CONDENSED NOTES TO 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 and interactive gaming industries. Our portfolio includes gaming machines and game content, casino management systems, table game products and services, instant and draw‑based lottery games, server‑based gaming and lottery systems, sports betting technology, lottery content and services, loyalty and rewards programs, interactive gaming and social casino solutions. We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments. We report our operations in
three
business segments—Gaming, Lottery and Interactive.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements of the Company have been prepared in accordance with SEC and U.S. GAAP requirements. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as well as 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 consolidated financial statements using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, we have made all adjustments necessary to present fairly our consolidated financial position, results of operations and comprehensive loss and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2015 10-K. Interim results of operations are not necessarily indicative of results of operations for a full year.
Significant Accounting Policies
There have been no changes to our significant accounting policies described in Note 1 in our 2015 10-K.
New Accounting Guidance - Recently Adopted
In July 2015, the FASB issued ASU No. 2015-11,
Inventory: Simplifying the Measurement of Inventory.
ASU 2015-11 changes the criteria for measuring inventory within the scope of the ASU. Inventory will now be measured at the lower of cost and net realizable value, while the concept of market value will be eliminated. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We adopted this guidance prospectively at the beginning of the second quarter of 2016. The adoption of this guidance did not have a material effect on our financial condition, results of operations, or cash flows.
In March 2016, the FASB issued ASU No. 2016-07,
Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.
The amended guidance simplifies the accounting for equity investments and eliminates the requirements in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. We adopted this guidance prospectively at the beginning of the first quarter of 2016. The adoption of this guidance did not have a material effect on our financial condition, results of operations or cash flows.
New Accounting Guidance - Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09 (Topic 606),
Revenue from Contracts with Customers
. The amended guidance outlines a single comprehensive revenue model for entities to use in accounting for revenue from contracts with customers. The guidance (including subsequent amendments) supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that "an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." The ASU may be adopted using a full retrospective approach or using a modified retrospective application approach. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years with earlier adoption permitted for fiscal years beginning after December 15, 2016. We are
currently evaluating the impact of adopting this guidance and anticipate the adoption to occur at the beginning of the first quarter of 2018, using a modified retrospective application approach.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The amended guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is expected to result in a significant portion of our operating leases, where we are the lessee, to be recognized on our Consolidated Balance Sheets. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier adoption permitted. We are currently evaluating the impact and timing of adopting this guidance.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. The amended guidance is intended to simplify several aspects of accounting for share-based payment award transactions, including income tax consequences, accounting for forfeitures, classification of awards as either equity or liabilities and classification in the statement of cash flows. ASU 2016-09 has separate transition guidance for each element of the new standard and is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years with earlier adoption permitted. We are currently evaluating the impact of adopting this guidance.
We do not expect that any other recently issued accounting guidance will have a significant effect on our financial statements.
(2) Business Segments
We report our operations in
three
business segments—Gaming, Lottery and Interactive—representing our different products and services. Our Gaming business segment generally sells gaming machines, VGTs, VLTs and conversion kits and parts, leases or otherwise provides gaming machines, server-based systems and content, sells and supports casino-management systems-based software and hardware, and sells and leases PTG content and Shufflers to commercial, tribal and governmental gaming operators. Our Lottery business segment provides instant lottery games and related value-added services, as well as licensed brands utilized in instant lottery games and loyalty and reward services. Our Lottery business segment also provides systems products and services generally comprised of point-of-sale terminals, a central system, customized computer software, data communication services, support and/or related equipment. Our Interactive business segment provides social gaming and RMG services to online casino operators through our remote game servers. Additional discussion regarding the products and services from which each reportable business segment derives its revenue is included in Note 1 in our 2015 10-K.
In evaluating financial performance, we focus on operating income (loss) as a segment's measure of profit or loss. The accounting policies of our business segments are the same as those described in our summary of significant accounting policies in Note 1 in our 2015 10-K. The following tables present the Company's segment information:
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Three Months Ended September 30, 2016
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Gaming
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Lottery
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Interactive
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Corporate
(1)
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Total
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Total revenue
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$
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448.2
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$
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186.6
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$
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85.2
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$
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—
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$
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720.0
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Restructuring and other
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—
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0.5
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(0.4
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)
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13.7
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13.8
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Depreciation, amortization and impairments
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154.0
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15.2
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3.7
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18.8
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191.7
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Operating income (loss)
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51.5
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43.2
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9.6
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(70.8
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)
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33.5
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Interest expense
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(165.4
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)
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Earnings from equity investments
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7.3
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Other income (expense), net
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6.0
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Net loss before income taxes
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$
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(118.6
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)
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(1) Includes corporate amounts not allocated to the business segments.
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Three Months Ended September 30, 2015
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Gaming
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Lottery
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Interactive
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Corporate
(1)
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Total
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Total revenue
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$
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429.1
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$
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191.3
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$
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51.2
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$
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—
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$
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671.6
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Restructuring and other
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3.2
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—
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0.5
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1.9
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5.6
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Depreciation, amortization and impairments
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245.1
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21.6
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5.4
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14.4
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286.5
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Goodwill impairment
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935.0
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—
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—
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—
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935.0
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Operating income (loss)
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(985.3
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)
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41.3
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6.3
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(50.5
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)
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(988.2
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)
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Interest expense
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(166.8
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)
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Earnings from equity investments
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3.0
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Other income (expense), net
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(7.5
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)
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Net loss before income taxes
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$
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(1,159.5
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)
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(1) Includes corporate amounts not allocated to the business segments.
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Nine Months Ended September 30, 2016
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Gaming
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Lottery
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Interactive
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Corporate
(1)
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Total
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Total revenue
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$
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1,311.8
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$
|
578.2
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$
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241.2
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$
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—
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$
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2,131.2
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Restructuring and other
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5.0
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1.8
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0.1
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13.8
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20.7
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Depreciation, amortization and impairments
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449.9
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50.2
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11.2
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54.1
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565.4
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Operating income (loss)
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141.6
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149.1
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34.8
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(182.6
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)
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142.9
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Interest expense
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(496.4
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)
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Earnings from equity investments
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18.5
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Gain on early extinguishment of debt
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25.2
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Other income (expense), net
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8.4
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Net loss before income taxes
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$
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(301.4
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)
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(1) Includes corporate amounts not allocated to the business segments.
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Nine Months Ended September 30, 2015
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Gaming
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Lottery
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Interactive
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Corporate
(1)
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Total
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Total revenue
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$
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1,304.6
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$
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567.5
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$
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149.7
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$
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—
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$
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2,021.8
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Restructuring and other
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10.1
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0.2
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1.5
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7.2
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19.0
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Depreciation, amortization and impairments
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569.9
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62.9
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15.9
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44.2
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692.9
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Goodwill impairment
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935.0
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—
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—
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—
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935.0
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Operating income (loss)
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(955.1
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)
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130.6
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17.5
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(163.2
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(970.2
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Interest expense
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(497.5
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)
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Earnings from equity investments
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9.4
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Other income (expense), net
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(17.4
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Net loss before income taxes
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$
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(1,475.7
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)
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(1) Includes corporate amounts not allocated to the business segments.
(3) Restructuring and other
Restructuring and other includes charges or expenses attributable to: (i) employee severance; (ii) management changes; (iii) restructuring and integration; (iv) cost savings initiatives; and (v) other unusual items. In the three and nine months ended September 30, 2016, approximately
$10.3 million
and
$17.2 million
, respectively, of Restructuring and other were related to items (i) and (iii) set forth above.
We began integrating Scientific Games and WMS subsequent to the WMS acquisition in October 2013. This integration was completed during the first quarter of 2016. We began integrating Scientific Games and Bally subsequent to the Bally acquisition in November 2014 by implementing our plans to streamline our operations and cost structure.
Although we have substantially completed the actions under the above-described restructuring plans, we remain focused on cost efficiencies and will execute additional initiatives in the future, if necessary, in order to streamline our operations and cost structure. We do not expect to incur additional material costs related to our previously announced integration plans. The amounts currently accrued and previously expensed as Restructuring and other were
$5.8 million
as of September 30, 2016. During the three and nine months ended September 30, 2016, we made cash payments on these restructuring plans totaling
$3.4 million
and
$10.7 million
, respectively.
Refer to Subsequent Events Note 17.
(4) Basic and Diluted Net Loss Per Share
Basic and diluted net loss per share were the same for all periods presented as all common stock equivalents would be anti-dilutive. We excluded
3.2
million and
1.9
million of stock options from the diluted weighted-average common shares outstanding as of
September 30, 2016
and 2015, respectively, and
5.6
million and
6.0
million of RSUs from the calculation of diluted weighted-average common shares outstanding as of
September 30, 2016
and 2015, respectively.
