Light & Wonder, Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-11693

SCIENTIFIC GAMES CORPORATION

(Exact name of registrant as specified in its charter)


Nevada						81-0422894
(State or other jurisdiction of						(I.R.S. Employer Identification No.)
incorporation or organization)

6601 Bermuda Road, Las Vegas, Nevada 89119

(Address of principal executive offices)

(Zip Code)

(702) 897-7150

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 par value	SGMS	The NASDAQ Stock Market
Preferred Stock Purchase Rights		The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

The registrant has the following number of shares outstanding of each of the registrant’s classes of common stock as of November 3, 2021:

Common Stock: 96,512,420

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL AND OTHER INFORMATION

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	7

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	7

	Consolidated Statements of Comprehensive Income (Loss ) for the Three and Nine Months Ended September 30, 2021 and 2020	8

	Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	9

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	10

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	47

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3.	Defaults Upon Senior Securities	49

Item 4.	Mine Safety Disclosures	49

Item 5.	Other Information	49

Item 6.	Exhibits	50


Glossary of Terms
The following terms or acronyms used in this Quarterly Report on Form 10-Q are defined below:
Term or Acronym						Definition
2020 10-K						2020 Annual Report on Form 10-K filed with the SEC on March 1, 2021
2025 Secured Notes						5.000% senior secured notes due 2025 issued by SGI
2026 Secured Euro Notes						3.375% senior secured notes due 2026 issued by SGI
2026 Unsecured Euro Notes						5.500% senior unsecured notes due 2026 issued by SGI

2025 Unsecured Notes						8.625% senior unsecured notes due 2025 issued by SGI
2026 Unsecured Notes						8.250% senior unsecured notes due 2026 issued by SGI
2028 Unsecured Notes						7.000% senior unsecured notes due 2028 issued by SGI
2029 Unsecured Notes						7.250% senior unsecured notes due 2029 issued by SGI
AEBITDA						Adjusted EBITDA, our performance measure of profit or loss for our business segments
ASC						Accounting Standards Codification
ASU						Accounting Standards Update
COVID-19						Coronavirus disease first identified in 2019 (declared a pandemic by the World Health Organization on March 11, 2020), the resulting pandemic and the associated impacts on the macroeconomic environment in general and our business environment specifically
D&A						depreciation, amortization and impairments (excluding goodwill)
Exchange Act						Securities Exchange Act of 1934, as amended
FASB						Financial Accounting Standards Board
FOBT						Fixed odds betting terminal
KPIs						Key Performance Indicators
LBO						licensed betting office
LIBOR						London Interbank Offered Rate

Note						a note in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, unless otherwise indicated

Participation						refers to gaming machines provided to customers through service or leasing arrangements in which we earn revenues and are paid based on: (1) a percentage of the amount wagered less payouts; (2) fixed daily-fees; (3) a percentage of the amount wagered; or (4) a combination of (2) and (3)
R&D						research and development
RMG						real-money gaming
RSU						restricted stock unit
SEC						Securities and Exchange Commission
Secured Notes						refers to the 2025 Secured Notes and 2026 Secured Euro Notes, collectively

Senior Notes						the Secured Notes and the Unsecured Notes
SciPlay Revolver						$150 million revolving credit facility agreement entered into by SciPlay Holding Company, LLC, a subsidiary of SciPlay Corporation, that matures in May 2024
SG&A						selling, general and administrative
SGC						Scientific Games Corporation
SGI						Scientific Games International, Inc., a wholly-owned subsidiary of SGC
Shufflers						various models of automatic card shufflers, deck checkers and roulette chip sorters
SportCast						SportCast Pty, Limited
Unsecured Notes						refers to the 2026 Unsecured Euro Notes, 2026 Unsecured Notes, 2028 Unsecured Notes and 2029 Unsecured Notes, collectively
U.S. GAAP						accounting principles generally accepted in the U.S.
U.S. jurisdictions						the 50 states in the U.S. plus the District of Columbia, U.S. Virgin Islands and Puerto Rico
FOBT recovery						recovery from customers of U.K. value-added tax charged on FOBTs
VGT						video gaming terminal
VLT						video lottery terminal

Intellectual Property Rights

The MONOPOLY name and logo, the distinctive design of the game board, the four corner squares, the MR. MONOPOLY name and character, as well as each of the distinctive elements of the board, cards, and the playing pieces are trademarks of Hasbro for its property trading game and game equipment and are used with permission. © 2021 Hasbro. All Rights Reserved. Licensed by Hasbro.

