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 and other mobile games to retail customers; and providing a comprehensive suite of digital RMG and sports wagering solutions, distribution platforms, content, products and services. We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments. We report our results of operations in four business segments—Gaming, Lottery, SciPlay and Digital—representing our different products and services.
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 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, comprehensive loss and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2020 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
As more fully described in the “Description of the Business and Summary of Significant Accounting Policies - Impact of COVID-19” in Note 1 of our 2020 10-K, COVID-19 disruptions continue to impact our results of operations and particularly our Gaming business segment operations. Even though the majority of gaming establishments reopened globally, gaming operations have yet to return to pre-COVID levels, as limited international travel, social distancing measures and reduced operating capacity restrictions remain in effect in many jurisdictions, and overall uncertainty regarding the magnitude and length of time that these disruptions will continue to impact our business remains unknown and may change in the future and such changes could be material. We continue to assess the situation jurisdiction by jurisdiction and actively manage our daily cash flows and continue to evaluate additional measures that will reduce operating costs and conserve cash to preserve liquidity as we execute on our strategic initiatives.
As of March 31, 2021, our total available liquidity (excluding our SciPlay business segment) was $898 million, which included $203 million of undrawn availability under SGI’s revolving credit facility. In April of 2021, we made a voluntary payment of $150 million on SGI’s revolving credit facility.
Significant Accounting Policies
There have been no changes to our significant accounting policies described within the Notes of our 2020 10-K.
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 2 million and 1 million of stock options from the diluted weighted-average common shares outstanding for the three months ended March 31, 2021 and 2020, respectively. We excluded 3 million and 2 million of RSUs from the calculation of diluted weighted-average common shares outstanding for the three months ended March 31, 2021 and 2020, respectively.
New Accounting Guidance - Not Yet Adopted
The FASB issued ASU No. 2020-04 and subsequently ASU No. 2021-01, Reference Rate Reform (Topic 848) in March 2020 and January 2021, respectively. The new guidance provides optional expedients and exceptions for applying U.S.
GAAP to contract modifications and hedging relationships, including derivative instruments impacted by changes in the interest rates used for discounting cash flows for computing variable margin settlements, subject to meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued, in 2022 or potentially 2023 (pending possible extension). The ASUs establish certain contract modification principles that entities can apply in other areas that may be affected by reference rate reform and certain elective hedge accounting expedients and exceptions. The ASUs may be applied prospectively. We are currently assessing the impact of these standards 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.
(2) Revenue Recognition
The following table disaggregates revenues by type within each of our business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Gaming
|
|
|
|
|
|
|
|
Gaming operations
|
$
|
113
|
|
|
$
|
119
|
|
|
|
|
|
Gaming machine sales
|
55
|
|
|
92
|
|
|
|
|
|
Gaming systems
|
42
|
|
|
55
|
|
|
|
|
|
Table products
|
34
|
|
|
52
|
|
|
|
|
|
Total
|
$
|
244
|
|
|
$
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lottery
|
|
|
|
|
|
|
|
Instant products
|
$
|
162
|
|
|
$
|
136
|
|
|
|
|
|
Lottery systems
|
86
|
|
|
76
|
|
|
|
|
|
Total
|
$
|
248
|
|
|
$
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SciPlay
|
|
|
|
|
|
|
|
Mobile
|
$
|
133
|
|
|
$
|
101
|
|
|
|
|
|
Web and other
|
18
|
|
|
17
|
|
|
|
|
|
Total
|
$
|
151
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
|
|
|
|
|
|
Sports and platform
|
$
|
33
|
|
|
$
|
38
|
|
|
|
|
|
Gaming and other
|
53
|
|
|
39
|
|
|
|
|
|
Total
|
$
|
86
|
|
|
$
|
77
|
|
|
|
|
|
The amount of rental income revenue that is outside the scope of ASC 606 was $63 million and $74 million for the three months ended March 31, 2021, and 2020, respectively.
