Contract Liabilities and Other Disclosures
The following table summarizes the activity in our contract liabilities for the reporting period:
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
Contract liability balance, beginning of period
(1)
|
$
|
97
|
|
Liabilities recognized during the period
|
26
|
|
Amounts recognized in revenue from beginning balance
|
(22
|
)
|
Contract liability balance, end of period
(1)
|
$
|
101
|
|
(1) Contract liabilities are included within Accrued liabilities and Other long-term liabilities in our March 31, 2019 consolidated balance sheet.
|
The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on our consolidated balance sheet. Other than contracts with customers with financing arrangements exceeding 12 months, revenue recognition is generally proximal to conversion to cash, except for Lottery instant products sold under POS contracts. Revenue is recognized for such contracts upon delivery to our customers, while conversion to cash is based on the retail sale of the underlying ticket to end consumers. As a result, revenue recognition under ASC 606 does not approximate conversion to cash in any periods post-adoption. Total revenue recognized under such contracts was
$23 million
and
$34 million
in the
three
months ended
March 31, 2019
and
2018
, respectively. The following table summarizes our balances in these accounts for the periods indicated (other than contract liabilities disclosed above):
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
Contract Assets
(1)
|
Beginning of period balance
|
$
|
753
|
|
|
$
|
114
|
|
End of period balance, March 31, 2019
|
758
|
|
|
114
|
|
(1) Contract assets are included primarily within Prepaid expenses, deposits and other current assets in our March 31, 2019 consolidated balance sheet.
|
As of
March 31, 2019
, 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, Social and Digital—representing our different products and services. A detailed discussion regarding the products and services from which each reportable business segment derives its revenue is included in Notes 2 and 3 in our 2018 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 3 in our 2018 10-K. As a result of the on-going initial public offering of a minority interest in our Social gaming business, which was subsequently completed during the second quarter of 2019, we changed our calculation of Social business segment AEBITDA beginning with the first quarter of 2019. Social business segment AEBITDA now reflects intercompany charges settled in cash for corporate services and certain royalties paid for by our Social business segment to other segments or to Corporate (included in the “Unallocated and Reconciling Items” column in the tables below). Business segment information for the three months ended March 31, 2018 has been recast to reflect these changes. Additionally, see Note 1
for a description of the IP License Agreement executed in conjunction with the SciPlay IPO that will impact our Gaming business segment and Social business segment AEBITDA commencing with the effectiveness of the IP License Agreement as of May 7, 2019
.
The accounting policies of our business segments are the same as those described within the Notes in our 2018 10-K. The following tables present our segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Gaming
|
|
Lottery
|
|
Social
(2)
|
|
Digital
|
|
Unallocated and Reconciling Items
(1)
|
|
Total
|
Total revenue
|
$
|
422
|
|
|
$
|
227
|
|
|
$
|
118
|
|
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
837
|
|
AEBITDA
|
215
|
|
|
104
|
|
|
25
|
|
|
13
|
|
|
(29
|
)
|
|
$
|
328
|
|
Reconciling items to consolidated net loss before income taxes:
|
D&A
|
(112
|
)
|
|
(19
|
)
|
|
(2
|
)
|
|
(19
|
)
|
|
(13
|
)
|
|
(165
|
)
|
Restructuring and other
|
(2
|
)
|
|
—
|
|
|
(1
|
)
|
|
(3
|
)
|
|
(1
|
)
|
|
(7
|
)
|
EBITDA from equity investments
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
(17
|
)
|
Earnings from equity investments
|
|
|
|
|
|
|
|
|
6
|
|
|
6
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(154
|
)
|
|
(154
|
)
|
Gain on remeasurement of debt
|
|
|
|
|
|
|
|
|
5
|
|
|
5
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
(2
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
(14
|
)
|
Net loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
(20
|
)
|
(1) Includes amounts not allocated to the business segments (including corporate costs) and reconciling items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.
|
(2) Our Social business segment information represents SciPlay operations (see Note 1), and starting with the second quarter of 2019 we will refer to our Social business segment as SciPlay.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Gaming
|
|
Lottery
|
|
Social
(2)
|
|
Digital
|
|
Unallocated and Reconciling Items
(1)
|
|
Total
|
Total revenue
|
$
|
443
|
|
|
$
|
202
|
|
|
$
|
97
|
|
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
812
|
|
AEBITDA
|
218
|
|
|
94
|
|
|
23
|
|
|
17
|
|
|
(32
|
)
|
|
$
|
320
|
|
Reconciling items to consolidated net loss before income taxes:
|
D&A
|
(139
|
)
|
|
(14
|
)
|
|
(7
|
)
|
|
(16
|
)
|
|
(12
|
)
|
|
(188
|
)
|
Restructuring and other
|
(1
|
)
|
|
(1
|
)
|
|
(18
|
)
|
|
(6
|
)
|
|
(26
|
)
|
|
(52
|
)
|
EBITDA from equity investments
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
(19
|
)
|
Earnings from equity investments
|
|
|
|
|
|
|
|
|
7
|
|
|
7
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(155
|
)
|
|
(155
|
)
|
Loss on debt financing transactions
|
|
|
|
|
|
|
|
|
(93
|
)
|
|
(93
|
)
|
Loss on remeasurement of debt
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
(1
|
)
|
Other expense, net
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
(6
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
(9
|
)
|
Net loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
(196
|
)
|
(1) Includes amounts not allocated to the business segments (including corporate costs) and reconciling items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.
|
(2) Our Social business segment information represents SciPlay operations (see Note 1), and starting with the second quarter of 2019 we will refer to our Social business segment as SciPlay.
|
(4) Restructuring and other
Restructuring and other includes charges or expenses attributable to: (i) employee severance; (ii) management restructuring and related costs; (iii) restructuring and integration; (iv) cost savings initiatives; (v) major litigation; and (vi) acquisition costs and other unusual items. The following table summarizes pre-tax restructuring and other costs for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
Employee severance
(1)
|
|
$
|
3
|
|
|
$
|
5
|
|
Acquisitions and related costs
|
|
—
|
|
|
8
|
|
Contingent consideration adjustment
|
|
—
|
|
|
18
|
|
Legal and related
|
|
—
|
|
|
16
|
|
Restructuring, integration and other
|
|
4
|
|
|
5
|
|
Total
|
|
$
|
7
|
|
|
$
|
52
|
|
(1) Includes employee severance and termination costs associated with restructuring and integration activities.
|
(5) Accounts and Notes Receivable and Credit Quality of Receivables
Accounts and Notes Receivable
The following table summarizes the components of current and long-term accounts and notes receivable, net:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Current:
|
|
|
|
Accounts receivable
|
$
|
636
|
|
|
$
|
615
|
|
Notes receivable
|
127
|
|
|
138
|
|
Allowance for doubtful accounts and notes
|
(38
|
)
|
|
(40
|
)
|
Current accounts and notes receivable, net
|
$
|
725
|
|
|
$
|
713
|
|
Long-term:
|
|
|
|
Notes receivable, net of allowance
|
33
|
|
|
40
|
|
Total accounts and notes receivable, net
|
$
|
758
|
|
|
$
|
753
|
|
Credit Quality of Receivables
The interest rates on our outstanding receivables bearing interest ranged from
3%
to
10%
at
March 31, 2019
and
December 31, 2018
.
