertain. This uncertainty will require us to continually assess the situation, including the impact of changes to government imposed restrictions, market by market. Accordingly, our estimates regarding the magnitude and length of time that these disruptions will continue to impact our results of operations, cash flows and financial condition may change in the future and such changes could be material.

As of March 31, 2020, our total available liquidity (excluding our SciPlay business segment) was $684 million, which included $483 million of undrawn availability under SGI’s revolving credit facility. On April 9, 2020, we borrowed $480 million under SGI’s revolving credit facility, which was substantially all of the remaining availability thereunder. We have implemented a number of measures to proactively reduce operating costs, conserve liquidity and navigate through this unprecedented situation. These include measures such as: reductions in both salaries and workforce, including voluntary 50% or greater reductions in salaries by our executive leadership team (100% as to our President and Chief Executive Officer), unpaid employee furloughs, reductions in hours, temporary elimination of 401(k) matching among other compensation and benefits reductions, and deferral of certain operating and capital expenditures. We are also engaging with our vendors to negotiate concessions on the timing and amount of payments to preserve liquidity through the COVID-19 disruption period. We continue to actively manage our daily cash flows and continue to evaluate additional measures that will reduce operating costs and conserve cash.

Our only financial maintenance covenant (excluding SciPlay’s Revolver) is contained in SGI’s credit agreement. Prior to the Credit Agreement Amendment (as defined below) dated May 8, 2020, this covenant was tested at the end of each fiscal quarter and required us to not exceed a maximum consolidated net first lien leverage ratio of 5.00x Consolidated EBITDA (as

defined in the credit agreement). Prior to the Credit Agreement Amendment, this ratio stepped down to 4.75x beginning with the fiscal quarter ended December 31, 2020 and to 4.50x beginning with the fiscal quarter ended December 31, 2021. Our consolidated net first lien leverage ratio as of March 31, 2020 was 4.38x. Additionally, the SciPlay Revolver requires that SciPlay maintain a maximum total net leverage ratio not to exceed 2.50x and maintain a minimum fixed charge coverage ratio of no less than 4.00x. We had no amounts drawn on our SciPlay Revolver as of March 31, 2020. We were in compliance with the financial covenants under all debt agreements as of March 31, 2020.

On May 8, 2020, the requisite lenders under SGI’s revolving credit facility agreed to amend the consolidated net first lien leverage ratio covenant in the credit agreement (the “Credit Agreement Amendment”) to (a) implement a financial covenant relief period through the end of the first quarter ending March 31, 2021 (the “Covenant Relief Period”), as a result of which SGI is not required to maintain compliance with the consolidated net first lien leverage ratio covenant during the Covenant Relief Period, (b) reset the consolidated net first lien leverage ratio covenant following the Covenant Relief Period, (c) impose a minimum liquidity requirement (excluding SciPlay) of at least $275 million during the Covenant Relief Period with a potential step-down to at least $200 million for April and May 2021, (d) further restrict our ability to incur indebtedness and liens, make restricted payments and investments and prepay junior indebtedness during the Covenant Relief Period, subject to certain exceptions and further subject, in some instances, to maintaining minimum liquidity (excluding SciPlay) of at least $400 million and (e) establish a LIBOR floor of 0.500% on borrowings under the revolving credit facility during the Covenant Relief Period. The revised consolidated net first lien leverage ratio will be 6.00x Consolidated EBITDA beginning with the fiscal quarter ending June 30, 2021, stepping down as follows: (1) 5.75x beginning with the fourth quarter of 2021, (2) 5.25x beginning with the second quarter of 2022, (3) 4.75x beginning with the fourth quarter of 2022 and (4) 4.50x beginning with the second quarter of 2023 and thereafter. The revised consolidated net first lien leverage ratio will be based on Consolidated EBITDA (as defined in the Credit Agreement Amendment) as follows: (1) for the testing period ending June 30, 2021, Consolidated EBITDA for the fiscal quarter ending June 30, 2021 multiplied by 4, (2) for the testing period ending September 30, 2021, Consolidated EBITDA for the fiscal quarters ending June 30, 2021 and September 30, 2021 multiplied by 2, (3) for the testing period ending December 31, 2021, Consolidated EBITDA for the fiscal quarters ending June 30, 2021, September 30, 2021 and December 31, 2021 multiplied by 4/3 and (4) for all subsequent testing periods, Consolidated EBITDA for the previous twelve months including the quarter for the which the test is performed.

Additionally, changes to estimates related to the COVID-19 disruptions could result in other impacts, including but not limited to, additional goodwill impairments (see Note 8), indefinite-lived intangibles, long-lived asset and equity method investments impairment charges, inventory write downs and receivables credit allowance charges (see Note 5).

Significant Accounting Policies

There have been no changes to our significant accounting policies described within the Notes of our ~~2018~~2019 10-K other than adoption of ASC ~~842~~326 as described in Note ~~15.~~5.

Computation of Basic and Diluted Net Loss Per Share

Basic and diluted net loss attributable to SGC per share were the same for all periods presented as all common stock equivalents during those periods would be anti-dilutive. We excluded 21 million and 32 million of stock options from the diluted weighted-average common shares outstanding for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. We excluded 2 ~~million and 3~~ million of RSUs from the calculation of diluted weighted-average common shares outstanding for each of the three months ended March 31, ~~2019~~2020 and ~~2018, respectively.~~2019.

New Accounting Guidance - Recently Adopted

T~~he FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842~~) in 2016. ASU 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 qualitative 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 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.

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 did not have an effect on our consolidated 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~~legacy 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~~are 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~~We adopted ASC 326 as of January 1, ~~2020. Application of~~2020 using the ~~amendments is through~~modified retrospective method for all financial assets measured at amortized cost, which resulted in a $6 million cumulative-effect adjustment increase to ~~retained earnings as of~~accumulated loss. See Note 5 for our credit losses policy and the ~~effective date. We are currently evaluating the~~adoption impact of ~~adopting this guidance.~~ASC 326 on our consolidated financial statements.

~~In August 2018, the~~

The FASB issued ASU No. 2018-13,Fair Value Measurement ~~(Topic~~, and several subsequent amendments (collectively, Topic 820)~~: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~. in 2018. The ~~new guidance~~standard amends the required quantitative and qualitative disclosure requirements for recurring and nonrecurring fair value ~~measurements by removing, modifying,~~measurements. We adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on our financial statement disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes, to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and ~~adding certain disclosures on fair value measurements in ASC 820. The amendments on~~the recognition of deferred tax liabilities for outside basis differences related to changes in ~~unrealized gains~~ownership of equity method investments and ~~losses,~~foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes, enacted changes in tax laws or rates and clarifies 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~~accounting for ~~only the most recent interim or annual period presented~~transactions that result in a step-up in the ~~initial fiscal year~~tax basis of ~~adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date.~~goodwill. The ~~new guidance will be~~standard is effective for usfiscal years beginning ~~January 1,~~after December 15, 2020 and interim periods within those fiscal years with early adoption permitted. We doadopted this standard effective January 1, 2020. The adoption of this guidance did not ~~plan to early adopt this ASU, and we are currently evaluating the impact of adopting this guidance.~~have a material effect on our consolidated financial statements.

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.

The 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

~~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 above, 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 Social gaming business’ currently available games. Accordingly, and commencing with the effectiveness of the IP License Agreement as of May 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 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 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 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.

The entities 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 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, 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,
	2020		2019
Gaming
Gaming operations	$	119	$	152
Gaming machine sales	92		136
Gaming systems	55		74
Table products	52		60
Total	$	318	$	422

Lottery
Instant products	$	136	$	140
Lottery systems	76		87
Total	$	212	$	227

SciPlay
Mobile	$	101	$	97
Web and other	17		21
Total	$	118	$	118

Digital
Sports and platform	$	38	$	30
Gaming and other	39		40
Total	$	77	$	70

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

The amount of rental income revenue that is outside the scope of ASC 606 was ~~$96~~$74 million and ~~$67~~$96 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Contract Liabilities and Other Disclosures

The following table summarizes the activity in our contract liabilities for the reporting period:


	Three Months Ended March 31,
	2020
Contract liability balance, beginning of period⁽¹⁾	$	109
Liabilities recognized during the period	36
Amounts recognized in revenue from beginning balance	(49)
Contract liability balance, end of period⁽¹⁾	$	96
(1) Contract liabilities are included within Accrued liabilities and Other long-term liabilities in our consolidated balance sheets.

Three Months Ended March 31,
2019
Contract liability balance, beginning of period⁽¹⁾
$ 97
Liabilities recognized during the period 26
Amounts recognized in revenue from beginning balance (22 )
Contract liability balance, end of period⁽¹⁾
$ 101
(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.~~sheets. 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 ~~POS~~percentage of retail sales contracts. Revenue 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~~$19 million and ~~$34~~$23 million in the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The following table summarizes our balances in these accounts for the periods indicated (other than contract liabilities disclosed above):


	Receivables		Contract Assets⁽¹⁾
Beginning of period balance⁽²⁾	$	808	$	121
End of period balance, March 31, 2020	672		133


(1) Contract assets are included primarily within Prepaid expenses, deposits and other current assets in our consolidated balance sheets.
(2) The beginning of period balance excludes the impact of adoption of ASC 326.

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.

As of March 31, ~~2019,~~2020, 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

We report our operations in ~~four~~4 business segments—Gaming, Lottery, ~~Social~~SciPlay and Digital—representing our different products and services. A detailed discussion regarding the products and services from which each reportable business segment derives its revenue is included in Notes 2 and 3 in our ~~2018~~2019 10-K.