Contract Liabilities and Other Disclosures
The following table summarizes the activity in our contract liabilities for the reporting period:
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|
|
|
|
|
|
Three Months Ended March 31, 2021
|
Contract liability balance, beginning of period(1)
|
$
|
89
|
|
Liabilities recognized during the period
|
30
|
|
Amounts recognized in revenue from beginning balance
|
(20)
|
|
Contract liability balance, end of period(1)
|
$
|
99
|
|
(1) Contract liabilities are included within Accrued liabilities and Other long-term liabilities in our consolidated balance sheets.
|
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 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 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 tickets to end consumers. As a result, revenue recognition under ASC 606 does not approximate conversion to cash for such contracts in any periods presented. Total revenue recognized under such contracts was $19 million in the three months ended March 31, 2021 and 2020. The following table summarizes our balances in these accounts for the periods indicated (other than contract liabilities disclosed above):
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|
|
|
|
|
|
|
|
|
|
Receivables
|
|
Contract Assets(1)
|
Beginning of period balance
|
$
|
636
|
|
|
$
|
127
|
|
End of period balance, March 31, 2021
|
641
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
(1) Contract assets are included primarily within Prepaid expenses, deposits and other current assets in our consolidated balance sheets.
|
As of March 31, 2021, 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 business segments—Gaming, Lottery, 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 2020 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 2 in our 2020 10-K. The accounting policies of our business segments are the same as those described within the Notes in our 2020 10-K. The following tables present our segment information:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
Gaming
|
|
Lottery
|
|
SciPlay
|
|
Digital
|
|
Unallocated and Reconciling Items(1)
|
|
Total
|
Total revenue
|
$
|
244
|
|
|
$
|
248
|
|
|
$
|
151
|
|
|
$
|
86
|
|
|
$
|
—
|
|
|
$
|
729
|
|
AEBITDA
|
108
|
|
|
119
|
|
|
46
|
|
|
29
|
|
|
(32)
|
|
|
$
|
270
|
|
Reconciling items to consolidated net loss before income taxes:
|
D&A
|
(75)
|
|
|
(14)
|
|
|
(3)
|
|
|
(24)
|
|
|
(7)
|
|
|
(123)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other
|
(3)
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(17)
|
|
|
(21)
|
|
EBITDA from equity investments
|
|
|
|
|
|
|
|
|
(20)
|
|
|
(20)
|
|
Earnings from equity investments
|
|
|
|
|
|
|
|
|
9
|
|
|
9
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(121)
|
|
|
(121)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on remeasurement of debt
|
|
|
|
|
|
|
|
|
25
|
|
|
25
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
(2)
|
|
|
(2)
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
(23)
|
|
|
(23)
|
|
Net loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.
|
|
(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 related costs and other unusual items. The following table summarizes pre-tax restructuring and other costs for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Employee severance and related(1)
|
|
$
|
1
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring, integration and other(2)
|
|
20
|
|
|
4
|
|
|
|
|
|
Total
|
|
$
|
21
|
|
|
$
|
22
|
|
|
|
|
|
|
(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.
|
(2) The three months ended March 31, 2021 includes cost associated with strategic and business optimization initiatives.
|
(5) Receivables, Allowance for Credit Losses and Credit Quality of Receivables
Receivables
The following table summarizes the components of current and long-term receivables, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2021
|
|
December 31, 2020
|
Current:
|
|
|
|
Receivables
|
$
|
700
|
|
|
$
|
697
|
|
Allowance for credit losses
|
(79)
|
|
|
(81)
|
|
Current receivables, net
|
621
|
|
|
616
|
|
Long-term:
|
|
|
|
Receivables
|
25
|
|
|
25
|
|
Allowance for credit losses
|
(5)
|
|
|
(5)
|
|
Long-term receivables, net
|
20
|
|
|
20
|
|
Total receivables, net
|
$
|
641
|
|
|
$
|
636
|
|
Allowance for Credit Losses
We manage our receivable portfolios using both geography and delinquency as key credit quality indicators. The following summarizes geographical delinquencies of total receivables, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2021
|
|
Balances over 90 days past due
|
|
December 31, 2020
|
|
Balances over 90 days past due
|
Receivables:
|
|
|
|
|
|
|
|
U.S. and Canada
|
$
|
478
|
|
|
$
|
96
|
|
|
$
|
443
|
|
|
$
|
88
|
|
International
|
247
|
|
|
50
|
|
|
279
|
|
|
52
|
|
Total receivables
|
725
|
|
|
146
|
|
|
722
|
|
|
140
|
|
|
|
|
|
|
|
|
|
Receivables allowance:
|
|
|
|
|
|
|
|
U.S. and Canada
|
(42)
|
|
|
(25)
|
|
|
(43)
|
|
|
(26)
|
|
International
|
(42)
|
|
|
(23)
|
|
|
(43)
|
|
|
(24)
|
|
Total receivables allowance
|
(84)
|
|
|
(48)
|
|
|
(86)
|
|
|
(50)
|
|
Receivables, net
|
$
|
641
|
|
|
$
|
98
|
|
|
$
|
636
|
|
|
$
|
90
|
|
Account balances are charged against the allowances after all internal and external collection efforts have been exhausted and the potential for recovery is considered remote.