We have certain concentrations of outstanding accounts and notes receivable in international locations that impact our assessment of the credit quality of those receivables. We monitor the macroeconomic and political environment in each of these locations in our assessment of the credit quality of our receivables. We have not identified changes in the aforementioned factors during the
three
months ended
March 31, 2019
that require a reassessment of our receivable balances. The international locations with significant concentrations (generally deemed to be exceeding
10%
) of our accounts and notes receivable are as follows:
|
|
•
|
Mexico - Our notes receivable, net, from certain customers in Mexico at
March 31, 2019
was
$24 million
. We collected
$8 million
of outstanding receivables from these customers during the
three
months ended
March 31, 2019
.
|
|
|
•
|
Peru - Our notes receivable, net, from certain customers in Peru at
March 31, 2019
was
$15 million
. We collected
$2 million
of outstanding receivables from these customers during the
three
months ended
March 31, 2019
.
|
|
|
•
|
Argentina - Our notes receivable, net, from customers in Argentina at
March 31, 2019
was
$16 million
denominated in USD. Our customers are required to, and have continued to, pay us in pesos at the spot exchange rate on the date of payment. We collected
$6 million
of outstanding receivables from customers in Argentina during the
three
months ended
March 31, 2019
.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Balances over 90 days past due
|
|
December 31, 2018
|
|
Balances over 90 days past due
|
Notes receivable:
|
|
|
|
|
|
|
|
Domestic
|
$
|
61
|
|
|
$
|
8
|
|
|
$
|
55
|
|
|
$
|
6
|
|
International
|
99
|
|
|
26
|
|
|
123
|
|
|
25
|
|
Total notes receivable
|
160
|
|
|
34
|
|
|
178
|
|
|
31
|
|
|
|
|
|
|
|
|
|
Notes receivable allowance
|
|
|
|
|
|
|
|
Domestic
|
(6
|
)
|
|
(6
|
)
|
|
(6
|
)
|
|
(6
|
)
|
International
|
(17
|
)
|
|
(17
|
)
|
|
(18
|
)
|
|
(18
|
)
|
Total notes receivable allowance
|
(23
|
)
|
|
(23
|
)
|
|
(24
|
)
|
|
(24
|
)
|
Notes receivable, net
|
$
|
137
|
|
|
$
|
11
|
|
|
$
|
154
|
|
|
$
|
7
|
|
At
March 31, 2019
,
8%
of our total notes receivable, net, was past due by over
90
days, compared to
4%
at
December 31, 2018
.
We evaluate our exposure to credit loss on notes receivable on both a collective and individual basis. In addition, we evaluate such notes receivable on a geographic basis and take into account any other factors (such as general economic conditions, other macroeconomic considerations, etc.) that could impact our collectability of notes receivable individually or in the aggregate. Accordingly, notes receivable may be evaluated under multiple methodologies, and the resulting allowance is not determined based on one specific methodology taking all factors into consideration. The activity in our allowance for notes receivable for each of the
three
month periods ended
March 31, 2019
and
2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
Beginning allowance for notes receivable
|
|
$
|
(24
|
)
|
|
$
|
(21
|
)
|
Provision
|
|
(2
|
)
|
|
(3
|
)
|
Charge-offs and recoveries
|
|
3
|
|
|
1
|
|
Ending allowance for notes receivable
|
|
$
|
(23
|
)
|
|
$
|
(23
|
)
|
The fair value of notes receivable is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of
March 31, 2019
and
December 31, 2018
, the fair value of notes receivable, net, approximated the carrying value due to contractual terms of notes receivable generally being under
24
months.
(6) Inventories
Inventories consisted of the following as of the dates presented below:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Parts and work-in-process
|
|
$
|
139
|
|
|
$
|
131
|
|
Finished goods
|
|
90
|
|
|
85
|
|
Total inventories
|
|
$
|
229
|
|
|
$
|
216
|
|
Parts and work-in-process include parts for gaming machines, lottery terminals and instant lottery ticket materials, as well as labor and overhead costs for work-in-process associated with the manufacturing of instant lottery games and lottery terminals. Our finished goods inventory primarily consists of gaming machines for sale, instant products primarily for our Participation arrangements and our licensed branded merchandise.
(7) Property and Equipment, net
Property and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Land
|
$
|
15
|
|
|
$
|
15
|
|
Buildings and leasehold improvements
|
130
|
|
|
128
|
|
Gaming and lottery machinery and equipment
|
1,034
|
|
|
1,041
|
|
Furniture and fixtures
|
28
|
|
|
27
|
|
Construction in progress
|
15
|
|
|
17
|
|
Other property and equipment
|
245
|
|
|
240
|
|
Less: accumulated depreciation
|
(950
|
)
|
|
(921
|
)
|
Total property and equipment, net
|
$
|
517
|
|
|
$
|
547
|
|
Depreciation expense is excluded from Cost of services, Cost of product sales, Cost of instant products and Other operating expenses and is separately presented within D&A.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
Depreciation expense
|
$
|
58
|
|
|
$
|
53
|
|
As of
March 31, 2019
and
December 31, 2018
, we had
$36 million
of assets held for sale, which are included within Prepaid expense, deposits and other current assets.
(8) Intangible Assets, net and Goodwill
Intangible Assets, net
The following tables present certain information regarding our intangible assets as of
March 31, 2019
and
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Balance
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Balance
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
1,092
|
|
|
$
|
(321
|
)
|
|
$
|
771
|
|
|
$
|
1,084
|
|
|
$
|
(299
|
)
|
|
$
|
785
|
|
Intellectual property
|
935
|
|
|
(485
|
)
|
|
450
|
|
|
931
|
|
|
(453
|
)
|
|
478
|
|
Licenses
|
549
|
|
|
(273
|
)
|
|
276
|
|
|
546
|
|
|
(253
|
)
|
|
293
|
|
Brand names
|
124
|
|
|
(62
|
)
|
|
62
|
|
|
123
|
|
|
(59
|
)
|
|
64
|
|
Trade names
|
108
|
|
|
(25
|
)
|
|
83
|
|
|
108
|
|
|
(23
|
)
|
|
85
|
|
Patents and other
|
23
|
|
|
(14
|
)
|
|
9
|
|
|
23
|
|
|
(13
|
)
|
|
10
|
|
|
2,831
|
|
|
(1,180
|
)
|
|
1,651
|
|
|
2,815
|
|
|
(1,100
|
)
|
|
1,715
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
96
|
|
|
(2
|
)
|
|
94
|
|
|
96
|
|
|
(2
|
)
|
|
94
|
|
Total intangible assets
|
$
|
2,927
|
|
|
$
|
(1,182
|
)
|
|
$
|
1,745
|
|
|
$
|
2,911
|
|
|
$
|
(1,102
|
)
|
|
$
|
1,809
|
|
The following reflects intangible amortization expense included within D&A:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
Amortization expense
|
$
|
77
|
|
|
$
|
77
|
|
Goodwill
In conjunction with integrating our recent Digital acquisitions, the implementation of ERP systems in the Digital segment and recent management changes, during the first quarter of 2019, in our Digital business segment, we reviewed our Digital operating segment in accordance with ASC 350 to determine if additional reporting units exist based on the availability of discrete financial information that is regularly reviewed by segment management. We determined that in our Digital operating segment we now have
two
reporting units: (1) Digital sports and platform and (2) Digital gaming and other. The change in the Digital business segment reporting units resulted in the allocation of the previous Digital reporting unit goodwill balance as follows:
$230 million
to the new Digital sports and platform reporting unit and
$134 million
to the new Digital gaming and other reporting unit, which allocation was determined based on the relative fair value approach prescribed by ASC 350. As a result of this change we now have
ten
reporting units: Instant Products, U.S. Lottery Systems, International Lottery Systems, SG Gaming, legacy U.K. Gaming, Casino Management Systems, Table Products, Social Gaming, Digital Sports and Platform and Digital Gaming and Other.
