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 games, lottery systems, and lottery content and services to lottery operators; providing social casino solutions to retail consumers and regulated gaming entities, as applicable; and providing a comprehensive suite of digital RMG and sports betting solutions, distribution platforms, content, products and services. We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments. Following the NYX acquisition and subsequent review of our business segments reporting structure, we now report our operations in
four
business segments—Gaming, Lottery, Social and Digital— with prior periods being recast to align with the current presentation.
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 and its wholly owned subsidiaries, and those subsidiaries in which we have a controlling financial interest. Investments in other entities in which we do not have a controlling financial interest but we exert significant influence are accounted for in our condensed consolidated financial statements using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.
In the opinion of SGC and its management, we have made all adjustments necessary to present fairly our consolidated financial position, results of operations and comprehensive loss 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
2017
10-K. Interim results of operations are not necessarily indicative of results of operations to be expected for a full year.
Significant Accounting Policies
There have been no changes to our significant accounting policies described within the Notes of our
2017
10-K other than adoption of ASC 606 described in Note 2.
Computation of Basic and Diluted Net Loss Per Share
Basic and diluted net loss per share were the same for all periods presented as all common stock equivalents would be anti-dilutive. We excluded
2.6 million
of stock options from the diluted weighted-average common shares outstanding for the
three and nine
months ended
September 30, 2018
and
2017
, respectively. We excluded
2.9 million
of RSUs from the calculation of diluted weighted-average common shares outstanding for the
three and nine
months ended
September 30, 2018
, respectively, and
4.2 million
RSUs from such calculation for the
three and nine
months ended
September 30, 2017
, respectively.
Acquisition of NYX Gaming Group Limited and Preliminary Purchase Price Allocation
On
January 5, 2018
, we completed the acquisition of all outstanding ordinary shares of NYX, creating a leading digital provider of sports betting, iGaming and iLottery technologies, platforms, content, products and services. We paid
$665.8 million
in cash to acquire ordinary shares and other securities and to redeem NYX's outstanding debt inclusive of
$91.9 million
paid during the fourth quarter of 2017 to acquire NYX ordinary shares and other securities. The fair value of our NYX non-controlling equity interest held immediately before the acquisition date was
$90.4 million
.
We accounted for this acquisition using the acquisition method of accounting allocating the total consideration transferred to acquired tangible and intangible assets and assumed liabilities based on estimated fair values. The fair value determination of the acquired assets and assumed liabilities (including the related determination of estimated lives of depreciable and amortizable tangible and intangible assets) requires significant judgments and estimates. The estimated fair values of the acquired assets and assumed liabilities and resulting goodwill are subject to adjustment as we finalize our purchase price accounting, and such adjustments could be material.
We incurred
$7.7 million
of NYX acquisition-related costs which were recorded in Restructuring and other for the nine months ended
September 30, 2018
.
The following table summarizes the preliminary allocation of the purchase price expected to be finalized by the end of 2018:
|
|
|
|
|
|
|
|
January 5, 2018
|
Cash, cash equivalents and restricted cash
|
|
$
|
23.3
|
|
Accounts receivable and other current assets
(1)
|
|
55.2
|
|
Property and equipment and other non-current assets
(1)
|
|
22.1
|
|
Goodwill
|
|
376.4
|
|
Intangible assets
|
|
350.0
|
|
Total assets
|
|
$
|
827.0
|
|
Current liabilities
(2)
|
|
$
|
82.0
|
|
Deferred income taxes
|
|
66.3
|
|
Assumed debt and other liabilities
|
|
299.7
|
|
Total liabilities
|
|
$
|
448.0
|
|
Total consideration transferred
|
|
$
|
379.0
|
|
(1) Inclusive of $43.0 million and $12.9 million of receivables and contract assets, respectively.
|
(2) Inclusive of $15.7 million of contract liabilities.
|
Cash, cash equivalents and restricted cash, accounts receivable and other current assets and most liabilities (other than as primarily related to deferred income taxes) were valued at the existing carrying values which approximated the estimated fair values. The estimated preliminary fair value of deferred income taxes was determined by applying the applicable enacted statutory tax rate to the temporary differences that arose on the differences between the financial reporting value and tax basis of the acquired assets and assumed liabilities.
The fair value of intangible assets that have been preliminarily identified was determined using a combination of the relief from royalty method and the excess earnings method using level 3 inputs in the hierarchy as established by ASC 820. The discount rates used in the valuation analysis ranged between
10%
and
14%
, and the royalty rate used was
0.5%
. The following table details the intangible assets that have been preliminarily identified:
|
|
|
|
|
|
|
|
Fair Value
|
|
Weighted Average Useful Life (Years)
|
Customer relationships
|
$
|
214.0
|
|
|
7-10
|
Intellectual property
(1)
|
126.5
|
|
|
7
|
Trade names
|
9.5
|
|
|
7
|
(1) Primarily consists of core technology and content.
|
The factors contributing to the recognition of acquisition goodwill are based on enhanced financial and operational scale, market diversification, expected cost and operational synergies, assembled workforce, and other strategic benefits. None of the resultant goodwill is expected to be deductible for income tax purposes.
NYX revenue and net loss since the acquisition date included in our consolidated results were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30, 2018
|
Revenue
|
$
|
46.5
|
|
|
$
|
146.3
|
|
Net loss
|
10.9
|
|
|
26.4
|
|
The acquired NYX business was combined with the business-to-business component of our previous Interactive business segment, forming the new Digital business segment.
The following unaudited pro forma financial information for the three and nine months ended
September 30, 2018
and
2017
give effect to the NYX acquisition as if it had been completed on January 1, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30, 2018
|
|
September 30, 2017
|
|
September 30, 2018
|
|
September 30, 2017
|
Revenue
|
$
|
821.0
|
|
|
$
|
814.5
|
|
|
$
|
2,477.5
|
|
|
$
|
2,393.8
|
|
Net loss
|
351.6
|
|
|
76.1
|
|
|
551.5
|
|
|
244.8
|
|
The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been if the NYX acquisition had taken place on January 1, 2017, nor is it indicative of future operating results. The pro forma amounts include the historical operating results of SGC and NYX prior to the acquisition, with adjustments factually supportable and directly attributable to the NYX acquisition, primarily related to the effect of fair value adjustments and related depreciation and amortization, acquisition-related fees and expenses, interest expense related to additional borrowings used to complete the acquisition, and the effect of repayments of NYX historical debt as a result of the acquisition.
Other Acquisitions
On January 23, 2018, we acquired privately held Tech Art, Inc. and related entities (collectively, "Tech Art") for
$9.6 million
cash consideration. The transaction was accounted for as an asset acquisition, with substantially all of the cash consideration transferred allocated to intellectual property, which was assigned a
15
-year useful life. Tech Art has been integrated into our Gaming business segment.
On November 1, 2018, we completed the acquisition of privately-held Don Best Sports Corporation and DBS Canada Corporation (collectively, “Don Best”), a leading global supplier of real-time betting data and pricing for North American sporting events, for
$26.5 million
in cash with the potential for additional contingent consideration. We are in the process of completing the preliminary purchase price accounting and expect that a substantial portion of the purchase price will be allocated to acquired intellectual property and customer relationships. Don Best was integrated into our Digital business segment.
New Accounting Guidance - Recently Adopted
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 combined with all subsequent amendments (collectively, ASC 606) provides guidance outlining a single comprehensive revenue model in accounting for revenue from contracts with customers. ASC 606 supersedes existing revenue recognition guidance, including industry-specific guidance, and replaces it with a five-step revenue model with a core principle that "an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We adopted this guidance effective January 1, 2018 using a modified retrospective application approach. See our 2017 10-K Note 1 for the anticipated annual impact on our consolidated financial statements and Note 2 in this Quarterly Report on Form 10-Q for our revenue recognition policy and the quarterly impact of our adoption of ASC 606.
The FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
in 2017. The new guidance clarifies the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. We adopted this guidance effective January 1, 2018, and this adoption did not have a material effect on our consolidated financial statements.
The FASB issued ASU No. 2017-07,
Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
in 2017.
We adopted this guidance effective January 1, 2018. This guidance requires an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of operating income, if one is presented, which for us means that certain immaterial amounts will be classified within interest expense as compared to the previous classification within SG&A. We are also required to describe which line items are used to present the other components of net benefit cost if such financial statement line items are separately presented; otherwise, we must disclose the line items in which such costs are presented.
The FASB issued ASU No. 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
in 2017
.
We early adopted this guidance during the first quarter of 2018, which simplifies the application of hedge accounting guidance, and creates greater transparency for results presented on the face of the financial statements and footnotes. Our adoption did not have a material effect on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15,
Intangibles - Goodwill and Other - Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangemen
t
That Is a Service Contract
, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance requires that such capitalized implementation costs for hosting arrangements are expensed over the term of the hosting arrangement and presented in the same line item in the statement of operations and comprehensive (loss) income as the fees associated with the hosting service. We early adopted this guidance prospectively effective the third quarter of 2018, and this adoption did not have a material effect on our consolidated financial statements.
New Accounting Guidance - Not Yet Adopted
T
he FASB issued ASU No. 2016-02,
Leases (Topic 842
) in 2016. ASU 2016-02 combined with all subsequent amendments (collectively, ASC 842) requires balance sheet recognition for all leases with a lease term greater than one year to be recorded as a lease liability (on a discounted basis) with a corresponding right-of-use asset. This guidance also expands the required quantitative and qualitative disclosures for lease arrangements and gives rise to other changes impacting certain aspects of lessor accounting. We will adopt this guidance at the beginning of the first quarter of 2019 using the optional transition method provided by ASU 2018-11, and we anticipate applying both the lessee package of practical expedients and the available lessor practical expedients.
We continue to assess the anticipated impact of adopting this guidance, and the following is our preliminary assessment completed to date:
Lessee Accounting:
Based on the preliminary analysis completed to date, we estimate the adoption will result in the addition of
$175.0 million
to
$225.0 million
of assets and liabilities (on undiscounted basis) to our consolidated balance sheet, primarily related to real estate leases, with no significant change to our consolidated statements of operations and comprehensive (loss) income or cash flows. We also anticipate our quantitative and qualitative disclosures for lease arrangements will increase under ASC 842.
Lessor Accounting:
Certain of our international gaming operations arrangements and domestic lottery systems arrangements may contain identified equipment that is conveyed to our customers as a part of a comprehensive service solution. For these arrangements, we are predominantly compensated on a participation basis (variable payments). While most of these arrangements may contain operating leases, depending on the terms of these arrangements, either at inception or upon modification, certain of these arrangements could potentially be classified as sales-type financing leases. For such arrangements classified as sales-type financing leases and because payments are variable, a loss would be recorded from derecognition of the carrying amount of the underlying equipment that is greater than the net investment in the lease, even though the arrangement is expected to ultimately be profitable. The timing of rental income for these arrangements would not be impacted.
The FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326)
in 2016. The new guidance replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, we will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The new guidance will be effective for us beginning January 1, 2020, with early adoption permitted beginning January 1, 2018. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of adopting this guidance.
In August 2018, the FASB issued ASU No. 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
. The new guidance amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures on fair value measurements in ASC 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement
uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The new guidance will be effective for us beginning January 1, 2020, with early adoption permitted upon issuance of this updated guidance. We do not plan to early adopt this ASU, and we are currently evaluating the impact of adopting this guidance.
We do not expect that any other recently issued accounting guidance will have a significant effect on our consolidated financial statements.
(2) Revenue Recognition
As described in Note 1, on January 1, 2018, we adopted ASC 606 using the modified retrospective method, which was applied to customer contracts that were not completed as of January 1, 2018. In accordance with the modified retrospective transition method, our results of operations beginning with the first quarter of 2018 are presented in accordance with ASC 606, while prior periods continue to be reported in accordance with the historical revenue recognition guidance as disclosed in our
2017
10-K.