(5) Accounts and Notes Receivable and Credit Quality of Notes Receivable
Accounts and Notes Receivable
The following summarizes the components of current and long-term accounts and notes receivable, net:
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September 30, 2016
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December 31, 2015
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Current:
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Accounts receivable
|
$
|
478.3
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$
|
497.7
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Notes receivable
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143.6
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180.4
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Allowance for doubtful accounts and notes
|
(27.6
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)
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|
(23.3
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)
|
|
Current accounts and notes receivable, net
|
$
|
594.3
|
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|
$
|
654.8
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Long-term:
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Notes receivable, net of allowance of $0.2 and $0.3
|
43.6
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|
51.3
|
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|
Total accounts and notes receivable, net
|
$
|
637.9
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|
$
|
706.1
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Credit Quality of Notes Receivable
The interest rates on our outstanding notes receivable ranged from
3.25%
to
10.42%
at
September 30, 2016
and December 31, 2015.
We have certain concentrations of outstanding notes receivable in international locations that impact our assessment of the credit quality of our notes receivable. We monitor the macroeconomic and political environment in each of these locations in our assessment of the credit quality of our notes receivable. We have not identified changes in the aforementioned factors in the nine months ended September 30, 2016 that require a reassessment of our receivable balances. The international locations with significant concentrations (generally deemed to be exceeding 10%) of our notes receivable are as follows:
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•
|
Mexico - Our accounts and notes receivable, net, from certain customers in Mexico at
September 30, 2016
was
$43.2
million. We collected
$22.1
million of outstanding receivables from these customers during the nine months ended
September 30, 2016
.
|
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|
|
•
|
Peru - Our accounts and notes receivable, net, from certain customers in Peru at
September 30, 2016
was
$34.6 million
. We collected
$19.5 million
of outstanding receivables from these customers during the nine months ended
September 30, 2016
.
|
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|
•
|
Argentina - Our accounts and notes receivable, net, from customers in Argentina at
September 30, 2016
was
$17.5 million
denominated in USD. Our customers are required to and have continued to pay us in pesos at the spot exchange rate on the date of payment. We collected
$17.7 million
of outstanding receivables from customers in Argentina during the nine months ended
September 30, 2016
.
|
In addition to the macroeconomic and political factors noted above, we also evaluated recent payments, receivables aging, any additional security or collateral we had (bills of exchange, pledge agreements, etc.) and other facts and circumstances relevant to our customers' ability to pay.
The following summarizes the components of total notes receivable, net:
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|
September 30, 2016
|
|
Balances over 90 days past due
|
|
December 31, 2015
|
|
Balances over 90 days past due
|
|
Notes receivable:
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|
|
|
|
|
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|
Domestic
|
$
|
34.5
|
|
|
$
|
0.8
|
|
|
$
|
62.4
|
|
|
$
|
2.6
|
|
|
International
|
152.9
|
|
|
34.1
|
|
|
169.8
|
|
|
26.6
|
|
|
Total notes receivable
|
187.4
|
|
|
34.9
|
|
|
232.2
|
|
|
29.2
|
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|
|
|
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Notes receivable allowances
|
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|
|
|
|
|
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|
Domestic
|
(1.1
|
)
|
|
(0.8
|
)
|
|
(2.6
|
)
|
|
(2.5
|
)
|
|
International
|
(13.7
|
)
|
|
(13.7
|
)
|
|
(10.6
|
)
|
|
(9.5
|
)
|
|
Total notes receivable allowances
|
(14.8
|
)
|
|
(14.5
|
)
|
|
(13.2
|
)
|
|
(12.0
|
)
|
|
Notes receivable, net
|
$
|
172.6
|
|
|
$
|
20.4
|
|
|
$
|
219.0
|
|
|
$
|
17.2
|
|
At
September 30, 2016
,
11.8%
of our total notes receivable, net, was past due by over
90
days, compared to
7.9%
at December 31, 2015.
The following tables detail our evaluation of notes receivable for impairment and the changes in our notes receivable allowances:
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|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
Ending Balance Individually
Evaluated for Impairment
|
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Ending Balance Collectively
Evaluated for Impairment
|
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Total
|
|
Ending Balance Individually
Evaluated for Impairment
|
|
Ending Balance Collectively
Evaluated for Impairment
|
|
Total
|
|
Notes receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
10.4
|
|
|
$
|
24.1
|
|
|
$
|
34.5
|
|
|
$
|
20.7
|
|
|
$
|
41.7
|
|
|
$
|
62.4
|
|
|
International
|
78.9
|
|
|
74.0
|
|
|
152.9
|
|
|
101.8
|
|
|
68.0
|
|
|
169.8
|
|
|
Total notes receivable
|
89.3
|
|
|
98.1
|
|
|
187.4
|
|
|
122.5
|
|
|
109.7
|
|
|
232.2
|
|
|
Allowance for notes receivable
|
(14.6
|
)
|
|
(0.2
|
)
|
|
(14.8
|
)
|
|
(12.9
|
)
|
|
(0.3
|
)
|
|
(13.2
|
)
|
|
Total notes receivable, net
|
$
|
74.7
|
|
|
$
|
97.9
|
|
|
$
|
172.6
|
|
|
$
|
109.6
|
|
|
$
|
109.4
|
|
|
$
|
219.0
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
For the Nine Months Ended September 30, 2016
|
|
For the Nine Months Ended September 30, 2015
|
|
|
Ending Balance Individually
Evaluated for Impairment
|
|
Ending Balance Collectively
Evaluated for Impairment
|
|
Total
|
|
Ending Balance Individually
Evaluated for Impairment
|
|
Ending Balance Collectively
Evaluated for Impairment
|
|
Total
|
|
Provision
|
$
|
(3.8
|
)
|
|
$
|
—
|
|
|
$
|
(3.8
|
)
|
|
$
|
(6.2
|
)
|
|
$
|
(1.7
|
)
|
|
$
|
(7.9
|
)
|
|
Charge-offs and recoveries
|
2.1
|
|
|
0.1
|
|
|
2.2
|
|
|
2.3
|
|
|
0.1
|
|
|
2.4
|
|
The fair value of notes receivable is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of September 30, 2016 and December 31, 2015, the fair value of notes receivable, net, approximated the carrying amount due to their short-term nature.
(6) Inventories
Inventories consisted of the following as of the dates presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Parts and work-in-process
|
|
$
|
117.8
|
|
|
$
|
118.3
|
|
|
Finished goods
|
|
152.3
|
|
|
130.2
|
|
|
Total inventories
|
|
$
|
270.1
|
|
|
$
|
248.5
|
|
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 games for our Participation arrangements and our licensed branded merchandise.
During the nine months ended September 30, 2015, we recorded an impairment of
$7.1 million
related to the discontinuance of certain product lines as a result of the Bally acquisition. The impairment is included in Cost of product sales for the nine months ended September 30, 2015.
(7) Property and Equipment, net
Property and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Land
|
|
$
|
38.5
|
|
|
$
|
38.5
|
|
|
Buildings and leasehold improvements
|
|
183.1
|
|
|
185.2
|
|
|
Gaming and lottery machinery and equipment
|
|
1,057.1
|
|
|
1,084.6
|
|
|
Furniture and fixtures
|
|
29.2
|
|
|
36.0
|
|
|
Construction in progress
|
|
22.5
|
|
|
25.5
|
|
|
Other property and equipment
|
|
263.7
|
|
|
271.0
|
|
|
Less: accumulated depreciation
|
|
(930.3
|
)
|
|
(846.8
|
)
|
|
Total property and equipment, net
|
|
$
|
663.8
|
|
|
$
|
794.0
|
|
Depreciation expense is excluded from Cost of services, Cost of product sales, Cost of instant games and Other operating expenses and is separately presented within D&A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Depreciation expense
|
$
|
80.9
|
|
|
$
|
72.8
|
|
|
$
|
248.3
|
|
|
$
|
249.1
|
|
(8) Intangible Assets, net and Goodwill
Intangible Assets, net
The following tables present certain information regarding our intangible assets as of
September 30, 2016
and
December 31, 2015
. Amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives with no estimated residual value, which materially approximates the expected pattern of use of these intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Balance
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Balance
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
879.2
|
|
|
$
|
(151.0
|
)
|
|
$
|
728.2
|
|
|
$
|
877.7
|
|
|
$
|
(109.1
|
)
|
|
$
|
768.6
|
|
|
Intellectual property
(1)
|
733.9
|
|
|
(195.3
|
)
|
|
538.6
|
|
|
731.1
|
|
|
(124.5
|
)
|
|
606.6
|
|
|
Licenses
|
417.8
|
|
|
(139.0
|
)
|
|
278.8
|
|
|
326.1
|
|
|
(91.6
|
)
|
|
234.5
|
|
|
Brand names
|
125.2
|
|
|
(29.1
|
)
|
|
96.1
|
|
|
124.0
|
|
|
(18.9
|
)
|
|
105.1
|
|
|
Trade names
|
97.4
|
|
|
(6.5
|
)
|
|
90.9
|
|
|
97.5
|
|
|
(1.9
|
)
|
|
95.6
|
|
|
Patents and other
|
27.8
|
|
|
(14.0
|
)
|
|
13.8
|
|
|
27.1
|
|
|
(12.8
|
)
|
|
14.3
|
|
|
|
2,281.3
|
|
|
(534.9
|
)
|
|
1,746.4
|
|
|
2,183.5
|
|
|
(358.8
|
)
|
|
1,824.7
|
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
96.7
|
|
|
(2.1
|
)
|
|
94.6
|
|
|
97.4
|
|
|
(2.1
|
)
|
|
95.3
|
|
|
Total intangible assets
|
$
|
2,378.0
|
|
|
$
|
(537.0
|
)
|
|
$
|
1,841.0
|
|
|
$
|
2,280.9
|
|
|
$
|
(360.9
|
)
|
|
$
|
1,920.0
|
|
(1) December 31, 2015 net balance includes
$33 million
of in-process R&D assets that were not subject to amortization. These assets reached commercial feasibility at the end of the third quarter of 2016, with amortization commencing October 2016.