The table below reconciles the change in the carrying value of goodwill by business segment for the period from
December 31, 2018
to
March 31, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Gaming
|
|
Lottery
|
|
Social
|
|
Digital
|
|
Totals
|
Balance as of December 31, 2018
|
|
$
|
2,449
|
|
|
$
|
352
|
|
|
$
|
115
|
|
|
$
|
364
|
|
|
$
|
3,280
|
|
Foreign currency adjustments
|
|
13
|
|
|
(1
|
)
|
|
—
|
|
|
9
|
|
|
21
|
|
Balance as of March 31, 2019
|
|
$
|
2,462
|
|
|
$
|
351
|
|
|
$
|
115
|
|
|
$
|
373
|
|
|
$
|
3,301
|
|
(9) Software, net
Software, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Software
|
|
$
|
1,126
|
|
|
$
|
1,101
|
|
Accumulated amortization
|
|
(849
|
)
|
|
(816
|
)
|
Software, net
|
|
$
|
277
|
|
|
$
|
285
|
|
The following reflects amortization of software included within D&A:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Amortization expense
|
|
$
|
30
|
|
|
$
|
39
|
|
(10) Equity Investments
Equity investments total
ed
$296 million
and
$298 million
as of
March 31, 2019
and
December 31, 2018
, respectively. We received distributions and dividends totaling
$7 million
and
$3 million
during the
three months ended
March 31, 2019
and
2018
, respectively.
(11) Long-Term and Other Debt
2026 Unsecured Notes
On March 19, 2019, SGI issued
$1,100 million
in aggregate principal amount of its new 2026 Unsecured Notes at an issue price of
100.000%
in a private offering. We used the net proceeds of the 2026 Unsecured Notes offering to redeem
$1,000 million
of our outstanding 2022 Unsecured Notes and pay accrued and unpaid interest thereon plus related premiums, fees, and costs, which redemption was completed on April 4, 2019, and pay related fees and expenses of the 2026 Unsecured Notes offering. The redemption of the 2022 Unsecured Notes will result in an approximate
$60 million
loss on debt financing transactions during the second quarter of 2019.
The 2026 Unsecured Notes were issued pursuant to an indenture dated as of March 19, 2019 (the “2026 Unsecured Notes Indenture”). SGI may redeem some or all of the 2026 Unsecured Notes at any time prior to March 15, 2022 at a redemption price equal to
100%
of the principal amount of the 2026 Unsecured Notes plus accrued and unpaid interest, if any,
to the date of the redemption plus a “make whole” premium. SGI may redeem some or all of the 2026 Unsecured Notes at any time on or after March 15, 2022 at the prices specified in the 2026 Unsecured Notes Indenture.
The 2026 Unsecured Notes are senior unsecured obligations of SGI, rank equally to all SGI’s existing and future senior debt and rank senior to all of SGI’s existing and future senior subordinated debt. The 2026 Unsecured Notes are guaranteed on a senior unsecured basis by SGC and all of its wholly owned U.S. subsidiaries (other than SGI, the unrestricted social gaming business entities and certain immaterial subsidiaries). The 2026 Unsecured Notes are structurally subordinated to all of the liabilities of our non-guarantor subsidiaries.
In connection with the 2026 Unsecured Notes offering, we reflected
$16 million
in financing costs presented primarily as a reduction to long-term debt.
Outstanding Debt and Finance Leases
The following table reflects our outstanding debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Final Maturity
|
|
Rate(s)
|
|
Face value
|
|
Unamortized debt discount/premium and deferred financing costs, net
|
|
Book value
|
|
Book value
|
Senior Secured Credit Facilities:
|
|
|
|
|
|
|
|
|
|
|
|
Revolver, varying interest rate
|
2020
|
|
variable
|
|
|
$
|
190
|
|
|
$
|
—
|
|
|
$
|
190
|
|
|
$
|
325
|
|
Term Loan B-5
|
2024
|
|
variable
|
|
|
4,133
|
|
|
(69
|
)
|
|
4,064
|
|
|
4,071
|
|
Senior Notes:
|
|
|
|
|
|
|
|
|
|
|
|
2025 Secured Notes
(2)
|
2025
|
|
5.000
|
%
|
|
1,250
|
|
|
(17
|
)
|
|
1,233
|
|
|
1,233
|
|
2026 Secured Euro Notes
(3)
|
2026
|
|
3.375
|
%
|
|
367
|
|
|
(5
|
)
|
|
362
|
|
|
367
|
|
2022 Unsecured Notes
(4)
|
2022
|
|
10.000
|
%
|
|
2,200
|
|
|
(22
|
)
|
|
2,178
|
|
|
2,176
|
|
2026 Unsecured Euro Notes
(3)
|
2026
|
|
5.500
|
%
|
|
282
|
|
|
(4
|
)
|
|
278
|
|
|
282
|
|
2026 Unsecured Notes
|
2026
|
|
8.250
|
%
|
|
1,100
|
|
|
(16
|
)
|
|
1,084
|
|
|
—
|
|
Subordinated Notes:
|
|
|
|
|
|
|
|
|
|
|
|
2020 Notes
|
2020
|
|
6.250
|
%
|
|
244
|
|
|
(1
|
)
|
|
243
|
|
|
242
|
|
2021 Notes
|
2021
|
|
6.625
|
%
|
|
341
|
|
|
(3
|
)
|
|
338
|
|
|
337
|
|
Finance lease obligations as of March 31, 2019 payable monthly through 2019 and other
(5)
|
2019
|
|
3.900
|
%
|
|
13
|
|
|
—
|
|
|
13
|
|
|
4
|
|
Total long-term debt outstanding
|
|
|
|
|
$
|
10,120
|
|
|
$
|
(137
|
)
|
|
$
|
9,983
|
|
|
$
|
9,037
|
|
Less: current portion of long-term debt
(4)
|
|
|
|
|
|
|
|
|
(1,046
|
)
|
|
(45
|
)
|
Long-term debt, excluding current portion
|
|
|
|
|
|
|
|
|
$
|
8,937
|
|
|
$
|
8,992
|
|
Fair value of debt
(1)
|
|
|
|
|
$
|
10,197
|
|
|
|
|
|
|
|
(1) Fair value of our fixed rate and variable interest rate debt is classified within level 2 in the fair value hierarchy and has been calculated based on the quoted market prices of our securities.