THE FLINTSTONES™ and all related characters and elements © & ™ Hanna-Barbera.

©2021 Playboy Enterprises International, Inc. PLAYBOY, PLAYMATE, PLAYBOY BUNNY, and the Rabbit Head Design are trademarks of Playboy Enterprises International, Inc. and used under license by Scientific Games Corporation.

FORWARD-LOOKING STATEMENTS

Throughout this Quarterly Report on Form 10-Q, we make “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “target,” “should,” “could,” “potential,” “opportunity,” “goal,” or similar terminology. The forward-looking statements contained in this Quarterly Report on Form 10-Q are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:

•the impact of the COVID-19 pandemic and any resulting unfavorable social, political, economic and financial conditions, including the temporary and potentially recurring closure of casinos and lottery operations on a jurisdiction-by-jurisdiction basis;

•risks relating to the pending divestitures of our Sports Betting and Lottery businesses and proposed acquisition of public SciPlay equity, including lack of assurance regarding the timing of completion of the pending and proposed transactions, that certain deferred tax assets may not be realized relative to the anticipated tax gain from the Sports Betting divestiture, that the transactions will yield additional value or will not adversely impact our business, financial results, results of operations, cash flows or stock price;

•our inability to significantly de-lever and position the Company for enhanced growth with certain net proceeds from our pending divestitures;

•slow growth of new gaming jurisdictions, slow addition of casinos in existing jurisdictions and declines in the replacement cycle of gaming machines;

•risks relating to foreign operations, including anti-corruption laws, fluctuations in currency rates, restrictions on the payment of dividends from earnings, restrictions on the import of products and financial instability, including the potential impact to our business resulting from the continuing uncertainty following the U.K.’s withdrawal from the European Union;

•difficulty predicting what impact, if any, new tariffs imposed by and other trade actions taken by the U.S. and foreign jurisdictions could have on our business;

•U.S. and international economic and industry conditions;

•level of our indebtedness, higher interest rates, availability or adequacy of cash flows and liquidity to satisfy indebtedness, other obligations or future cash needs;

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

•inability to reduce or refinance our indebtedness;

•restrictions and covenants in debt agreements, including those that could result in acceleration of the maturity of our indebtedness;

•competition;

•inability to win, retain or renew, or unfavorable revisions of, existing contracts, and the inability to enter into new contracts;

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

•inability to adapt to, and offer products that keep pace with, evolving technology, including any failure of our investment of significant resources in our R&D efforts;

•changes in demand for our products and services;

•inability to benefit from, and risks associated with, strategic equity investments and relationships;

•inability to achieve some or all of the anticipated benefits of SciPlay being a standalone public company;

•dependence on suppliers and manufacturers;

•SciPlay’s dependence on certain key providers;

•ownership changes and consolidation in the gaming industry;

•fluctuations in our results due to seasonality and other factors;

•security and integrity of our products and systems, including the impact of any security breaches or cyber-attacks;

•protection of our intellectual property, inability to license third-party intellectual property and the intellectual property rights of others;

•reliance on or failures in information technology and other systems;

•litigation and other liabilities relating to our business, including litigation and liabilities relating to our contracts and licenses, our products and systems, our employees (including labor disputes), intellectual property, environmental laws and our strategic relationships;

•reliance on technological blocking systems;

•challenges or disruptions relating to the completion of the domestic migration to our enterprise resource planning system;

•laws and government regulations, both foreign and domestic, including those relating to gaming, data privacy and security, including with respect to the collection, storage, use, transmission and protection of personal information and other consumer data, and environmental laws, and those laws and regulations that affect companies conducting business on the internet, including online gambling;