In evaluating financial performance, our Chief Operating Decision Maker focuses on AEBITDA as management’s segment measure of profit or loss, which is described in Note 32 in our ~~2018~~2019 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 2019, we changed our calculation of Social business segment AEBITDA beginning with the first quarter of 2019. 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 to Corporate (included in the “Unallocated and Reconciling Items” column in the tables below). Business segment information for the three months ended March 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 ~~2018~~2019 10-K. The following tables present our segment information:


	Three Months Ended March 31, 2020
	Gaming		Lottery		SciPlay		Digital		Unallocated and Reconciling Items⁽¹⁾		Total
Total revenue	$	318	$	212	$	118	$	77	$	—	$	725
AEBITDA	96		78		35		23		(32)		$	200
Reconciling items to consolidated net loss before income taxes:
D&A	(89)		(14)		(2)		(21)		(12)		(138)
Goodwill impairment	(54)		—		—		—		—		(54)
Restructuring and other	(12)		(5)		(1)		(1)		(3)		(22)
EBITDA from equity investments									(7)		(7)
Loss from equity investments									(2)		(2)
Interest expense									(124)		(124)
Gain on remeasurement of debt									10		10
Other expense, net									(4)		(4)
Stock-based compensation									(10)		(10)
Net loss before income taxes											$	(151)


(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.

1413


	Three Months Ended March 31, 2019																			Three Months Ended March 31, 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		Total revenue	$	422	$	227	$	118	$	70	$	—	$	837
AEBITDA	215			104			25			13			(29		)	$	328		AEBITDA	215		104		25		13		(29)		$	328
Reconciling items to consolidated net loss before income taxes:	Reconciling items to consolidated net loss before income taxes:																		Reconciling items to consolidated net loss before income taxes:
D&A	(112		)	(19		)	(2		)	(19		)	(13		)	(165		)	D&A	(112)		(19)		(2)		(19)		(13)		(165)
Restructuring and other	(2		)	—			(1		)	(3		)	(1		)	(7		)	Restructuring and other	(2)		—		(1)		(3)		(1)		(7)
EBITDA from equity investments													(17		)	(17		)	EBITDA from equity investments									(17)		(17)
Earnings from equity investments													6			6			Earnings from equity investments									6		6
Interest expense													(154		)	(154		)	Interest expense									(154)		(154)

Gain on remeasurement of debt													5			5			Gain on remeasurement of debt									5		5
Other expense, net													(2		)	(2		)	Other expense, net									(2)		(2)
Stock-based compensation													(14		)	(14		)	Stock-based compensation									(14)		(14)
Net loss before income taxes																$	(20	)	Net loss before income taxes											$	(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.	(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.																		(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.

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.

(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:


	Three Months Ended March 31,
	2020		2019
Employee severance and related⁽¹⁾	$	18	$	3
Restructuring, integration and other	4		4
Total	$	22	$	7
(1) The three months ended March 31, 2020 includes $14 million in severance and other benefits granted to employees as a result of COVID-19 related austerity measures.

Three Months Ended March 31,
2019 2018
Employee severance⁽¹⁾
$ 3
$ 5
Acquisitions and related costs —
8
Contingent consideration adjustment —
18
Legal and related —
16
Restructuring, integration and other 4
5
Total $ 7
$ 52
(1) Includes employee severance and termination costs associated with restructuring and integration activities.

(5) ~~Accounts and Notes Receivable~~Receivables, Allowance for Credit Losses and Credit Quality of Receivables

~~Accounts~~

Receivables

Receivables are recorded at the invoiced amount less allowance for credit losses and ~~Notes Receivable~~imputed interest, if any. For a portion of our receivables, we have provided extended payment terms with installment payment terms greater than 12 months and in certain international jurisdictions up to 36 months. We have a total of $157 million in gross receivables with extended payment terms as of March 31, 2020. Interest income, if any, is recognized ratably over the life of the receivable, and any related fees or costs to establish the receivables are charged to selling, general and administrative expense as incurred, as they are immaterial. Actual or imputed interest, if any, is determined based on current market rates at the time the receivables with extended payment terms originated and is recorded ratably over the payment period, which approximates the effective interest method. We generally impute interest income on all receivables with payment terms greater than one year that do not contain a stated interest rate. Our general policy is to recognize interest on receivables until a receivable is deemed non-performing, which we define as payments being overdue by 180 days beyond the agreed-upon terms. When a receivable is deemed to be non-performing, the item is placed on non-accrual status and interest income is recognized on a cash basis. Accrued interest, non-performing receivables and interest income were immaterial for all periods presented. Effective January 1, 2020, we changed our receivables presentation and combined accounts receivable and notes receivable into a single line item on our balance sheets due to their similar characteristics and have reclassified the prior period balances to conform to the current year presentation.

The following table summarizes the components of current and long-term ~~accounts~~receivables, net:


	As of
	March 31, 2020		December 31, 2019
Current:
Receivables	$	685	$	791
Allowance for credit losses	(61)		(36)
Current receivables, net	624		755
Long-term:
Receivables	57		53
Allowance for credit losses	(9)		—
Long-term receivables, net	48		53
Total receivables, net	$	672	$	808

Allowance for Credit Losses

As described in Note 1, results for reporting periods effective January 1, 2020 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. We recorded a net increase to accumulated loss of $6 million for the cumulative effect of adopting ASC 326, which was primarily related to incremental allowance for credit losses associated with our current receivables and ~~notes~~contract assets that were not required under previously applicable U.S. GAAP. The adoption impact of this standard to our consolidated statements of operations, balance sheets, and cash flows during the quarter ended March 31, 2020 was not material.

The receivables allowance for credit losses is our best estimate of the amount of expected credit losses in our existing receivables over the contractual term. We evaluate our exposure to credit loss on both a collective and individual basis. We evaluate such receivables on a geographic basis and take into account any relevant available information, which begins with historical credit loss experience and consideration of current and expected conditions and market trends (such as general economic conditions, other microeconomic and macroeconomic considerations, etc.) and reasonable and supportable forecasts that could impact the collectability of such receivables over the contractual term individually or in the aggregate. Changes in circumstances relating to these factors may result in the need to increase or decrease our allowance for credit losses in the future.

We manage our receivable ~~net:~~portfolios using both geography and delinquency as key credit quality indicators. The following summarizes geographical delinquencies of total receivables, net:


	As of
	March 31, 2020		Balances over 90 days past due		December 31, 2019		Balances over 90 days past due
Receivables:
U.S. and Canada	$	456	$	82	$	534	$	65
International	286		63		310		55
Total receivables	742		145		844		120

Receivables allowance:
U.S. and Canada	(29)		(21)		(13)		(8)
International	(41)		(25)		(23)		(23)
Total receivables allowance	(70)		(46)		(36)		(31)
Receivables, net	$	672	$	99	$	808	$	89

Account balances are charged against the allowances after all collection efforts have been exhausted and the potential for recovery is considered remote.

March 31, 2019 December 31, 2018
Current:
Accounts receivable $ 636
$ 615
Notes receivable 127
138
Allowance for doubtful accounts and notes (38 ) (40 )
Current accounts and notes receivable, net $ 725
$ 713
Long-term:
Notes receivable, net of allowance 33
40
Total accounts and notes receivable, net $ 758
$ 753
The activity in our allowance for receivable credit losses for each of the three-month periods ended March 31, 2020 and 2019 is as follows:


	Three Months Ended March 31,
	2020								2019
	Total		U.S. and Canada		International		Total
Beginning allowance for credit losses⁽¹⁾	$	(42)	$	(14)	$	(28)	$	(40)
Provision	(28)		(15)		(13)		(1)
Charge-offs and recoveries	—		—		—		3
Ending allowance for credit losses	$	(70)	$	(29)	$	(41)	$	(38)

(1) Reflects $6 million related to implementation of ASC 326 for the beginning balance of the three months ended March 31, 2020.

At March 31, 2020, 15% of our total receivables, net, were past due by over 90 days compared to 11% at December 31, 2019.

Credit Quality of Receivables

~~The~~

In our Gaming machine sales business, we file UCC-1 financing statements domestically in order to retain a security interest ~~rates~~in the gaming machines that underlie a significant portion of our domestic receivables until the receivable balance is fully paid. However, the value of the gaming machines, if repossessed, may be less than the balance of the outstanding receivable. For international customers, depending on the country and our historic collection experience with the customer, we may obtain pledge agreements, bills of exchange, guarantees, post-dated checks or other forms of security agreements designed to enhance our ability to collect the receivables, although a majority of our international receivables do not have these features. In our Gaming operations business, because we own the Participation gaming machines that are leased or otherwise provided to the customer, in a bankruptcy the customer has to generally either accept or reject the lease or other agreement and, if rejected, our gaming machines are returned to us. Our receivables related to revenue earned on Participation gaming machines and all other revenue sources are typically unsecured claims.

Due to the significance of our gaming machines to the ongoing operations of our casino customers, we may be designated as a key vendor in any bankruptcy filing by a casino customer, which can enhance our position above other creditors in the bankruptcy. Due to our successful collection experience and our continuing relationship with casino customers and their businesses, it is infrequent that we repossess gaming machines from a customer in partial settlement of outstanding ~~receivables bearing interest ranged~~receivable balances. In those unusual instances where repossession occurs to mitigate our exposure on the related receivable, the repossessed gaming machines are subsequently resold in the used gaming machine market; however, we may not fully recover the receivable from 3% to ~~10%~~ ~~at March 31, 2019 and December 31, 2018.~~this re-sale.