In January 2016, we amended and extended the terms of one of our existing license agreements through December 31, 2022. Under the terms of the amended agreement, we are obligated to pay aggregate minimum guarantees of
$88.0 million
over the life of the contract in exchange for the right to use certain licensed properties in game content themes, which are incorporated into our slot games, online games, lottery products and promotional materials. We account for the minimum guaranteed obligations within other long-term liabilities (or, with respect to the portion that is a current liability within accounts payable or accrued liabilities) at the onset of the license arrangement and record a corresponding licensed asset within Intangible assets, net. The current and long-term portions of our minimum guaranteed obligations related to the amended license agreement were
$8.8 million
and
$74.6 million
, respectively, and are recorded in Accounts payable and Other long-term liabilities, respectively, as of September 30, 2016.
Intangible amortization expense is included within D&A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Amortization expense
|
$
|
60.9
|
|
|
$
|
181.5
|
|
|
$
|
188.8
|
|
|
$
|
331.8
|
|
We recorded non-cash impairment charges of
$103.6 million
and
$128.6 million
in D&A for the three and nine months ended September 30, 2015, respectively, to reduce the gross carrying amount of two indefinite-lived trade name assets to their fair values. These assets were subsequently reclassified to finite-lived during the third quarter of 2015.
Goodwill
Based on the results of our third quarter 2015 interim goodwill impairment analysis for our SG gaming reporting unit, we recorded a
$935.0 million
non-cash impairment charge with no tax benefit for the three and nine months ended September 30, 2015. The impairment charge primarily resulted from a change in outlook for the SG gaming reporting unit due to market-related factors negatively impacting gaming machine unit demand and the number of gaming machines leased by our customers combined with fewer than anticipated new casino openings and expansions. All of these factors resulted in declines in our outlook for gaming machine sales and Participation game revenues.
The table below reconciles the change in the carrying amount of goodwill by business segment for the period from
December 31, 2015 to
September 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Gaming
|
|
Lottery
|
|
Interactive
|
|
Totals
|
|
Balance as of December 31, 2015
|
|
$
|
2,486.0
|
|
|
$
|
417.9
|
|
|
$
|
109.8
|
|
|
$
|
3,013.7
|
|
|
Foreign currency adjustments
|
|
(27.1
|
)
|
|
4.4
|
|
|
—
|
|
|
(22.7
|
)
|
|
Balance as of September 30, 2016
|
|
$
|
2,458.9
|
|
|
$
|
422.3
|
|
|
$
|
109.8
|
|
|
$
|
2,991.0
|
|
(9) Software, net
Software, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Software
|
|
$
|
932.1
|
|
|
$
|
854.2
|
|
|
Accumulated amortization
|
|
(501.0
|
)
|
|
(368.3
|
)
|
|
Software, net
|
|
$
|
431.1
|
|
|
$
|
485.9
|
|
Software amortization expense is included within D&A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Amortization expense
|
$
|
44.2
|
|
|
$
|
32.2
|
|
|
$
|
122.6
|
|
|
$
|
112.0
|
|
(10) Equity Investments
Equity investments totaled
$206.5
million and
$228.5 million
as of September 30, 2016 and December 31, 2015, respectively. We received distributions and dividends totaling
$40.7 million
and
$57.9 million
during the nine months ended September 30, 2016 and 2015, respectively.
(11) Long-Term and Other Debt
Outstanding Debt and Capital Leases
The following reflects our outstanding debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
Unamortized debt discount
|
|
Unamortized deferred financing costs
|
|
Book value September 30, 2016
|
|
Senior Secured Credit Facilities:
|
|
|
|
|
|
|
|
|
|
Revolver, varying interest rate, due 2018
|
|
$
|
50.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50.0
|
|
|
Term Loan, varying interest rate, due 2020
|
|
2,236.8
|
|
|
(6.5
|
)
|
|
(44.2
|
)
|
|
2,186.1
|
|
|
Term Loan, varying interest rate, due 2021
|
|
1,965.0
|
|
|
(14.5
|
)
|
|
(42.7
|
)
|
|
1,907.8
|
|
|
2018 Notes
|
|
250.0
|
|
|
—
|
|
|
(1.5
|
)
|
|
248.5
|
|
|
2020 Notes
|
|
243.5
|
|
|
—
|
|
|
(2.5
|
)
|
|
241.0
|
|
|
2021 Notes
|
|
340.6
|
|
|
(1.5
|
)
|
|
(4.8
|
)
|
|
334.3
|
|
|
Secured Notes
|
|
950.0
|
|
|
—
|
|
|
(14.4
|
)
|
|
935.6
|
|
|
Unsecured Notes
|
|
2,200.0
|
|
|
—
|
|
|
(37.5
|
)
|
|
2,162.5
|
|
|
Capital lease obligations, 3.9% interest as of September 30, 2016 payable monthly through 2019
|
|
17.6
|
|
|
—
|
|
|
—
|
|
|
17.6
|
|
|
Total long-term debt outstanding
|
|
$
|
8,253.5
|
|
|
$
|
(22.5
|
)
|
|
$
|
(147.6
|
)
|
|
$
|
8,083.4
|
|
|
Less: current portion of long-term debt
|
|
|
|
|
|
|
|
(49.6
|
)
|
|
Long-term debt, excluding current portion
|
|
|
|
|
|
|
|
|
$
|
8,033.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
Unamortized debt discount
|
|
Unamortized deferred financing costs
|
|
Book value December 31, 2015
|
|
Senior Secured Credit Facilities:
|
|
|
|
|
|
|
|
|
|
Revolver, varying interest rate, due 2018
|
|
$
|
95.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
95.0
|
|
|
Term Loan, varying interest rate, due 2020
|
|
2,254.0
|
|
|
(7.8
|
)
|
|
(52.5
|
)
|
|
2,193.7
|
|
|
Term Loan, varying interest rate, due 2021
|
|
1,980.0
|
|
|
(16.7
|
)
|
|
(49.2
|
)
|
|
1,914.1
|
|
|
2018 Notes
|
|
250.0
|
|
|
—
|
|
|
(2.0
|
)
|
|
248.0
|
|
|
2020 Notes
|
|
300.0
|
|
|
—
|
|
|
(3.6
|
)
|
|
296.4
|
|
|
2021 Notes
|
|
350.0
|
|
|
(1.8
|
)
|
|
(5.6
|
)
|
|
342.6
|
|
|
Secured Notes
|
|
950.0
|
|
|
—
|
|
|
(16.4
|
)
|
|
933.6
|
|
|
Unsecured Notes
|
|
2,200.0
|
|
|
—
|
|
|
(42.1
|
)
|
|
2,157.9
|
|
|
Capital lease obligations, 3.9% interest as of December 31, 2015 payable monthly through 2019
|
|
25.7
|
|
|
—
|
|
|
—
|
|
|
25.7
|
|
|
Total long-term debt outstanding
|
|
$
|
8,404.7
|
|
|
$
|
(26.3
|
)
|
|
$
|
(171.4
|
)
|
|
$
|
8,207.0
|
|
|
Less: current portion of long-term debt
|
|
|
|
|
|
|
|
(50.3
|
)
|
|
Long-term debt, excluding current portion
|
|
|
|
|
|
|
|
|
$
|
8,156.7
|
|
Senior Secured Credit Facilities
We and certain of our subsidiaries are party to a credit agreement dated as of October 18, 2013, as amended, by and among SGI, as the borrower, SGC, as a guarantor, Bank of America, N.A., as administrative agent, and the lenders and other agents party thereto. This credit facility includes the term loans due in 2020 and 2021, each as set forth in the above table, and a
$592.6 million
revolving credit facility. Up to
$350.0 million
of the revolving credit facility is available for issuances of letters of credit.
All of the debt incurred under this credit agreement is subject to accelerated maturity depending on our liquidity at the times each of the 2018 Notes, 2020 Notes and 2021 Notes become due.