The following table disaggregates our revenues by type within each of our business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Gaming
|
|
|
|
|
|
|
|
Gaming operations
|
$
|
159.2
|
|
|
$
|
176.0
|
|
|
$
|
480.5
|
|
|
$
|
526.8
|
|
Gaming machine sales
|
167.2
|
|
|
163.1
|
|
|
479.6
|
|
|
482.6
|
|
Gaming systems
|
69.7
|
|
|
62.0
|
|
|
229.0
|
|
|
190.6
|
|
Table products
|
51.8
|
|
|
53.5
|
|
|
172.5
|
|
|
151.8
|
|
Total
|
$
|
447.9
|
|
|
$
|
454.6
|
|
|
$
|
1,361.6
|
|
|
$
|
1,351.8
|
|
|
|
|
|
|
|
|
|
Lottery
|
|
|
|
|
|
|
|
Instant products
|
$
|
142.0
|
|
|
$
|
142.7
|
|
|
$
|
442.3
|
|
|
$
|
435.7
|
|
Lottery systems
|
64.8
|
|
|
60.2
|
|
|
173.3
|
|
|
158.6
|
|
Total
|
$
|
206.8
|
|
|
$
|
202.9
|
|
|
$
|
615.6
|
|
|
$
|
594.3
|
|
|
|
|
|
|
|
|
|
Social
|
|
|
|
|
|
|
|
Social gaming
|
$
|
105.1
|
|
|
$
|
95.1
|
|
|
$
|
302.2
|
|
|
$
|
266.4
|
|
|
|
|
|
|
|
|
|
Digital
|
|
|
|
|
|
|
|
Sports and platform
|
$
|
20.8
|
|
|
$
|
—
|
|
|
$
|
67.2
|
|
|
$
|
—
|
|
Gaming and other
|
40.4
|
|
|
16.3
|
|
|
130.9
|
|
|
48.1
|
|
Total
|
$
|
61.2
|
|
|
$
|
16.3
|
|
|
$
|
198.1
|
|
|
$
|
48.1
|
|
General
We evaluate the recognition of revenue and rental income based on the criteria set forth in ASC 606 or ASC 840, as appropriate. Revenue is recognized when control of the
promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. This condition normally is met when the product has been delivered or upon performance of services. Revenue is reported net of incentive rebates and discounts. We made an accounting policy election to exclude from the measurement of the transaction price sales taxes and all other items of a similar nature, and also elected to account for shipping and handling activities as a fulfillment of our promise to transfer the goods. Accordingly, shipping and handling costs are included in cost of sales.
Our credit terms are predominately short term in nature. We also grant extended payment terms under certain contracts, primarily where the sale is secured by the related equipment sold, and generally only in certain Gaming segment contracts with customers. For these contracts with customers for which the financing component is determined to be significant to the contract, the contract transaction price is adjusted for the effect of a financing component (time value of money). We have not applied the significant financing component guidance to transactions with financing terms of 12 months or less.
Any sales commissions associated with the sale or placement of our products and services are expensed as incurred as contracts associated with sales commissions are generally completed within a one-year period.
The primary types of revenue impacted by the adoption of ASC 606 were Gaming operations and Lottery instant products. Each of these is described separately below. We had other balance sheet adoption impacts that, combined with the preceding, resulted in a net increase to opening accumulated loss of
$10.9 million
as of January 1, 2018. As part of the adoption of ASC 606, we increased contract liabilities by
$9.7 million
primarily associated with Lottery instant products licensing and player loyalty contracts for which we determined that the promises in the related contracts were part of a single performance obligation under ASC 606. In addition, we reduced previously recorded deferred costs net of newly established contract assets by
$11.4 million
related to licensing in certain customized lottery software contracts for which we concluded that we were unable to recognize revenue for delivered elements under ASC 985-605 due to the lack of vendor-specific objective evidence for undelivered elements and for which we were required to estimate the standalone selling price of delivered performance obligations under ASC 606. Combined, we expect all other adoption impacts other than Gaming operations and Lottery instant products to have less than a
$10.0 million
impact on revenue and operating income in the aggregate for the remainder of 2018.
Contracts with Customers with Multiple Promised Goods and Services
We enter into contracts with customers that include multiple promises (such as gaming machines, gaming systems hardware and software, installation, service and maintenance, product support or lottery systems and hardware, installation and maintenance bundled promises). For such contracts, the transaction price is allocated to each distinct performance obligation using an estimate of stand-alone selling price. The stand-alone selling price is generally based on observable prices or a cost plus margin approach. We also use the residual method when observable prices are uncertain or highly variable, primarily with respect to certain of our software licenses. The establishment of stand-alone selling price requires judgment as to whether there is a sufficient quantity of items sold or substantively renewed on a stand-alone basis and those prices demonstrate an appropriate level of concentration to conclude that a stand-alone selling price exists.
The guidance in ASC 606 requires that we apply judgments or estimates to determine both the performance obligations and the stand-alone selling prices of identified performance obligations. Contracts with multiple promised goods and services described above will often involve significant judgment in determining whether each promise is distinct or should be combined with other promises in such contracts in concluding on the distinct performance obligations for such contracts. Such judgment generally requires an assessment of the level of integration and interdependency between individual components particularly in our gaming systems and certain digital contracts with customers. Associated with these same contracts, we also apply significant judgment to determine the stand-alone selling prices of the identified performance obligations. In certain contracts with customers, we bundle the selling price for multiple promised goods or services or we may license systems for which the solutions we provide are highly customized and therefore the prices we charge are either uncertain, highly variable, or both.
Gaming Operations
Gaming operations revenues are generated by providing customers access to proprietary land-based gaming equipment, table game products and VLTs under a variety of recurring operating, service, or rental contracts, for which consideration is based upon a percentage of Coin-in, a percentage of Net win, or a fixed daily/monthly fee, with variability generally resolved in the reporting period. For these contracts with customers, we generally transfer control and recognize revenue or rental income over time based on the amount we expect to receive as described and classify such revenue or rental income as services revenue. Payments from customers under these contracts are typically due on a monthly basis. Jackpot expense for our WAP services is recorded as a reduction to revenue, which decreased revenue and cost of services by
$4.5 million
and
$15.4 million
for the
three and nine
months ended
September 30, 2018
, respectively. This change in classification has no impact on operating income or net loss. There was
$5.5 million
and
$17.9 million
of such amounts presented as cost of services for the
three and nine
months ended
September 30, 2017
, respectively. The amount of rental income revenue that is outside the scope of ASC 606 was
$66.0 million
and
$202.1 million
for the three-and-nine months ended September 30, 2018, respectively.
Gaming Machine Sales
These contracts with customers include the sale of gaming machines, including game content, electronic table game products and parts (including game themes and conversion kits). We transfer control and recognize revenue from the sale of gaming machines at a point in time upon delivery of gaming machines to our customers or distributors pursuant to the terms of the contract. If the sale of gaming machines includes multiple promised goods and services, these contracts are accounted for as
described in the "Contracts with Customers with Multiple Promised Goods and Services" section above. Our credit terms are predominately short term in nature.
Gaming Systems
Gaming systems contracts with customers can include a comprehensive suite of technology solutions provided to gaming operators, including perpetual licenses to core system solutions and non-core system solutions and other applications and tools. Gaming systems products also include the
iVIEW
®
touch screen display, which facilitates the player experience, bonus features, customer service, and employee functions and ongoing hardware and software maintenance services and upgrades.
Determination of performance obligations and timing of the transfer of control varies by contract. Generally, these contracts contain multiple promised goods and services, including the following: (i) core system software license; (ii) non-core system software license(s); (iii) professional services; (iv) system-based hardware; (v) in-game hardware products; and (vi) software and hardware maintenance and product support.
Control transfers and we recognize revenue from the sale of perpetual gaming systems licenses and various hardware products at a point in time when the gaming system is available for use by a customer which is no earlier than the commencement of the license term, and for the hardware products upon delivery. For contracts that include new core gaming system installations, control is not considered transferred until control of the core gaming system license is transferred as the additional promises are generally highly dependent on the core gaming system. Software and hardware maintenance and product support services are considered stand-ready obligations, therefore control transfers and revenue is recognized over time over the term of the maintenance and support period. If a gaming systems contract includes multiple promised goods and services, these contracts are accounted for as described in the "Contracts with Customers with Multiple Promised Goods and Services" section above.
Table Products
Table products revenue is generated from supplying and maintaining or selling table game products, primarily including automatic card shufflers, deck checkers, table roulette chip sorters and other land-based table gaming equipment. We transfer control and recognize revenue from the sale of table products at a point in time upon delivery to our customers or distributors pursuant to the terms of the contract. Supply and maintenance contracts, for which consideration is primarily based on a fixed monthly fee, are considered stand-ready obligations, therefore control transfers and revenue is recognized over time over the term of the supply and maintenance period. Such contracts are generally short-term in nature. We also license our proprietary table games content, for which revenue is recognized at a point in time under the licensing of intellectual property guidance as such licenses are functional licenses.
Lottery Instant Products
Our instant products revenue is primarily generated under long-term contracts to supply instant products and provide related services to our Lottery customers. For instant products that are sold on a PPU and POS basis, we generally have a single performance obligation of a promise to supply the instant products. Control transfers and we recognize revenue from the sale of such instant products when the lotteries have taken delivery of shipments of instant products pursuant to the terms of the contract. For instant products that are sold on a POS basis, we are compensated based on retail sales, therefore the timing difference between the recognition of revenue, the billing of our customers and the receipt of payments depends on retail sales. Contract assets resulting from these contracts remain until we have the contractual ability to invoice and collect from customers (which occurs upon retail sales).
For our CSP contracts in which we perform all of the services necessary to operate the associated lottery’s integrated instant product operations and for which we are compensated based on retail sales, our single performance obligation is a promise to perform a series of stand-ready services to operate and manage instant gaming programs for the lotteries in their entirety. Revenue is recognized over time as measured by an appropriate measure of progress toward satisfying our performance obligation, which we have determined to be when a lottery retailer activates any associated instant tickets, as this is the point at which we have transferred control over the associated instant tickets and perform no more services related to such instant tickets.
The guidance in ASC 606 requires that we apply judgment to determine the timing of control transfer of performance obligations in our Lottery instant products contracts. For instant products that are sold under POS contracts, we generally have
a single performance obligation of a promise to supply the instant products. The determination of when control transfers requires significant judgment because lotteries take delivery of shipments of instant products, but we retain the risk of such inventory until retail sales of such tickets takes place. We have determined control transfers upon delivery to a lottery-controlled warehouse, because we do not have the ability to direct the use of such instant products subsequent to delivery.
As disclosed in the first quarter of 2018, there was an
$8.1 million
and
$6.3 million
increase in revenue and Lottery Business Segment AEBITDA, respectively, associated with instant products sold on a POS basis due to adopting the new revenue recognition guidance in the first interim period of adoption. We expect this favorable impact will be largely offset during the three quarters following the initial adoption. The impact for the second and third quarters of 2018 was in line with these expectations. We continue to expect the adoption of the new revenue recognition guidance will have less than a
$10.0 million
impact on POS revenue in the aggregate for 2018.
Revenue from any tickets sold under these arrangements that were in the lottery distribution channel at
December 31, 2017
will not be recognized as retail sales occur, as both the revenue value of such tickets and the historical cost of such inventory at
December 31, 2017
was reflected directly into shareholders’ deficit at adoption. The adoption of ASC 606 related to inventory in the distribution channel at
December 31, 2017
resulted in an increase to contract assets (included in Prepaid expenses, deposits and other current assets) totaling
$52.0 million
, a reduction to inventory totaling
$33.0 million
and a decrease to accumulated net loss totaling
$19.0 million
. The impact of ASC 606 on our
September 30, 2018
consolidated balance sheet was a
$37.9 million
decrease to inventories and a
$40.7 million
increase to contract assets included in Prepaid expenses, deposits and other current assets.
Lottery Systems
Our Lottery business segment offers our customers a number of related, value-added services as part of an integrated product offering. These services include lottery systems, including point-of-sale terminals and other equipment, software, data communication services and support and instant game validation systems, and software, hardware and related services for sports wagering and keno systems.
For our integrated lottery systems service contracts (described above), our single performance obligation is a promise to perform a series of stand-ready services to operate a fully-functional draw lottery. Revenue is recognized over time in an amount generally based on a percentage of sales of the related games, which represents our measure of progress toward satisfying our performance obligation.
For our perpetual licensing of customized lottery software contracts, we generally recognize revenue over time using costs incurred to date relative to total estimated completion costs to measure progress toward satisfying our performance obligations, which we believe best depicts the transfer of control to the customer.