We have certain concentrations of outstanding ~~accounts and notes receivable~~receivables in international locations that impact our assessment of the credit quality of ~~those~~our 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 three months ended March 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~~receivables with terms longer than one year are as follows:

•Mexico - Our ~~notes receivable,~~receivables, net, from certain customers in Mexico at March 31, ~~2019~~2020 was ~~$24 million~~.$25 million. We collected $8$7 million of outstanding receivables from these customers during the three months ended March 31, ~~2019.~~

2020.

•Peru - Our ~~notes receivable,~~receivables, net, from certain customers in Peru at March 31, ~~2019~~2020 was ~~$15 million~~.$7 million. We collected $2$1 million of outstanding receivables from these customers during the three months ended March 31, ~~2019.~~

2020.

•Argentina - Our ~~notes receivable,~~receivables, net, from customers in Argentina at March 31, ~~2019~~2020 was ~~$16~~$12 million, which are 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$4 million of outstanding receivables from customers in Argentina during the three months ended March 31, ~~2019.~~

2020.

~~In addition~~

During the first quarter, we increased our allowance for credit losses by $28 million. This increase was primarily related to ~~the macroeconomic~~Gaming customers in Latin America (which transact with both domestic and ~~political factors~~international subsidiaries) as we expect those customers to be particularly affected by COVID-19 closures of gaming operations establishments. As noted above, we ~~also evaluated recent payments,~~have concentrations of receivables ~~aging, any additional security or collateral we had (bills of exchange, pledge agreements, etc.)~~in Latin America, where customers generally take longer to pay us than those from other geographies. In addition, customers in this region expect and ~~other facts~~have often been granted extended payment terms as described above. Our customers in Argentina, Colombia and ~~circumstances relevant~~Peru have been and are expected to ~~our customers' ability~~continue to ~~pay.~~

~~The following summarizes~~be affected by the ~~components of total notes receivable, net:~~

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, 2019, 8%~~COVID-19-related closures 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,gaming operations establishments and the resulting ~~allowance is not determined based~~impact on ~~one~~both their specific ~~methodology taking all factors into consideration. The activity~~financial situations and the general macroeconomic environments in ~~our allowance for notes receivable for each of the~~ ~~three month periods ended March 31, 2019 and 2018 is as follows:~~which they operate.

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~~receivables 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, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair value of ~~notes receivable,~~receivables, net, approximated the carrying value due to contractual terms of ~~notes receivable~~receivables generally being under 24 months.

(6) Inventories

Inventories consisted of the following as of the dates presented below:


	As of
	March 31, 2020		December 31, 2019
Parts and work-in-process	$	149	$	153
Finished goods	99		91
Total inventories	$	248	$	244

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:


	As of
	March 31, 2020		December 31, 2019
Land	$	15	$	15
Buildings and leasehold improvements	127		129
Gaming and lottery machinery and equipment	1,005		1,028
Furniture and fixtures	29		31
Construction in progress	29		30
Other property and equipment	261		263
Less: accumulated depreciation	(992)		(996)
Total property and equipment, net	$	474	$	500

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
	March 31,
	2020		2019
Depreciation expense	$	44	$	58

During the first quarter of ~~March~~2020, we sold certain properties in Chicago that were held for sale as of December 31, 2019 and ~~December 31, 2018, we had $36 million~~received total net proceeds of ~~assets held for sale, which are included within Prepaid expense, deposits and other current assets.~~$22 million.

(8) Intangible Assets, net and Goodwill

Intangible Assets, net

The following tables present certain information regarding our intangible assets as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.


																As of
	March 31, 2019							December 31, 2018								March 31, 2020										December 31, 2019
	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:															Amortizable intangible assets:
Customer relationships	$	1,092	$	(321	)	$	771	$	1,084	$	(299	)	$	785	Customer relationships	$	1,064	$	(398)	$	666	$	1,086	$	(383)	$	703
Intellectual property	935		(485		)	450		931		(453		)	478		Intellectual property	915		(573)		342		931		(563)		368
Licenses	549		(273		)	276		546		(253		)	293		Licenses	563		(361)		202		548		(329)		219
Brand names	124		(62		)	62		123		(59		)	64		Brand names	120		(73)		47		123		(72)		51
Trade names	108		(25		)	83		108		(23		)	85		Trade names	116		(34)		82		116		(31)		85
Patents and other	23		(14		)	9		23		(13		)	10		Patents and other	24		(15)		9		24		(15)		9
	2,831		(1,180		)	1,651		2,815		(1,100		)	1,715
																2,802		(1,454)		1,348		2,828		(1,393)		1,435
Non-amortizable intangible assets:															Non-amortizable intangible assets:
Trade names	96		(2		)	94		96		(2		)	94		Trade names	83		(2)		81		83		(2)		81
Total intangible assets	$	2,927	$	(1,182	)	$	1,745	$	2,911	$	(1,102	)	$	1,809	Total intangible assets	$	2,885	$	(1,456)	$	1,429	$	2,911	$	(1,395)	$	1,516

The following reflects intangible amortization expense included within D&A:

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


	Three Months Ended
	March 31,
	2020		2019
Amortization expense	$	65	$	77

Goodwill

Legacy U.K. Gaming Impairment Charge

We test goodwill for impairment annually as of October 1 of each fiscal year or more frequently if events arise or circumstances change that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value.

~~In conjunction with integrating~~

A substantial portion of our ~~recent Digital acquisitions, the implementation of ERP systems~~legacy U.K. Gaming reporting unit revenue comes from Ladbrokes Coral Group (acquired by GVC Holdings PLC in March 2018), which operates LBOs in the ~~Digital segment and recent management changes, during~~U.K. In May 2018, the ~~first quarter~~U.K. government published its decision mandating that the maximum stakes limit on fixed-odds betting terminals be reduced from £100 to £2, which was effective as 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.April 1, 2019. As a result of this change, LBO operators began to rationalize their retail operations, which among other measures has included closure of certain LBO shops. Consequently, as of October 1, 2019, we ~~now have ten reporting units: Instant Products, U.S. Lottery Systems, International Lottery Systems, SG Gaming,~~concluded that an elevated risk of goodwill impairment existed for our legacy U.K. Gaming ~~Casino Management Systems, Table Products, Social~~reporting unit as adverse changes in projections for future operating results or other key assumptions, such as projected revenue, profit margin, capital expenditures or cash flows associated with investments included in that reporting unit could lead to future goodwill impairments.

During the first quarter of 2020, the COVID-19 disruptions resulted in the widespread closures of LBO shops across the U.K., which, along with global economic uncertainty, contributed to further deterioration in business conditions from our 2019 annual goodwill test date. This had an adverse effect on our legacy U.K. Gaming ~~Digital Sports~~reporting unit, which necessitated performing a quantitative goodwill impairment test during the first quarter of 2020.

We performed this quantitative impairment test by comparing the fair value of our legacy U.K. Gaming reporting unit to its carrying value, including goodwill. As described in further detail below, the fair value of our legacy U.K. Gaming reporting unit was determined using a combination of both an income approach, based on the present value of discounted cash flows, and ~~Platform~~a market approach. Due to current market volatility and ~~Digital~~limited market data points specific to the nature of our legacy U.K. Gaming reporting unit operations, we placed greater weight on the income approach than on the market approach. As a result of this analysis, during the first quarter of 2020 we recognized a partial impairment charge totaling $54 million,

which is the amount by which the carrying value exceeded the estimated fair value. This impairment charge resulted in no tax benefit.

We used projections of revenues, profit margin, operating costs, capital expenditures and ~~Other.~~cash flows that primarily considered general economic and market conditions and estimated future results including the estimated impact of the COVID-19 disruptions. We used a range of different scenarios and derived estimated fair value based on an equal weighting of these scenarios to reflect the economic uncertainty resulting from the COVID-19 disruptions and the timing and magnitude of the economic recovery following the COVID-19 disruptions coupled with the impact of the regulatory change. The following ranges of the key estimates and assumptions were used in the discounted cash flow analysis:

•Revenue growth for FY 2021 between negative 9% and negative 20%, an average revenue growth for FY 2022 to FY 2027 between positive 3% and positive 5%, and terminal revenue growth rate of positive 2.0%;

•An average profit margin ranging from 13% to 23%;

•Assumptions regarding future capital expenditures reflective of maintaining our current customer contracts; and

•An overall discount rate ranging from 8.5% to 10.0%.

In our market comparable analysis, we considered revenue and EBITDA multiples ranging from 2.1x to 2.7x and 5.7x to 7.5x, respectively, and ultimately selected multiples at the low end of the range.

The legacy U.K. Gaming reporting unit is included in our Gaming business segment.

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

December 31, ~~2018~~2019 to March 31, ~~2019.~~2020.


	Gaming⁽¹⁾		Lottery		SciPlay		Digital		Totals
Balance as of December 31, 2019	$	2,449	$	349	$	115	$	367	$	3,280
Impairment	(54)		—		—		—		(54)
Foreign currency adjustments	(33)		(5)		—		(26)		(64)
Balance as of March 31, 2020	$	2,362	$	344	$	115	$	341	$	3,162

(1) Accumulated goodwill impairment charges for the Gaming segment as of March 31, 2020 were $989 million.