2020 Notes and 2021 Notes
During the second quarter of 2016, we repurchased and cancelled
$56.5 million
and
$9.4 million
of principal amount of the 2020 Notes and 2021 Notes, respectively, for
$34.2 million
and
$5.7 million
in cash, respectively, through separate open
market purchases. In connection with this transaction, we recorded a
$25.2 million
gain on early extinguishment of debt, net of a
$0.8 million
charge related to the write-off of unamortized debt discount and deferred financing costs associated with the extinguished debt.
Social Gaming Unrestricted Subsidiary Designation
In order to provide flexibility for potential future growth opportunities with respect to our social gaming business, during the third quarter of 2016 we designated certain of our wholly owned direct and indirect subsidiaries, which hold substantially all of the assets of, and operate, our social gaming business, as “Unrestricted Subsidiaries” under our credit agreement and each of the indentures governing the 2018 Notes, 2020 Notes, 2021 Notes, Secured Notes and Unsecured Notes. As a result of such designations, these social gaming subsidiaries are not guarantors under our credit agreement and indentures and are not obligated to comply with many of the covenants set forth in those agreements and that remain applicable to us and our restricted subsidiaries. In addition, except to the extent of cash distributions from these social gaming subsidiaries to us or our restricted subsidiaries, the assets, liabilities and financial results of these social gaming subsidiaries will be excluded from the calculation of the applicable financial metrics required by these agreements, including our credit agreement’s maintenance covenant, which is based on our consolidated net first lien leverage. Following these designations, the social gaming subsidiaries remain wholly owned direct and indirect subsidiaries of the Company.
For additional information regarding our senior secured credit facilities, 2018 Notes, 2020 Notes, 2021 Notes, Secured Notes, Unsecured Notes and capital lease obligations, see Note 15 in our 2015 10-K.
Fair Value of Debt
The estimated fair value of our long-term debt as of September 30, 2016 and December 31, 2015 was approximately
$7,976.0 million
and
$6,931.6 million
, respectively. We estimate the fair value of debt based on quoted market prices of our securities, if available, and indicative pricing derived from market information. We categorize inputs used to measure the fair value of debt as Level 2 in the fair value hierarchy due to the low volume and frequency of transactions in the market.
(12) Fair Value Measurements
We determine the fair value of our financial assets and liabilities 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, accounts receivable, other current assets, accounts payable and accrued liabilities, approximates their recorded values due to the short-term nature of these instruments. Our assets and liabilities measured at fair value on a recurring basis are described below.
Interest rate swap contracts
We hedge a portion of our variable rate debt to effectively fix the interest rates that we pay. We have interest rate swap contracts designated as cash flow hedges under ASC 815. Under these hedges, we pay interest at a weighted-average fixed rate of
2.151%
and receive interest at the greater of
1%
or the prevailing three-month LIBOR rate.
These hedges are highly effective in offsetting changes in our future expected cash flows due to the fluctuation in the three-month LIBOR rate associated with our variable rate debt. The effectiveness of these hedges is measured quarterly on a retrospective basis. As a result of the effective matching of the critical terms on our variable rate debt being hedged to the hedging instruments being used, we have not measured any hedge ineffectiveness to date. 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 will be 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.
The following table shows the losses (gains) on our interest rate swap contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Losses (gains) recorded in accumulated other comprehensive loss, net of tax
|
|
$
|
(2.7
|
)
|
|
$
|
1.7
|
|
|
$
|
(6.3
|
)
|
|
$
|
1.0
|
|
|
Realized (gains) losses recorded in interest expense
|
|
2.0
|
|
|
(0.6
|
)
|
|
6.1
|
|
|
1.1
|
|
We expect to reclassify additional losses of
$8.2 million
from accumulated other comprehensive loss to interest expense in the next twelve months. The following table shows the fair value of our hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Accrued liabilities
|
$
|
8.2
|
|
|
$
|
7.9
|
|
|
Other long-term liabilities
|
1.7
|
|
|
4.0
|
|
|
Total fair value
|
$
|
9.9
|
|
|
$
|
11.9
|
|
Other
As of September 30, 2016 and December 31, 2015, we had
$15.3 million
and
$16.7 million
of assets held for sale, respectively, which consisted of our Waukegan, Illinois manufacturing facility and a portion of our Chicago, Illinois R&D campus. During the second quarter of 2016, we sold the portion of our Chicago, Illinois R&D campus which was previously held for sale at a price that materially approximated the carrying amount, less selling costs. During the third quarter of 2016, we classified additional office buildings located in our Chicago, Illinois R&D campus as assets held for sale. The carrying amount of these buildings approximated the fair market value, less expected costs to sell. During the third quarter of 2016, we recorded a non-cash impairment charge of
$5.7 million
in D&A related to our Waukegan manufacturing facility. Assets held for sale are included within Prepaid expenses, deposits and other current assets and are reported at the lower of the carrying amount or fair market value, less expected costs to sell, which approximated the fair value as of September 30, 2016 and December 31, 2015. We measured the fair value of assets held for sale under a market approach and have categorized such measurements as Level 3 in the fair value hierarchy.
(13) Stockholders' Deficit
Stock-based and other incentive compensation
We provide stock-based compensation using stock options and RSUs. We also previously offered an ESPP through September 30, 2015, when the shares allocated to this plan were fully issued and the ESPP terminated in accordance with its terms. See Note 18 in our 2015 10-K. At the Annual Meeting, our stockholders approved the adoption of a new ESPP. The first offering period under the new ESPP will commence on January 1, 2017. A summary of our stock-based compensation plans follows:
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
Options outstanding
|
|
3.2
|
|
|
Remaining unrecognized expense related to unvested options
|
|
$8.3
|
|
|
|
|
|
RSUs Outstanding
|
|
5.6
|
|
|
Remaining unrecognized expense related to unvested RSUs
|
|
$52.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Stock-based compensation expense recognized:
|
|
|
|
|
|
|
|
|
Related to vesting of stock options
|
$
|
2.9
|
|
|
$
|
0.6
|
|
|
$
|
4.2
|
|
|
$
|
1.5
|
|
|
Related to vesting of RSUs
|
8.1
|
|
|
6.6
|
|
|
19.3
|
|
|
17.6
|
|
|
Total
|
$
|
11.0
|
|
|
$
|
7.2
|
|
|
$
|
23.5
|
|
|
$
|
19.1
|
|
On August 5, 2016, we announced that Kevin Sheehan succeeded M. Gavin Isaacs as President and Chief Executive Officer of the Company. On August 10, 2016, Mr. Sheehan received sign-on equity awards consisting of (a)
400,000
performance-conditioned restricted stock units that will vest based on achievement of specified performance conditions over a
three
-year period and (b) equity awards with a grant date value equal to approximately
250%
of his base salary, prorated based on the number of days Mr. Sheehan will be employed in 2016, and consisting of (i) restricted stock units and stock options, each with a
four
-year vesting schedule and (ii) performance-conditioned stock options vesting over a
four
-year period.
(14) Employee Benefit Plans
We have defined benefit pension plans for our U.K.-based union employees (the "U.K. Plan") and certain Canadian-based employees (the "Canadian Plan"). Retirement benefits under the U.K. Plan are generally based on an employee's average compensation over the
two
years preceding retirement. Retirement benefits under the Canadian Plan are generally based on the number of years of credited service. Our policy is to fund the minimum contribution permissible by the applicable authorities. See Note 19 in our 2015 10-K. We recognized no material costs in 2015 and 2016 under these plans.
We have a 401(k) plan for U.S.-based employees. Those employees who participate in our 401(k) plan are eligible to receive matching contributions of
35%
from us for participant contributions up to the first
6%
of their compensation (as defined in the plan document). Contribution expense for the three months ended September 30, 2016 and 2015 was
$2.8 million
and
$2.0 million
, respectively. Contribution expense for the nine months ended September 30, 2016 and 2015 was
$8.6 million
and
$7.8 million
, respectively.
(15) Income Taxes
The effective income tax rates for the three and nine months ended September 30, 2016 were
16.6%
and
19.4%
, respectively
, and
7.0%
and
14.2%
for the three and nine months ended September 30, 2015, respectively, and
were determined using an estimated annual effective tax rate after considering any discrete items for such periods.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. The Company has remained in a three year cumulative loss in the U.S. federal tax jurisdiction. As of September 30, 2016, on the basis of this evaluation and considering the projected U.S. pre-tax losses for 2016 and the resulting net U.S. deferred tax asset position anticipated to occur during 2016, a valuation allowance has been contemplated as a component of the estimated annual effective tax rate in order to recognize only the portion of the benefit related to current year losses that is more likely than not to be realized.
As of December 31, 2015, the Company remained in a net U.S. deferred tax liability position and therefore a valuation allowance against its U.S. deferred tax assets was only necessary for certain state deferred tax assets and U.S. foreign tax credit carryforwards. The Company maintained other valuation allowances for certain non-U.S. jurisdictions with cumulative losses. The Company is projecting a pre-tax loss for its U.S. operations in 2016 in an amount that will more than exceed, on an after tax basis, the net deferred tax liability recorded as of December 31, 2015. Thus, we are projecting to be in a net U.S. deferred tax asset position at December 31, 2016, exclusive of the valuation allowance.