(2) Includes cross-currency interest rate swap agreements that we entered into in 2018 in the amount of
$460 million
U.S. Dollar-denominated 2025 Secured Notes to a fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately
2.946%
(see Note 16 in our 2018 10-K).
(3) We designated a portion of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the change in foreign currency exchange rates of the Euro relative to the U.S. Dollar (see Note 12 for additional information). The total change in the face value of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes due to changes in foreign currency exchange rates since the issuance was a reduction of
$63 million
, of which a
$5 million
gain was recognized on remeasurement of debt in the Consolidated Statements of Operations and Comprehensive Loss for the
three
months ended
March 31, 2019
.
(4) Includes
$1,000 million
of the principal balance of the 2022 Unsecured Notes that were redeemed on April 4, 2019.
(5) Includes
$11 million
related to certain revenue transactions presented as debt in accordance with ASC 470-10-25.
We were in compliance with the financial covenants under all debt agreements as of
March 31, 2019
.
For additional information regarding the terms of our credit agreements, Secured Notes, Unsecured Notes and Subordinated Notes, see Note 16 in our
2018
10-K.
For additional information regarding the SciPlay Revolver that we entered into on May 7, 2019 in connection with the SciPlay IPO, see Note 1.
Loss on Debt Financing Transactions
The following are components of the loss on debt financing transactions resulting from debt extinguishment and modification accounting for
three
months ended
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Repayment and cancellation of principal balance at premium
|
$
|
—
|
|
|
$
|
110
|
|
Unamortized debt (premium) discount and deferred financing costs, net
|
—
|
|
|
(30
|
)
|
Third party debt issuance fees
|
—
|
|
|
13
|
|
Total loss on debt financing transactions
|
$
|
—
|
|
|
$
|
93
|
|
(12) Fair Value Measurements
The fair value of our financial assets and liabilities is determined by reference to market data and other valuation techniques as appropriate. We believe the fair value of our financial instruments, which are principally cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts payable and accrued liabilities, approximates their recorded values. Our assets and liabilities measured at fair value on a recurring basis are described below.
Derivative Financial Instruments
We record derivative financial instruments on the balance sheet at their respective fair values. As of
March 31, 2019
, we held the following derivative instruments that were accounted for pursuant to ASC 815:
Interest Rate Swap Contracts
We currently use interest rate swap contracts as described below to mitigate gains or losses associated with the change in expected cash flows due to fluctuations in interest rates on our variable rate debt.
In February 2018, we entered into interest rate swap contracts to hedge a portion of our interest expense associated with our variable rate debt to effectively fix the interest rate that we pay. These interest rate swap contracts are designated as cash flow hedges under ASC 815. We pay interest at a weighted-average fixed rate of
2.4418%
and receive interest at a variable rate equal to one-month LIBOR. The total notional amount of interest rate swaps outstanding was
$800 million
as of
March 31, 2019
. These hedges mature in February 2022.
These hedges are highly effective in offsetting changes in our future expected cash flows due to the fluctuation in the one-month LIBOR rate associated with our variable rate debt. We qualitatively monitor the effectiveness of these hedges on a quarterly basis. As a result of the effective matching of the critical terms on our variable rate interest expense being hedged to the hedging instruments being used, we expect these hedges to remain highly effective.
All gains and losses from these hedges are recorded in Other comprehensive income (loss) until the future underlying payment transactions occur. Any realized gains or losses resulting from the hedges are recognized (together with the hedged transaction) as interest expense. We estimate the fair value of our interest rate swap contracts by discounting the future cash flows of both the fixed rate and variable rate interest payments based on market yield curves. The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820.
The following table shows the gains (loss) and interest expense recognized on our interest rate swap contracts:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
(Loss) gain recorded in accumulated other comprehensive income (loss), net of tax
|
$
|
(5
|
)
|
|
$
|
2
|
|
Interest expense recorded related to interest rate swap contracts
|
—
|
|
|
1
|
|
We do
not
expect to reclassify material amounts from Accumulated other comprehensive loss to interest expense in the next twelve months.
The following table shows the effect of interest rate swap contracts designated as cash flow hedges on the consolidated statements of operations and comprehensive loss:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
|
Interest expense
|
Total amounts of expense line item presented in the statements of operations and comprehensive loss in which the effects of cash flow hedges are recorded
|
$
|
(154
|
)
|
|
$
|
(155
|
)
|
Hedged item
|
(5
|
)
|
|
(2
|
)
|
Derivative designated as hedging instrument
|
5
|
|
|
1
|
|
Cross-Currency Interest Rate Swaps
In connection with the February 2018 Refinancing described in Note 16 of our 2018 10-K, we entered into certain cross-currency interest rate swap agreements to achieve more beneficial interest rates by effectively converting
$460 million
of our fixed-rate U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately
2.946%
. We have designated these cross-currency interest rate swap agreements as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.
We use the spot method to measure the effectiveness of our net investment hedge. Under this method, for each reporting period, the change in the fair value of the
$460 million
cross-currency interest rate swaps is reported in foreign currency translation gain (loss) in Accumulated other comprehensive loss. The cross-currency basis spread (along with other components of the cross-currency swap’s fair value excluded from the spot method effectiveness assessment) are amortized and recorded to interest expense. We evaluate the effectiveness of our net investment hedge at the beginning of each quarter.
The following table shows the fair value of our hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Line Item
|
|
March 31, 2019
|
|
December 31, 2018
|
Interest rate swaps
(1)(3)
|
Other liabilities
|
|
$
|
6
|
|
|
$
|
—
|
|
Cross-currency interest rate swaps
(2)(3)
|
Other assets
|
|
34
|
|
|
18
|
|
(1) The loss of $6 million for the three months ended March, 31 2019 is reflected in Derivative financial instrument unrealized gross loss in Other comprehensive income.
|
(2) The gain of $16 million for the three months ended March, 31 2019 is reflected in Foreign currency translation loss in Other comprehensive income.
(3) The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy.
|
Net Investment Non-derivative Hedge - 2026 Secured Euro Notes
For the
first
quarter of
2019
, we designated
$255 million
of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.
We use the spot method to measure the effectiveness of our net investment non-derivative hedge. Under this method, for each reporting period, the change in the hedged portion of the carrying value of the 2026 Secured Euro Notes due to remeasurement is reported in Foreign currency translation gain (loss) in Other comprehensive income, and the remaining
remeasurement change is recognized in Gain (loss) on remeasurement of debt in our consolidated statements of operations and comprehensive loss. We evaluate the effectiveness of our net investment non-derivative hedge at the beginning of each quarter, and the inputs used to measure the fair value of this non-derivative hedge are categorized as Level 2 in the fair value hierarchy.