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:


	As of
	March 31, 2020		December 31, 2019
Software	$	1,184	$	1,173
Accumulated amortization	(936)		(915)
Software, net	$	248	$	258

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
March 31,
2019
2018
Amortization expense $ 30
$ 39


	Three Months Ended
	March 31,
	2020		2019
Amortization expense	$	29	$	30

(10) Equity Investments

Equity investments totaled ~~$296~~$263 million and ~~$298~~$273 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. We received distributions and dividends totaling $7$4 million and $3 $7 million during the three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively.

(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 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 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.~~

Outstanding Debt and Finance Leases

The following table reflects our outstanding debt:


	As of															As of
	March 31, 2019											December 31, 2018				March 31, 2020																	December 31, 2019
	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:															Senior Secured Credit Facilities:
Revolver, varying interest rate	2020	variable		$	190	$	—		$	190		$	325
Term Loan B-5	2024	variable		4,133		(69		)	4,064			4,071
Senior Notes:
SGI Revolver															SGI Revolver	2024		variable				$	155		$	—		$	155		$	195
SGI Term Loan B-5															SGI Term Loan B-5	2024		variable				4,091			(57)			4,034			4,042
SciPlay Revolver															SciPlay Revolver	2024		variable				—			—			—			—
SGI Senior Notes:															SGI Senior Notes:
2025 Secured Notes⁽²⁾⁽¹⁾	2025	5.000	%	1,250		(17		)	1,233			1,233			2025		5.000	%		1,250				(14)			1,236			1,235
2026 Secured Euro Notes⁽³⁾⁽²⁾	2026	3.375	%	367		(5		)	362			367			2026		3.375	%		356				(4)			352			359
2022 Unsecured Notes⁽⁴⁾	2022	10.000	%	2,200		(22		)	2,178			2,176
2026 Unsecured Euro Notes⁽³⁾	2026	5.500	%	282		(4		)	278			282
2026 Unsecured Euro Notes⁽²⁾															2026 Unsecured Euro Notes⁽²⁾	2026		5.500	%			274			(4)			270			276
2026 Unsecured Notes	2026	8.250	%	1,100		(16		)	1,084			—			2026 Unsecured Notes	2026		8.250	%			1,100			(14)			1,086			1,085
Subordinated Notes:
2020 Notes	2020	6.250	%	244		(1		)	243			242
2028 Unsecured Notes															2028 Unsecured Notes	2028		7.000	%			700			(10)			690			690
2029 Unsecured Notes															2029 Unsecured Notes	2029		7.250	%			500			(7)			493			493
SGI Subordinated Notes:															SGI Subordinated Notes:
2021 Notes	2021	6.625	%	341		(3		)	338			337			2021 Notes	2021		6.625	%			341			(2)			339			339
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 March 31, 2020 payable monthly through 2023 and other⁽³⁾															Finance lease obligations as of March 31, 2020 payable monthly through 2023 and other⁽³⁾	2023		4.652	%			10			—			10			11
Total long-term debt outstanding				$	10,120	$	(137	)	$	9,983		$	9,037		Total long-term debt outstanding							$	8,777		$	(112)		$	8,665		$	8,725
Less: current portion of long-term debt⁽⁴⁾									(1,046		)	(45		)													(45)			(45)
Long-term debt, excluding current portion									$	8,937		$	8,992		Long-term debt, excluding current portion													$	8,620		$	8,680
Fair value of debt⁽¹⁾⁽⁴⁾				$	10,197															$	6,631

(1) In connection with the February 2018 Refinancing (see Note 15 in our 2019 Form 10-K), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting $460 million of the 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 average interest rate of approximately 2.946%. These cross-currency swaps have been designated as a hedge of our net investment in certain subsidiaries.															(1) In connection with the February 2018 Refinancing (see Note 15 in our 2019 Form 10-K), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting $460 million of the 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 average interest rate of approximately 2.946%. These cross-currency swaps have been designated as a hedge of our net investment in certain subsidiaries.
(2) 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 $82 million, of which a $10 million gain was recognized on remeasurement of debt in the Consolidated Statements of Operations for the three months ended March 31, 2020.															(2) 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 $82 million, of which a $10 million gain was recognized on remeasurement of debt in the Consolidated Statements of Operations for the three months ended March 31, 2020.
(3) Includes $8 million related to certain revenue transactions presented as debt in accordance with ASC 470.															(3) Includes $8 million related to certain revenue transactions presented as debt in accordance with ASC 470.
(4) 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.															(4) 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.

Maturities for our outstanding debt were as follows as 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 million, of which a $5 million gain was recognized on remeasurement of debt in the Consolidated Statements of Operations and Comprehensive Loss for the three months ended 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.~~


Due	Total Principal Due		Series of Debt	Principal Due per Series of Debt
Remainder of 2020	$	31	Term Loan B-5	$	31
2021	383		Term Loan B-5	42
						2021 Notes		341
2022	42		Term Loan B-5	42
2023	42		Term Loan B-5	42
2024	4,089		Term Loan B-5	3,934
						Drawn Revolving Credit Facility		155
2025 and beyond	4,180		2025 Secured Notes	1,250
				2026 Secured Euro Notes			274
				2026 Unsecured Euro Notes			356
				2026 Unsecured Notes			1,100
				2028 Unsecured Notes			700
				2029 Unsecured Notes			500

We were in compliance with the financial covenants under all debt agreements as of March 31, ~~2019.~~2020 (see Note 1 for more detailed disclosure, including the amendment to SGI’s revolving credit facility).

For additional information regarding the terms of our credit ~~agreements,~~facilities, Secured Notes, Unsecured Notes and ~~Subordinated~~the 2021 Notes, see Note 1615 in our ~~2018~~2019 10-K.

~~Loss on Debt Financing Transactions~~

~~The following are components of the loss on debt financing transactions resulting from debt extinguishment and modification accounting for three months ended March 31, 2019 and 2018:~~

(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,~~receivables, 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, ~~2019,~~2020, we held the following derivative instruments that were accounted for pursuant to ASC 815:

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, ~~2019.~~2020. 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~~gain (loss) and interest expense recognized on our interest rate swap contracts:

We do ~~not~~0t 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:~~operations:

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

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. 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:

Interest rate swaps ⁽¹⁾⁽³⁾

Cross-currency interest rate swaps ⁽²⁾⁽³⁾

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

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~~prior 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, ~~2019 and December 31, 2018 were $45~~2020 are $10 million of which ~~$22~~$3 million is included in Accrued liabilities with the remainder included in Other long-term liabilities. Contingent consideration liabilities as of ~~March~~December 31, 2019 iswere $14 million of which $7 million was included in Accrued 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 March 31, 2019.~~

(13) Stockholders’ Deficit

Changes in Stockholders’ Deficit

The following tables present certain information regarding our stockholders' deficit as of March 31, ~~2019~~2020 and March 31, ~~2018.~~2019.

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:

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,~~2020, we maintain a valuation allowance for certain of our U.S. operations as of March 31, ~~2019.~~2020. We ~~maintained~~also maintain other valuation allowances for certain non-U.S. jurisdictions with cumulative losses.

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 months ended March 31, 2020 and 2019 ~~and 2018~~ were $9$8 million and $7$9 million, respectively. The total amount of variable and short term lease payments incurred during the three months ended March 31, ~~2019~~2020 are immaterial.

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

Operating lease right-of-use assets⁽¹⁾

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:

We are involved in various routine and other specific legal proceedings, including the following which are described in Note 2221 within our ~~2018~~2019 10-K: the Colombia litigation, SNAI litigation, Washington State Matter and ~~the~~ Raqqa Matter. There have been no material changes to these matters since the ~~2018~~2019 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 $4$3 million for all of our legal matters that were contingencies as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

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 2221 in our ~~2018~~2019 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~~$13 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,~~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.~~SG Gaming. 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. On March 20, 2020, the district court ~~has set a status hearing for May 8, 2019~~denied the defendants’ motion to ~~discuss~~dismiss the ~~matter further. Due to~~plaintiffs’ amended complaint, and the ~~early nature of this litigation, we~~case is proceeding. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible loss.

SciPlay IPO Matter (New York)

On or about October 14, 2019, the Police Retirement System of St. Louis filed a putative class action complaint in New York state court against SciPlay, certain of its executives and directors, and SciPlay’s underwriters with respect to its initial public offering (the “PRS Action”). The complaint was amended on November 18, 2019. The plaintiff seeks to represent a class of all persons or entities who acquired Class A common stock of SciPlay pursuant and/or traceable to the Registration Statement filed and issued in connection with SciPlay’s initial public offering, which commenced on or about May 3, 2019. The complaint asserts claims for alleged violations of Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77, and seeks certification of the putative class; compensatory damages of at least $146 million, and the award of the plaintiff’s and the class’s reasonable costs and expenses incurred in the action.

On or about December 9, 2019, Hongwei Li filed a putative class action complaint in New York state court asserting substantively similar causes of action under the Securities Act of 1933 and substantially similar factual allegations as those alleged in the PRS Action (the “Li Action”). On December 18, 2019, the New York state court entered a stipulated order consolidating the PRS Action and the Li Action into a single lawsuit. On December 23, 2019, the defendants moved to dismiss the consolidated action.

We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible loss, if any. We believe that the claims in the lawsuit are without merit, and intend to vigorously defend against them.