Our effective income tax rate on foreign earnings is impacted by the mix of income and the statutory tax rates in our foreign jurisdictions, which range from a low of
0%
to a high of
39%
. The foreign jurisdictions that had the most impact on our foreign income tax expense (benefit) in the three and nine months ended
September 30, 2016
included Austria, Bermuda, Canada, India, Ireland and the U.K.
(16) Litigation
The Company is involved in various legal proceedings, including those discussed 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 $
8.2
million and
$16.4
million for all of our legal matters that were contingencies as of
September 30, 2016
and December 31, 2015, respectively.
Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies could result in losses in excess of amounts we have accrued. We may be unable to estimate a range of possible losses for some matters pending against the Company or its subsidiaries, even when the amount of damages claimed against the Company or its 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 below, 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
$13.5 million
in excess of the accrued liabilities (if any) related to those legal contingencies. This aggregate range represents management's estimate of additional possible loss in excess of the accrued liabilities (if any) with respect to these matters based on currently available information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherent uncertainties. For example, at the time of making an estimate, management may have only preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co‑defendants, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that management had not accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which the Company is 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.
Colombia Litigation
Our subsidiary, SGI, owned a minority interest in Wintech de Colombia S.A., or Wintech (now liquidated), which formerly operated the Colombian national lottery under a contract with Empresa Colombiana de Recursos para la Salud, S.A. (together with its successors, "Ecosalud"), an agency of the Colombian government. The contract provided for a penalty against Wintech, SGI and the other shareholders of Wintech of up to
$5.0
million if certain levels of lottery sales were not achieved. In addition, SGI delivered to Ecosalud a
$4.0
million surety bond as a further guarantee of performance under the contract. Wintech started the instant lottery in Colombia but, due to difficulties beyond its control, including, among other factors, social and political unrest in Colombia, frequently interrupted telephone service and power outages, and competition from another lottery being operated in a province of Colombia that we believe was in violation of Wintech's exclusive license from Ecosalud, the projected sales level was not met for the year ended June 30, 1993.
In 1993, Ecosalud issued a resolution declaring that the contract was in default. In 1994, Ecosalud issued a liquidation resolution asserting claims for compensation and damages against Wintech, SGI and other shareholders of Wintech for, among other things, realization of the full amount of the penalty, plus interest, and the amount of the bond. SGI filed separate actions opposing each resolution with the Tribunal Contencioso of Cundinamarca in Colombia (the "Tribunal"), which upheld both resolutions. SGI appealed each decision to the Council of State. In May 2012, the Council of State upheld the contract default resolution, which decision was notified to us in August 2012. In October 2013, the Council of State upheld the liquidation resolution, which decision was notified to us in December 2013.
In July 1996, Ecosalud filed a lawsuit against SGI in the U.S. District Court for the Northern District of Georgia asserting many of the same claims asserted in the Colombia proceedings, including breach of contract, and seeking damages. In March 1997, the District Court dismissed Ecosalud's claims. Ecosalud appealed the decision to the U.S. Court of Appeals for the Eleventh Circuit. The Court of Appeals affirmed the District Court's decision in 1998.
In June 1999, Ecosalud filed a collection proceeding against SGI to enforce the liquidation resolution and recover the claimed damages. In May 2013, the Tribunal denied SGI's merit defenses to the collection proceeding and issued an order of payment of approximately
90 billion
Colombian pesos (or approximately
$30.6
million), plus default interest potentially accrued since 1994 at a
12%
statutory interest rate. SGI has filed an appeal to the Council of State, which appeal has stayed the payment order.
SGI believes it has various defenses, including on the merits, against Ecosalud's claims. Although we believe these claims will not result in a material adverse effect on our consolidated results of operations, cash flows or financial position, it is
not feasible to predict the final outcome and there can be no assurance that these claims will not ultimately be resolved adversely to us or result in material liability.
Oregon State Lottery Matter
On December 31, 2014, a representative of a purported class of persons alleged to have been financially harmed by relying on the "auto hold" feature of various manufacturers' video lottery terminals played in Oregon, filed suit in the Circuit Court of Multnomah County, Oregon, against the Oregon State Lottery and various manufacturers, including WMS Gaming Inc. The suit alleges that the auto hold feature of video poker games is perceived by players as providing the best possible playing strategy that will maximize the odds of the player winning, when such auto hold feature does not maximize the players' odds of winning. The plaintiffs are seeking in excess of
$134.0
million in monetary damages.
In April 2015, the court granted the Oregon State Lottery's motion to dismiss, stating the plaintiffs had not satisfied the Oregon Tort Claims Act. As a result of the dismissal, the court indicated that all claims against WMS Gaming Inc. were moot. In June 2015, plaintiffs filed an appeal. We intend to vigorously defend against the claims asserted in the lawsuit.
Shuffle Tech Matter
In April 2015, Shuffle Tech International, LLC, Aces Up Gaming, Inc. and Poydras-Talrick Holdings LLC brought a civil action in the United States District Court for the Northern District of Illinois against the Company, Bally and Bally Gaming, Inc., alleging monopolization of the market for card shufflers in violation of federal antitrust laws, fraudulent procurement of patents on card shufflers, unfair competition and deceptive trade practices. Specifically, the plaintiffs claim that the defendants utilized certain shuffler patents in a predatory manner to create and maintain a monopoly in the relevant shuffler market. The plaintiffs seek no less than
$100.0
million in compensatory damages, treble damages and injunctive and declaratory relief. In June 2015, the defendants filed a motion to dismiss. In October 2015, the court dismissed all of the plaintiffs' claims against Bally and Bally Gaming, Inc. with prejudice, except for the claims of violation of antitrust laws related to the fraudulent procurement of patents on card shufflers. We intend to vigorously defend against the claims asserted in the lawsuit.
(17) Subsequent Events
On November 3, 2016, we announced that we began implementing a new business improvement initiative, which we expect will streamline our organization, increase our efficiencies, and significantly reduce our operating costs once the initiative is fully implemented. These cost savings are expected to be achieved across all our divisions and will encompass a combination of headcount reductions, facilities streamlining, and reductions in other operating costs. We anticipate Restructuring and other costs of approximately
$20 million
in the fourth quarter of 2016. The mostly cash payments related to this charge are anticipated to be incurred during the fourth quarter of 2016.
(18) 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 September 30, 2016, SGI's obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes were fully and unconditionally and jointly and severally guaranteed by SGC and the Guarantor Subsidiaries other than SGI. As of September 30, 2016, our 2018 Notes, which were issued by SGC, were fully and unconditionally and jointly and severally guaranteed by the Guarantor Subsidiaries. The guarantees of our 2018 Notes, 2020 Notes, 2021 Notes, Secured Notes and Unsecured 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 (or, in the case of the 2018 Notes, the release of the guarantor from any guarantees of indebtedness of SGC); and (5) in the case of the 2020 Notes, the 2021 Notes and the Secured Notes and the Unsecured Notes, the proper designation of the guarantor as an unrestricted subsidiary pursuant to the indenture governing the respective Notes.
During the third quarter, we designated certain of our wholly owned direct and indirect subsidiaries that hold substantially all of the assets of, and operate, our social gaming business, as “Unrestricted Subsidiaries” under our credit agreement and each of the indentures governing the 2018 Notes, 2020 Notes, 2021 Notes, Secured Notes and Unsecured Notes. As a result of these designations, our 100%-owned social gaming subsidiaries are no longer guarantors under our credit agreement and indentures. Therefore, the historical condensed consolidating financial information presented has been
reclassified to show the nature of assets held, results of operations and cash flows assuming the "Unrestricted Subsidiary" designations were in effect at the beginning of all periods presented, consistent with their status as non-guarantors as of September 30, 2016. The affected subsidiaries are no longer allocated interest in this condensed consolidating financial information due to their present status as non-guarantors. Accordingly, for all periods presented, we no longer present an allocation of interest to any entities, including the Unrestricted Subsidiaries, other than the legal entity issuer of the associated debt.