The activity in our allowance for receivable credit losses for each of the three months ended March 31, 2021 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Total
|
|
U.S. and Canada
|
|
International
|
|
Total
|
Beginning allowance for credit losses
|
$
|
(86)
|
|
|
$
|
(43)
|
|
|
$
|
(43)
|
|
|
$
|
(42)
|
|
Provision
|
—
|
|
|
—
|
|
|
—
|
|
|
(28)
|
|
Charge-offs and recoveries
|
2
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance for credit losses
|
$
|
(84)
|
|
|
$
|
(42)
|
|
|
$
|
(42)
|
|
|
$
|
(70)
|
|
|
At March 31, 2021, 15% of our total receivables, net, were past due by over 90 days compared to 14% at December 31, 2020.
Credit Quality of Receivables
We have certain concentrations of outstanding receivables in international locations that impact our assessment of the credit quality of our receivables. We monitor the macroeconomic and political environment in each of these locations in our assessment of the credit quality of our receivables. The international customers with significant concentrations (generally deemed to be exceeding 10%) of our receivables with terms longer than one year are in the Latin America region (“LATAM”) and are primarily comprised of Mexico, Peru and Argentina. The following table summarizes our LATAM receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
|
|
Total
|
|
|
|
Current or Not Yet Due
|
|
Balances Over 90 days Past Due
|
|
|
|
|
|
|
Receivables
|
$
|
110
|
|
|
|
|
$
|
49
|
|
|
$
|
61
|
|
|
|
|
|
|
|
Allowance for credit losses
|
(53)
|
|
|
|
|
(14)
|
|
|
(39)
|
|
|
|
|
|
|
|
Receivables, net
|
$
|
57
|
|
|
|
|
$
|
35
|
|
|
$
|
22
|
|
|
|
|
|
|
|
We increased our allowance for credit losses by $28 million in the first quarter of 2020. This increase was primarily related to Gaming customers in LATAM (which transact with both domestic and international subsidiaries) as those customers were particularly affected by COVID-19 closures of gaming operations establishments with COVID-related closures lasting longer than in other geographic regions. We did not have material credit losses during the first quarter of 2021. We
continuously review receivables and as information concerning credit quality arise, reassess our expectations of future losses and record an incremental reserve if warranted at that time. Our current allowance for credit losses represents our current expectation of credit losses; however future expectations could change as the ultimate impact of the COVID-19 disruption remains uncertain, particularly as to the financial stability of our customers during and after the COVID-19 disruption period.
The fair value of 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, 2021 and December 31, 2020, the fair value of receivables, net, approximated the carrying value due to contractual terms of receivables generally being less than 24 months.