On October 23, 2019, Sylebra Capital Partners Master Fund, Limited and P Sylebra, Limited (together, “Sylebra”) filed a complaint in Delaware Chancery Court against SGC, SG Gaming, Inc., and certain of SGC’s current and former executives and directors. The complaint asserts claims for alleged breaches of fiduciary duty and alleged aiding and abetting of such alleged breaches of fiduciary duty; for alleged unjust enrichment; for alleged anticipatory breach of Sylebra’s alleged rights under SGC’s prior Restated Certificate of Incorporation (“prior Charter”) and for alleged breach of that prior Charter; for alleged violations of certain Delaware statutes; and for alleged tortious interference with contract. The complaint seeks injunctive relief, declaratory relief, money damages, and the award of the plaintiffs’ costs and expenses incurred in the action. On December 20, 2019, the defendants filed a motion to dismiss Sylebra’s complaint. In response, on January 27, 2020, Sylebra filed an amended complaint, and on February 28, 2020, the defendants filed a motion to dismiss Sylebra’s amended complaint. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit, and intend to vigorously defend against them.

SciPlay IPO Matter (Nevada)

On or about November 4, 2019, plaintiff John Good filed a putative class action complaint in Nevada state court against SciPlay, certain of its executives and directors, SGC, and SciPlay’s underwriters with respect to SciPlay’s initial public offering. The plaintiff seeks to represent a class of all persons who purchased Class A common stock of SciPlay in or traceable to SciPlay’s initial public offering that it completed on or about May 7, 2019. The complaint asserts claims for alleged violations of Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77, and seeks certification of the putative class; compensatory damages, and the award of the plaintiff’s and the class’s reasonable costs and expenses incurred in the action. On February 27, 2020, the trial court entered a stipulated order that, among other things, stayed the lawsuit pending entry of an order resolving the motion to dismiss that is pending in the SciPlay initial public offering matter in New York state court. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit, and intend to vigorously defend against them.

For additional information regarding our pending litigation matters, see Note 2221 in our ~~2018~~2019 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, 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, 2019 and December 31, 2018 and for the three months ended March 31, 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.

~~SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES~~

~~SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET~~

~~As of March 31, 2019~~

Other assets⁽²⁾

~~SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES~~

~~SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET~~

~~As of December 31, 2018~~

~~SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES~~

~~SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF~~

~~OPERATIONS AND COMPREHENSIVE (LOSS) INCOME~~

~~Three Months Ended March 31, 2019~~

Cost of services, cost of product sales and cost of instant products⁽²⁾

~~SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES~~

~~SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF~~

~~OPERATIONS AND COMPREHENSIVE INCOME (LOSS)~~

~~Three Months Ended March 31, 2018~~

Cost of services, cost of product sales and cost of instant products ⁽²⁾

~~SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES~~

~~SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~Three Months Ended March 31, 2019~~

~~SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES~~

~~SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~Three Months Ended March 31, 2018~~

Item 2. MANAGEMENT’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 Consolidated Financial Statements” and Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and under Part I, Item 1 “Business,” and Item 1A “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~2018~~2019 10-K.

This “Management's Discussion and Analysis of Financial Condition and Results of Operations” (“MD&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” and “Risk Factors” included in this Quarterly Report on Form 10-Q and “Risk Factors” included in our ~~2018~~2019 10-K. As used in this MD&A, the terms “we,” “us,” “our” and the “Company” mean ~~Scientific Games Corporation~~SGC together with its consolidated subsidiaries.

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 products, lottery systems and lottery content and services to lottery operators; providing social casino solutions to retail consumers; and providing a comprehensive suite of digital RMG and sports wagering solutions, distribution platforms, content, products and services.

Recent Events — Impact of COVID-19

OnIn March ~~19, 2019,~~2020, the World Health Organization declared the rapidly spreading COVID-19 outbreak a pandemic. In response to the COVID-19 pandemic, governments across the world implemented measures to prevent its spread including the temporary closure of all non-essential businesses and travel restrictions, which are affecting our business segments in a number of ways. These measures include, but are not limited to, the temporary closure of a substantial amount of gaming operations establishments and disruptions to lottery operations on a jurisdiction-by-jurisdiction basis.

Impact on Business Operations and Financial Results

Our Gaming business is especially impacted due to the widespread temporary closures of a substantial number of gaming operations establishments coupled with the global economic uncertainty. Our Participation gaming business revenue and cash flows have been significantly affected, as they are largely driven by players’ disposable incomes and level of gaming activity, along with an impact on short-term rentals of both gaming equipment and table products. As the level of play declines due to casino closures or quarantines (whether self-imposed or imposed by governments), there is a directly correlated decline in our Participation gaming business. Additionally, our gaming machine and table product sales largely depend on our customers’ liquidity and operating results, which could significantly impact the replacement cycle and demand for gaming machines, table products and opportunities from new or expanded markets. Further, we ~~completed~~have granted customer concessions for a ~~private offering of $1,100 million~~portion of the ~~2026 Unsecured Notes. We used~~time for which such customers’ operations were impacted by closures or quarantines. Also, based on historical gaming customers’ orders and our manufacturing capacity, a substantial portion of gaming machine sales are fulfilled in the ~~net proceeds~~third month of each quarter. Accordingly gaming machine sales revenues were particularly impacted beginning in the later part of the ~~2026 Unsecured Notes offering~~first quarter.

Our Lottery business was also affected as certain lottery retail establishments are temporarily closed and others are experiencing the general slowdown due to ~~redeem $1,000 million~~lower foot traffic and reduced spending by end players, resulting in a lower level of lottery ticket purchases, which most immediately impacts certain of our ~~outstanding 2022 Unsecured Notes,~~European markets due to lock-down and our SGEP revenue and cash flows and also our cash flows from POS instant tickets arrangements as such amounts are not payable to us until the ticket sells through the retail channel.

The temporary closure of gaming operations, disruptions to lottery operations, travel restrictions, cancellation of sporting events, expected lower disposable incomes of consumers and adverse impact on our casino and gaming customers’ liquidity and financial results caused by the COVID-19 pandemic, had and continues to have an adverse effect on our results of operations, cash flows and financial condition into the second quarter and potentially into the second half of 2020 and beyond.

We are unable to determine the ultimate magnitude and the length of time that these disruptions will continue to impact our future results of operations, cash flows and financial condition, which ~~redemption was completed~~will depend, among other factors, on ~~April 4, 2019. The 2026 Unsecured Notes offering allowed us~~the currently unknowable duration of the COVID-19 pandemic, the impact of governmental regulations and actions that might be imposed in response to ~~extend~~ the ~~maturity~~pandemic and the pace of ~~$1,000~~overall recovery of gaming and lottery operations globally. We have

implemented a number of measures to reduce operating costs and conserve liquidity. These include measures such as: reductions in both salaries and workforce, including voluntary 50% or greater reductions in salaries by our executive leadership team (100% as to our President and Chief Executive Officer), unpaid employee furloughs, temporary elimination of 401(k) matching among other compensation and benefits reductions and deferral of all non-essential operating and capital expenditures. We are also engaging with our vendors to negotiate concessions on the timing and amount of payments to preserve liquidity through the COVID-19 disruption period. These measures are expected to result in more than $50 million in cost savings in the second quarter of ~~our debt from 2022~~2020, while capital expenditures in the second quarter of 2020 are expected to ~~2026 and reduce expected~~be approximately $50 million lower than previously planned, with many of these actions resulting in a lower future ~~cash paid for interest.~~cost structure.

On May ~~7, 2019,~~8, 2020, SGC and the requisite lenders under SGI’s revolving credit facility entered into the Credit Agreement Amendment that, among other things, implements a financial covenant relief period through the end of the first quarter ending March 31, 2021 (the “Covenant Relief Period”), as a result of which SGI is not required to maintain compliance with the consolidated net first lien leverage ratio covenant during the Covenant Relief Period, imposes a minimum liquidity requirement (excluding SciPlay) of at least $275 million during the Covenant Relief Period, with a potential step-down to at least $200 million for April and May 2021, and further restricts our ability to incur indebtedness and liens, make restricted payments and investments and prepay junior indebtedness during the Covenant Relief Period, subject to certain exceptions and further subject, in some instances, to maintaining minimum liquidity (excluding SciPlay) of at least $400 million. See Note 1 for additional details regarding the Credit Agreement Amendment.

Our results are impacted by changes in foreign currency exchange rates used in the translation of foreign functional currencies into USD and the remeasurement 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:


	Three Months Ended
	March 31,
	2020						2019
($ in millions)	Revenue		% Consolidated Revenue		Revenue		% Consolidated Revenue
Foreign Currency:
British Pound Sterling	$	85	12	%	$	85	10	%
Euro	63		9	%	56		7	%
Australian Dollar	19		3	%	16		2	%

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” under Part II, Item 1A in this Quarterly Report on Form 10-Q and Part I, Item 1A in our 2019 10-K and “Consolidated Results — Other Factors Affecting ~~2018, 2017~~2019 and ~~2016~~2018 Net Loss Comparability— Foreign exchange” under Item 7 in our ~~2018~~2019 10-K and Item 3 “Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q.

~~Gaming~~Cost of revenue decreased primarily as a result of lower Gaming and Lottery cost of revenue correlated with a decrease in revenue due to ~~lower gaming operations revenue coupled with lower gaming machine sales. The decrease~~the COVID-19 disruptions described above. Additionally, cost of product sales includes approximately $9 million in ~~gaming operations was~~Gaming segment inventory write down primarily due to ~~the lower U.S. and Canadian ending installed base units coupled with lower average daily revenue for International units, while the~~a forecasted decrease in ~~gaming machine sales was primarily due~~demand for certain platforms as we believe that our customers will extend replacement cycles to ~~lower international unit sales coupled with lower average sales price per new unit.~~preserve their liquidity following their return to operations post COVID-19.