Presented below is condensed consolidating financial information for (1) SGC, (2) SGI, (3) the Guarantor Subsidiaries and (4) the Non-Guarantor Subsidiaries as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015. 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 guarantee structures of our credit agreement, the 2018 Notes, the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured 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 September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent and Issuer
1
)
|
|
SGI (Issuer
2
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
42.7
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
84.8
|
|
|
$
|
(7.1
|
)
|
|
$
|
120.9
|
|
|
Restricted cash
|
|
—
|
|
|
—
|
|
|
24.2
|
|
|
0.1
|
|
|
—
|
|
|
24.3
|
|
|
Accounts receivable, net
|
|
—
|
|
|
58.2
|
|
|
193.2
|
|
|
213.9
|
|
|
—
|
|
|
465.3
|
|
|
Notes receivable, net
|
|
—
|
|
|
—
|
|
|
94.3
|
|
|
34.7
|
|
|
—
|
|
|
129.0
|
|
|
Inventories
|
|
—
|
|
|
37.9
|
|
|
93.2
|
|
|
156.8
|
|
|
(17.8
|
)
|
|
270.1
|
|
|
Prepaid expenses, deposits and other current assets
|
|
32.2
|
|
|
17.5
|
|
|
35.2
|
|
|
41.1
|
|
|
—
|
|
|
126.0
|
|
|
Property and equipment, net
|
|
8.1
|
|
|
106.3
|
|
|
406.8
|
|
|
166.1
|
|
|
(23.5
|
)
|
|
663.8
|
|
|
Investment in subsidiaries
|
|
3,166.1
|
|
|
859.5
|
|
|
888.1
|
|
|
—
|
|
|
(4,913.7
|
)
|
|
—
|
|
|
Goodwill
|
|
—
|
|
|
188.3
|
|
|
1,931.7
|
|
|
871.0
|
|
|
—
|
|
|
2,991.0
|
|
|
Intangible assets, net
|
|
196.5
|
|
|
38.5
|
|
|
1,386.0
|
|
|
220.0
|
|
|
—
|
|
|
1,841.0
|
|
|
Intercompany balances
|
|
—
|
|
|
5,505.1
|
|
|
—
|
|
|
89.3
|
|
|
(5,594.4
|
)
|
|
—
|
|
|
Software, net
|
|
71.0
|
|
|
22.9
|
|
|
285.5
|
|
|
51.7
|
|
|
—
|
|
|
431.1
|
|
|
Other assets
|
|
270.1
|
|
|
223.9
|
|
|
44.8
|
|
|
217.9
|
|
|
(442.6
|
)
|
|
314.1
|
|
|
Total assets
|
|
$
|
3,786.7
|
|
|
$
|
7,058.6
|
|
|
$
|
5,383.0
|
|
|
$
|
2,147.4
|
|
|
$
|
(10,999.1
|
)
|
|
$
|
7,376.6
|
|
|
Liabilities and stockholders' (deficit) equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
—
|
|
|
$
|
43.0
|
|
|
$
|
—
|
|
|
$
|
6.6
|
|
|
$
|
—
|
|
|
$
|
49.6
|
|
|
Other current liabilities
|
|
66.7
|
|
|
194.0
|
|
|
206.9
|
|
|
208.4
|
|
|
(7.1
|
)
|
|
668.9
|
|
|
Long-term debt, excluding current portion
|
|
248.5
|
|
|
7,774.2
|
|
|
—
|
|
|
11.1
|
|
|
—
|
|
|
8,033.8
|
|
|
Other long-term liabilities
|
|
179.4
|
|
|
12.1
|
|
|
517.4
|
|
|
108.0
|
|
|
(442.6
|
)
|
|
374.3
|
|
|
Intercompany balances
|
|
5,042.1
|
|
|
—
|
|
|
552.3
|
|
|
—
|
|
|
(5,594.4
|
)
|
|
—
|
|
|
Stockholders' (deficit) equity
|
|
(1,750.0
|
)
|
|
(964.7
|
)
|
|
4,106.4
|
|
|
1,813.3
|
|
|
(4,955.0
|
)
|
|
(1,750.0
|
)
|
|
Total liabilities and stockholders' (deficit) equity
|
|
$
|
3,786.7
|
|
|
$
|
7,058.6
|
|
|
$
|
5,383.0
|
|
|
$
|
2,147.4
|
|
|
$
|
(10,999.1
|
)
|
|
$
|
7,376.6
|
|
1 - Issuer of obligations under the 2018 Notes.
2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent and Issuer
1
)
|
|
SGI (Issuer
2
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43.2
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
85.0
|
|
|
$
|
—
|
|
|
$
|
128.7
|
|
|
Restricted cash
|
|
—
|
|
|
—
|
|
|
20.0
|
|
|
0.2
|
|
|
—
|
|
|
20.2
|
|
|
Accounts receivable, net
|
|
—
|
|
|
94.6
|
|
|
223.0
|
|
|
169.5
|
|
|
—
|
|
|
487.1
|
|
|
Notes receivable, net
|
|
—
|
|
|
—
|
|
|
114.2
|
|
|
53.5
|
|
|
—
|
|
|
167.7
|
|
|
Inventories
|
|
—
|
|
|
36.9
|
|
|
104.2
|
|
|
119.6
|
|
|
(12.2
|
)
|
|
248.5
|
|
|
Prepaid expenses, deposits and other current assets
|
|
26.8
|
|
|
7.0
|
|
|
51.0
|
|
|
38.5
|
|
|
—
|
|
|
123.3
|
|
|
Property and equipment, net
|
|
8.2
|
|
|
106.4
|
|
|
501.1
|
|
|
189.8
|
|
|
(11.5
|
)
|
|
794.0
|
|
|
Investment in subsidiaries
|
|
3,319.6
|
|
|
838.1
|
|
|
819.0
|
|
|
—
|
|
|
(4,976.7
|
)
|
|
—
|
|
|
Goodwill
|
|
—
|
|
|
186.0
|
|
|
1,934.0
|
|
|
893.7
|
|
|
—
|
|
|
3,013.7
|
|
|
Intangible assets, net
|
|
138.3
|
|
|
39.8
|
|
|
1,505.0
|
|
|
236.9
|
|
|
—
|
|
|
1,920.0
|
|
|
Intercompany balances
|
|
—
|
|
|
5,857.1
|
|
|
—
|
|
|
—
|
|
|
(5,857.1
|
)
|
|
—
|
|
|
Software, net
|
|
35.6
|
|
|
32.7
|
|
|
358.0
|
|
|
59.6
|
|
|
—
|
|
|
485.9
|
|
|
Other assets
|
|
232.5
|
|
|
123.4
|
|
|
51.8
|
|
|
241.7
|
|
|
(306.3
|
)
|
|
343.1
|
|
|
Total assets
|
|
$
|
3,804.2
|
|
|
$
|
7,322.0
|
|
|
$
|
5,681.8
|
|
|
$
|
2,088.0
|
|
|
$
|
(11,163.8
|
)
|
|
$
|
7,732.2
|
|
|
Liabilities and stockholders' (deficit) equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
—
|
|
|
$
|
43.0
|
|
|
$
|
—
|
|
|
$
|
7.3
|
|
|
$
|
—
|
|
|
$
|
50.3
|
|
|
Other current liabilities
|
|
63.7
|
|
|
150.5
|
|
|
238.8
|
|
|
150.6
|
|
|
—
|
|
|
603.6
|
|
|
Long-term debt, excluding current portion
|
|
248.0
|
|
|
7,890.3
|
|
|
—
|
|
|
18.4
|
|
|
—
|
|
|
8,156.7
|
|
|
Other long-term liabilities
|
|
119.1
|
|
|
14.5
|
|
|
502.1
|
|
|
87.7
|
|
|
(306.3
|
)
|
|
417.1
|
|
|
Intercompany balances
|
|
4,868.9
|
|
|
—
|
|
|
966.8
|
|
|
21.4
|
|
|
(5,857.1
|
)
|
|
—
|
|
|
Stockholders' (deficit) equity
|
|
(1,495.5
|
)
|
|
(776.3
|
)
|
|
3,974.1
|
|
|
1,802.6
|
|
|
(5,000.4
|
)
|
|
(1,495.5
|
)
|
|
Total liabilities and stockholders' (deficit) equity
|
|
$
|
3,804.2
|
|
|
$
|
7,322.0
|
|
|
$
|
5,681.8
|
|
|
$
|
2,088.0
|
|
|
$
|
(11,163.8
|
)
|
|
$
|
7,732.2
|
|
1 - Issuer of obligations under the 2018 Notes.