Maintenance on lottery software and lottery terminals is considered a stand-ready obligation, with control transferring and revenue being recognized over time ratably over the maintenance and support period. If a lottery systems contract includes multiple promised goods and services, these contracts are accounted for as described in the "Contracts with Customers with Multiple Promised Goods and Services" section above.
Social Gaming
Social gaming revenues are generated from the sale of virtual coins, chips or bingo cards (collectively referred to as "virtual currency"), which players can use to play casino-style slot and table games or bingo games (i.e., spin in the case of slot games, bet in the case of table games and use of bingo cards in the case of bingo games). Control transfers and we recognize revenues from player purchases of virtual currency as the virtual currency is consumed for game play, which is based on a historical data analysis. Because we have control over the content and functionality of games before they are accessed by the end user, we have determined we are the principal and, as a result, revenues are recorded on a gross basis. Payment processing fees paid to platform providers (such as Facebook, Apple, Amazon and Google) on a revenue participation basis are recorded within cost of services. All social gaming revenue is classified as services revenue.
Digital
Digital revenue is generated from professional services related to highly customized software design, development, licensing, maintenance and support services associated with a comprehensive suite of technology solutions, including sports books and betting markets across both fixed-odds and pari-mutuel betting styles. Additionally, through our integrated suite of
various platform and technology solutions, we provide gaming operators optional portals for reporting and administrative functions, and access to a wide portfolio of content, including casino, lottery and bingo style games.
Determination of performance obligations and timing of the transfer of control vary based on the nature of the contract. Generally, these contracts contain multiple promises, including the following: (i) implementation of customized software solution and the associated software license; (ii) support services and unspecified software updates; (iii) professional development services; and (iv) access to the game content. Generally control transfers and we recognize revenue from the implementation of a customized software solution and the associated software license over time using costs incurred to date relative to total estimated completion costs to measure progress toward satisfying our performance obligations, which we believe best depicts the transfer of control to the customer. Support services and unspecified software updates are considered stand-ready obligations, therefore control transfers and revenue is recognized over time ratably over the term of the support period. Professional development services generally relate to post-go live development, and control transfers and revenue is recognized over time as services are rendered.
We also generate revenue from various content aggregation platforms, remote gaming servers, our
SG Universe
®
platform and various other platforms, which deliver a wide spectrum of internally developed and branded games and popular third-party provided games to gaming operators. We provide daily access to these platforms and are typically compensated based on variable consideration, such as a percentage of net gaming revenue with variability generally resolved in the reporting period. All Digital revenue is classified as services revenue.
Contract Liabilities and Other Disclosures
The following table summarizes the activity in our contract liabilities for the reporting period:
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2018
|
Contract liability balance, beginning of period
(1)
|
|
$
|
88.2
|
|
Liabilities recognized during the period
|
|
54.5
|
|
Amounts recognized in revenue from beginning balance
|
|
(55.9
|
)
|
Contract liability balance, end of period
(1)
|
|
$
|
86.8
|
|
(1) Contract liabilities are included within accrued liabilities and other long-term liabilities in our 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 percentage of sale contracts. As disclosed in "Lottery Instant Products" above, 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
$26.0 million
and
$83.8 million
in the
three and nine
months ended
September 30, 2018
, respectively. The following table summarizes our opening and closing balances in these accounts (other than contract liabilities disclosed above):
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
Contract Assets
(1)
|
Opening balance, January 1, 2018
|
$
|
724.7
|
|
|
$
|
66.4
|
|
Closing balance, September 30, 2018
|
691.3
|
|
|
109.1
|
|
(1) Contract assets are included primarily within Prepaid expenses, deposits and other current assets in our September 30, 2018 consolidated balance sheet.
|
Other than acquired contract assets and receivables and assumed contract liabilities resulting from the NYX acquisition (described in Note 1), we did not have any changes in these balances other than normal, recurring activity during the interim period ended
September 30, 2018
.
As of
September 30, 2018
, other than as described above, 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
In connection with the NYX acquisition (see Note 1), in the first quarter of 2018, we reviewed our operating and business segments in light of certain changes in the organizational and operational structure of SGC. Based on this review, we determined that our Social gaming business, previously included in our Interactive business segment, is a separate business segment and the remaining business-to-business Interactive business component was integrated with the acquired NYX business, collectively forming the new Digital business segment.
As a result of the above changes, we now 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 our Gaming and Lottery business segments generally derive their revenue is included in our
2017
10-K Note 2. Our Social business segment provides social gaming services through our own B2C applications. Our Digital business segment provides highly customizable software design, development, licensing, maintenance and support services from a comprehensive suite of technology solutions to enable our customers to operate sports books, including betting markets across both fixed-odds and pari-mutuel betting styles, a distribution platform, full gaming process support services, brand and player management, including
SG Universe
services, and RMG services to online casino operators through our remote game servers. The products and services from which each reportable segment derives its revenues are further discussed in Note 2.
We also reviewed and considered the change in our Chief Executive Officer during the second quarter of 2018, who is also our Chief Operating Decision Maker (CODM), and how resources are allocated and financial information is regularly reviewed to evaluate operating results and performance of our business segments. As a result of this change and starting with the second quarter of 2018, we changed our business segment performance measure of profit or loss from operating income (loss) to Attributable EBITDA (AEBITDA), which we have described below. Business segment information for the
three and nine
months ended
September 30, 2017
has been recast to reflect these changes. The accounting policies of our business segments are the same as those described within the Notes in our
2017
10-K and in Note 1 and Note 2 (for revenue recognition) in this Quarterly Report on Form 10-Q. The following tables present our segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Gaming
|
|
Lottery
|
|
Social
|
|
Digital
|
|
Unallocated and Reconciling Items
(1)
|
|
Total
|
Total revenue
|
$
|
447.9
|
|
|
$
|
206.8
|
|
|
$
|
105.1
|
|
|
$
|
61.2
|
|
|
$
|
—
|
|
|
$
|
821.0
|
|
AEBITDA
(2)
|
232.5
|
|
|
92.3
|
|
|
27.0
|
|
|
11.9
|
|
|
(38.0
|
)
|
|
$
|
325.7
|
|
Reconciling items to consolidated net loss before income taxes:
|
D&A
|
(119.3
|
)
|
|
(15.0
|
)
|
|
(2.5
|
)
|
|
(16.2
|
)
|
|
(13.3
|
)
|
|
(166.3
|
)
|
Restructuring and other
|
(3.8
|
)
|
|
(2.9
|
)
|
|
(9.0
|
)
|
|
(4.4
|
)
|
|
(318.6
|
)
|
|
(338.7
|
)
|
EBITDA from equity investments
(2)
|
|
|
|
|
|
|
|
|
(13.8
|
)
|
|
(13.8
|
)
|
Earnings from equity investments
|
|
|
|
|
|
|
|
|
4.3
|
|
|
4.3
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(147.4
|
)
|
|
(147.4
|
)
|
Loss on remeasurement of debt
|
|
|
|
|
|
|
|
|
(4.0
|
)
|
|
(4.0
|
)
|
Other expense, net
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
(2.4
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
(9.4
|
)
|
|
(9.4
|
)
|
Net loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
(352.0
|
)
|
Assets as of September 30, 2018
|
$
|
5,119.7
|
|
|
$
|
1,165.7
|
|
|
$
|
188.1
|
|
|
$
|
851.8
|
|
|
$
|
203.6
|
|
|
$
|
7,528.9
|
|
(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) AEBITDA is net income (loss) before the following adjustments: (1) restructuring and other, which includes charges or expenses attributable to: (i) employee severance; (ii) management changes; (iii) restructuring and integration; (iv) M&A and other, which includes: (a) M&A transaction costs, (b) purchase accounting, (c) unusual items (including certain litigation), and (d) other non-cash items; and (v) cost savings initiatives; (2) depreciation and amortization expense and impairment charges (including goodwill impairment charges); (3) change in fair value of investments and remeasurement of debt; (4) interest expense; (5) income taxes expense (benefit); (6) stock-based compensation; and (7) loss (gain) on debt financing transactions. In addition to the preceding adjustments, we exclude earnings from equity method investments and add (without duplication) our pro rata share of EBITDA of our equity investments, which represents our share of earnings (whether or not distributed to us) before income tax expense, depreciation and amortization expense, and interest (income) expense, net. AEBITDA is presented exclusively as our segment measure of profit or loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
Gaming
|
|
Lottery
|
|
Social
|
|
Digital
|
|
Unallocated and Reconciling Items
(1)
|
|
Total
|
Total revenue
|
$
|
454.6
|
|
|
$
|
202.9
|
|
|
$
|
95.1
|
|
|
$
|
16.3
|
|
|
$
|
—
|
|
|
$
|
768.9
|
|
AEBITDA
(2)
|
221.2
|
|
|
89.2
|
|
|
20.1
|
|
|
3.1
|
|
|
(34.6
|
)
|
|
$
|
299.0
|
|
Reconciling items to consolidated net loss before income taxes:
|
D&A
|
(129.8
|
)
|
|
(10.0
|
)
|
|
(5.7
|
)
|
|
(2.2
|
)
|
|
(25.4
|
)
|
|
(173.1
|
)
|
Restructuring and other
|
(0.3
|
)
|
|
0.1
|
|
|
(0.6
|
)
|
|
0.1
|
|
|
(7.1
|
)
|
|
(7.8
|
)
|
EBITDA from equity investments
(2)
|
|
|
|
|
|
|
|
|
(17.9
|
)
|
|
(17.9
|
)
|
Earnings from equity investments
|
|
|
|
|
|
|
|
|
7.5
|
|
|
7.5
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(148.9
|
)
|
|
(148.9
|
)
|
Loss on debt financing transactions
|
|
|
|
|
|
|
|
|
(8.4
|
)
|
|
(8.4
|
)
|
Other expense, net
|
|
|
|
|
|
|
|
|
(6.4
|
)
|
|
(6.4
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
(7.5
|
)
|
|
(7.5
|
)
|
Net loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
(63.5
|
)
|
Assets as of December 31, 2017
|
$
|
5,401.6
|
|
|
$
|
1,070.6
|
|
|
$
|
219.1
|
|
|
$
|
61.2
|
|
|
$
|
972.8
|
|
|
$
|
7,725.3
|
|
(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) AEBITDA is described in footnote (2) to the first table in this Note 3.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Gaming
|
|
Lottery
|
|
Social
|
|
Digital
|
|
Unallocated and Reconciling Items
(1)
|
|
Total
|
Total revenue
|
$
|
1,361.6
|
|
|
$
|
615.6
|
|
|
$
|
302.2
|
|
|
$
|
198.1
|
|
|
$
|
—
|
|
|
$
|
2,477.5
|
|
AEBITDA
(2)
|
686.3
|
|
|
285.8
|
|
|
78.4
|
|
|
42.3
|
|
|
(106.6
|
)
|
|
$
|
986.2
|
|
Reconciling items to consolidated net loss before income taxes:
|
D&A
|
(379.7
|
)
|
|
(43.1
|
)
|
|
(15.6
|
)
|
|
(48.9
|
)
|
|
(39.8
|
)
|
|
(527.1
|
)
|
Restructuring and other
|
(6.7
|
)
|
|
(0.5
|
)
|
|
(27.6
|
)
|
|
(14.5
|
)
|
|
(375.1
|
)
|
|
(424.4
|
)
|
EBITDA from equity investments
(2)
|
|
|
|
|
|
|
|
|
(49.1
|
)
|
|
(49.1
|
)
|
Earnings from equity investments
|
|
|
|
|
|
|
|
|
16.2
|
|
|
16.2
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(448.3
|
)
|
|
(448.3
|
)
|
Loss on debt financing transactions
|
|
|
|
|
|
|
|
|
(93.2
|
)
|
|
(93.2
|
)
|
Gain on remeasurement of debt
|
|
|
|
|
|
|
|
|
29.4
|
|
|
29.4
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
(9.3
|
)
|
|
(9.3
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
(33.8
|
)
|
|
(33.8
|
)
|
Net loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
(553.4
|
)
|
(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) AEBITDA is described in footnote (2) to the first table in this Note 3.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
Gaming
|
|
Lottery
|
|
Social
|
|
Digital
|
|
Unallocated and Reconciling Items
(1)
|
|
Total
|
Total revenue
|
$
|
1,351.8
|
|
|
$
|
594.3
|
|
|
$
|
266.4
|
|
|
$
|
48.1
|
|
|
$
|
—
|
|
|
$
|
2,260.6
|
|
AEBITDA
(2)
|
657.8
|
|
|
270.1
|
|
|
59.9
|
|
|
10.9
|
|
|
(98.3
|
)
|
|
$
|
900.4
|
|
Reconciling items to consolidated net loss before income taxes:
|
D&A
|
(389.1
|
)
|
|
(37.2
|
)
|
|
(11.4
|
)
|
|
(4.9
|
)
|
|
(70.6
|
)
|
|
(513.2
|
)
|
Restructuring and other
|
(4.8
|
)
|
|
0.9
|
|
|
(1.6
|
)
|
|
—
|
|
|
(12.6
|
)
|
|
(18.1
|
)
|
EBITDA from equity investments
(2)
|
|
|
|
|
|
|
|
|
(47.0
|
)
|
|
(47.0
|
)
|
Earnings from equity investments
|
|
|
|
|
|
|
|
|
20.1
|
|
|
20.1
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(459.5
|
)
|
|
(459.5
|
)
|
Loss on debt financing transactions
|
|
|
|
|
|
|
|
|
(38.1
|
)
|
|
(38.1
|
)
|
Other expense, net
|
|
|
|
|
|
|
|
|
(4.4
|
)
|
|
(4.4
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
(20.5
|
)
|
|
(20.5
|
)
|
Net loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
(180.3
|
)
|
(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) AEBITDA is described in footnote (2) to the first table in this Note 3.