~~Social revenue increased primarily due to continued growth in our mobile platform business, reflecting the ongoing popularity of~~ ~~Jackpot Party~~^®~~Casino, MONOPOLYSlots, Bingo Showdown~~^®, ~~88 Fortunes~~^®, ~~and~~ ~~Quick Hit~~^® ~~Slots~~.

~~Operating expenses~~

~~Total cost of revenue~~SG&A increased primarily due to a $9$28 million increase in ~~Social~~Gaming business ~~cost of services, which is correlated with Social business revenue growth.~~

~~The increase inSG&A is primarily~~segment allowance for credit losses that reflects forecasted credit deterioration due to ~~higher Social business~~the COVID-19 disruptions generally and credit weakness specifically in our Latin America receivables portfolio, which was partially offset by $7 million in lower incentive compensation and $6 million in lower SciPlay SG&A ~~driven by higher~~due to lower marketing and advertising costs associated with player ~~acquisition costs to support ongoing growth initiatives.~~acquisitions.

The decrease in D&A was primarily due to certain Gaming ~~segment acquired~~ intangible assets and software becoming fully ~~depreciated~~amortized during ~~the first quarter of 2018 and a $19 million~~2019.

Goodwill impairment ~~charge related to assets held for sale~~ recorded during the ~~first~~ quarter ~~of 2018.~~was related to our legacy U.K. Gaming reporting unit (see Note 8).

The ~~decrease~~increase in ~~Restructuring~~restructuring and other is primarily due ~~to: (1) an $18 million non-cash fair value contingent consideration remeasurement charge in 2018~~to severance and related charges associated with COVID-19 disruptions (see Note 12); (2) a $15 million legal reserve for the Shuffle Tech legal matter in 2018; and (3) $8 million in NYX related acquisition costs in 2018, with no such comparable expenses in the current-year period.4).

Other Factors Affecting Net Loss ~~Comparability~~Attributable to SGC

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

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

American casinos, wide-area gaming operators such as licensed betting offices, ~~(“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 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~~proprietary table game 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 Segment Results” under Item 7 of our ~~2018~~2019 10-K.

~~We expect to continue to face pricing pressure in~~See the “Recent Events – Impact of COVID-19”section above for a description of the COVID-19 impact on our Gaming business ~~segment. We~~segment, which had an adverse effect on our results of operations and cash flows in the first quarter and is continuing into the second quarter and potentially into the second half of 2020 and beyond. In addition to the adverse effect of COVID-19, we anticipate ~~that replacement demand for~~challenges in our gaming ~~machines~~operations as corporate consolidations continue and ~~constraints on capital spending by gaming operators will continue at current levels. We anticipate that demand for~~decline in our gaming systems products and services ~~will remain at a constant level~~ due to ~~several~~certain large Canadian contracts ~~and related new systems implementations anticipated~~that were completed in 2019.

Three Months Ended March 31, 2020 Compared to continue throughout 2019; however, timing can fluctuate based on timing of installations of the systems. We believe we have begun to stabilize the erosion in the installed base of our Participation gaming machines. During the first quarter ofThree Months Ended March 31, 2019 ~~we deployed the~~ ~~Twinstar~~^® ~~Wave XL~~ ~~as an addition to our 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~~


	Three Months Ended March 31,					Variance						Three Months Ended March 31,						Variance
($ in millions)	2019			2018		2019 vs. 2018					($ in millions)	2020		2019		2020 vs. 2019
Revenue:											Revenue:
Gaming operations	$	152		$	161	$	(9	)	(6	)%	Gaming operations	$	119	$	152	$	(33)	(22)	%
Gaming machine sales	136			145		(9		)	(6	)%	Gaming machine sales	92		136		(44)		(32)	%
Gaming systems	74			75		(1		)	(1	)%	Gaming systems	55		74		(19)		(26)	%
Table products	60			62		(2		)	(3	)%	Table products	52		60		(8)		(13)	%
Total revenue	$	422		$	443	$	(21	)	(5	)%	Total revenue	$	318	$	422	$	(104)	(25)	%

F/X impact on revenue	$	(4	)	$	9						F/X impact on revenue	$	(1)	$	(4)	$	3	(75)	%

KPIs:											KPIs:
U.S. and Canadian units⁽¹⁾:
U.S. and Canada units:											U.S. and Canada units:
Installed base at period end	32,958			35,336		(2,378		)	(7	)%	Installed base at period end	30,469		32,958		(2,489)		(8)	%
Average daily revenue per unit	$	38.46		$	38.39	$	0.07		—	%	Average daily revenue per unit	$	31.28	$	38.46	$	(7.18)	(19)	%

International units⁽¹⁾:											International units⁽¹⁾:
Installed base at period end	33,950			33,075		875			3	%	Installed base at period end	34,372		33,950		422		1	%
Average daily revenue per unit	$	11.43		$	12.33	$	(0.9	)	(7	)%	Average daily revenue per unit	$	8.23	$	11.43	$	(3.20)	(28)	%

Gaming machine unit sales:											Gaming machine unit sales:
U.S. and Canadian new unit shipments	4,801			4,667		134			3	%
U.S. and Canada new unit shipments											U.S. and Canada new unit shipments	2,890		4,801		(1,911)		(40)	%
International new unit shipments	2,083			2,201		(118		)	(5	)%	International new unit shipments	2,003		2,083		(80)		(4)	%
Total new unit shipments	6,884			6,868		16			—	%	Total new unit shipments	4,893		6,884		(1,991)		(29)	%
Average sales price per new unit	$	17,140		$	17,722	$	(582	)	(3	)%	Average sales price per new unit	$	15,872	$	17,140	$	(1,268)	(7)	%
(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) Excludes the impact of game content licensing revenue.											(1) Excludes the impact of game content licensing revenue.

All of our Gaming revenue was negatively impacted by the COVID-19 disruptions that resulted in temporary closures of a substantial number of gaming operations establishments in various jurisdictions globally, as described in the “Recent Events – Impact of COVID-19”section above.

Gaming Operations

Gaming operations revenue decreased due to a 2,489-unit decrease in the installed base in the U.S. and Canada coupled with decreases in both U.S. and Canada and International average daily revenues of $7.18 per unit and $3.20 per unit, respectively, largely due to the COVID-19 disruptions described above. These decreases were partially offset by a 422-unit increase in the International installed base primarily due to ~~a 2,378-unit decrease~~higher installed units in the ~~ending installed base of U.S.~~Latin America and ~~Canadian units coupled with a decrease in average daily revenue for International units. This decrease~~Europe regions, which was partially offset by ~~an 875-unit increase~~a decrease in the ~~ending~~U.K. installed ~~base for International~~ units ~~and an increase in~~due to the ~~average daily revenue for U.S. and Canadian units.~~closure of the LBO shops.

Gaming Machine Sales

Gaming machine sales revenue decreased ~~primarily~~ due to ~~lower international units~~a 1,911-unit decrease in U.S. and Canada new unit shipments ~~resulting from fewer casino openings and expansions during the period~~ coupled with a $1,268 decrease in the average sales price per unit ~~reflecting a less favorable mix~~primarily due to the impact 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.~~ COVID-19 as described above.

The following table summarizes Gaming machine sales changes:

3732


								Three Months Ended March 31,			Variance
	Three Months Ended March 31,		Variance					2020	2019	2020 vs. 2019
	2019	2018	2019 vs. 2018
U.S. and Canadian unit shipments:
U.S. and Canada unit shipments:							U.S. and Canada unit shipments:
Replacement units	3,194	3,743	(549	)	(15	)%	Replacement units	1,744	3,194	(1,450)	(45)	%
Casino opening and expansion units	1,607	924	683		74	%	Casino opening and expansion units	1,146	1,607	(461)	(29)	%
Total unit shipments	4,801	4,667	134		3	%	Total unit shipments	2,890	4,801	(1,911)	(40)	%

International unit shipments:							International unit shipments:
Replacement units	2,083	1,940	143		7	%	Replacement units	1,827	2,083	(256)	(12)	%
Casino opening and expansion units	—	261	(261	)	(100	)%	Casino opening and expansion units	176	—	176	nm
Total unit shipments	2,083	2,201	(118	)	(5	)%	Total unit shipments	2,003	2,083	(80)	(4)	%
nm = not meaningful.							nm = not meaningful.

The increase in operating expenses and decrease in AEBITDA and AEBITDA as a percentage of revenue (“AEBITDA margin”) are primarily attributable to the COVID-19 disruptions described in the “Recent Events – Impact of COVID-19” section, resulting in a significant decrease in revenue. Operating expenses ~~decreased primarily~~for the current period also reflect a $54 million goodwill impairment charge, a $28 million increase in allowance for credit losses that reflects forecasted credit deterioration due to the COVID-19 disruptions and in particular the worsening of the expected credit position in our Latin America receivables portfolio, a $9 million charge to cost of products due to a ~~$15 million~~ decrease in ~~cost of revenue correlated with the lower unit shipments coupled with~~anticipated demand for certain platforms, and a ~~$27~~$10 million increase in restructuring and other charges, which was partially offset by a $23 million reduction in D&A as a result of certain acquired intangible assets becoming fully depreciated during ~~2018 and a $19 million assets held for sale impairment charge recorded during the first quarter of 2018.~~

AEBITDA margin decreased ~~primarily as a result of lower revenue while AEBITDA as a percentage of revenue (“AEBITDA margin”) increased~~ by 221 percentage points ~~as a result of a more profitable business mix and improved operating leverage.~~to 30%.