(6) Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Parts and work-in-process
|
|
$
|
115
|
|
|
$
|
122
|
|
Finished goods
|
|
76
|
|
|
69
|
|
Total inventories
|
|
$
|
191
|
|
|
$
|
191
|
|
|
|
|
|
|
|
|
|
|
|
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, 2021
|
|
December 31, 2020
|
Land
|
$
|
15
|
|
|
$
|
15
|
|
Buildings and leasehold improvements
|
133
|
|
|
132
|
|
Gaming and lottery machinery and equipment
|
1,035
|
|
|
1,026
|
|
Furniture and fixtures
|
32
|
|
|
32
|
|
Construction in progress
|
53
|
|
|
43
|
|
Other property and equipment
|
277
|
|
|
277
|
|
Less: accumulated depreciation
|
(1,139)
|
|
|
(1,110)
|
|
Total property and equipment, net
|
$
|
406
|
|
|
$
|
415
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Depreciation expense
|
$
|
40
|
|
|
$
|
44
|
|
|
|
|
|
|
(8) Intangible Assets, net and Goodwill
Intangible Assets, net
The following tables present certain information regarding our intangible assets as of March 31, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
|
|
Net Balance
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Balance
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
1,110
|
|
|
$
|
(501)
|
|
|
|
|
$
|
609
|
|
|
$
|
1,108
|
|
|
$
|
(478)
|
|
|
$
|
630
|
|
Intellectual property
|
953
|
|
|
(661)
|
|
|
|
|
292
|
|
|
958
|
|
|
(648)
|
|
|
310
|
|
Licenses
|
558
|
|
|
(415)
|
|
|
|
|
143
|
|
|
558
|
|
|
(405)
|
|
|
153
|
|
Brand names
|
127
|
|
|
(89)
|
|
|
|
|
38
|
|
|
128
|
|
|
(86)
|
|
|
42
|
|
Trade names
|
117
|
|
|
(45)
|
|
|
|
|
72
|
|
|
117
|
|
|
(42)
|
|
|
75
|
|
Patents and other
|
24
|
|
|
(16)
|
|
|
|
|
8
|
|
|
24
|
|
|
(16)
|
|
|
8
|
|
|
2,889
|
|
|
(1,727)
|
|
|
|
|
1,162
|
|
|
2,893
|
|
|
(1,675)
|
|
|
1,218
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
83
|
|
|
(2)
|
|
|
|
|
81
|
|
|
83
|
|
|
(2)
|
|
|
81
|
|
Total intangible assets
|
$
|
2,972
|
|
|
$
|
(1,729)
|
|
|
|
|
$
|
1,243
|
|
|
$
|
2,976
|
|
|
$
|
(1,677)
|
|
|
$
|
1,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following reflects intangible amortization expense included within D&A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Amortization expense
|
$
|
56
|
|
|
$
|
65
|
|
|
|
|
|
The table below reconciles the change in the carrying value of goodwill by business segment for the period from December 31, 2020 to March 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
Lottery
|
|
SciPlay
|
|
Digital
|
|
Totals
|
Balance as of December 31, 2020
|
|
$
|
2,425
|
|
|
$
|
353
|
|
|
$
|
124
|
|
|
$
|
390
|
|
|
$
|
3,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustments
|
|
(3)
|
|
|
(1)
|
|
|
(2)
|
|
|
1
|
|
|
(5)
|
|
Balance as of March 31, 2021
|
|
$
|
2,422
|
|
|
$
|
352
|
|
|
$
|
122
|
|
|
$
|
391
|
|
|
$
|
3,287
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Accumulated goodwill impairment charges for the Gaming segment as of March 31, 2021 were $989 million.
|
(1) Accumulated goodwill impairment charges for the Lottery segment as of March 31, 2021 were $137 million.
|
(9) Software, net
Software, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2021
|
|
December 31, 2020
|
Software
|
$
|
1,198
|
|
|
$
|
1,197
|
|
Accumulated amortization
|
(978)
|
|
|
(970)
|
|
Software, net
|
$
|
220
|
|
|
$
|
227
|
|
|
|
|
|
|
|
|
|
The following reflects amortization of software included within D&A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Amortization expense
|
$
|
27
|
|
|
$
|
29
|
|
|
|
|
|
(10) Equity Investments
Equity investments totaled $265 million and $262 million as of March 31, 2021 and December 31, 2020, respectively. We received distributions and dividends totaling $4 million during the three months ended March 31, 2021 and 2020.