|
(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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Employee severance
(1)
|
|
$
|
10.9
|
|
|
$
|
1.7
|
|
|
$
|
31.8
|
|
|
$
|
4.4
|
|
Acquisitions and related costs
(2)
|
|
—
|
|
|
4.0
|
|
|
7.6
|
|
|
8.2
|
|
Contingent consideration adjustment
(3)
|
|
8.4
|
|
|
—
|
|
|
26.4
|
|
|
—
|
|
Legal and related
(4)
|
|
309.6
|
|
|
—
|
|
|
335.6
|
|
|
—
|
|
Restructuring, integration and other
|
|
9.8
|
|
|
2.1
|
|
|
23.0
|
|
|
5.5
|
|
Total
|
|
$
|
338.7
|
|
|
$
|
7.8
|
|
|
$
|
424.4
|
|
|
$
|
18.1
|
|
(1) Inclusive of employee severance and termination costs associated with restructuring and integration activities.
|
(2) Nine months ended September 30, 2018 includes $7.7 million related to the NYX acquisition.
|
(3) Represents contingent consideration fair value adjustment (see Note 12).
|
(4) Primarily represents legal reserve related to the Shuffle Tech Matter (see Note 15), which is included in accrued liabilities.
|
(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:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Current:
|
|
|
|
Accounts receivable
|
$
|
541.2
|
|
|
$
|
551.5
|
|
Notes receivable
|
147.4
|
|
|
164.1
|
|
Allowance for doubtful accounts and notes
|
(37.5
|
)
|
|
(31.2
|
)
|
Current accounts and notes receivable, net
|
$
|
651.1
|
|
|
$
|
684.4
|
|
Long-term:
|
|
|
|
Notes receivable, net of allowance of $0.1 and $0.2
|
40.2
|
|
|
52.8
|
|
Total accounts and notes receivable, net
|
$
|
691.3
|
|
|
$
|
737.2
|
|
Credit Quality of Receivables
The interest rates on our outstanding receivables bearing interest ranged from
3.0%
to
10.0%
at
September 30, 2018
, and
3.0%
to
10.4%
at
December 31, 2017
.
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 nine months ended
September 30, 2018
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
September 30, 2018
was
$25.5 million
. We collected
$25.3 million
of outstanding receivables from these customers during the nine months ended
September 30, 2018
.
|
|
|
•
|
Peru - Our notes receivable, net, from certain customers in Peru at
September 30, 2018
was
$16.9 million
. We collected
$9.2 million
of outstanding receivables from these customers during the nine months ended
September 30, 2018
.
|
|
|
•
|
Argentina - Our notes receivable, net, from customers in Argentina at
September 30, 2018
was
$21.4 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
$24.8 million
of outstanding receivables from customers in Argentina during the nine months ended
September 30, 2018
.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Balances over 90 days past due
|
|
December 31, 2017
|
|
Balances over 90 days past due
|
Notes receivable:
|
|
|
|
|
|
|
|
Domestic
|
$
|
70.2
|
|
|
$
|
3.5
|
|
|
$
|
93.5
|
|
|
$
|
9.2
|
|
International
|
117.4
|
|
|
25.2
|
|
|
123.6
|
|
|
33.2
|
|
Total notes receivable
|
187.6
|
|
|
28.7
|
|
|
217.1
|
|
|
42.4
|
|
|
|
|
|
|
|
|
|
Notes receivable allowance
|
|
|
|
|
|
|
|
Domestic
|
(5.1
|
)
|
|
(5.1
|
)
|
|
(4.0
|
)
|
|
(4.0
|
)
|
International
|
(18.0
|
)
|
|
(18.0
|
)
|
|
(16.8
|
)
|
|
(16.8
|
)
|
Total notes receivable allowance
|
(23.1
|
)
|
|
(23.1
|
)
|
|
(20.8
|
)
|
|
(20.8
|
)
|
Notes receivable, net
|
$
|
164.5
|
|
|
$
|
5.6
|
|
|
$
|
196.3
|
|
|
$
|
21.6
|
|
At
September 30, 2018
,
3.4%
of our total notes receivable, net, was past due by over
90
days, compared to
11.0%
at
December 31, 2017
.
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 nine month periods ended
September 30, 2018
and
2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
Beginning allowance for notes receivable
|
|
$
|
(20.8
|
)
|
|
$
|
(15.0
|
)
|
Provision
|
|
(3.9
|
)
|
|
(4.8
|
)
|
Charge-offs and recoveries
|
|
1.6
|
|
|
1.2
|
|
Ending allowance for notes receivable
|
|
$
|
(23.1
|
)
|
|
$
|
(18.6
|
)
|
The fair value of notes receivable is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of
September 30, 2018
and
December 31, 2017
, 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:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Parts and work-in-process
|
|
$
|
147.3
|
|
|
$
|
128.7
|
|
Finished goods
|
|
91.1
|
|
|
114.4
|
|
Total inventories
|
|
$
|
238.4
|
|
|
$
|
243.1
|
|
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:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Land
|
$
|
20.4
|
|
|
$
|
35.7
|
|
Buildings and leasehold improvements
|
125.6
|
|
|
183.6
|
|
Gaming and lottery machinery and equipment
|
1,029.7
|
|
|
962.2
|
|
Furniture and fixtures
|
30.3
|
|
|
33.2
|
|
Construction in progress
|
22.2
|
|
|
27.7
|
|
Other property and equipment
|
245.9
|
|
|
236.9
|
|
Less: accumulated depreciation
|
(931.7
|
)
|
|
(911.1
|
)
|
Total property and equipment, net
|
$
|
542.4
|
|
|
$
|
568.2
|
|
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
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Depreciation expense
|
$
|
51.2
|
|
|
$
|
69.0
|
|
|
$
|
159.0
|
|
|
$
|
205.9
|
|
Assets Held For Sale
As of
September 30, 2018
, we had
$55.1 million
of assets held for sale, and
none
as of
December 31, 2017
. Assets held for sale primarily relate to our Gaming business segment and consist of certain properties in Las Vegas and Chicago that are actively being marketed for sale as a result of recent facility rationalization and integration activities. These assets are included within Prepaid expenses, deposits and other current assets and are reported at the lower of the carrying value or fair market value, less expected costs to sell. We measured the fair value of assets held for sale under a market approach and have categorized such measurements as Level 3 in the fair value hierarchy. Based on our fair value measurement during the first quarter of 2018, the book value related to our assets held for sale was reduced by approximately
$19.0 million
, which was recorded within D&A, with no material changes to such fair value through the third quarter of 2018. Subsequent to September 30, 2018, we sold certain of our properties held for sale with net cash proceeds of approximately
$40.0 million
.
(8) Intangible Assets, net and Goodwill
Intangible Assets, net
The following tables present certain information regarding our intangible assets as of
September 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Balance
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Balance
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
1,083.6
|
|
|
$
|
(278.7
|
)
|
|
$
|
804.9
|
|
|
$
|
881.4
|
|
|
$
|
(214.8
|
)
|
|
$
|
666.6
|
|
Intellectual property
|
919.3
|
|
|
(427.5
|
)
|
|
491.8
|
|
|
788.1
|
|
|
(332.7
|
)
|
|
455.4
|
|
Licenses
|
421.4
|
|
|
(251.6
|
)
|
|
169.8
|
|
|
419.5
|
|
|
(206.9
|
)
|
|
212.6
|
|
Brand names
|
124.1
|
|
|
(56.2
|
)
|
|
67.9
|
|
|
125.7
|
|
|
(46.5
|
)
|
|
79.2
|
|
Trade names
|
107.8
|
|
|
(20.6
|
)
|
|
87.2
|
|
|
98.7
|
|
|
(14.7
|
)
|
|
84.0
|
|
Patents and other
|
23.2
|
|
|
(13.3
|
)
|
|
9.9
|
|
|
27.1
|
|
|
(14.5
|
)
|
|
12.6
|
|
|
2,679.4
|
|
|
(1,047.9
|
)
|
|
1,631.5
|
|
|
2,340.5
|
|
|
(830.1
|
)
|
|
1,510.4
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
96.3
|
|
|
(2.1
|
)
|
|
94.2
|
|
|
96.3
|
|
|
(2.1
|
)
|
|
94.2
|
|
Total intangible assets
|
$
|
2,775.7
|
|
|
$
|
(1,050.0
|
)
|
|
$
|
1,725.7
|
|
|
$
|
2,436.8
|
|
|
$
|
(832.2
|
)
|
|
$
|
1,604.6
|
|
The following reflects intangible amortization expense included within D&A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Amortization expense
|
$
|
72.9
|
|
|
$
|
62.3
|
|
|
$
|
225.6
|
|
|
$
|
193.1
|
|
Goodwill
Following the NYX acquisition, in the first quarter of 2018, we revised our operating segments as described in Note 3.
As a result of our resegmentation during the first quarter of 2018, we reviewed our operating segments in accordance with ASC 350 to determine if additional reporting units exist within our operating segments based on the availability of discrete financial information that is regularly reviewed by segment management. We determined that we have
nine
reporting units:
Instant Products, U.S. Lottery Systems, International Lottery Systems, SG Gaming, legacy U.K. Gaming, Casino Management Systems, Table Products, Social Gaming, and SG Digital. The change in our reporting units resulted in the allocation of
$116.9 million
of the previous Interactive reporting unit goodwill balance to the new Social Gaming reporting unit with the remaining
$7.5 million
allocated to the new SG Digital reporting unit, which allocation was determined based on the relative fair value approach in accordance with ASC 350.
The table below reconciles the change in the carrying value of goodwill by business segment for the period from
December 31, 2017
to
September 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Gaming
|
|
Lottery
|
|
Interactive
|
|
Social
|
|
Digital
|
|
Totals
|
Balance as of December 31, 2017
|
|
$
|
2,475.5
|
|
|
$
|
356.2
|
|
|
$
|
124.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,956.1
|
|
Reporting unit reallocation adjustment
|
|
—
|
|
|
—
|
|
|
(124.4
|
)
|
|
116.9
|
|
|
7.5
|
|
|
—
|
|
Acquired goodwill
(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
376.4
|
|
|
376.4
|
|
Foreign currency adjustments
|
|
(11.3
|
)
|
|
(1.2
|
)
|
|
—
|
|
|
(1.8
|
)
|
|
(10.0
|
)
|
|
(24.3
|
)
|
Balance as of September 30, 2018
|
|
$
|
2,464.2
|
|
|
$
|
355.0
|
|
|
$
|
—
|
|
|
$
|
115.1
|
|
|
$
|
373.9
|
|
|
$
|
3,308.2
|
|
(1) Tentative and preliminary based on our preliminary purchase price allocation as described in Note 1.
|
(9) Software, net
Software, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Software
|
|
$
|
1,083.0
|
|
|
$
|
1,003.2
|
|
Accumulated amortization
|
|
(781.8
|
)
|
|
(663.8
|
)
|
Software, net
|
|
$
|
301.2
|
|
|
$
|
339.4
|
|
The following reflects amortization of software included within D&A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Amortization expense
|
|
$
|
42.2
|
|
|
$
|
41.8
|
|
|
$
|
123.5
|
|
|
$
|
114.2
|
|
(10) Equity Investments
Equity investments total
ed
$206.0 million
and
$253.9 million
as of
September 30, 2018
and
December 31, 2017
, respectively. We received distributions and dividends totaling
$48.9 million
and
$44.1 million
during the
nine months ended
September 30, 2018
and
2017
, respectively, primarily related to our LNS equity investment. During the second quarter of 2018, we made our second pro-rata concession funding payment to LNS of
$74.3 million
(
€60.0 million
) relating to extension of the concession for a period of up to nine years.