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, 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~~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 Segment Results” under Item 7 of our ~~2018~~2019 10-K.

WeSee “Recent Events – Impact of COVID-19”section above for a description of the COVID-19 impact on our Lottery business segment, which had and will have an adverse effect on our results of operations and cash flows continuing into the second quarter and potentially into the second half of 2020 and beyond. In addition to the adverse effect of COVID-19, we believe we will continue to face intense price-based competition in our Lottery business in ~~2019.~~2020 and beyond. 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,~~requests for proposals, 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.

OnThree Months Ended March 4,31, 2020 Compared to Three Months Ended March 31, 2019 we won a 10-year sports betting joint-venture contract to be the primary supplier and service provider to Turkey, Europe’s largest state-sponsored sports betting market and among the top three in the world in sales.

Results of Operations and Key Performance Indicators ~~for Lottery~~

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

~~Operating expenses increased~~is primarily due to ~~higher cost of revenue on hardware sales, which drove the revenue increase.~~

~~AEBITDA~~lower domestic equipment sales.

InWe generate revenue in our ~~Social~~SciPlay business ~~we generate substantially all of our revenue~~segment from the sale of virtual coins, chips and bingo cards (collectively referred to as “coins, chips and cards”), which players can use to play casino-style slot games, table games orand bingo games (i.e., spin in the case of casino-style slot games, bet in the case of table games and use of bingo cards in the case of bingo games). We distribute our games through various global social web and mobile platforms such as Facebook, Apple, Google and Amazon, with some of our games available on Microsoft and other web and mobile platforms. The games are primarily our WMS^®, Bally^®, Barcrest^®, and SHFL^®~~, Dragonplay~~^® ~~and~~ ~~Bingo Showdown~~ branded games. We offer both third-party branded games and original content. ~~Substantially all of our Social revenue is comprised of B2C transactions.~~

Our apps include Jackpot Party^® Casino, Gold Fish^®Casino, Quick Hit^® Slots, Hot Shot Casino^®, Bingo Showdown^TM, 88 Fortunes^®, and MONOPOLY Slots on various platforms ~~which include,~~ ~~Facebook~~, ~~Apple~~, ~~Google, and~~ ~~Amazon~~.referenced above.

~~We continue~~While the COVID-19 disruptions did not materially affect SciPlay’s first quarter 2020 results (see the “Recent Events – Impact of COVID-19”section above), sustained consumer unease, lower discretionary spending and shelter-in-place orders may impact SciPlay’s results of operations in the second quarter of 2020 and beyond. Many of SciPlay’s current and potential players may have significantly more free time to ~~pursue our multi-product strategy~~play games, however they may also experience sustained consumer unease and have lower discretionary income. Beginning late March, we have experienced increased player engagement as a result of the stay at home measures across U.S.

During the first quarter of 2020, SciPlay deployed significant updates across a number of its portfolio games, and SciPlay continues testing in ~~our Social gaming business. On May 7,~~certain international markets in order to position itself for international expansion. SciPlay expects to begin deployment of updates across the rest of the games starting in the third quarter of 2020.

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019 ~~we completed an initial public offering of a 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~~

Three Months Ended
March 31, Variance
($ in millions) 2019 2018 2019 vs. 2018
Total revenue $ 118
$ 97
$ 21
22 %
Operating expenses 98
100
(2 ) (2 )%
AEBITDA 25
23
2
9 %

Mobile Penetration⁽¹⁾

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.

Mobile platform revenue increased primarily due to the ongoing popularity of Jackpot PartyCasino ~~MONOPOLYSlots, Bingo Showdown, 88 Fortunes,~~ and ~~Quick Hit~~ MONOPOLYSlots ~~which collectively represented substantially all of the revenue increase.~~. Web platform ~~and other~~ revenue decreased due to a decline in player levels as a result of player ~~preferences causing a continued~~ migration to mobile ~~platforms~~platforms.

which are reflected in increases in AEBITDA ~~increased primarily due to continued growth in revenue partially offset by higher SG&A as described above.~~and AEBITDA margin. AEBITDA margin ~~declined by 2~~increased 8 percentage points ~~primarily due~~ to ~~higher marketing and player acquisition costs described above.~~

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

Digital revenue consists of professional services related to highly ~~customizable~~customized 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 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~~^®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’ websites.

~~In January 2019, New Zealand Racing Board launched~~•While the impact of the COVID-19 disruptions was not material on our first quarter 2020 revenue, continued closure of gaming facilities, cancellations of sporting events, consumer unease and lower discretionary spending will have a ~~sportsbook with~~greater negative impact on our ~~OpenBet~~ ~~platform.~~

customers’ operations and consequently our results of operations as a significant portion of our gaming and sports revenue is based on the volume of wagers generated by our customers.

~~In April 2019, we announced a partnership with Wynn Resorts~~•We continue to ~~support their launch of~~expand our customer base and capitalize on both iGaming and sports opportunities in the U.S. by leveraging our industry leading platforms, content and solutions.

~~Results of Operations for Digital~~

Three Months Ended March 31, ~~2019~~2020 Compared to Three Months Ended March 31, ~~2018~~2019

Results of Operations and Key Performance Indicators

~~Operating Expenses and AEBITDA~~

current period and to a lesser extent lower compensation costs as Digital continues to execute on scaling its business.

~~For a description of~~

We do not expect that any recently issued accounting ~~pronouncements, see Note 1.~~guidance will have a significant effect on our consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

For a description of our policies regarding our critical accounting estimates, see “Critical Accounting Estimates” in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~2018~~2019 10-K.

As disclosed in our 2019 10-K, goodwill is tested for impairment at the reporting unit level annually on October 1 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of a reporting unit or a sustained decrease in stock price.



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	The NASDAQ Stock Market
Preferred Stock Purchase Rights		The NASDAQ Stock Market


Large Accelerated Filer		☒		Accelerated filer		☐

~~Large accelerated filer~~ ý			~~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~~


					Page
PART I.			FINANCIAL INFORMATION

				~~Page~~
~~PART I.~~	~~FINANCIAL INFORMATION~~

Item 1.	Condensed Consolidated Financial Statements (unaudited)			76

			Consolidated Statements of Operations ~~and Comprehensive Income (Loss)~~ for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019		76

			Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended March 31, 2020 and 2019		7

			Consolidated Balance Sheets as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019		8

			Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019		9

			Notes to Condensed Consolidated Financial Statements		10

Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations		3327

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		4441

Item 4.			Controls and Procedures		4442

PART II.			OTHER INFORMATION

Item 1.			Legal Proceedings		4443

Item 1A.			Risk Factors		4443

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		4451

~~Item 3.~~	~~Defaults Upon Senior Securities~~	44

~~Item 4.~~	~~Mine Safety Disclosures~~	44

~~Item 5.~~	~~Other Information~~	44

~~Item 6.~~	~~Exhibits~~	45



Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	51

Item 5.	Other Information	51

Item 6.	Exhibits	52



	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 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.



	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.


	Three Months Ended March 31, 2020
	Common Stock		Additional Paid in Capital		Accumulated Loss		Treasury Stock		Accumulated Other Comprehensive Loss		Noncontrolling interest		Total
January 1, 2020	$	1	$	1,208	$	(2,954)	$	(175)	$	(292)	$	104	$	(2,108)
Net payment in connection with settlement of stock options and RSUs	—		(1)		—		—		—		—		(1)
Stock-based compensation	—		9		—		—		—		—		9
Net loss	—		—		(159)		—		—		4		(155)
Other comprehensive loss	—		—		—		—		(97)		—		(97)
Impact of ASC 326 adoption	—		—		(6)		—		—		—		(6)
March 31, 2020	$	1	$	1,216	$	(3,119)	$	(175)	$	(389)	$	108	$	(2,358)



	SGC (Parent)			SGI (Issuer¹)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Cash and cash equivalents	$	1,119		$	1		$	—	$	95	$	(2	)	$	1,213
Restricted cash	—			1			33		7		—			41
Accounts receivable, net	—			102			204		315		—			621
Notes receivable, net	—			—			89		15		—			104
Inventories	—			45			89		109		(14		)	229
Prepaid expenses, deposits and other current assets	3			60			95		79		1			238
Property and equipment, net	31			99			208		215		(36		)	517
Operating lease right-of-use asset	1			24			35		58		—			118
Investment in subsidiaries	2,896			959			1,216		—		(5,071		)	—
Goodwill	—			240			1,897		1,164		—			3,301
Intangible assets, net	40			34			1,239		432		—			1,745
Intercompany balances	—			7,096			74		—		(7,170		)	—
Software, net	53			37			118		69		—			277
Other assets⁽²⁾	113			412			37		309		(438		)	433
Total assets	$	4,256		$	9,110		$	5,334	$	2,867	$	(12,730	)	$	8,837
Liabilities and stockholders’ (deficit) equity
Current portion of long-term debt	$	—		$	1,042		$	3	$	1	$	—		$	1,046
Other current liabilities	58			224			235		258		(35		)	740
Long-term debt, excluding current portion	—			8,928			8		1		—			8,937
Operating lease liabilities	1			20			30		47		—			98
Other long-term liabilities	104			13			637		176		(491		)	439
Intercompany balances	6,516			—			—		654		(7,170		)	—
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 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.