•legislative interpretation and enforcement, regulatory perception and regulatory risks with respect to gaming, especially internet wagering, social gaming and sports wagering;

•changes in tax laws or tax rulings, or the examination of our tax positions;

•opposition to legalized gaming or the expansion thereof and potential restrictions on internet wagering;

•significant opposition in some jurisdictions to interactive social gaming, including social casino gaming and how such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming or social casino gaming specifically, and how this could result in a prohibition on interactive social gaming or social casino gaming altogether, restrict our ability to advertise our games, or substantially increase our costs to comply with these regulations;

•expectations of shift to regulated online gaming or sports wagering;

•inability to develop successful products and services and capitalize on trends and changes in our industries, including the expansion of internet and other forms of interactive gaming;

•the continuing evolution of the scope of data privacy and security regulations, and our belief that the adoption of increasingly restrictive regulations in this area is likely within the U.S. and other jurisdictions;

•incurrence of restructuring costs;

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

•stock price volatility;

•failure to maintain adequate internal control over financial reporting;

•dependence on key executives;

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

•possibility that the 2018 renewal of the Lotterie Nazionali S.r.l. concession to operate the Italian instant games lottery is not final (pending appeal against existing court rulings relating to third-party protest against the renewal of the concession); and

•expectations of growth in total consumer spending on social casino gaming.

Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in our filings with the SEC, including under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A in our 2020 10-K. Forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no and expressly disclaim any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

You should also note that this Quarterly Report on Form 10-Q may contain references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us and we do not make any representation as to the accuracy of that information. In general, we believe there is less publicly available information concerning the international gaming, lottery, social and digital gaming industries than the same industries in the U.S.

Due to rounding, certain numbers presented herein may not precisely agree or add up on a cumulative basis to the totals previously reported.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue:
Services	$	408	$	337	$	1,216	$	919
Product sales	131		95		356		300

Total revenue	539		432		1,572		1,219
Operating expenses:
Cost of services(1)	90		86		273		250
Cost of product sales(1)	63		66		166		197

Selling, general and administrative	164		146		502		459
Research and development	47		36		140		110
Depreciation, amortization and impairments	96		111		289		336
Goodwill impairment	—		—		—		54
Restructuring and other	45		17		96		48
Operating income (loss)	34		(30)		106		(235)
Other (expense) income:
Interest expense	(120)		(131)		(360)		(379)

Loss on debt financing transactions	—		(1)		—		(1)
Gain (loss) on remeasurement of debt	12		(24)		30		(26)
Other income (expense), net	2		2		22		(8)
Total other expense, net	(106)		(154)		(308)		(414)
Net loss from continuing operations before income taxes	(72)		(184)		(202)		(649)
Income tax benefit (expense)	172		(3)		164		(8)
Net income (loss) from continuing operations	100		(187)		(38)		(657)
Net income from discontinued operations, net of tax(2)	87		76		329		193
Net income (loss)	187		(111)		291		(464)
Less: Net income attributable to noncontrolling interest	5		6		15		15
Net income (loss) attributable to SGC	$	182	$	(117)	$	276	$	(479)

Per Share - Basic:
Net income (loss) from continuing operations	$	0.99	$	(2.03)	$	(0.55)	$	(7.14)
Net income from discontinued operations	0.90		0.80		3.43		2.05
Net income (loss) attributable to SGC	$	1.89	$	(1.23)	$	2.88	$	(5.09)

Per Share - Diluted:
Net income (loss) from continuing operations	$	0.96	$	(2.03)	$	(0.55)	$	(7.14)
Net income from discontinued operations	0.88		0.80		3.43		2.05
Net income (loss) attributable to SGC	$	1.84	$	(1.23)	$	2.88	$	(5.09)

Weighted average number of shares used in per share calculations:
Basic shares	96		95		96		94
Diluted shares	99		95		96		94

(1) Excludes D&A.
(2) Includes $63 million gain for the nine months ended September 30, 2021, related to the SportCast acquisition transaction (see Note 1).