(11) Long-Term and Other Debt
Revolving Credit Facility
On October 18, 2018, we entered into a lender joinder agreement to the credit agreement with an additional revolving commitment lender. Pursuant to the joinder agreement, the amount of the revolving credit facility under the credit agreement was increased by
$50.0 million
through October 18, 2020. As a result, the amount of the revolving credit facility as of October 18, 2018 was
$495.7 million
until it matures on October 18, 2020.
February 2018 Refinancing Transaction
On February 14, 2018, we successfully completed a series of financing transactions, including a private offering of an additional
$900.0 million
principal amount of our 2025 Secured Notes,
€325.0 million
of new 2026 Secured Euro Notes and
€250.0 million
of new 2026 Unsecured Euro Notes, and an amendment to our credit agreement to refinance our existing term loan B-4 facility and increase the term loans outstanding by
$900.0 million
under a new term loan B-5 facility (collectively referred to as the "February 2018 Refinancing"). We used the net proceeds of the February 2018 Refinancing to redeem
$2,100.0 million
of our outstanding 2022 Secured Notes, prepay a portion of our revolver borrowings under our credit agreement and pay accrued and unpaid interest thereon plus related premiums, fees and expenses. In connection with the amendment to our credit agreement, the interest rate on our term loans was decreased from LIBOR plus
3.25%
to LIBOR plus
2.75%
. We also increased the amount of the revolving credit agreement by
$24.0 million
to
$620.2 million
through October 18, 2018, with a step-down in availability at that time to
$445.7 million
until the extended maturity on October 18, 2020.
In connection with the February 2018 Refinancing, we reflected
$25.8 million
in financing costs presented primarily as a reduction to long-term debt.
Outstanding Debt and Capital Leases
The following table reflects our outstanding debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
|
Final Maturity
|
|
Rate(s)
|
|
Face value
|
|
Unamortized debt discount/premium and deferred financing costs, net
|
|
Book value
|
|
Book value
|
Senior Secured Credit Facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Revolver, varying interest rate
|
|
2018
|
|
variable
|
|
|
$
|
12.2
|
|
|
$
|
—
|
|
|
$
|
12.2
|
|
|
$
|
100.5
|
|
2020 Revolver, varying interest rate
|
|
2020
|
|
variable
|
|
|
32.8
|
|
|
—
|
|
|
32.8
|
|
|
249.5
|
|
Term Loan B-4
|
|
2024
|
|
variable
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,193.6
|
|
Term Loan B-5
|
|
2024
|
|
variable
|
|
|
4,153.7
|
|
|
(75.2
|
)
|
|
4,078.5
|
|
|
—
|
|
Senior Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Secured Notes
|
|
2022
|
|
7.000
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,130.7
|
|
2025 Secured Notes
(2)
|
|
2025
|
|
5.000
|
%
|
|
1,250.0
|
|
|
(18.0
|
)
|
|
1,232.0
|
|
|
343.7
|
|
2026 Secured Euro Notes
(3)
|
|
2026
|
|
3.375
|
%
|
|
382.2
|
|
|
(5.5
|
)
|
|
376.7
|
|
|
—
|
|
Unsecured Notes
|
|
2022
|
|
10.000
|
%
|
|
2,200.0
|
|
|
(25.4
|
)
|
|
2,174.6
|
|
|
2,170.1
|
|
2026 Unsecured Euro Notes
(3)
|
|
2026
|
|
5.500
|
%
|
|
294.0
|
|
|
(4.3
|
)
|
|
289.7
|
|
|
—
|
|
Subordinated Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Notes
|
|
2020
|
|
6.250
|
%
|
|
243.5
|
|
|
(1.2
|
)
|
|
242.3
|
|
|
241.8
|
|
2021 Notes
|
|
2021
|
|
6.625
|
%
|
|
340.6
|
|
|
(3.6
|
)
|
|
337.0
|
|
|
336.0
|
|
Capital lease obligations as of September 30, 2018 payable monthly through 2019
|
|
2019
|
|
3.900
|
%
|
|
6.0
|
|
|
—
|
|
|
6.0
|
|
|
10.7
|
|
Total long-term debt outstanding
|
|
|
|
|
|
$
|
8,915.0
|
|
|
$
|
(133.2
|
)
|
|
$
|
8,781.8
|
|
|
$
|
8,776.6
|
|
Less: current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
(46.8
|
)
|
|
(40.3
|
)
|
Long-term debt, excluding current portion
|
|
|
|
|
|
|
|
|
|
$
|
8,735.0
|
|
|
$
|
8,736.3
|
|
Fair value of debt
(1)
|
|
|
|
|
|
$
|
8,935.0
|
|
|
|
|
|
|
|
(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) In connection with the February 2018 Refinancing, we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting a portion of the fixed-rate,
$460.0 million
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.
(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
$36.1 million
, of which a
$4.0 million
loss and a
$29.4 million
gain were recognized on remeasurement of debt in the Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2018, respectively.
We were in compliance with the financial covenants under our debt agreements as of
September 30, 2018
.
Term Loan B-5
The new term B-5 loans that were entered into as part of the February 2018 Refinancing mature in August 2024 and will amortize in quarterly installments in an amount equal to
1.00%
per annum of the stated principal amount thereof, with the remaining balance due at final maturity. The applicable margin for the new term B-5 loans is
2.75%
per annum for eurocurrency (LIBOR) loans and
1.75%
per annum for base rate loans, compared to
3.25%
per annum for eurocurrency (LIBOR) loans and
2.25%
per annum for base rate loans under the previous term B-4 loan facility.
2026 Secured and Unsecured Euro Notes
In connection with the February 2018 Refinancing, SGI issued
€325.0 million
aggregate principal amount of its new 2026 Secured Euro Notes and
€250.0 million
aggregate principal amount of its new 2026 Unsecured Euro Notes. Interest on both of these notes is payable semiannually in arrears on February 15 and August 15 of each year, which began on August 15, 2018. Both issuances were made at a price equal to
100.0%
of the principal amount.
The 2026 Secured Euro Notes were issued pursuant to an indenture dated as of February 14, 2018 (the "2026 Secured Notes Indenture"). SGI may redeem some or all of the 2026 Secured Euro Notes at any time prior to February 15, 2021 at a redemption price equal to
100%
of the principal amount of the 2026 Secured Euro Notes plus accrued and unpaid interest, if any, to the date of redemption plus a "make whole" premium. SGI may redeem some or all of the 2026 Secured Euro Notes at any time on or after February 15, 2021 at the prices specified in the 2026 Secured Notes indenture.
The 2026 Secured Euro Notes are senior secured obligations of SGI and are equally and ratably secured with SGI’s obligations under the credit agreement and the 2025 Secured Notes. The 2026 Secured Euro Notes are equal in rank to all of SGI’s existing and future senior debt and rank senior to all of SGI's existing and future senior subordinated debt. The 2026 Secured Euro Notes are guaranteed on a senior secured basis by SGC and all of its wholly owned U.S. subsidiaries (other than SGI, the unrestricted social gaming business entities and immaterial subsidiaries). The 2026 Secured Euro Notes are structurally subordinated to all of the liabilities of our non-guarantor subsidiaries.
The 2026 Unsecured Euro Notes were issued pursuant to an indenture dated as of February 14, 2018 (the "2026 Unsecured Notes Indenture"). SGI may redeem some or all of the 2026 Unsecured Euro Notes at any time prior to February 15, 2021 at a redemption price equal to
100%
of the principal amount of the 2026 Unsecured Euro Notes plus accrued and unpaid interest, if any, to the date of redemption plus a "make whole" premium. SGI may redeem some or all of the 2026 Unsecured Euro Notes at any time on or after February 15, 2021 at the prices specified in the 2026 Unsecured Notes indenture.
The 2026 Unsecured Euro Notes are senior unsecured obligations of SGI and rank equally to all of SGI’s existing and future senior debt and rank senior to all of SGI's existing and future senior subordinated debt. The 2026 Unsecured Euro 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 immaterial subsidiaries). The 2026 Unsecured Euro Notes are structurally subordinated to all of the liabilities of our non-guarantor subsidiaries.
Effective April 30, 2018, the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes are listed on the Official List of The International Stock Exchange.
2025 Senior Secured Notes
In connection with the February 2018 Refinancing, SGI issued
$900.0 million
in aggregate principal amount of additional 2025 Secured Notes under the existing indenture governing the 2025 Secured Notes. Therefore the additional 2025 Secured Notes have the same terms as the previously issued
$350.0 million
in aggregate principal amount of 2025 Secured Notes initially issued in October 2017 except for the issue date and offering price. The additional 2025 Secured Notes and the initial 2025 Secured Notes are treated as a single series of debt securities for all other purposes under the indenture governing the 2025 Secured Notes.
For additional information regarding terms of our credit agreement and 2025 Secured Notes, see Note 16 in our
2017
10-K.
Loss on Debt Financing Transactions
The following are components of the loss on debt financing transactions resulting from debt extinguishment and modification accounting for the three and nine months ended
September 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Repayment and cancellation of principal balance at premium
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110.3
|
|
|
$
|
—
|
|
Unamortized debt (premium) discount and deferred financing costs, net
|
—
|
|
|
0.6
|
|
|
(29.8
|
)
|
|
26.4
|
|
Third party debt issuance fees
|
—
|
|
|
7.8
|
|
|
12.7
|
|
|
11.7
|
|
Total loss on debt financing transactions
|
$
|
—
|
|
|
$
|
8.4
|
|
|
$
|
93.2
|
|
|
$
|
38.1
|
|
(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 described in Note 1, during the first quarter of 2018, we adopted ASU 2017-12. As of
September 30, 2018
, 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. Our interest rate swaps that we held as of December 31, 2017 expired in January 2018.
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
$800.0 million
as of
September 30, 2018
. 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 and interest expense recognized on our interest rate swap contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Gains recorded in accumulated other comprehensive loss, net of tax
|
|
$
|
3.3
|
|
|
$
|
0.8
|
|
|
$
|
9.0
|
|
|
$
|
3.6
|
|
Interest expense recorded related to interest rate swap contracts
|
|
0.7
|
|
|
1.7
|
|
|
2.3
|
|
|
5.8
|
|
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
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
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
|
|
$
|
(147.4
|
)
|
|
$
|
(448.3
|
)
|
Hedged item
|
|
(4.9
|
)
|
|
(11.5
|
)
|
Derivative designated as hedging instrument
|
|
4.2
|
|
|
9.2
|
|
Cross-Currency Interest Rate Swaps
In connection with the February 2018 Refinancing (see Note 11), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting
$460.0 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
$460.0 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
|
|
September 30, 2018
|
|
December 31, 2017
|
Interest rate swaps
(1)(3)
|
Other assets/(accrued liabilities)
|
|
$
|
11.8
|
|
|
$
|
(0.2
|
)
|
Cross-currency interest rate swaps
(2)(3)
|
Other assets
|
|
6.1
|
|
|
—
|
|
(1) The gains of $4.2 million and $11.8 million for the three and nine months ended September 30, 2018, respectively, are reflected in Derivative financial instrument unrealized gain, net of tax in Other comprehensive income.
(2) The gains of $3.3 million and $6.1 million for the three and nine months ended September 30, 2018, respectively, are 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 third quarter of 2018, we designated
$135.0 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 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
$38.5 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.