	Three Months Ended March 31,						Variance						Three Months Ended March 31,						Variance
($ in millions)	2019			2018			2019 vs. 2018					($ in millions)	2020		2019		2020 vs. 2019
Total revenue	$	837		$	812		$	25		3	%	Total revenue	$	725	$	837	$	(112)	(13)	%
Total operating expenses	714			763			(49		)	(6	)%	Total operating expenses	757		714		43		6	%
Operating income	123			49			74			151	%
Operating (loss) income												Operating (loss) income	(32)		123		(155)		(126)	%
Net loss before income taxes	(20		)	(196		)	176			(90	)%	Net loss before income taxes	(151)		(20)		(131)		655	%
Net loss	$	(24	)	$	(202	)	$	178		(88	)%	Net loss	(155)		(24)		(131)		546	%
Net loss attributable to SGC												Net loss attributable to SGC	$	(159)	$	(24)	$	(135)	563	%


	Three Months Ended March 31,					Factors Affecting Net Loss Attributable to SGC
(in millions)	2020		2019		2020 vs. 2019

Interest expense	$	124	$	154	A decrease in interest expense for the three months ended March 31, 2020 reflects lower cash interest costs due to the latest refinancing activities.

Net income attributable to noncontrolling interest	4		—		The three-month period ended March 31, 2020 reflects SciPlay noncontrolling interest.



	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).


Reporting Unit:	March 31, 2020 Goodwill Balance (in millions)		FY 2019 Goodwill Testing Percentage Cushion
SG Gaming	$	1,568	51	%
Casino Management Systems	388		49	%
Table Products	297		102	%



(in millions)	Cash and cash equivalents		Revolver capacity		Revolver capacity drawn or committed to letters of credit		Total
SGC (excluding SciPlay)	$	201	$	650	$	(167)	$	684
SciPlay	133		150		—		283
Total as of March 31, 2020	$	334	$	800	$	(167)	$	967

SGC (excluding SciPlay)	$	202	$	650	$	(207)	$	645
SciPlay	111		150		—		261
Total as of December 31, 2019	$	313	$	800	$	(207)	$	906


OBLIGOR GROUP SUMMARIZED BALANCE SHEET
	As of
	March 31, 2020		December 31, 2019
Assets:
Current Assets	$	743	$	860
Non-current assets⁽¹⁾	3,898		3,941
Total assets	$	4,641	$	4,801
Liabilities:
Current liabilities	$	506	$	529
Non-current liabilities	8,944		9,003
Total liabilities	$	9,450	$	9,532
(1) Includes $2,137 of Goodwill as of March 31, 2020 and December 31, 2019.


OBLIGOR GROUP SUMMARIZED STATEMENT OF OPERATIONS
	Three months ended March 31, 2020		Year ended December 31, 2019
Revenue	$	335	$	1,688
Cost of services, cost of product sales and cost of instant products⁽¹⁾	138		462
Operating (loss) income	(40)		313
Net loss	(157)		(357)
(1) Excludes D&A.



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		Supplemental Indenture, dated as of January 23, 2020, by and among Scientific Games International, Inc., as issuer, Scientific Games Corporation, NYX Digital Gaming (USA), LLC and the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of June 4, 2014, as amended and supplemented, relating to the 6.625% Senior Subordinated Notes due 2021 (incorporated by reference to Exhibit 4.18 to Scientific Games Corporation’s Annual Report on Form 10-K filed on February 18, 2020).

4.2		Supplemental Indenture, dated as of January 23, 2020, by and among Scientific Games International, Inc., as issuer, Scientific Games Corporation, NYX Digital Gaming (USA), LLC and the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee and collateral agent, relating to the Indenture, dated as of October 17, 2017, as amended and supplemented, relating to the 5.000% Senior Secured Notes due 2025 (incorporated by reference to Exhibit 4.35 to Scientific Games Corporation’s Annual Report on Form 10-K filed on February 18, 2020).

4.3		Supplemental Indenture, dated as of January 23, 2020, by and among Scientific Games International, Inc., as issuer, Scientific Games Corporation, NYX Digital Gaming (USA), LLC and the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, collateral agent, registrar and transfer agent, relating to the Indenture, dated as of February 14, 2018, as amended and supplemented, relating to the 3.375% Senior Secured Notes due 2026 (incorporated by reference to Exhibit 4.40 to Scientific Games Corporation’s Annual Report on Form 10-K filed on February 18, 2020).

4.4		Supplemental Indenture, dated as of January 23, 2020, by and among Scientific Games International, Inc., as issuer, Scientific Games Corporation, NYX Digital Gaming (USA), LLC and the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, registrar and transfer agent, relating to the Indenture, dated as of February 14, 2018, as amended and supplemented, relating to the 5.500% Senior Unsecured Notes due 2026 (incorporated by reference to Exhibit 4.43 to Scientific Games Corporation’s Annual Report on Form 10-K filed on February 18, 2020).

4.5		Supplemental Indenture, dated as of January 23, 2020, by and among Scientific Games International, Inc. as issuer, Scientific Games Corporation, NYX Digital Gaming (USA), LLC and the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the 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 Agreement, dated as of January 1, 2019, by and between Scientific Games Corporation and Patrick J. McHugh (incorporated by reference to Exhibit 10.55~~4.45 to Scientific Games Corporation’s Annual Report on Form 10-K filed on February ~~28, 2019)~~18, 2020).*

~~10.2~~4.6		~~Amendment to Consulting Agreement,~~Supplemental Indenture, dated as of January ~~11, 2019 (effective as of January 1, 2019),~~23, 2020, by and ~~between~~among Scientific Games International, Inc. as issuer, Scientific Games Corporation, NYX Digital Gaming (USA), LLC and ~~Richard Haddrill (incorporated~~the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of November 26, 2019, among Scientific Games International, Inc., as issuer, Scientific Games Corporation, the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating to the 7.000% Senior Unsecured Notes due 2028 (incorporated by reference to Exhibit ~~10.48~~4.47 to Scientific Games Corporation’s Annual Report on Form 10-K filed on February ~~28, 2019)~~18, 2020).*


~~10.3~~4.7						~~Amendment to Employment Agreement,~~Supplemental Indenture, dated as of ~~February 21, 2019 (effective as of February 25, 2019),~~January 23, 2020, by and ~~between~~among Scientific Games International, Inc. as issuer, Scientific Games Corporation, NYX Digital Gaming (USA), LLC and ~~Michael Winterscheidt (incorporated~~the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of November 26, 2019, among Scientific Games International, Inc., as issuer, Scientific Games Corporation, the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating to the 7.250% Senior Unsecured Notes due 2029 (incorporated by reference to Exhibit ~~10.56~~4.49 to Scientific Games Corporation’s Annual Report on Form 10-K filed on February ~~28, 2019)~~18, 2020).*

~~10.4~~10.1						~~Second~~Amendment to Employment Agreement, dated as of March 24, 2020 (effective as of April 5, 2020), by and between Scientific Games Corporation and Barry Cottle.*(†)

10.2						Amendment to Employment Agreement, dated as of March 24, 2020 (effective as of April 5, 2020), by and between Scientific Games Corporation and Michael Quartieri.*(†)

10.3						Amendment to Employment Agreement, dated as of March 24, 2020 (effective as of April 5, 2020), by and between Scientific Games Corporation and James Sottile.*(†)

10.4						Employment Agreement, dated as of July 6, 2019 (effective as of March 1, 2020), by and between Scientific Games Corporation and Matthew Wilson.*(†)

10.5						Amendment to Employment Agreement, dated as of March 24, 2020 (effective as of April 5, 2020), by and between Scientific Games Corporation and Matthew Wilson.*(†)

10.6						Amendment to Employment Agreement, dated as of February 26, 2020 (effective as of January 1, 2020), by and between Scientific Games Corporation and Patrick J. McHugh.*(†)

10.7						Amendment to Employment Agreement, dated as of March 24, 2020 (effective as of April 5, 2020), by and between Scientific Games Corporation and Patrick J. McHugh.*(†)

10.8						Amendment to Employment Letter, dated as of March 27, 2020 (effective as of April 5, 2020), by and between Scientific Games Corporation and Stephen Richardson.*(†)

10.9						Amendment to Employment Agreement, dated as of March 27, 2020 (effective as of April 5, 2020), by and between Scientific Games Corporation and Michael Winterscheidt.*(†)

10.10						Third Amendment to Consulting Agreement, dated as of April ~~29, 2019,~~7, 2020, by and between Scientific Games Corporation and Richard Haddrill.*(†)

~~31.1~~10.11						Amendment No. 6, dated as of May 8, 2020, among Scientific Games International, Inc., as the borrower, Scientific Games Corporation, as a guarantor, the several banks and other financial institutions or entities from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent, issuing lender and swingline lender, which amended and restated the Credit Agreement, dated as of October 18, 2013 (as amended, supplemented, amended and restated or otherwise modified from time to time, including without limitation, by that certain Amendment No. 1, dated as of October 1, 2014, Amendment No. 2, dated as of February 14, 2017, Amendment No. 3, dated as of August 14, 2017, Amendment No. 4, dated as of February 14, 2018 and Amendment No. 5, dated as of November 20, 2019). (†)

22.1						Issuer and Guarantor Information, dated as of May 8, 2020. (†)

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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