See accompanying notes to condensed consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income (loss)	$	187	$	(111)	$	291	$	(464)

Foreign currency translation (loss) gain, net of tax	(21)		11		(20)		4

Derivative financial instruments unrealized gain (loss), net of tax	5		4		14		(10)
Other comprehensive (loss) gain from continuing operations	(16)		15		(6)		(6)
Other comprehensive (loss) gain from discontinued operations	(11)		17		(2)		3
Total comprehensive gain (loss)	160		(79)		283		(467)
Less: comprehensive income attributable to noncontrolling interest	5		6		15		15
Comprehensive income (loss) attributable to SGC	$	155	$	(85)	$	268	$	(482)

See accompanying notes to condensed consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except par value)


	As of
	September 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	782	$	928
Restricted cash	39		45
Receivables, net of allowance for credit losses $62 and $76, respectively	415		438
Inventories	105		119
Prepaid expenses, deposits and other current assets	105		98
Assets of businesses held for sale	475		553
Total current assets	1,921		2,181
Non-current assets:
Restricted cash	9		10
Receivables, net of allowance for credit losses $2 and $5, respectively	18		19
Property and equipment, net	218		242
Operating lease right-of-use assets	46		52
Goodwill	2,755		2,730
Intangible assets, net	974		1,088
Software, net	123		143

Other assets	357		157
Assets of businesses held for sale	1,429		1,362
Total assets	$	7,850	$	7,984

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt	$	44	$	44
Accounts payable	167		150
Accrued liabilities	382		343
Liabilities of businesses held for sale	251		295
Total current liabilities	844		832
Deferred income taxes	41		44
Operating lease liabilities	36		43
Other long-term liabilities	170		190
Long-term debt, excluding current portion	8,802		9,259
Liabilities of businesses held for sale	148		140
Total liabilities	10,041		10,508
Commitments and contingencies (Note 16)
Stockholders’ deficit:
Common stock, par value $0.001 per share: 199 shares authorized; 114 and 113 shares issued and 97 and 95 shares outstanding, respectively	1		1
Additional paid-in capital	1,318		1,268
Accumulated loss	(3,253)		(3,529)
Treasury stock, at cost, 17 shares	(175)		(175)
Accumulated other comprehensive loss	(226)		(218)
Total SGC stockholders’ deficit	(2,335)		(2,653)
Noncontrolling interest	144		129
Total stockholders’ deficit	(2,191)		(2,524)
Total liabilities and stockholders’ deficit	$	7,850	$	7,984

See accompanying notes to condensed consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	291	$	(464)
Less: income from discontinued operations, net of tax	(329)		(193)

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities from continuing operations	358		560
Changes in working capital accounts, excluding the effects of acquisitions	51		90
Changes in deferred income taxes and other	(172)		9


















Net cash provided by operating activities from continuing operations	199		2

Net cash provided by operating activities from discontinued operations	260		310
Net cash provided by operating activities	459		312
Cash flows from investing activities:
Capital expenditures	(118)		(100)
Acquisitions of businesses, net of cash acquired	(40)		(13)

Proceeds from sale of assets and other	10		22

Net cash used in investing activities from continuing operations	(148)		(91)

Net cash used in investing activities from discontinued operations	(58)		(43)
Net cash used in investing activities	(206)		(134)
Cash flows from financing activities:

Borrowings under SGI revolving credit facility	—		530
Repayments under SGI revolving credit facility	(400)		(90)
Proceeds from issuance of senior notes and term loans	—		550
Repayment of notes and term loans (including redemption premium)	—		(341)
Payments on long-term debt	(32)		(31)
Payments of debt issuance and deferred financing and offering costs	(5)		(9)
Payments on license obligations	(25)		(17)
Net redemptions of common stock under stock-based compensation plans and other	(22)		(1)