(11) Long-Term and Other
Outstanding Debt and Finance Leases
The following table reflects our outstanding debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Final Maturity
|
|
Rate(s)
|
|
Face value
|
|
Unamortized debt discount/premium and deferred financing costs, net
|
|
Book value
|
|
Book value
|
Senior Secured Credit Facilities:
|
|
|
|
|
|
|
|
|
|
|
|
SGI Revolver
|
2024
|
|
variable
|
|
$
|
435
|
|
|
$
|
—
|
|
|
$
|
435
|
|
|
$
|
535
|
|
SGI Term Loan B-5
|
2024
|
|
variable
|
|
4,050
|
|
|
(46)
|
|
|
4,004
|
|
|
4,012
|
|
SciPlay Revolver
|
2024
|
|
variable
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
SGI Senior Notes:
|
|
|
|
|
|
|
|
|
|
|
|
2025 Secured Notes(1)
|
2025
|
|
5.000%
|
|
1,250
|
|
|
(12)
|
|
|
1,238
|
|
|
1,237
|
|
2026 Secured Euro Notes(2)
|
2026
|
|
3.375%
|
|
381
|
|
|
(4)
|
|
|
377
|
|
|
395
|
|
2025 Unsecured Notes
|
2025
|
|
8.625%
|
|
550
|
|
|
(7)
|
|
|
543
|
|
|
542
|
|
2026 Unsecured Euro Notes(2)
|
2026
|
|
5.500%
|
|
293
|
|
|
(3)
|
|
|
290
|
|
|
303
|
|
2026 Unsecured Notes
|
2026
|
|
8.250%
|
|
1,100
|
|
|
(12)
|
|
|
1,088
|
|
|
1,088
|
|
2028 Unsecured Notes
|
2028
|
|
7.000%
|
|
700
|
|
|
(9)
|
|
|
691
|
|
|
691
|
|
2029 Unsecured Notes
|
2029
|
|
7.250%
|
|
500
|
|
|
(6)
|
|
|
494
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease obligations as of March 31, 2021 payable monthly through 2023 and other(3)
|
2023
|
|
4.217%
|
|
6
|
|
|
—
|
|
|
6
|
|
|
7
|
|
Total long-term debt outstanding
|
|
|
|
|
$
|
9,265
|
|
|
$
|
(99)
|
|
|
$
|
9,166
|
|
|
$
|
9,303
|
|
Less: current portion of long-term debt
|
|
|
|
|
|
|
|
|
(44)
|
|
|
(44)
|
|
Long-term debt, excluding current portion
|
|
|
|
|
|
|
|
|
$
|
9,122
|
|
|
$
|
9,259
|
|
Fair value of debt(4)
|
|
|
|
|
$
|
9,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In connection with the February 2018 Refinancing (see Note 15 in our 2020 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 $38 million, of which a $25 million gain was recognized on remeasurement of debt in the Consolidated Statements of Operations for the three months ended March 31, 2021.
|
(3) Includes $6 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.
|
We were in compliance with the financial covenants under all debt agreements as of March 31, 2021 (for information regarding our financial covenants of all debt agreements, see Notes 1 and 15 in our 2020 10-K).
For additional information regarding the terms of our credit facilities, Secured Notes and Unsecured Notes, see Note 15 in our 2020 10-K.
(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, 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
As of March 31, 2021, we held the following derivative instruments that were accounted for pursuant to ASC 815:
Interest Rate Swap Contracts
We currently use interest rate swap contracts as described below to mitigate gains or losses associated with the change in expected cash flows due to fluctuations in interest rates on our variable rate debt.
In February 2018, we entered into interest rate swap contracts to hedge a portion of our interest expense associated with our variable rate debt to effectively fix the interest rate that we pay. These interest rate swap contracts are designated as cash flow hedges under ASC 815. We pay interest at a weighted-average fixed rate of 2.4418% and receive interest at a variable rate equal to one-month LIBOR. The total notional amount of interest rate swaps outstanding was $800 million as of March 31, 2021. 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 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 Gain (loss) and Interest expense recognized on our interest rate swap contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Gain (loss) recorded in accumulated other comprehensive loss, net of tax
|
$
|
5
|
|
|
$
|
(16)
|
|
|
|
|
|
Interest expense recorded related to interest rate swap contracts
|
5
|
|
|
2
|
|
|
|
|
|
We do not expect to reclassify material amounts from Accumulated other comprehensive loss to interest expense in the next twelve months.
The following table shows the effect of interest rate swap contracts designated as cash flow hedges on the consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Interest expense
|
|
|
Total interest expense which reflects the effects of cash flow hedges
|
$
|
(121)
|
|
|
$
|
(124)
|
|
|
|
|
|
Hedged item
|
(5)
|
|
|
(5)
|
|
|
|
|
|
Derivative designated as hedging instrument
|
—
|
|
|
3
|
|
|
|
|
|
Cross-Currency Interest Rate Swaps
In connection with the February 2018 Refinancing described in Note 15 of our 2020 10-K, we entered into certain cross-currency interest rate swap agreements to achieve more beneficial interest rates by effectively converting $460 million of our fixed-rate U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. We have designated these cross-currency interest rate swap agreements as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.