Contingent Consideration Liabilities
In connection with our 2017 acquisitions, we have recorded certain contingent consideration liabilities, of which the values are primarily based on reaching certain earnings-based metrics, with a maximum payout of up to
$39 million
. The related liabilities were recorded at fair value on the acquisition date as part of the consideration transferred and are remeasured each reporting period. The inputs used to measure the fair value of our liabilities are categorized as Level 3 in the fair value hierarchy.
Contingent consideration liabilities as of
March 31, 2019
and
December 31, 2018
were
$45 million
of which
$22 million
as of
March 31, 2019
is included in Accrued liabilities with the remaining balance included in Other long-term liabilities.
We did not have assets and liabilities measured at fair value on a non-recurring basis as of
March 31, 2019
.
(13) Stockholders’ Deficit
Changes in Stockholders’ Deficit
The following tables present certain information regarding our stockholders' deficit as of
March 31, 2019
and
March 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Common Stock
|
|
Additional Paid in Capital
|
|
Accumulated Loss
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Loss
|
|
Total
|
January 1, 2019
|
$
|
1
|
|
|
$
|
835
|
|
|
$
|
(2,824
|
)
|
|
$
|
(175
|
)
|
|
$
|
(300
|
)
|
|
$
|
(2,463
|
)
|
Net proceeds of common stock in connection with stock options and RSUs
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Stock-based compensation
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Net loss
|
—
|
|
|
—
|
|
|
(24
|
)
|
|
—
|
|
|
—
|
|
|
(24
|
)
|
Other Comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
51
|
|
March 31, 2019
|
$
|
1
|
|
|
$
|
848
|
|
|
$
|
(2,848
|
)
|
|
$
|
(175
|
)
|
|
$
|
(249
|
)
|
|
$
|
(2,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Common Stock
|
|
Additional Paid in Capital
|
|
Accumulated Loss
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Loss
|
|
Total
|
January 1, 2018
|
$
|
1
|
|
|
$
|
808
|
|
|
$
|
(2,461
|
)
|
|
$
|
(175
|
)
|
|
$
|
(200
|
)
|
|
$
|
(2,027
|
)
|
Net redemption of common stock in connection with stock options and RSUs
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
Stock-based compensation
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
Net loss
|
—
|
|
|
—
|
|
|
(202
|
)
|
|
—
|
|
|
—
|
|
|
(202
|
)
|
Adoption impact of ASC 606
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
Other Comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52
|
|
|
52
|
|
March 31, 2018
|
$
|
1
|
|
|
$
|
800
|
|
|
$
|
(2,674
|
)
|
|
$
|
(175
|
)
|
|
$
|
(148
|
)
|
|
$
|
(2,196
|
)
|
Stock Based Compensation
The following reflects total stock-based compensation expense recognized under all programs:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
Related to stock options
|
$
|
2
|
|
|
$
|
2
|
|
Related to RSUs
|
12
|
|
|
7
|
|
Total
|
$
|
14
|
|
|
$
|
9
|
|
(14) Income Taxes
We consider new evidence (both positive and negative) at each reporting date that could affect our view of the future realization of deferred tax assets. Based upon the evaluation of all available evidence, and considering the projected U.S. pre-
tax losses for
2019
, we maintain a valuation allowance for our U.S. operations as of
March 31, 2019
. We maintained other valuation allowances for certain non-U.S. jurisdictions with cumulative losses.
The effective income tax rates for the
three
months ended
March 31, 2019
and
2018
were (
18%
) 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 our U.S. deferred tax assets, the effective tax rates for the
three
months ended
March 31, 2019
and
2018
do not include the benefits of the U.S. tax losses, and we recorded an overall tax expense in both periods due to foreign pre-tax earnings. The change in the effective tax rates relates primarily to the overall mix of income in our foreign jurisdictions.
(15) Leases
On January 1, 2019, we adopted ASC 842 using the optional transition method provided by ASU 2018-11. Our operating leases primarily consist of real estate leases such as offices, warehouses, and research and development facilities. Our leases have remaining lease terms ranging from
1 year
to
11 years
, some of which include options to extend the leases for up to
5 years
or to terminate the leases within
1 year
. Our finance leases are immaterial.
Our total operating lease expenses for the
three
months ended
March 31, 2019
and
2018
were
$9 million
and
$7 million
, respectively. The total amount of variable and short term lease payments incurred during the
three
months ended
March 31, 2019
are immaterial.
Supplemental balance sheet and cash flow information related to operating leases is as follows:
|
|
|
|
|
|
March 31, 2019
|
Operating lease right-of-use assets
(1)
|
$
|
118
|
|
Accrued liabilities
|
26
|
|
Operating lease liabilities
|
98
|
|
Total operating lease liabilities
|
$
|
124
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
Operating cash flows from operating leases
|
$
|
8
|
|
Weighted average remaining lease term, years
|
6
|
|
Weighted average discount rate
|
5
|
%
|
(1) Right-of use assets obtained in exchange for lease obligations during the first quarter of 2019 were immaterial.
|
Lease liability maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Less Imputed Interest
|
|
Total
|
Operating leases
|
$
|
24
|
|
|
$
|
28
|
|
|
$
|
24
|
|
|
$
|
19
|
|
|
$
|
15
|
|
|
$
|
34
|
|
|
$
|
(20
|
)
|
|
$
|
124
|
|
As of
March 31, 2019
, we did not have material additional operating leases that have not yet commenced.
(16) Litigation
We are involved in various routine and other specific legal proceedings, including the following which are described in Note 22 within our
2018
10-K:
Colombia litigation, SNAI litigation, Washington State Matter, and the Raqqa Matter
. There have been no material changes to these matters since the
2018
10-K was filed with the SEC, except as described below.
We record an accrual for legal contingencies when it is both probable that a liability has been incurred and the amount or range of the loss can be reasonably estimated (although, as discussed below, there may be an exposure to loss in excess of the accrued liability). We evaluate our accruals for legal contingencies at least quarterly and, as appropriate, establish new accruals or adjust existing accruals to reflect (1) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments, (2) the advice and analyses of counsel and (3) the assumptions and judgment of management. Legal costs associated with our legal proceedings are expensed as incurred. We had accrued liabilities of
$4 million
for all of our legal matters that were contingencies as of
March 31, 2019
and
December 31, 2018
.
Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies could result in losses in excess of amounts we have accrued. We may be unable to estimate a range of possible losses for some matters pending against us or our subsidiaries, even when the amount of damages claimed against us or our subsidiaries is stated because, among other things: (1) the claimed amount may be exaggerated or unsupported; (2) the claim may be based on a novel legal theory or involve a large number of parties; (3) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (4) there may be uncertainty as to the outcome of pending appeals or motions; (5) the matter may not have progressed sufficiently through discovery or there may be significant factual or legal issues to be resolved or developed; and/or (6) there may be uncertainty as to the enforceability of legal judgments and outcomes in certain jurisdictions. Other matters have progressed sufficiently that we are able to estimate a range of possible loss. For those legal contingencies disclosed in Note 22 in our
2018
10-K and this Note 16 as well as those related to the previously disclosed settlement agreement entered into in February 2015 with SNAI S.p.a., as to which a loss is reasonably possible, whether in excess of a related accrued liability or where there is no accrued liability, and for which we are able to estimate a range of possible loss, the current estimated range is up to approximately
$14 million
in excess of the accrued liabilities (if any) related to those legal contingencies. This aggregate range represents management’s estimate of additional possible loss in excess of the accrued liabilities (if any) with respect to these matters based on currently available information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherent uncertainties. For example, at the time of making an estimate, management may have only preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co‑defendants, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that management had not accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which we are not able to estimate a range of possible loss. Accordingly, the estimated aggregate range of possible loss does not represent our maximum loss exposure. Any such losses could have a material adverse impact on our results of operations, cash flows or financial condition. The legal proceedings underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.
TCS John Huxley Matter
On March 15, 2019, TCS John Huxley America, Inc., TCS John Huxley Europe Ltd., TCS John Huxley Asia Ltd., and Taiwan Fulgent Enterprise Co., Ltd. brought a civil action in the United States District Court for the Northern District of Illinois against SGC, Bally Technologies, Inc. and Bally Gaming, Inc. In the complaint, plaintiffs assert federal antitrust claims arising from defendants' procurement of particular U.S. and South African patents. Plaintiffs allege that defendants used those patents to create an allegedly illegal monopoly in the market for automatic card shufflers sold to regulated casinos in the United States. On April 10, 2019, the defendants filed a motion to dismiss the plaintiffs’ complaint with prejudice. On April 25, 2019, the district court denied the defendants’ motion to dismiss without prejudice pursuant to the court’s local rules, after plaintiffs advised that they intended to file an amended complaint. Plaintiffs filed their amended complaint on May 3, 2019, and the district court has set a status hearing for May 8, 2019 to discuss the matter further. Due to the early nature of this litigation, we are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible loss.
For additional information regarding our pending litigation matters, see Note 22 in our
2018
10-K.
(17) Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries
We conduct substantially all of our business through our U.S. and foreign subsidiaries. As of
March 31, 2019
, SGI’s obligations under the Secured Notes (other than the 2022 Secured Notes, which were redeemed in March 2018), the Unsecured Notes and the Subordinated Notes were fully and unconditionally and jointly and severally guaranteed by SGC and the Guarantor Subsidiaries other than SGI, and certain immaterial subsidiaries of SGC. The guarantees of our Secured Notes (other than the 2022 Secured Notes, which were redeemed in March 2018), Unsecured Notes and Subordinated Notes will terminate under the following customary circumstances: (1) the sale or disposition of the capital stock of the guarantor (including by consolidation or merger of the guarantor into another person); (2) the liquidation or dissolution of the guarantor; (3) the defeasance or satisfaction and discharge of the notes; (4) the release of the guarantor from any guarantees of indebtedness of SGC and SGI; and (5) the proper designation of the guarantor as an unrestricted subsidiary pursuant to the indenture governing the respective notes.
Presented below is condensed consolidating financial information for (1) SGC, (2) SGI, (3) the Guarantor Subsidiaries and (4) the Non-Guarantor Subsidiaries as of
March 31, 2019
and
December 31, 2018
and for the three months ended
March 31, 2019
and
2018
. The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of SGC, SGI, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries assuming the current guarantee structures of the Secured Notes (other than the 2022 Secured Notes, which were redeemed in March 2018), the Unsecured Notes and the Subordinated Notes were in effect at the beginning of the periods presented.
The condensed consolidating financial information reflects the investments of SGC in SGI and in the Guarantor Subsidiaries and Non-Guarantor Subsidiaries using the equity method of accounting. They also reflect the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries. Net changes in intercompany due from/due to accounts are reported in the accompanying Supplemental Condensed Consolidating Statements of Cash Flows as investing activities if the applicable entities have a net investment (asset) in intercompany accounts and as a financing activity if the applicable entities have a net intercompany borrowing (liability) balance.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
As of
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,119
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
95
|
|
|
$
|
(2
|
)
|
|
$
|
1,213
|
|
Restricted cash
|
|
—
|
|
|
1
|
|
|
33
|
|
|
7
|
|
|
—
|
|
|
41
|
|
Accounts receivable, net
|
|
—
|
|
|
102
|
|
|
204
|
|
|
315
|
|
|
—
|
|
|
621
|
|
Notes receivable, net
|
|
—
|
|
|
—
|
|
|
89
|
|
|
15
|
|
|
—
|
|
|
104
|
|
Inventories
|
|
—
|
|
|
45
|
|
|
89
|
|
|
109
|
|
|
(14
|
)
|
|
229
|
|
Prepaid expenses, deposits and other current assets
|
|
3
|
|
|
60
|
|
|
95
|
|
|
79
|
|
|
1
|
|
|
238
|
|
Property and equipment, net
|
|
31
|
|
|
99
|
|
|
208
|
|
|
215
|
|
|
(36
|
)
|
|
517
|
|
Operating lease right-of-use asset
|
|
1
|
|
|
24
|
|
|
35
|
|
|
58
|
|
|
—
|
|
|
118
|
|
Investment in subsidiaries
|
|
2,896
|
|
|
959
|
|
|
1,216
|
|
|
—
|
|
|
(5,071
|
)
|
|
—
|
|
Goodwill
|
|
—
|
|
|
240
|
|
|
1,897
|
|
|
1,164
|
|
|
—
|
|
|
3,301
|
|
Intangible assets, net
|
|
40
|
|
|
34
|
|
|
1,239
|
|
|
432
|
|
|
—
|
|
|
1,745
|
|
Intercompany balances
|
|
—
|
|
|
7,096
|
|
|
74
|
|
|
—
|
|
|
(7,170
|
)
|
|
—
|
|
Software, net
|
|
53
|
|
|
37
|
|
|
118
|
|
|
69
|
|
|
—
|
|
|
277
|
|
Other assets
(2)
|
|
113
|
|
|
412
|
|
|
37
|
|
|
309
|
|
|
(438
|
)
|
|
433
|
|
Total assets
|
|
$
|
4,256
|
|
|
$
|
9,110
|
|
|
$
|
5,334
|
|
|
$
|
2,867
|
|
|
$
|
(12,730
|
)
|
|
$
|
8,837
|
|
Liabilities and stockholders’ (deficit) equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
—
|
|
|
$
|
1,042
|
|
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1,046
|
|
Other current liabilities
|
|
58
|
|
|
224
|
|
|
235
|
|
|
258
|
|
|
(35
|
)
|
|
740
|
|
Long-term debt, excluding current portion
|
|
—
|
|
|
8,928
|
|
|
8
|
|
|
1
|
|
|
—
|
|
|
8,937
|
|
Operating lease liabilities
|
|
1
|
|
|
20
|
|
|
30
|
|
|
47
|
|
|
—
|
|
|
98
|
|
Other long-term liabilities
|
|
104
|
|
|
13
|
|
|
637
|
|
|
176
|
|
|
(491
|
)
|
|
439
|
|
Intercompany balances
|
|
6,516
|
|
|
—
|
|
|
—
|
|
|
654
|
|
|
(7,170
|
)
|
|
—
|
|
Stockholders’ (deficit) equity
|
|
(2,423
|
)
|
|
(1,117
|
)
|
|
4,421
|
|
|
1,730
|
|
|
(5,034
|
)
|
|
(2,423
|
)
|
Total liabilities and stockholders’ (deficit) equity
|
|
$
|
4,256
|
|
|
$
|
9,110
|
|
|
$
|
5,334
|
|
|
$
|
2,867
|
|
|
$
|
(12,730
|
)
|
|
$
|
8,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes and the Secured Notes.