Net cash (used in) provided by financing activities from continuing operations	(484)		591
Net cash used in financing activities from discontinued operations	(8)		(4)
Net cash (used in) provided by financing activities	(492)		587
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3)		1
(Decrease) increase in cash, cash equivalents and restricted cash	(242)		766
Cash, cash equivalents and restricted cash, beginning of period	1,143		375
Cash, cash equivalents and restricted cash, end of period	901		1,141
Less: Cash, cash equivalents and restricted cash of discontinued operations	71		101
Cash, cash equivalents and restricted cash of continuing operations, end of period	$	830	$	1,040


Supplemental cash flow information:
Cash paid for interest	$	349	$	335
Income taxes paid	27		18
Distributed earnings from equity investments	15		22

Supplemental non-cash transactions:



Non-cash interest expense	$	18	$	16


See accompanying notes to condensed consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in USD, table amounts in millions, except per share amounts)

(1) Description of the Business and Summary of Significant Accounting Policies

Description of the Business

On June 29, 2021, we announced our intent to divest our Lottery and Sports Betting businesses. On September 27, 2021, we announced that we had entered into a definitive agreement to sell our Sports Betting business to Endeavor Group Holdings, Inc. (“Endeavor”) in a cash and stock transaction. Under the terms of the agreement, we will receive $1 billion in cash, subject to customary working capital purchase price closing adjustments, and 7.6 million shares of Endeavor Class A common stock (valued at approximately $200 million as of the purchase agreement date). On October 27, 2021, we announced that we entered into a definitive agreement to sell our Lottery business to Brookfield Business Partners L.P. together with its institutional partners (collectively “Brookfield”) for total consideration of $6.05 billion consisting of $5.825 billion in cash and an earn-out of up to $225 million based on the achievement of certain EBITDA targets in 2022 and 2023. We expect to complete these transactions during the first half of 2022, subject to applicable regulatory approvals and customary closing conditions. Beginning in the third quarter of 2021, we have reflected these businesses as discontinued operations in our consolidated statements of operations and reflected the assets and liabilities of these businesses as held for sale in our consolidated balance sheets, for all periods presented. These businesses held for sale are included in our covenant compliance requirements until disposed of and all of their related cash flows are available to the Company without restriction. Refer to Note 2 for further information.

Retrospective reclassifications have been made to prior period financial statements and disclosures to present the Lottery and Sports Betting businesses as discontinued operations (see Note 2). Accordingly, we report our results of continuing operations in three business segments—Gaming, SciPlay and iGaming (former Digital business segment excluding Sports Betting)—representing our different products and services. Unless otherwise noted, amounts and disclosures included herein relate to our continuing operations.

On July 15, 2021, we submitted a proposal to SciPlay’s board of directors to acquire all the outstanding equity interests in SciPlay not already owned by us (approximately 19%) in alignment with the strategy developed as part of the strategic review. Under our proposal, all SciPlay shareholders (other than SGC and our subsidiaries) would receive 0.250 shares of our common stock for each share of SciPlay Class A common stock they own. The proposed transaction is subject to the approval of an independent special committee of the SciPlay board of directors, as well as the negotiation and execution of a mutually acceptable merger agreement.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The accompanying condensed consolidated financial statements include the accounts of SGC, its wholly owned subsidiaries, and those subsidiaries in which we have a controlling financial interest. Investments in other entities in which we do not have a controlling financial interest but we exert significant influence are accounted for in our consolidated financial statements using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.

In the opinion of SGC and its management, we have made all adjustments necessary to present fairly our consolidated financial position, results of operations, comprehensive loss and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2020 10-K. Interim results of operations are not necessarily indicative of results of operations to be expected for a full year.

Impact of COVID-19

As more fully described in the “Description of the Business and Summary of Significant Accounting Policies - Impact of COVID-19” in Note 1 of our 2020 10-K, COVID-19 disruptions continue to impact our results of operations and particularly

certain aspects of our Gaming business segment operations. While most gaming establishments have reopened globally and have begun to operate at full capacity, there is a continued risk of future COVID-related developments impacting Gaming business segment results. We continue to see fluctuations in infection rates and regulations for various regions along with ongoing domestic and international travel restrictions or warnings, social distancing measures, reduced operating capacity and an overall economic and general uncertainty regarding the magnitude and length of time that these disruptions will continue. These circumstances may change in the future and such changes could be material. We continue to assess the situation jurisdiction by jurisdiction, actively managing our cash flows and continuing to evaluate additional measures that may reduce operating costs and conserve cash to preserve liquidity as we execute on our strategic initiatives.