We use the spot method to measure the effectiveness of our net investment hedge. Under this method, for each reporting period, the change in the fair value of the $460 million cross-currency interest rate swaps is reported in Foreign currency translation gain (loss) in Accumulated other comprehensive loss. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
Balance Sheet Line Item
|
|
March 31, 2021
|
|
December 31, 2020
|
Interest rate swaps (1)(3)
|
Accrued liabilities/Other liabilities
|
|
$
|
17
|
|
|
$
|
22
|
|
Cross-currency interest rate swaps (2)(3)
|
Other assets
|
|
35
|
|
|
14
|
|
(1) A gain of $5 million and loss of $16 million for the three months ended March 31, 2021 and 2020, respectively, are reflected in Derivative financial instrument unrealized gain (loss) in Other comprehensive loss.
|
(2) Gains of $21 million and $30 million for the three months ended March 31, 2021 and 2020, respectively, are reflected in Foreign currency translation gain (loss) in Other comprehensive loss.
|
(3) The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy.
|
Net Investment Non-derivative Hedge — 2026 Secured Euro Notes
For the first quarter of 2021, we designated $129 million of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.
We use the spot method to measure the effectiveness of our net investment non-derivative hedge. Under this method, for each reporting period, the change in the hedged portion of the carrying value of the 2026 Secured Euro Notes due to remeasurement is reported in Foreign currency translation gain (loss) in Other comprehensive loss, and the remaining remeasurement change is recognized in (Loss) gain on remeasurement of debt in our consolidated statements of 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 Acquisition Consideration Liabilities
In connection with our acquisitions, we have recorded certain contingent consideration liabilities, of which the values are primarily based on reaching certain earnings-based 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 acquisition consideration liabilities as of March 31, 2021 are $8 million, of which $6 million is included in Accrued liabilities with the remainder included in Other long-term liabilities. Contingent acquisition consideration liabilities as of December 31, 2020 were $13 million, of which $11 million was included in Accrued liabilities with the remaining balance included in Other long-term liabilities.
(13) Stockholders’ Deficit
Changes in Stockholders’ Deficit
The following tables present certain information regarding our stockholders’ deficit as of March 31, 2021 and March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
Common Stock
|
|
Additional Paid in Capital
|
|
Accumulated Loss
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Loss
|
|
Noncontrolling Interest
|
|
Total
|
January 1, 2021
|
$
|
1
|
|
|
$
|
1,268
|
|
|
$
|
(3,529)
|
|
|
$
|
(175)
|
|
|
$
|
(218)
|
|
|
$
|
129
|
|
|
$
|
(2,524)
|
|
Vesting of RSUs, net of tax withholdings and other
|
—
|
|
|
(13)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13)
|
|
Stock-based compensation
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
Net loss
|
—
|
|
|
—
|
|
|
(15)
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
(9)
|
|
Other comprehensive gain
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
$
|
1
|
|
|
$
|
1,272
|
|
|
$
|
(3,544)
|
|
|
$
|
(175)
|
|
|
$
|
(210)
|
|
|
$
|
135
|
|
|
$
|
(2,521)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
Vesting of RSUs, net of tax withholdings and other
|
—
|
|
|
(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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Based Compensation
The following reflects total stock-based compensation expense recognized under all programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Related to SGC stock options
|
$
|
6
|
|
|
$
|
1
|
|
|
|
|
|
Related to SGC RSUs(1)
|
15
|
|
|
9
|
|
|
|
|
|
Related to SciPlay RSUs
|
2
|
|
|
—
|
|
|
|
|
|
Total
|
$
|
23
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As of March 31, 2021 we had $58 million of unrecognized stock-based compensation expense related to unvested RSUs that will be amortized over a weighted-average period of approximately two years.
|
|
|
|
|
(14) Income Taxes
We consider new evidence (both positive and negative) at each reporting date that could affect our view of the future realization of deferred tax assets. Based upon the evaluation of all available evidence, and considering the projected U.S. pre-tax losses for 2021, we maintain a valuation allowance for certain of our U.S. operations as of March 31, 2021. We also maintain other valuation allowances for certain non-U.S. jurisdictions with cumulative losses.