Based on the first and third quarter of 2018 remeasurements and as a result of changes in significant unobservable inputs primarily consisting of projected earnings-based measures and probability of achievement (categorized as Level 3 in the fair value hierarchy as established by ASC 820), we increased the fair value of certain long-term contingent consideration by
$18.0 million
and
$8.4 million
, respectively, which changes were included in Restructuring and other. Contingent consideration liabilities as of
September 30, 2018
and
December 31, 2017
were
$33.9 million
and
$7.5 million
, respectively, of which
$20.9 million
as of
September 30, 2018
is included in accrued liabilities with the remaining balance included in other long-term liabilities and the entire balance as of December 31, 2017 included in other long-term liabilities.
We did not have assets and liabilities measured at fair value on a non-recurring basis as of
September 30, 2018
.
(13) Stockholders' Deficit
Stock Based Compensation
The following reflects total stock-based compensation expense recognized under all programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Related to stock options
|
|
$
|
2.1
|
|
|
$
|
1.1
|
|
|
$
|
10.8
|
|
|
$
|
2.6
|
|
Related to RSUs
|
|
7.3
|
|
|
6.4
|
|
|
23.0
|
|
|
17.9
|
|
Total
|
|
$
|
9.4
|
|
|
$
|
7.5
|
|
|
$
|
33.8
|
|
|
$
|
20.5
|
|
(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
2018
, we maintain a valuation allowance for our U.S. operations as of
September 30, 2018
. We maintained other valuation allowances for certain non-U.S. jurisdictions with cumulative losses.
The effective income tax rates for the
three and nine
months ended
September 30, 2018
were
0.1%
and (
1.0%
), respectively, and
6.6%
and (
10.5%
) for the
three and nine
months ended
September 30, 2017
, 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 rate for the nine months ended
September 30, 2018
does not include the benefit of the current year U.S. tax losses. In the nine months ended
September 30, 2017
, we recorded an overall tax expense due to the application of a full valuation allowance against the U.S. pre-tax losses coupled with a tax expense on foreign pre-tax earnings. The change in the effective tax rates relates primarily to the overall mix of income in our foreign jurisdictions.
As disclosed in our
2017
10-K Note 21, our accounting for the Tax Cuts and Jobs Act (the "Tax Act") is incomplete; however, we were able to reasonably estimate certain effects, and consequently we recorded provisional adjustments associated with: (1) impact on deferred tax assets (DTAs) and deferred tax liabilities (DTLs) from reduction of U.S. federal corporate income tax rate; (2) the deemed repatriation transition tax; and (3) impact on valuation allowances. Additionally, as disclosed in our
2017
10-K Note 21, we were not yet able to reasonably estimate the effects of the Tax Act for the Global Intangible Low Income Tax (GILTI). There were no changes to these items during the
third
quarter of
2018
, as we continue to evaluate the impacts of the Tax Act.
Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy election of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into our measurement of deferred taxes (the “deferred method”). Our selection of an accounting policy related to the new GILTI tax rules will depend, in part, on analyzing projections of our global overall mix of income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, the expected impact. Because whether we expect to have future U.S. inclusions in taxable income related to GILTI depends on a number of different aspects of our estimated future global overall mix of income, we are not yet able to reasonably estimate the long-term effects of this provision of the Tax Act; therefore, we have not recorded any potential deferred tax effects related to GILTI in the consolidated financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI or to use the period cost method. We expect to complete our accounting within the prescribed measurement period.
(15) Litigation
We are involved in various routine and other specific legal proceedings, including the following which are described in Note 22 within our
2017
10-K:
Colombia litigation and SNAI litigation
. There have been no material changes to these matters since the
2017
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
$338.4 million
and
$4.7 million
for all of our legal matters that were contingencies as of
September 30, 2018
and
December 31, 2017
, respectively.
Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies could result in losses in excess of amounts we have accrued. We may be unable to estimate a range of possible losses for some matters pending against us or our subsidiaries, even when the amount of damages claimed against us or our subsidiaries is stated because, among other things: (1) the claimed amount may be exaggerated or unsupported; (2) the claim may be based on a novel legal theory or involve a large number of parties; (3) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (4) there may be uncertainty as to the outcome of pending appeals or motions; (5) the matter may not have progressed sufficiently through discovery or there may be significant factual or legal issues to be resolved or developed; and/or (6) there may be uncertainty as to the enforceability of legal judgments and outcomes in certain jurisdictions. Other matters have progressed sufficiently that we are able to estimate a range of possible loss. For those legal contingencies disclosed in Note 22 in our
2017
10-K and this Note 15 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
$14.1 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.
Shuffle Tech Matter
In April 2015, Shuffle Tech International, LLC, Aces Up Gaming, Inc. and Poydras-Talrick Holdings LLC brought a civil action in the United States District Court for the Northern District of Illinois against SGC, Bally Technologies, Inc., and
Bally Gaming, Inc., alleging monopolization of the market for card shufflers in violation of federal antitrust laws, fraudulent procurement of patents on card shufflers, unfair competition and deceptive trade practices. Specifically, the plaintiffs claim that the defendants used certain shuffler patents in a predatory manner to create and maintain a monopoly in the relevant shuffler market. The plaintiffs’ complaint seeks no less than
$100.0 million
in compensatory damages (which is subject to trebling), attorneys’ fees and costs, as well as injunctive and declaratory relief. In June 2015, the defendants filed a motion to dismiss. In October 2015, the district court dismissed all of the plaintiffs’ claims against the defendants with prejudice, except for the claims of violation of antitrust laws related to the fraudulent procurement of patents on card shufflers. In September 2017, the district court denied defendants’ motion for summary judgment, and the matter was scheduled for trial. On April 23, 2018, a court-ordered settlement conference before a magistrate judge was held, but no settlement was reached. On April 25, 2018, plaintiffs filed with the U.S. District Court an itemization of claimed damages, pursuant to which the plaintiffs, at trial, would seek to recover compensatory damages ranging from approximately
$105.2 million
to
$139.5 million
(which is subject to trebling), and also their reasonable attorneys' fees and costs. Trial began July 16, 2018 and ended on August 7, 2018. On August 7, 2018, the jury returned a verdict for the plaintiffs. The jury awarded plaintiffs
$105.0 million
in compensatory damages, which is subject to trebling, as well as attorneys' fees and costs, all of which we have accrued as of September 30, 2018. We believe the jury reached the wrong result, and the defendants have sought review in the trial court of both the finding of liability and the damages award, and, if necessary, will also do so on appeal.
Washington State Matter
On April 17, 2018, plaintiff Sheryl Fife filed a putative class action complaint against SGC in the United States District Court for the Western District of Washington. In her complaint, 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
®
Social
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. Due to the very early nature of this litigation, we are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible loss.
Raqqa Matter
On May 4, 2018, plaintiffs Raqqa, Inc. Pittsburg Liquors, Inc., Omdev, Inc., Om Riya, Inc., E and B Liquors, Inc., Michael Cairo, and Jason Van Lente (collectively, “plaintiffs”) filed a putative class action complaint against Northstar Lottery Group LLC, IGT Global Solutions Corporation, and Scientific Games International, Inc. (collectively, “defendants”), in the United States District Court for the Southern District of Illinois. In their complaint, plaintiffs seek to represent two putative classes of persons: (1) all persons who were or are parties to a contract to sell at retail Illinois Lottery instant game tickets at any time between July 1, 2011 and the present; and (2) all natural persons who purchased one or more Illinois Lottery instant game tickets at any time between July 1, 2011 and the present. The complaint alleges that Northstar Lottery Group LLC discontinued certain Illinois Lottery instant game tickets before all grand prizes were awarded, and further alleges that those discontinuations caused economic harm to lottery players, and to lottery retailers who receive commissions on winning tickets. The complaint asserts claims for alleged tortious interference with contract, alleged tortious interference with prospective economic advantage, alleged common law fraud, alleged violation of Illinois’ Consumer Fraud and Deceptive Business Practices Act, alleged unjust enrichment and alleged civil conspiracy. The complaint seeks unspecified money damages and the award of plaintiffs’ attorneys’ fees and costs. On June 18, 2018, the defendants filed a motion to dismiss the plaintiffs’ complaint with prejudice. Due to the very 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
2017
10-K.
(16) Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries
We conduct substantially all of our business through our U.S. and foreign subsidiaries. As of
September 30, 2018
, SGI's obligations under the 2020 Notes, the 2021 Notes, the 2025 Secured Notes, the 2026 Secured Euro Notes, the Unsecured Notes and the 2026 Unsecured Euro Notes were fully and unconditionally and jointly and severally guaranteed by SGC and the Guarantor Subsidiaries other than SGI. We redeemed all of the outstanding 2022 Secured Notes during the first quarter of 2018, which were previously issued by SGI and fully and unconditionally and jointly and severally guaranteed by SGC and the Guarantor Subsidiaries other than SGI. The guarantees of our 2022 Secured Notes were released in connection with the redemption of the 2022 Secured Notes. We redeemed all of the outstanding 2018 Notes on March 17, 2017, which were previously issued by SGC and fully and unconditionally and jointly and severally guaranteed by the Guarantor Subsidiaries.
The guarantees of our 2020 Notes, 2021 Notes, 2025 Secured Notes, 2026 Secured Euro Notes, Unsecured Notes, and 2026 Unsecured Euro 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
September 30, 2018
and
December 31, 2017
and for the
three and nine
months ended
September 30, 2018
and
2017
. 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 2018 Notes, the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, the Unsecured Notes, the 2025 Secured Notes, the 2026 Secured Euro Notes, and the 2026 Unsecured Euro Notes were in effect at the beginning of the periods presented.
The condensed consolidating financial information reflects the investments of SGC in SGI and in the Guarantor Subsidiaries and Non-Guarantor Subsidiaries using the equity method of accounting. They also reflect the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries. Net changes in intercompany due from/due to accounts are reported in the accompanying Supplemental Condensed Consolidating Statements of Cash Flows as investing activities if the applicable entities have a net investment (asset) in intercompany accounts and as a financing activity if the applicable entities have a net intercompany borrowing (liability) balance.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
As of
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
38.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
79.9
|
|
|
$
|
(5.0
|
)
|
|
$
|
113.5
|
|
Restricted cash
|
|
—
|
|
|
0.6
|
|
|
31.0
|
|
|
5.5
|
|
|
—
|
|
|
37.1
|
|
Accounts receivable, net
|
|
—
|
|
|
58.0
|
|
|
189.3
|
|
|
279.4
|
|
|
—
|
|
|
526.7
|
|
Notes receivable, net
|
|
—
|
|
|
—
|
|
|
109.6
|
|
|
14.8
|
|
|
—
|
|
|
124.4
|
|
Inventories
|
|
—
|
|
|
39.0
|
|
|
88.7
|
|
|
130.7
|
|
|
(20.0
|
)
|
|
238.4
|
|
Prepaid expenses, deposits and other current assets
|
|
12.6
|
|
|
76.8
|
|
|
102.0
|
|
|
78.1
|
|
|
0.2
|
|
|
269.7
|
|
Property and equipment, net
|
|
32.4
|
|
|
112.1
|
|
|
232.6
|
|
|
196.5
|
|
|
(31.2
|
)
|
|
542.4
|
|
Investment in subsidiaries
|
|
2,996.9
|
|
|
950.0
|
|
|
1,025.7
|
|
|
—
|
|
|
(4,972.6
|
)
|
|
—
|
|
Goodwill
|
|
—
|
|
|
240.2
|
|
|
1,886.1
|
|
|
1,181.9
|
|
|
—
|
|
|
3,308.2
|
|
Intangible assets, net
|
|
10.8
|
|
|
34.3
|
|
|
1,199.4
|
|
|
481.2
|
|
|
—
|
|
|
1,725.7
|
|
Intercompany balances
|
|
—
|
|
|
5,812.7
|
|
|
27.8
|
|
|
—
|
|
|
(5,840.5
|
)
|
|
—
|
|
Software, net
|
|
61.9
|
|
|
38.1
|
|
|
142.7
|
|
|
58.5
|
|
|
—
|
|
|
301.2
|
|
Other assets
(2)
|
|
234.2
|
|
|
413.1
|
|
|
48.2
|
|
|
228.7
|
|
|
(582.6
|
)
|
|
341.6
|
|
Total assets
|
|
$
|
3,387.4
|
|
|
$
|
7,774.9
|
|
|
$
|
5,083.1
|
|
|
$
|
2,735.2
|
|
|
$
|
(11,451.7
|
)
|
|
$
|
7,528.9
|
|
Liabilities and stockholders' (deficit) equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
—
|
|
|
$
|
41.8
|
|
|
$
|
—
|
|
|
$
|
5.0
|
|
|
$
|
—
|
|
|
$
|
46.8
|
|
Other current liabilities
|
|
417.6
|
|
|
195.5
|
|
|
200.4
|
|
|
249.0
|
|
|
(36.9
|
)
|
|
1,025.6
|
|
Long-term debt, excluding current portion
|
|
—
|
|
|
8,734.1
|
|
|
—
|
|
|
0.9
|
|
|
—
|
|
|
8,735.0
|
|
Other long-term liabilities
|
|
93.4
|
|
|
8.7
|
|
|
610.3
|
|
|
197.6
|
|
|
(569.9
|
)
|
|
340.1
|
|
Intercompany balances
|
|
5,495.0
|
|
|
—
|
|
|
—
|
|
|
345.5
|
|
|
(5,840.5
|
)
|
|
—
|
|
Stockholders' (deficit) equity
|
|
(2,618.6
|
)
|
|
(1,205.2
|
)
|
|
4,272.4
|
|
|
1,937.2
|
|
|
(5,004.4
|
)
|
|
(2,618.6
|
)
|
Total liabilities and stockholders' (deficit) equity
|
|
$
|
3,387.4
|
|
|
$
|
7,774.9
|
|
|
$
|
5,083.1
|
|
|
$
|
2,735.2
|
|
|
$
|
(11,451.7
|
)
|
|
$
|
7,528.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes, the 2025 Secured Notes, which were issued in October 2017, and the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes, which were issued in February 2018.