As of September 30, 2021, our total available liquidity (excluding our SciPlay business segment, but including cash and cash equivalents totaling $62 million of the businesses held for sale as those are still available for our general use until a divestiture occurs) was $1,016 million, which included $503 million of undrawn availability under SGI’s revolving credit facility. In October 2021, we made a voluntary payment of $135 million on SGI’s revolving credit facility leaving the entire revolving credit facility undrawn and available.

Significant Accounting Policies

There have been no changes to our significant accounting policies described within the Notes of our 2020 10-K.

Computation of Basic and Diluted Net Income (Loss) Per Share Attributable to SGC

Basic and diluted net income (loss) per share for the three and nine months ended September 30, 2021 and 2020 were computed by dividing net loss from continuing operations and net income from discontinued operations by the weighted average number of shares outstanding.

Basic and diluted net (loss) income attributable to SGC per share were the same for the three months ended September 30, 2020 and nine months ended September 30, 2021 and 2020, respectively, as all common stock equivalents during those periods would be anti-dilutive. We excluded 2 million of stock options from the diluted weighted-average common shares outstanding for the nine months ended September 30, 2021, and 1 million and 2 million of stock options from the diluted weighted-average common shares outstanding for the three and nine months ended September 30, 2020, respectively. We excluded 3 million of RSUs from the calculation of diluted weighted-average common shares outstanding for the nine months ended September 30, 2021 and the three and nine months ended September 30, 2020, respectively.

Acquisitions

Acquisitions Related to Continuing Operations

In July of 2021, SciPlay acquired privately-held Koukoi Games Oy (“Koukoi”), a developer and operator of casual mobile games. Koukoi has been included in our SciPlay business segment.

In August of 2021, we acquired privately-held Lightning Box Games (“Lightning Box”), an iGaming content studio. Lightning Box has been included in our iGaming business segment.

In October of 2021, we signed a definitive agreement to acquire Automated Cashless Systems, Inc.’s (“ACS”) table game solution PlayOn™ (“PlayOn™”), a cashless product line that provides players with a debit solution at live table games. PlayOn™ was re-named to “Access To On Demand Money” (“AToM™”) and will be included in our Gaming business segment.

In November of 2021, we acquired Authentic Gaming, a premium provider of live casino solutions, which will be included in our iGaming business segment.

Acquisitions Related to Discontinued Operations

In August of 2020, we obtained a one-year option agreement to acquire SportCast Pty, Limited (the “SportCast Option”), a privately held sports-betting content and player engagement technology and platform supplier. We accounted for the SportCast Option by electing a measurement alternative to measure this equity investment at cost, less impairment given lack of readily determinable fair value in accordance with ASC Topic 321. In May of 2021, we exercised the SportCast Option and completed an acquisition of SportCast (the “SportCast Acquisition”), which expanded the Sports Betting business’ portfolio of sports-betting technology, services and content.

In September of 2021, we acquired Sideplay Entertainment (“Sideplay”), a digital “e-instant” content studio. Sideplay has been included in the Lottery business.