Our effective income tax rate for the three months ended March 31, 2021 and 2020 were (50)%, and (3)%, respectively, and were determined using an estimated annual effective tax rate after considering any discrete items for such periods. Due to the aforementioned valuation allowance against certain of our U.S. net deferred tax assets, the effective tax rates for the three months ended March 31, 2021 and 2020 generally do not include the benefits of the U.S. tax losses. We recorded an overall tax expense in both periods due to pre-tax earnings in jurisdictions without valuation allowances. The change in effective tax rates relates primarily to the overall mix of income (loss) in our jurisdictions without valuation allowances and an unfavorable adjustment for the legacy U.K. Gaming reporting unit goodwill impairment of $54 million recorded in the first quarter of 2020, which was not deductible for tax purposes.
As discussed in Note 1, the COVID-19 disruptions significantly impacted certain segments of our business during 2020 and through the first quarter of 2021. We considered the COVID-19 disruptions in our ability to realize deferred tax assets in the future and determined that such conditions did not change our overall valuation allowance positions. Additionally, we continue to monitor and evaluate the tax implications resulting from any existing and forthcoming legislation passed in response to COVID-19 in the federal, state, and foreign jurisdictions where we have an income tax presence.
(15) Leases
Our total operating lease expense for the three months ended March 31, 2021 and 2020 were $8 million. The total amount of variable and short-term lease payments was immaterial for all periods presented.
Supplemental balance sheet and cash flow information related to operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Operating lease right-of-use assets(1)
|
$
|
95
|
|
|
$
|
94
|
|
|
|
Accrued liabilities
|
25
|
|
|
26
|
|
|
|
Operating lease liabilities
|
78
|
|
|
77
|
|
|
|
Total operating lease liabilities
|
$
|
103
|
|
|
$
|
103
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
Operating cash flows for operating leases for the three month period ended March 31, 2021 and 2020, respectively
|
$
|
8
|
|
|
$
|
8
|
|
|
|
Weighted average remaining lease term, units in years
|
5
|
|
5
|
|
|
Weighted average discount rate
|
5
|
%
|
|
5
|
%
|
|
|
(1) Operating lease right-of-use assets obtained in exchange for lease obligations were immaterial.
|
|
|
|
|
|
|
|
Lease liability maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Less Imputed Interest
|
|
Total
|
Operating leases
|
$
|
23
|
|
|
$
|
26
|
|
|
$
|
21
|
|
|
$
|
18
|
|
|
$
|
12
|
|
|
$
|
16
|
|
|
$
|
(13)
|
|
|
$
|
103
|
|
As of March 31, 2021, we did not have material additional operating leases that have not yet commenced.
(16) Litigation
We are involved in various legal proceedings, which are described in Note 21 within our 2020 10-K. There have been no material changes to these matters since the 2020 10-K was filed with the SEC on March 1, 2021, 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 $11 million and $3 million for all of our legal matters that were contingencies as of March 31, 2021 and December 31, 2020, respectively.
Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies could result in losses in excess of amounts we have accrued. We may be unable to estimate a range of possible losses for some matters pending against us or our subsidiaries, even when the amount of damages claimed against us or our subsidiaries is stated because, among other things: (1) the claimed amount may be exaggerated or unsupported; (2) the claim may be based on a novel legal theory or involve a large number of parties; (3) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (4) there may be uncertainty as to the outcome of pending appeals or motions; (5) the matter may not have progressed sufficiently through discovery or there may be significant factual or legal issues to be resolved or developed; and/or (6) there may be uncertainty as to the enforceability of legal judgments and outcomes in certain jurisdictions. Other matters have progressed sufficiently that we are
able to estimate a range of possible loss. For those legal contingencies disclosed in Note 21 in our 2020 10-K and this Note 16 as well as those related to the previously disclosed settlement agreement entered into in February 2015 with SNAI S.p.a., as to which a loss is reasonably possible, whether in excess of a related accrued liability or where there is no accrued liability, and for which we are able to estimate a range of possible loss, the current estimated range is up to approximately $14 million in excess of the accrued liabilities (if any) related to those legal contingencies. This aggregate range represents management’s estimate of additional possible loss in excess of the accrued liabilities (if any) with respect to these matters based on currently available information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherent uncertainties. For example, at the time of making an estimate, management may have only preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co-defendants, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that management had not accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which we are not able to estimate a range of possible loss. Accordingly, the estimated aggregate range of possible loss does not represent our maximum loss exposure. Any such losses could have a material adverse impact on our results of operations, cash flows or financial condition. The legal proceedings underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.