2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE LOSS
Three Months Ended
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent and Issuer
1
)
|
|
SGI (Issuer
2
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
114.2
|
|
|
$
|
330.8
|
|
|
$
|
358.4
|
|
|
$
|
(83.4
|
)
|
|
$
|
720.0
|
|
|
Cost of services, cost of product sales and cost of instant games
(3)
|
|
—
|
|
|
81.8
|
|
|
86.1
|
|
|
189.8
|
|
|
(83.4
|
)
|
|
274.3
|
|
|
Selling, general and administrative
|
|
30.9
|
|
|
14.8
|
|
|
43.1
|
|
|
64.0
|
|
|
—
|
|
|
152.8
|
|
|
Research and development
|
|
2.1
|
|
|
1.6
|
|
|
38.3
|
|
|
11.9
|
|
|
—
|
|
|
53.9
|
|
|
Restructuring and other
|
|
14.3
|
|
|
0.2
|
|
|
(0.7
|
)
|
|
—
|
|
|
—
|
|
|
13.8
|
|
|
Depreciation, amortization and impairments
|
|
13.8
|
|
|
8.7
|
|
|
140.6
|
|
|
28.6
|
|
|
—
|
|
|
191.7
|
|
|
Operating (loss) income
|
|
(61.1
|
)
|
|
7.1
|
|
|
23.4
|
|
|
64.1
|
|
|
—
|
|
|
33.5
|
|
|
Interest expense
|
|
(5.3
|
)
|
|
(159.5
|
)
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
(165.4
|
)
|
|
Other (expense) income, net
|
|
(13.9
|
)
|
|
54.7
|
|
|
(26.7
|
)
|
|
(0.8
|
)
|
|
—
|
|
|
13.3
|
|
|
Net (loss) income before equity in income of subsidiaries and income taxes
|
|
(80.3
|
)
|
|
(97.7
|
)
|
|
(3.3
|
)
|
|
62.7
|
|
|
—
|
|
|
(118.6
|
)
|
|
Equity in income of subsidiaries
|
|
18.1
|
|
|
7.5
|
|
|
37.9
|
|
|
—
|
|
|
(63.5
|
)
|
|
—
|
|
|
Income tax (expense) benefit
|
|
(36.7
|
)
|
|
99.2
|
|
|
(16.9
|
)
|
|
(25.9
|
)
|
|
—
|
|
|
19.7
|
|
|
Net (loss) income
|
|
$
|
(98.9
|
)
|
|
$
|
9.0
|
|
|
$
|
17.7
|
|
|
$
|
36.8
|
|
|
$
|
(63.5
|
)
|
|
$
|
(98.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
5.2
|
|
|
2.1
|
|
|
(48.0
|
)
|
|
19.0
|
|
|
26.9
|
|
|
5.2
|
|
|
Comprehensive (loss) income
|
|
$
|
(93.7
|
)
|
|
$
|
11.1
|
|
|
$
|
(30.3
|
)
|
|
$
|
55.8
|
|
|
$
|
(36.6
|
)
|
|
$
|
(93.7
|
)
|
1 - Issuer of obligations under the 2018 Notes.
2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.
3 - Exclusive of D&A.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE LOSS
Three Months Ended
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent and Issuer
1
)
|
|
SGI (Issuer
2
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
106.5
|
|
|
$
|
370.7
|
|
|
$
|
270.4
|
|
|
$
|
(76.0
|
)
|
|
$
|
671.6
|
|
|
Cost of services, cost of product sales and cost of instant games
(3)
|
|
—
|
|
|
77.7
|
|
|
113.1
|
|
|
135.2
|
|
|
(76.0
|
)
|
|
250.0
|
|
|
Selling, general and administrative
|
|
16.2
|
|
|
15.9
|
|
|
59.2
|
|
|
45.5
|
|
|
—
|
|
|
136.8
|
|
|
Research and development
|
|
—
|
|
|
0.8
|
|
|
35.4
|
|
|
9.7
|
|
|
—
|
|
|
45.9
|
|
|
Restructuring and other
|
|
1.4
|
|
|
0.6
|
|
|
2.9
|
|
|
0.7
|
|
|
—
|
|
|
5.6
|
|
|
Depreciation, amortization and impairments
|
|
8.3
|
|
|
10.5
|
|
|
232.2
|
|
|
35.5
|
|
|
—
|
|
|
286.5
|
|
|
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
802.9
|
|
|
132.1
|
|
|
—
|
|
|
935.0
|
|
|
Operating (loss) income
|
|
(25.9
|
)
|
|
1.0
|
|
|
(875.0
|
)
|
|
(88.3
|
)
|
|
—
|
|
|
(988.2
|
)
|
|
Interest expense
|
|
(5.2
|
)
|
|
(161.4
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(166.8
|
)
|
|
Other (expense) income, net
|
|
6.9
|
|
|
19.3
|
|
|
(8.2
|
)
|
|
(22.5
|
)
|
|
—
|
|
|
(4.5
|
)
|
|
Net loss before equity in (loss) income of subsidiaries and income taxes
|
|
(24.2
|
)
|
|
(141.1
|
)
|
|
(883.2
|
)
|
|
(111.0
|
)
|
|
—
|
|
|
(1,159.5
|
)
|
|
Equity in (loss) income of subsidiaries
|
|
(1,137.5
|
)
|
|
11.8
|
|
|
(143.6
|
)
|
|
—
|
|
|
1,269.3
|
|
|
—
|
|
|
Income tax benefit (expense)
|
|
83.5
|
|
|
(0.1
|
)
|
|
(0.9
|
)
|
|
(1.2
|
)
|
|
—
|
|
|
81.3
|
|
|
Net loss
|
|
$
|
(1,078.2
|
)
|
|
$
|
(129.4
|
)
|
|
$
|
(1,027.7
|
)
|
|
$
|
(112.2
|
)
|
|
$
|
1,269.3
|
|
|
$
|
(1,078.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
(49.0
|
)
|
|
(3.1
|
)
|
|
56.8
|
|
|
(104.1
|
)
|
|
50.4
|
|
|
(49.0
|
)
|
|
Comprehensive loss
|
|
$
|
(1,127.2
|
)
|
|
$
|
(132.5
|
)
|
|
$
|
(970.9
|
)
|
|
$
|
(216.3
|
)
|
|
$
|
1,319.7
|
|
|
$
|
(1,127.2
|
)
|
1 - Issuer of obligations under the 2018 Notes.
2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.
3 - Exclusive of D&A.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE LOSS
Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent and Issuer
1
)
|
|
SGI (Issuer
2
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
355.8
|
|
|
$
|
1,047.0
|
|
|
$
|
942.2
|
|
|
$
|
(213.8
|
)
|
|
$
|
2,131.2
|
|
|
Cost of instant games, cost of services and cost of product sales
(3)
|
|
—
|
|
|
250.8
|
|
|
275.2
|
|
|
494.6
|
|
|
(213.8
|
)
|
|
806.8
|
|
|
Selling, general and administrative
|
|
91.9
|
|
|
37.6
|
|
|
132.8
|
|
|
177.7
|
|
|
—
|
|
|
440.0
|
|
|
Research and development
|
|
4.8
|
|
|
6.3
|
|
|
109.1
|
|
|
35.2
|
|
|
—
|
|
|
155.4
|
|
|
Restructuring and other
|
|
14.3
|
|
|
0.4
|
|
|
3.3
|
|
|
2.7
|
|
|
—
|
|
|
20.7
|
|
|
Depreciation, amortization and impairments
|
|
39.5
|
|
|
29.9
|
|
|
407.3
|
|
|
88.7
|
|
|
—
|
|
|
565.4
|
|
|
Operating (loss) income
|
|
(150.5
|
)
|
|
30.8
|
|
|
119.3
|
|
|
143.3
|
|
|
—
|
|
|
142.9
|
|
|
Interest expense
|
|
(15.8
|
)
|
|
(480.0
|
)
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
(496.4
|
)
|
|
Gain on early extinguishment of debt
|
|
—
|
|
|
25.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25.2
|
|
|
Other (expense) income, net
|
|
(64.2
|
)
|
|
157.5
|
|
|
(73.9
|
)
|
|
7.5
|
|
|
—
|
|
|
26.9
|
|
|
Net (loss) income before equity in (loss) income of subsidiaries and income taxes
|
|
(230.5
|
)
|
|
(266.5
|
)
|
|
45.4
|
|
|
150.2
|
|
|
—
|
|
|
(301.4
|
)
|
|
Equity in (loss) income of subsidiaries
|
|
(22.7
|
)
|
|
37.8
|
|
|
85.3
|
|
|
—
|
|
|
(100.4
|
)
|
|
—
|
|
|
Income tax benefit (expense)
|
|
10.3
|
|
|
99.2
|
|
|
(16.8
|
)
|
|
(34.2
|
)
|
|
—
|
|
|
58.5
|
|
|
Net (loss) income
|
|
$
|
(242.9
|
)
|
|
$
|
(129.5
|
)
|
|
$
|
113.9
|
|
|
$
|
116.0
|
|
|
$
|
(100.4
|
)
|
|
$
|
(242.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
(27.4
|
)
|
|
5.0
|
|
|
(54.2
|
)
|
|
(11.8
|
)
|
|
61.0
|
|
|
(27.4
|
)
|
|
Comprehensive (loss) income
|
|
$
|
(270.3
|
)
|
|
$
|
(124.5
|
)
|
|
$
|
59.7
|
|
|
$
|
104.2
|
|
|
$
|
(39.4
|
)
|
|
$
|
(270.3
|
)
|
1 - Issuer of obligations under the 2018 Notes.
2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.