(2) Includes $11 million and $1 million in non-current restricted cash for Guarantor Subsidiaries and Non-Guarantor Subsidiaries, respectively.
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
As of
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
74
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
94
|
|
|
$
|
(1
|
)
|
|
$
|
168
|
|
Restricted cash
|
|
—
|
|
|
1
|
|
|
32
|
|
|
6
|
|
|
—
|
|
|
39
|
|
Accounts receivable, net
|
|
—
|
|
|
79
|
|
|
205
|
|
|
315
|
|
|
—
|
|
|
599
|
|
Notes receivable, net
|
|
—
|
|
|
—
|
|
|
101
|
|
|
13
|
|
|
—
|
|
|
114
|
|
Inventories
|
|
—
|
|
|
40
|
|
|
82
|
|
|
111
|
|
|
(17
|
)
|
|
216
|
|
Prepaid expenses, deposits and other current assets
|
|
6
|
|
|
63
|
|
|
92
|
|
|
72
|
|
|
—
|
|
|
233
|
|
Property and equipment, net
|
|
31
|
|
|
112
|
|
|
219
|
|
|
218
|
|
|
(33
|
)
|
|
547
|
|
Investment in subsidiaries
|
|
2,836
|
|
|
975
|
|
|
1,093
|
|
|
—
|
|
|
(4,904
|
)
|
|
—
|
|
Goodwill
|
|
—
|
|
|
240
|
|
|
1,897
|
|
|
1,143
|
|
|
—
|
|
|
3,280
|
|
Intangible assets, net
|
|
43
|
|
|
34
|
|
|
1,291
|
|
|
441
|
|
|
—
|
|
|
1,809
|
|
Intercompany balances
|
|
—
|
|
|
6,054
|
|
|
—
|
|
|
—
|
|
|
(6,054
|
)
|
|
—
|
|
Software, net
|
|
58
|
|
|
39
|
|
|
128
|
|
|
60
|
|
|
—
|
|
|
285
|
|
Other assets
(2)
|
|
110
|
|
|
404
|
|
|
46
|
|
|
308
|
|
|
(440
|
)
|
|
428
|
|
Total assets
|
|
$
|
3,158
|
|
|
$
|
8,042
|
|
|
$
|
5,186
|
|
|
$
|
2,781
|
|
|
$
|
(11,449
|
)
|
|
$
|
7,718
|
|
Liabilities and stockholders’ (deficit) equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
—
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
45
|
|
Other current liabilities
|
|
64
|
|
|
162
|
|
|
248
|
|
|
254
|
|
|
(26
|
)
|
|
702
|
|
Long-term debt, excluding current portion
|
|
—
|
|
|
8,991
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
8,992
|
|
Other long-term liabilities
|
|
106
|
|
|
8
|
|
|
637
|
|
|
172
|
|
|
(481
|
)
|
|
442
|
|
Intercompany balances
|
|
5,451
|
|
|
—
|
|
|
49
|
|
|
554
|
|
|
(6,054
|
)
|
|
—
|
|
Stockholders’ (deficit) equity
|
|
(2,463
|
)
|
|
(1,161
|
)
|
|
4,252
|
|
|
1,797
|
|
|
(4,888
|
)
|
|
(2,463
|
)
|
Total liabilities and stockholders’ (deficit) equity
|
|
$
|
3,158
|
|
|
$
|
8,042
|
|
|
$
|
5,186
|
|
|
$
|
2,781
|
|
|
$
|
(11,449
|
)
|
|
$
|
7,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes (other than the 2026 Unsecured Notes, which were not issued until February 2019) and the Secured Notes.
|
(2) Includes $12 million and $1 million in non-current restricted cash for Guarantor Subsidiaries and Non-Guarantor Subsidiaries, respectively.
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Revenue
|
|
$
|
—
|
|
|
$
|
158
|
|
|
$
|
358
|
|
|
$
|
385
|
|
|
$
|
(64
|
)
|
|
$
|
837
|
|
Cost of services, cost of product sales and cost of instant products
(2)
|
|
—
|
|
|
101
|
|
|
102
|
|
|
152
|
|
|
(48
|
)
|
|
307
|
|
SG&A
|
|
35
|
|
|
11
|
|
|
59
|
|
|
94
|
|
|
(13
|
)
|
|
186
|
|
R&D
|
|
—
|
|
|
1
|
|
|
23
|
|
|
25
|
|
|
—
|
|
|
49
|
|
D&A
|
|
12
|
|
|
12
|
|
|
99
|
|
|
47
|
|
|
(5
|
)
|
|
165
|
|
Restructuring and other
|
|
1
|
|
|
—
|
|
|
2
|
|
|
4
|
|
|
—
|
|
|
7
|
|
Operating (loss) income
|
|
(48
|
)
|
|
33
|
|
|
73
|
|
|
63
|
|
|
2
|
|
|
123
|
|
Interest expense
|
|
—
|
|
|
(154
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(154
|
)
|
Gain on remeasurement of debt
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Other income (expense), net
|
|
20
|
|
|
132
|
|
|
(124
|
)
|
|
(22
|
)
|
|
—
|
|
|
6
|
|
Net (loss) income before equity in income of subsidiaries and income taxes
|
|
(28
|
)
|
|
16
|
|
|
(51
|
)
|
|
41
|
|
|
2
|
|
|
(20
|
)
|
Equity in income of subsidiaries
|
|
6
|
|
|
7
|
|
|
11
|
|
|
—
|
|
|
(24
|
)
|
|
—
|
|
Income tax (expense) benefit
|
|
(2
|
)
|
|
(5
|
)
|
|
13
|
|
|
(10
|
)
|
|
—
|
|
|
(4
|
)
|
Net (loss) income
|
|
$
|
(24
|
)
|
|
$
|
18
|
|
|
$
|
(27
|
)
|
|
$
|
31
|
|
|
$
|
(22
|
)
|
|
$
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
51
|
|
|
9
|
|
|
2
|
|
|
71
|
|
|
(82
|
)
|
|
51
|
|
Comprehensive income (loss)
|
|
$
|
27
|
|
|
$
|
27
|
|
|
$
|
(25
|
)
|
|
$
|
102
|
|
|
$
|
(104
|
)
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes and the Secured Notes.