Washington State Matter
On April 17, 2018, a plaintiff, Sheryl Fife, filed a putative class action complaint, Fife v. Scientific Games Corporation, against SGC in the United States District Court for the Western District of Washington. The plaintiff seeks to represent a putative class of all persons in the State of Washington who purchased and allegedly lost virtual coins playing SGC’s online social casino games, including but not limited to Jackpot Party® Casino and Gold Fish® Casino. The complaint asserts claims for alleged violations of Washington’s Recovery of Money Lost at Gambling Act, Washington’s consumer protection statute, and for unjust enrichment, and seeks unspecified money damages (including treble damages as appropriate), the award of reasonable attorneys’ fees and costs, pre- and post-judgment interest, and injunctive and/or declaratory relief. On July 2, 2018, SGC filed a motion to dismiss the plaintiff’s complaint with prejudice, which the trial court denied on December 18, 2018. SGC filed its answer to the putative class action complaint on January 18, 2019. On August 24, 2020, the trial court granted plaintiff’s motion for leave to amend her complaint and to substitute a new plaintiff, Donna Reed, for the initial plaintiff, and re-captioned the matter Reed v. Scientific Games Corporation. On August 25, 2020, the plaintiff filed a first amended complaint against SGC, asserting the same claims, and seeking the same relief, as the complaint filed by Sheryl Fife. On September 8, 2020, SGC filed a motion to compel arbitration of plaintiff’s claims and to dismiss the action, or, in the alternative, to transfer the action to the United States District Court for the District of Nevada, and that motion is fully-briefed and pending before the trial court. On April 9, 2021, the plaintiff filed a motion to certify the putative class and for a preliminary injunction. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible loss.
Casino Queen Matter
On April 2, 2021, Casino Queen, Inc. and Casino Queen Marquette, Inc. filed a putative class action complaint in the United States District Court for the Northern District of Illinois against SGC, Bally Technologies, Inc. and SG Gaming, f/k/a Bally Gaming, Inc. In the complaint, the plaintiffs assert federal antitrust claims arising from the defendants’ procurement of particular U.S. patents. The plaintiffs allege that the defendants used those patents to create an allegedly illegal monopoly in the market for automatic card shufflers sold or leased in the United States. The plaintiffs seek to represent a putative class of all persons and entities that directly purchased or leased automatic card shufflers within the United States from the defendants, or any predecessor, subsidiary, or affiliate thereof, at any time between April 1, 2009, and the present. The complaint seeks unspecified money damages, which the complaint asks the court to treble, the award of plaintiffs’ costs of suit, including attorneys’ fees, and the award of pre-judgment and post-judgment interest. 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.
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 $30.2 million, plus default interest (potentially accrued since 1994 at a 12% statutory interest rate). SGI filed an appeal to the Council of State, and on December 10, 2020, the Council of State issued a ruling affirming the Tribunal’s decision. On December 16, 2020, SGI filed a motion for clarification of the Council of State’s ruling, which the Council of State denied on April 15, 2021. On April 22, 2021, SGI filed a motion for reconsideration of that decision by the Council of State.
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 we cannot assure that these claims will not ultimately be resolved adversely to us or result in material liability.
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 IPO (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 the SciPlay IPO, 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. On August 28, 2020, the court issued an oral ruling granting in part and denying in part the defendants’ motion to dismiss. On December 14, 2020, plaintiffs in the consolidated action filed a motion to certify the putative class.
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 the SciPlay IPO. The plaintiff seeks to represent a class of all persons who purchased Class A common stock of SciPlay in or traceable to the SciPlay IPO 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 was pending in the SciPlay IPO matter in New York state court. On September 29, 2020, the trial court entered a stipulated order that extended the stay pending a ruling on class certification in the SciPlay IPO matter in New York state court.
Based on our assessment under ASC 410 and ASC 450 and consideration of the SciPlay IPO matters pending in New York and Nevada described above, we determined that both loss and insurance proceeds loss recovery, which we believe is
recoverable under our insurance policy, are deemed probable and reasonably estimable. As a result, we recorded approximately $8 million in Accrued liabilities and Prepaid expenses and other current assets as of March 31, 2021, with no material impact on our statement of operations income for the three month period ended March 31, 2021.
For additional information regarding our pending litigation matters, see Note 21 in our 2020 10-K.