3 - Exclusive of D&A.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE LOSS
Nine Months Ended
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent and Issuer
1
)
|
|
SGI (Issuer
2
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
324.1
|
|
|
$
|
1,163.3
|
|
|
$
|
811.0
|
|
|
$
|
(276.6
|
)
|
|
$
|
2,021.8
|
|
|
Cost of instant games, cost of services and cost of product sales
(3)
|
|
—
|
|
|
238.0
|
|
|
371.4
|
|
|
447.9
|
|
|
(276.6
|
)
|
|
780.7
|
|
|
Selling, general and administrative
|
|
47.8
|
|
|
50.5
|
|
|
186.9
|
|
|
138.4
|
|
|
—
|
|
|
423.6
|
|
|
Research and development
|
|
—
|
|
|
3.6
|
|
|
108.5
|
|
|
28.7
|
|
|
—
|
|
|
140.8
|
|
|
Restructuring and other
|
|
4.6
|
|
|
1.5
|
|
|
9.6
|
|
|
3.3
|
|
|
—
|
|
|
19.0
|
|
|
Depreciation, amortization and impairments
|
|
24.3
|
|
|
30.1
|
|
|
528.2
|
|
|
110.3
|
|
|
—
|
|
|
692.9
|
|
|
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
802.9
|
|
|
132.1
|
|
|
—
|
|
|
935.0
|
|
|
Operating (loss) income
|
|
(76.7
|
)
|
|
0.4
|
|
|
(844.2
|
)
|
|
(49.7
|
)
|
|
—
|
|
|
(970.2
|
)
|
|
Interest expense
|
|
(15.8
|
)
|
|
(481.3
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
|
(497.5
|
)
|
|
Other (expense) income, net
|
|
24.9
|
|
|
55.2
|
|
|
(77.0
|
)
|
|
(11.1
|
)
|
|
—
|
|
|
(8.0
|
)
|
|
Net loss before equity in (loss) income of subsidiaries and income taxes
|
|
(67.6
|
)
|
|
(425.7
|
)
|
|
(921.2
|
)
|
|
(61.2
|
)
|
|
—
|
|
|
(1,475.7
|
)
|
|
Equity in (loss) income of subsidiaries
|
|
(1,412.1
|
)
|
|
41.1
|
|
|
(112.6
|
)
|
|
—
|
|
|
1,483.6
|
|
|
—
|
|
|
Income tax benefit (expense)
|
|
212.9
|
|
|
(0.2
|
)
|
|
(7.0
|
)
|
|
3.2
|
|
|
—
|
|
|
208.9
|
|
|
Net loss
|
|
$
|
(1,266.8
|
)
|
|
$
|
(384.8
|
)
|
|
$
|
(1,040.8
|
)
|
|
$
|
(58.0
|
)
|
|
$
|
1,483.6
|
|
|
$
|
(1,266.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
(136.1
|
)
|
|
(12.9
|
)
|
|
48.4
|
|
|
(181.4
|
)
|
|
145.9
|
|
|
(136.1
|
)
|
|
Comprehensive loss
|
|
$
|
(1,402.9
|
)
|
|
$
|
(397.7
|
)
|
|
$
|
(992.4
|
)
|
|
$
|
(239.4
|
)
|
|
$
|
1,629.5
|
|
|
$
|
(1,402.9
|
)
|
1 - Issuer of obligations under the 2018 Notes.
2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.
3 - Exclusive of D&A.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent and Issuer
1
)
|
|
SGI (Issuer
2
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(213.3
|
)
|
|
$
|
(157.0
|
)
|
|
$
|
494.3
|
|
|
$
|
225.9
|
|
|
$
|
(7.1
|
)
|
|
$
|
342.8
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(36.6
|
)
|
|
(22.1
|
)
|
|
(110.4
|
)
|
|
(45.3
|
)
|
|
—
|
|
|
(214.4
|
)
|
|
Distributions of capital on equity investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24.0
|
|
|
—
|
|
|
24.0
|
|
|
Restricted Cash
|
|
—
|
|
|
—
|
|
|
(3.5
|
)
|
|
—
|
|
|
—
|
|
|
(3.5
|
)
|
|
Changes in other assets and liabilities and other
|
|
—
|
|
|
—
|
|
|
6.1
|
|
|
—
|
|
|
—
|
|
|
6.1
|
|
|
Other, principally change in intercompany investing activities
|
|
—
|
|
|
296.8
|
|
|
—
|
|
|
(198.8
|
)
|
|
(98.0
|
)
|
|
—
|
|
|
Net cash (used in) provided by investing activities
|
|
(36.6
|
)
|
|
274.7
|
|
|
(107.8
|
)
|
|
(220.1
|
)
|
|
(98.0
|
)
|
|
(187.8
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments of long-term debt including repurchases of notes
|
|
—
|
|
|
(117.2
|
)
|
|
—
|
|
|
(5.3
|
)
|
|
—
|
|
|
(122.5
|
)
|
|
Payments on license obligations
|
|
(24.2
|
)
|
|
—
|
|
|
(10.3
|
)
|
|
—
|
|
|
—
|
|
|
(34.5
|
)
|
|
Redemptions of common stock under stock-based compensation plans
|
|
(4.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.7
|
)
|
|
Other, principally change in intercompany financing activities
|
|
278.3
|
|
|
—
|
|
|
(376.3
|
)
|
|
—
|
|
|
98.0
|
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
|
249.4
|
|
|
(117.2
|
)
|
|
(386.6
|
)
|
|
(5.3
|
)
|
|
98.0
|
|
|
(161.7
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
—
|
|
|
—
|
|
|
(0.4
|
)
|
|
(0.7
|
)
|
|
—
|
|
|
(1.1
|
)
|
|
(Decrease) increase in cash and cash equivalents
|
|
(0.5
|
)
|
|
0.5
|
|
|
(0.5
|
)
|
|
(0.2
|
)
|
|
(7.1
|
)
|
|
(7.8
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
43.2
|
|
|
—
|
|
|
0.5
|
|
|
85.0
|
|
|
—
|
|
|
128.7
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
42.7
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
84.8
|
|
|
$
|
(7.1
|
)
|
|
$
|
120.9
|
|
1 - Issuer of obligations under the 2018 Notes.
2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent and Issuer
1
)
|
|
SGI (Issuer
2
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(26.7
|
)
|
|
$
|
(339.9
|
)
|
|
$
|
454.6
|
|
|
$
|
167.5
|
|
|
$
|
—
|
|
|
$
|
255.5
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(12.8
|
)
|
|
(19.7
|
)
|
|
(168.0
|
)
|
|
(33.1
|
)
|
|
—
|
|
|
(233.6
|
)
|
|
Distributions of capital on equity investments
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
36.0
|
|
|
—
|
|
|
37.0
|
|
|
Restricted cash
|
|
—
|
|
|
—
|
|
|
9.3
|
|
|
—
|
|
|
—
|
|
|
9.3
|
|
|
Changes in other assets and liabilities and other
|
|
—
|
|
|
(0.1
|
)
|
|
5.1
|
|
|
5.1
|
|
|
—
|
|
|
10.1
|
|
|
Other, principally change in intercompany investing activities
|
|
—
|
|
|
461.4
|
|
|
—
|
|
|
—
|
|
|
(461.4
|
)
|
|
—
|
|
|
Net cash (used in) provided by investing activities
|
|
(12.8
|
)
|
|
442.6
|
|
|
(153.6
|
)
|
|
8.0
|
|
|
(461.4
|
)
|
|
(177.2
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments on long-term debt
|
|
—
|
|
|
(102.3
|
)
|
|
—
|
|
|
(6.5
|
)
|
|
—
|
|
|
(108.8
|
)
|
|
Payments on license obligations
|
|
(19.5
|
)
|
|
—
|
|
|
(12.5
|
)
|
|
—
|
|
|
—
|
|
|
(32.0
|
)
|
|
Contingent earnout payments
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
Issuance (redemptions) of common stock under stock-based compensation plans
|
|
0.5
|
|
|
—
|
|
|
(37.1
|
)
|
|
(110.2
|
)
|
|
147.2
|
|
|
0.4
|
|
|
Other, principally change in intercompany financing activities
|
|
37.9
|
|
|
—
|
|
|
(270.6
|
)
|
|
(81.5
|
)
|
|
314.2
|
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
|
18.9
|
|
|
(102.3
|
)
|
|
(320.7
|
)
|
|
(198.2
|
)
|
|
461.4
|
|
|
(140.9
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
—
|
|
|
(0.5
|
)
|
|
(0.8
|
)
|
|
(5.8
|
)
|
|
—
|
|
|
(7.1
|
)
|
|
Decrease in cash and cash equivalents
|
|
(20.6
|
)
|
|
(0.1
|
)
|
|
(20.5
|
)
|
|
(28.5
|
)
|
|
—
|
|
|
(69.7
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
37.9
|
|
|
0.1
|
|
|
27.3
|
|
|
106.5
|
|
|
—
|
|
|
171.8
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
17.3
|
|
|
$
|
—
|
|
|
$
|
6.8
|
|
|
$
|
78.0
|
|
|
$
|
—
|
|
|
$
|
102.1
|
|
1 - Issuer of obligations under the 2018 Notes.
2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.