(2) Exclusive of D&A.
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Revenue
|
|
$
|
—
|
|
|
$
|
130
|
|
|
$
|
387
|
|
|
$
|
369
|
|
|
$
|
(74
|
)
|
|
$
|
812
|
|
Cost of services, cost of product sales and cost of instant products
(2)
|
|
—
|
|
|
86
|
|
|
118
|
|
|
154
|
|
|
(61
|
)
|
|
297
|
|
SG&A
|
|
38
|
|
|
11
|
|
|
58
|
|
|
79
|
|
|
(14
|
)
|
|
172
|
|
R&D
|
|
—
|
|
|
—
|
|
|
23
|
|
|
31
|
|
|
—
|
|
|
54
|
|
D&A
|
|
9
|
|
|
8
|
|
|
126
|
|
|
48
|
|
|
(3
|
)
|
|
188
|
|
Restructuring and other
|
|
26
|
|
|
1
|
|
|
1
|
|
|
24
|
|
|
—
|
|
|
52
|
|
Operating (loss) income
|
|
(73
|
)
|
|
24
|
|
|
61
|
|
|
33
|
|
|
4
|
|
|
49
|
|
Interest expense
|
|
—
|
|
|
(155
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(155
|
)
|
Loss on debt financing transactions
|
|
—
|
|
|
(93
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(93
|
)
|
Other income (expense), net
|
|
15
|
|
|
136
|
|
|
(133
|
)
|
|
(15
|
)
|
|
—
|
|
|
3
|
|
Net (loss) income before equity in income of subsidiaries and income taxes
|
|
(58
|
)
|
|
(88
|
)
|
|
(72
|
)
|
|
18
|
|
|
4
|
|
|
(196
|
)
|
Equity in (loss) income of subsidiaries
|
|
(84
|
)
|
|
4
|
|
|
10
|
|
|
—
|
|
|
70
|
|
|
—
|
|
Income tax (expense) benefit
|
|
(60
|
)
|
|
33
|
|
|
25
|
|
|
(4
|
)
|
|
—
|
|
|
(6
|
)
|
Net (loss) income
|
|
$
|
(202
|
)
|
|
$
|
(51
|
)
|
|
$
|
(37
|
)
|
|
$
|
14
|
|
|
$
|
74
|
|
|
$
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
52
|
|
|
(17
|
)
|
|
22
|
|
|
73
|
|
|
(78
|
)
|
|
52
|
|
Comprehensive income (loss)
|
|
$
|
(150
|
)
|
|
$
|
(68
|
)
|
|
$
|
(15
|
)
|
|
$
|
87
|
|
|
$
|
(4
|
)
|
|
$
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes (other than the 2026 Unsecured Notes, which were not issued until March 2019) and the Secured Notes.
(2) Exclusive of D&A.
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
|
$
|
(15
|
)
|
|
$
|
55
|
|
|
$
|
63
|
|
|
$
|
65
|
|
|
$
|
(1
|
)
|
|
$
|
167
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(3
|
)
|
|
(10
|
)
|
|
(25
|
)
|
|
(29
|
)
|
|
—
|
|
|
(67
|
)
|
Distributions of capital from equity investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Other, principally change in intercompany investing activities
|
|
—
|
|
|
(986
|
)
|
|
(47
|
)
|
|
—
|
|
|
1,033
|
|
|
—
|
|
Net cash used in investing activities
|
|
(3
|
)
|
|
(996
|
)
|
|
(72
|
)
|
|
(26
|
)
|
|
1,033
|
|
|
(64
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt, net of payments
|
|
—
|
|
|
955
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
953
|
|
Payments of debt issuance and deferred financing costs
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Payments on license obligations
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
Sale of future revenue
|
|
—
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Net redemptions of common stock under stock-based compensation plans and other
|
|
1
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Other, principally change in intercompany financing activities
|
|
1,069
|
|
|
—
|
|
|
—
|
|
|
(36
|
)
|
|
(1,033
|
)
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
1,063
|
|
|
941
|
|
|
9
|
|
|
(38
|
)
|
|
(1,033
|
)
|
|
942
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Increase in cash, cash equivalents and restricted cash
|
|
1,045
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
(1
|
)
|
|
1,046
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
74
|
|
|
2
|
|
|
44
|
|
|
101
|
|
|
(1
|
)
|
|
220
|
|
Cash, cash equivalents and restricted cash end of period
|
|
$
|
1,119
|
|
|
$
|
2
|
|
|
$
|
44
|
|
|
$
|
103
|
|
|
$
|
(2
|
)
|
|
$
|
1,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes and the Secured Notes.
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
|
$
|
(32
|
)
|
|
$
|
(25
|
)
|
|
$
|
34
|
|
|
$
|
55
|
|
|
$
|
(2
|
)
|
|
$
|
30
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(8
|
)
|
|
(17
|
)
|
|
(45
|
)
|
|
(18
|
)
|
|
—
|
|
|
(88
|
)
|
Acquisitions of businesses and assets, net of cash acquired
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
(265
|
)
|
|
—
|
|
|
(274
|
)
|
Distributions of capital from equity investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Other, principally change in intercompany investing activities
|
|
—
|
|
|
74
|
|
|
—
|
|
|
—
|
|
|
(74
|
)
|
|
—
|
|
Net cash (used in) provided by investing activities
|
|
(8
|
)
|
|
57
|
|
|
(54
|
)
|
|
(281
|
)
|
|
(74
|
)
|
|
(360
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds net of payments on long-term debt
|
|
—
|
|
|
7
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
5
|
|
Repayment of assumed NYX debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(288
|
)
|
|
—
|
|
|
(288
|
)
|
Payments of debt issuance and deferred financing costs
|
|
—
|
|
|
(39
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39
|
)
|
Payments on license obligations
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
Net redemptions of common stock under stock-based compensation plans and other
|
|
(15
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
Other, principally change in intercompany financing activities
|
|
(630
|
)
|
|
—
|
|
|
22
|
|
|
534
|
|
|
74
|
|
|
—
|
|
Net cash (used in) provided by financing activities
|
|
(652
|
)
|
|
(32
|
)
|
|
20
|
|
|
244
|
|
|
74
|
|
|
(346
|
)
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
(Decrease) increase in cash, cash equivalents and restricted cash
|
|
(692
|
)
|
|
—
|
|
|
—
|
|
|
20
|
|
|
(2
|
)
|
|
(674
|
)
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
732
|
|
|
1
|
|
|
44
|
|
|
60
|
|
|
(3
|
)
|
|
834
|
|
Cash, cash equivalents and restricted cash end of period
|
|
$
|
40
|
|
|
$
|
1
|
|
|
$
|
44
|
|
|
$
|
80
|
|
|
$
|
(5
|
)
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the Subordinated Notes, the Unsecured Notes (other than the 2026 Unsecured Notes, which were not issued until March 2019) and the Secured Notes.
|