(2) Includes $14.5 million and $0.7 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, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
732.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59.4
|
|
|
$
|
(3.2
|
)
|
|
$
|
788.8
|
|
Restricted cash
|
|
—
|
|
|
0.6
|
|
|
28.3
|
|
|
0.1
|
|
|
—
|
|
|
29.0
|
|
Accounts receivable, net
|
|
0.4
|
|
|
68.1
|
|
|
192.6
|
|
|
279.8
|
|
|
—
|
|
|
540.9
|
|
Notes receivable, net
|
|
—
|
|
|
—
|
|
|
121.1
|
|
|
22.4
|
|
|
—
|
|
|
143.5
|
|
Inventories
|
|
—
|
|
|
40.7
|
|
|
91.8
|
|
|
131.8
|
|
|
(21.2
|
)
|
|
243.1
|
|
Prepaid expenses, deposits and other current assets
|
|
6.5
|
|
|
30.3
|
|
|
41.6
|
|
|
52.7
|
|
|
—
|
|
|
131.1
|
|
Property and equipment, net
|
|
28.8
|
|
|
91.5
|
|
|
295.6
|
|
|
179.9
|
|
|
(27.6
|
)
|
|
568.2
|
|
Investment in subsidiaries
|
|
3,098.7
|
|
|
867.9
|
|
|
987.7
|
|
|
—
|
|
|
(4,954.3
|
)
|
|
—
|
|
Goodwill
|
|
—
|
|
|
240.3
|
|
|
1,880.4
|
|
|
835.4
|
|
|
—
|
|
|
2,956.1
|
|
Intangible assets, net
|
|
15.7
|
|
|
34.9
|
|
|
1,335.3
|
|
|
218.7
|
|
|
—
|
|
|
1,604.6
|
|
Intercompany balances
|
|
—
|
|
|
5,889.8
|
|
|
—
|
|
|
222.5
|
|
|
(6,112.3
|
)
|
|
—
|
|
Software, net
|
|
67.2
|
|
|
24.7
|
|
|
199.0
|
|
|
48.5
|
|
|
—
|
|
|
339.4
|
|
Other assets
(2)
|
|
234.4
|
|
|
388.8
|
|
|
62.0
|
|
|
270.3
|
|
|
(574.9
|
)
|
|
380.6
|
|
Total assets
|
|
$
|
4,184.3
|
|
|
$
|
7,677.6
|
|
|
$
|
5,235.4
|
|
|
$
|
2,321.5
|
|
|
$
|
(11,693.5
|
)
|
|
$
|
7,725.3
|
|
Liabilities and stockholders' (deficit) equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
—
|
|
|
$
|
32.8
|
|
|
$
|
—
|
|
|
$
|
7.5
|
|
|
$
|
—
|
|
|
$
|
40.3
|
|
Other current liabilities
|
|
67.6
|
|
|
199.0
|
|
|
254.2
|
|
|
206.4
|
|
|
(27.7
|
)
|
|
699.5
|
|
Long-term debt, excluding current portion
|
|
—
|
|
|
8,733.0
|
|
|
—
|
|
|
3.3
|
|
|
—
|
|
|
8,736.3
|
|
Other long-term liabilities
|
|
68.8
|
|
|
11.3
|
|
|
650.3
|
|
|
110.9
|
|
|
(565.1
|
)
|
|
276.2
|
|
Intercompany balances
|
|
6,074.9
|
|
|
—
|
|
|
37.4
|
|
|
—
|
|
|
(6,112.3
|
)
|
|
—
|
|
Stockholders' (deficit) equity
|
|
(2,027.0
|
)
|
|
(1,298.5
|
)
|
|
4,293.5
|
|
|
1,993.4
|
|
|
(4,988.4
|
)
|
|
(2,027.0
|
)
|
Total liabilities and stockholders' (deficit) equity
|
|
$
|
4,184.3
|
|
|
$
|
7,677.6
|
|
|
$
|
5,235.4
|
|
|
$
|
2,321.5
|
|
|
$
|
(11,693.5
|
)
|
|
$
|
7,725.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, the 2025 Secured Notes and the Unsecured Notes.
(2) Includes $16.1 million and $0.7 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
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Revenue
|
|
$
|
—
|
|
|
$
|
138.4
|
|
|
$
|
404.3
|
|
|
$
|
361.3
|
|
|
$
|
(83.0
|
)
|
|
$
|
821.0
|
|
Cost of services, cost of product sales and cost of instant products
(2)
|
|
—
|
|
|
90.4
|
|
|
119.1
|
|
|
159.7
|
|
|
(67.9
|
)
|
|
301.3
|
|
SG&A
|
|
38.3
|
|
|
12.1
|
|
|
57.1
|
|
|
76.2
|
|
|
(14.0
|
)
|
|
169.7
|
|
R&D
|
|
—
|
|
|
0.2
|
|
|
21.3
|
|
|
28.0
|
|
|
—
|
|
|
49.5
|
|
D&A
|
|
10.8
|
|
|
8.7
|
|
|
105.9
|
|
|
44.9
|
|
|
(4.0
|
)
|
|
166.3
|
|
Restructuring and other
|
|
318.5
|
|
|
2.8
|
|
|
4.2
|
|
|
13.2
|
|
|
—
|
|
|
338.7
|
|
Operating (loss) income
|
|
(367.6
|
)
|
|
24.2
|
|
|
96.7
|
|
|
39.3
|
|
|
2.9
|
|
|
(204.5
|
)
|
Interest expense
|
|
—
|
|
|
(147.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(147.4
|
)
|
Gain on remeasurement of debt
|
|
—
|
|
|
(4.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.0
|
)
|
Other income (expense), net
|
|
16.3
|
|
|
129.7
|
|
|
(122.8
|
)
|
|
(19.3
|
)
|
|
—
|
|
|
3.9
|
|
Net (loss) income before equity in income of subsidiaries and income taxes
|
|
(351.3
|
)
|
|
2.5
|
|
|
(26.1
|
)
|
|
20.0
|
|
|
2.9
|
|
|
(352.0
|
)
|
Equity in (loss) income of subsidiaries
|
|
(1.7
|
)
|
|
4.3
|
|
|
(10.1
|
)
|
|
—
|
|
|
7.5
|
|
|
—
|
|
Income tax benefit (expense)
|
|
1.4
|
|
|
(0.6
|
)
|
|
5.5
|
|
|
(5.9
|
)
|
|
—
|
|
|
0.4
|
|
Net (loss) income
|
|
$
|
(351.6
|
)
|
|
$
|
6.2
|
|
|
$
|
(30.7
|
)
|
|
$
|
14.1
|
|
|
$
|
10.4
|
|
|
$
|
(351.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
(5.2
|
)
|
|
11.2
|
|
|
(9.6
|
)
|
|
(2.0
|
)
|
|
0.4
|
|
|
(5.2
|
)
|
Comprehensive (loss) income
|
|
$
|
(356.8
|
)
|
|
$
|
17.4
|
|
|
$
|
(40.3
|
)
|
|
$
|
12.1
|
|
|
$
|
10.8
|
|
|
$
|
(356.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes, the 2025 Secured Notes, which were issued in October 2017, and the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes, which were issued in February 2018.
(2) Exclusive of D&A.
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Revenue
|
|
$
|
—
|
|
|
$
|
129.3
|
|
|
$
|
400.0
|
|
|
$
|
311.6
|
|
|
$
|
(72.0
|
)
|
|
$
|
768.9
|
|
Cost of services, cost of product sales and cost of instant products
(2)
|
|
—
|
|
|
88.1
|
|
|
120.7
|
|
|
152.7
|
|
|
(70.7
|
)
|
|
290.8
|
|
SG&A
|
|
30.8
|
|
|
11.1
|
|
|
60.9
|
|
|
70.1
|
|
|
(14.1
|
)
|
|
158.8
|
|
R&D
|
|
0.5
|
|
|
2.6
|
|
|
26.0
|
|
|
18.7
|
|
|
—
|
|
|
47.8
|
|
D&A
|
|
22.3
|
|
|
8.8
|
|
|
111.6
|
|
|
33.5
|
|
|
(3.1
|
)
|
|
173.1
|
|
Restructuring and other
|
|
7.0
|
|
|
(0.1
|
)
|
|
0.1
|
|
|
0.8
|
|
|
—
|
|
|
7.8
|
|
Operating (loss) income
|
|
(60.6
|
)
|
|
18.8
|
|
|
80.7
|
|
|
35.8
|
|
|
15.9
|
|
|
90.6
|
|
Interest expense
|
|
(0.1
|
)
|
|
(148.5
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(148.9
|
)
|
Loss on debt financing transactions
|
|
—
|
|
|
(8.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8.4
|
)
|
Other (expense) income, net
|
|
(21.2
|
)
|
|
59.4
|
|
|
(14.5
|
)
|
|
(20.5
|
)
|
|
—
|
|
|
3.2
|
|
Net (loss) income before equity in income of subsidiaries and income taxes
|
|
(81.9
|
)
|
|
(78.7
|
)
|
|
66.2
|
|
|
15.0
|
|
|
15.9
|
|
|
(63.5
|
)
|
Equity in income of subsidiaries
|
|
26.1
|
|
|
22.5
|
|
|
15.5
|
|
|
—
|
|
|
(64.1
|
)
|
|
—
|
|
Income tax (expense) benefit
|
|
(3.5
|
)
|
|
29.4
|
|
|
(31.0
|
)
|
|
9.3
|
|
|
—
|
|
|
4.2
|
|
Net (loss) income
|
|
$
|
(59.3
|
)
|
|
$
|
(26.8
|
)
|
|
$
|
50.7
|
|
|
$
|
24.3
|
|
|
$
|
(48.2
|
)
|
|
$
|
(59.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
72.8
|
|
|
4.6
|
|
|
53.2
|
|
|
67.0
|
|
|
(124.8
|
)
|
|
72.8
|
|
Comprehensive income (loss)
|
|
$
|
13.5
|
|
|
$
|
(22.2
|
)
|
|
$
|
103.9
|
|
|
$
|
91.3
|
|
|
$
|
(173.0
|
)
|
|
$
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes and the 2025 Secured Notes, which were issued in October 2017.
(2) Exclusive of D&A.
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
Nine Months Ended
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Revenue
|
|
$
|
—
|
|
|
$
|
404.0
|
|
|
$
|
1,195.6
|
|
|
$
|
1,106.5
|
|
|
$
|
(228.6
|
)
|
|
$
|
2,477.5
|
|
Cost of services, cost of product sales and cost of instant products
(2)
|
|
—
|
|
|
263.0
|
|
|
368.9
|
|
|
472.0
|
|
|
(190.0
|
)
|
|
913.9
|
|
SG&A
|
|
119.4
|
|
|
32.1
|
|
|
166.0
|
|
|
237.6
|
|
|
(39.9
|
)
|
|
515.2
|
|
R&D
|
|
—
|
|
|
1.1
|
|
|
66.1
|
|
|
85.3
|
|
|
—
|
|
|
152.5
|
|
D&A
|
|
31.9
|
|
|
23.7
|
|
|
339.4
|
|
|
142.8
|
|
|
(10.7
|
)
|
|
527.1
|
|
Restructuring and other
|
|
374.8
|
|
|
0.2
|
|
|
7.4
|
|
|
42.0
|
|
|
—
|
|
|
424.4
|
|
Operating (loss) income
|
|
(526.1
|
)
|
|
83.9
|
|
|
247.8
|
|
|
126.8
|
|
|
12.0
|
|
|
(55.6
|
)
|
Interest expense
|
|
—
|
|
|
(447.9
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
|
(448.3
|
)
|
Loss on debt financing transactions
|
|
—
|
|
|
(93.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(93.2
|
)
|
Gain on remeasurement of debt
|
|
—
|
|
|
29.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29.4
|
|
Other income (expense), net
|
|
48.8
|
|
|
398.8
|
|
|
(374.8
|
)
|
|
(58.5
|
)
|
|
—
|
|
|
14.3
|
|
Net (loss) income before equity in income of subsidiaries and income taxes
|
|
(477.3
|
)
|
|
(29.0
|
)
|
|
(127.0
|
)
|
|
67.9
|
|
|
12.0
|
|
|
(553.4
|
)
|
Equity in (loss) income of subsidiaries
|
|
(59.8
|
)
|
|
21.6
|
|
|
(16.9
|
)
|
|
—
|
|
|
55.1
|
|
|
—
|
|
Income tax (expense) benefit
|
|
(22.1
|
)
|
|
6.9
|
|
|
26.9
|
|
|
(17.5
|
)
|
|
—
|
|
|
(5.8
|
)
|
Net (loss) income
|
|
$
|
(559.2
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(117.0
|
)
|
|
$
|
50.4
|
|
|
$
|
67.1
|
|
|
$
|
(559.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
(36.5
|
)
|
|
23.4
|
|
|
(23.0
|
)
|
|
(47.9
|
)
|
|
47.5
|
|
|
(36.5
|
)
|
Comprehensive (loss) income
|
|
$
|
(595.7
|
)
|
|
$
|
22.9
|
|
|
$
|
(140.0
|
)
|
|
$
|
2.5
|
|
|
$
|
114.6
|
|
|
$
|
(595.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes, the 2025 Secured Notes, which were issued in October 2017, and the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes, which were issued in February 2018.
(2) Exclusive of D&A.
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
Nine Months Ended
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Revenue
|
|
$
|
—
|
|
|
$
|
375.6
|
|
|
$
|
1,220.3
|
|
|
$
|
861.0
|
|
|
$
|
(196.3
|
)
|
|
$
|
2,260.6
|
|
Cost of services, cost of product sales and cost of instant products
(2)
|
|
—
|
|
|
257.8
|
|
|
373.4
|
|
|
410.1
|
|
|
(191.6
|
)
|
|
849.7
|
|
SG&A
|
|
89.7
|
|
|
29.1
|
|
|
178.6
|
|
|
184.6
|
|
|
(36.6
|
)
|
|
445.4
|
|
R&D
|
|
1.7
|
|
|
6.4
|
|
|
77.1
|
|
|
53.1
|
|
|
—
|
|
|
138.3
|
|
D&A
|
|
59.5
|
|
|
24.3
|
|
|
346.3
|
|
|
90.9
|
|
|
(7.8
|
)
|
|
513.2
|
|
Restructuring and other
|
|
12.3
|
|
|
0.4
|
|
|
3.2
|
|
|
2.2
|
|
|
—
|
|
|
18.1
|
|
Operating (loss) income
|
|
(163.2
|
)
|
|
57.6
|
|
|
241.7
|
|
|
120.1
|
|
|
39.7
|
|
|
295.9
|
|
Interest expense
|
|
(4.4
|
)
|
|
(454.2
|
)
|
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
(459.5
|
)
|
Loss on debt financing transactions
|
|
(1.1
|
)
|
|
(37.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(38.1
|
)
|
Other (expense) income, net
|
|
(60.1
|
)
|
|
161.8
|
|
|
(71.0
|
)
|
|
(9.3
|
)
|
|
—
|
|
|
21.4
|
|
Net (loss) income before equity in income of subsidiaries and income taxes
|
|
(228.8
|
)
|
|
(271.8
|
)
|
|
170.7
|
|
|
109.9
|
|
|
39.7
|
|
|
(180.3
|
)
|
Equity in income of subsidiaries
|
|
49.6
|
|
|
54.4
|
|
|
37.0
|
|
|
—
|
|
|
(141.0
|
)
|
|
—
|
|
Income tax (expense) benefit
|
|
(20.0
|
)
|
|
101.7
|
|
|
(79.0
|
)
|
|
(21.6
|
)
|
|
—
|
|
|
(18.9
|
)
|
Net (loss) income
|
|
$
|
(199.2
|
)
|
|
$
|
(115.7
|
)
|
|
$
|
128.7
|
|
|
$
|
88.3
|
|
|
$
|
(101.3
|
)
|
|
$
|
(199.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
140.6
|
|
|
8.9
|
|
|
119.4
|
|
|
126.7
|
|
|
(255.0
|
)
|
|
140.6
|
|
Comprehensive (loss) income
|
|
$
|
(58.6
|
)
|
|
$
|
(106.8
|
)
|
|
$
|
248.1
|
|
|
$
|
215.0
|
|
|
$
|
(356.3
|
)
|
|
$
|
(58.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes and the 2025 Secured Notes, which were issued in October 2017.
(2) Exclusive of D&A.
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
|
$
|
(56.4
|
)
|
|
$
|
29.6
|
|
|
$
|
153.0
|
|
|
$
|
231.5
|
|
|
$
|
(1.8
|
)
|
|
$
|
355.9
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(30.3
|
)
|
|
(56.6
|
)
|
|
(121.9
|
)
|
|
(84.3
|
)
|
|
—
|
|
|
(293.1
|
)
|
Acquisitions of businesses and assets, net of cash acquired
|
|
—
|
|
|
—
|
|
|
(9.6
|
)
|
|
(264.5
|
)
|
|
—
|
|
|
(274.1
|
)
|
Distributions of capital from equity investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24.6
|
|
|
—
|
|
|
24.6
|
|
Additions to equity method investments
|
|
—
|
|
|
(1.9
|
)
|
|
—
|
|
|
(74.3
|
)
|
|
—
|
|
|
(76.2
|
)
|
Other, principally change in intercompany investing activities
|
|
—
|
|
|
91.3
|
|
|
(15.5
|
)
|
|
—
|
|
|
(75.8
|
)
|
|
—
|
|
Net cash (used in) provided by investing activities
|
|
(30.3
|
)
|
|
32.8
|
|
|
(147.0
|
)
|
|
(398.5
|
)
|
|
(75.8
|
)
|
|
(618.8
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt, net of proceeds
|
|
—
|
|
|
(23.9
|
)
|
|
—
|
|
|
(5.7
|
)
|
|
—
|
|
|
(29.6
|
)
|
Repayment of assumed NYX debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(288.2
|
)
|
|
—
|
|
|
(288.2
|
)
|
Payments of debt issuance and deferred financing costs
|
|
—
|
|
|
(38.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(38.5
|
)
|
Payments on license obligations
|
|
(20.4
|
)
|
|
—
|
|
|
(1.9
|
)
|
|
—
|
|
|
—
|
|
|
(22.3
|
)
|
Net redemptions of common stock under stock-based compensation plans and other
|
|
(21.8
|
)
|
|
—
|
|
|
(2.5
|
)
|
|
—
|
|
|
—
|
|
|
(24.3
|
)
|
Other, principally change in intercompany financing activities
|
|
(565.1
|
)
|
|
—
|
|
|
—
|
|
|
489.3
|
|
|
75.8
|
|
|
—
|
|
Net cash (used in) provided by financing activities
|
|
(607.3
|
)
|
|
(62.4
|
)
|
|
(4.4
|
)
|
|
195.4
|
|
|
75.8
|
|
|
(402.9
|
)
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.5
|
)
|
|
—
|
|
|
(2.5
|
)
|
(Decrease) increase in cash, cash equivalents and restricted cash
|
|
(694.0
|
)
|
|
—
|
|
|
1.6
|
|
|
25.9
|
|
|
(1.8
|
)
|
|
(668.3
|
)
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
732.6
|
|
|
0.6
|
|
|
43.9
|
|
|
60.2
|
|
|
(3.2
|
)
|
|
834.1
|
|
Cash, cash equivalents and restricted cash end of period
|
|
$
|
38.6
|
|
|
$
|
0.6
|
|
|
$
|
45.5
|
|
|
$
|
86.1
|
|
|
$
|
(5.0
|
)
|
|
$
|
165.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes, the 2025 Secured Notes, which were issued in October 2017, and the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes, which were issued in February 2018.
|
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SGC (Parent)
|
|
SGI (Issuer
1
)
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
|
$
|
(162.6
|
)
|
|
$
|
(169.9
|
)
|
|
$
|
471.5
|
|
|
$
|
254.3
|
|
|
$
|
(4.3
|
)
|
|
$
|
389.0
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(42.0
|
)
|
|
(13.6
|
)
|
|
(96.4
|
)
|
|
(62.1
|
)
|
|
—
|
|
|
(214.1
|
)
|
Acquisition of business, net of cash acquired
|
|
—
|
|
|
—
|
|
|
(26.3
|
)
|
|
(31.4
|
)
|
|
—
|
|
|
(57.7
|
)
|
Distributions of capital from equity investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23.9
|
|
|
—
|
|
|
23.9
|
|
Changes in other assets and liabilities and other
|
|
—
|
|
|
—
|
|
|
7.5
|
|
|
2.5
|
|
|
—
|
|
|
10.0
|
|
Other, principally change in intercompany investing activities
|
|
—
|
|
|
(27.7
|
)
|
|
—
|
|
|
(208.4
|
)
|
|
236.1
|
|
|
—
|
|
Net cash used in investing activities
|
|
(42.0
|
)
|
|
(41.3
|
)
|
|
(115.2
|
)
|
|
(275.5
|
)
|
|
236.1
|
|
|
(237.9
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments of long-term debt including proceeds and repurchases of senior notes and term loans
|
|
(250.0
|
)
|
|
265.7
|
|
|
—
|
|
|
(4.8
|
)
|
|
—
|
|
|
10.9
|
|
Payments of debt issuance and deferred financing costs
|
|
—
|
|
|
(52.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(52.3
|
)
|
Payments on license obligations
|
|
(24.3
|
)
|
|
—
|
|
|
(4.7
|
)
|
|
—
|
|
|
—
|
|
|
(29.0
|
)
|
Net redemptions of common stock under stock-based compensation plans
|
|
(2.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.7
|
)
|
Other, principally change in intercompany financing activities
|
|
586.2
|
|
|
—
|
|
|
(350.1
|
)
|
|
—
|
|
|
(236.1
|
)
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
309.2
|
|
|
213.4
|
|
|
(354.8
|
)
|
|
(4.8
|
)
|
|
(236.1
|
)
|
|
(73.1
|
)
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.8
|
|
|
—
|
|
|
4.8
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
|
104.6
|
|
|
2.2
|
|
|
1.5
|
|
|
(21.2
|
)
|
|
(4.3
|
)
|
|
82.8
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
32.7
|
|
|
1.7
|
|
|
41.0
|
|
|
82.6
|
|
|
(1.1
|
)
|
|
156.9
|
|
Cash, cash equivalents and restricted cash end of period
|
|
$
|
137.3
|
|
|
$
|
3.9
|
|
|
$
|
42.5
|
|
|
$
|
61.4
|
|
|
$
|
(5.4
|
)
|
|
$
|
239.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Issuer of obligations under the 2020 Notes, the 2021 Notes, the 2022 Secured Notes, which were redeemed in March 2018, the Unsecured Notes and the 2025 Secured Notes, which were issued in October 2017.
|