We accounted for these acquisitions using the acquisition method of accounting whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on respective estimated fair values. The following table summarizes an aggregate disclosure related to business acquisitions completed through September 30, 2021 and is based on the preliminary allocations of the purchase price expected to be finalized by the fourth quarter of 2021, pending completion of the valuation analyses for acquired intangible assets:


	Total Consideration		Cash paid, net of cash acquired		Contingent Consideration(1)		Allocation of purchase price to Intangible assets, net(2)		Weighted average useful life of acquired intangible assets		Excess purchase price allocated to Goodwill(3)
Acquisitions related to continuing operations	$	60	$	40	$	15	$	21	6.5	Years	$	39
Acquisitions related to discontinued operations(4)	106		18		25		35		6	Years	77
Aggregate total	$	166	$	58	$	40	$	56			$	116

(1) Contingent acquisition consideration values are primarily based on reaching certain earnings-based metrics, with a cumulative maximum payout of up to $64 million as of September 30, 2021 and were determined by fair value and included in the consideration transferred. The fair value was primarily determined using an income approach method and level 3 inputs in the hierarchy as established by ASC 820. The maximum contingent acquisition consideration liability related to continuing operations was $30 million as of September 30, 2021. The maximum contingent acquisition consideration liability related to discontinued operations was $34 million as of September 30, 2021.
(2) Intangible assets primarily consist of technology-based and customer relationship intangible assets. The fair value of these intangible assets was determined using an income approach method and level 3 inputs in the hierarchy as established by ASC 820. The discount rates and royalty rates used in the valuation analyses ranged between 15% and 29% and 1% and 52%, respectively.
(3) The factors contributing to the recognition of acquisition goodwill are based on customer offering diversification, expected synergies, assembled workforce and other strategic benefits. None of the resultant goodwill is expected to be deductible for income tax purposes.
(4) The SportCast acquisition’s total consideration transferred included $63 million in fair value of the SportCast Option, which resulted in a $63 million gain recorded in the Net income from discontinued operations, net of tax, line item in our consolidated statements of operations for the nine-months ended September 30, 2021 due to the increase in fair value of the SportCast Option. The fair value of the Sportscast Option has been preliminarily determined using an income approach method and level 3 inputs in the hierarchy as established by ASC 820. The discount rate used in the valuation analyses was 15%.

The revenue and earnings associated with all of the above acquisitions are not significant to our consolidated financial statements.

New Accounting Guidance - Recently Adopted

The FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments, on July 19, 2021. The new guidance requires the lessor to classify a lease with variable lease payments that do not depend on an index or a rate as an operating lease at lease commencement if classifying the lease as a sales-type lease or direct financing lease would result in the recognition of a selling loss. We adopted this standard during the third quarter of 2021 on a prospective basis. The adoption of this guidance did not have a material effect on our consolidated financial statements.

New Accounting Guidance - Not Yet Adopted

The FASB issued ASU No. 2020-04 and subsequently ASU No. 2021-01, Reference Rate Reform (Topic 848) in March 2020 and January 2021, respectively. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, including derivative instruments impacted by changes in the interest rates used for discounting cash flows for computing variable margin settlements, subject to meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued, in 2022 or potentially 2023 (pending possible extension). The ASUs establish certain contract modification principles that entities can apply in other areas that may be affected by reference rate reform and certain elective hedge accounting expedients and exceptions. The ASUs may be applied prospectively. Based on our preliminary assessment completed to date, we do not expect the adoption of this guidance to have a significant impact on our consolidated financial statements.

We do not expect that any other recently issued accounting guidance will have a significant effect on our consolidated financial statements.

(2) Discontinued Operations

As described in Note 1, beginning in the third quarter of 2021, we have reflected the Lottery and Sports Betting businesses as discontinued operations in our consolidated statements of operations and reflected the assets and liabilities of these businesses as held for sale in our consolidated balance sheets, for all periods presented. The Lottery business was historically our Lottery business reportable segment and Sports Betting business was historically included in our former Digital business reportable segment, which we renamed to iGaming business segment starting with the third quarter of 2021.

The summarized results of our discontinued operations were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Total revenue	$	285	$	266	$	860	$	743
Total cost of revenue(1)	148		137		431		393
Other operating expenses(2)	63		52		184		155



Operating income	74		77		245		195
Total other income, net	16		1		90		1
Net income from discontinued operations before income taxes	90		78		335		196
Income tax expense	(3)		(2)		(6)		(3)
Net income from discontinued operations, net of tax included in the consolidated statement of operations	$	87	$	76	$	329	$	193





(1) Excludes D&A.
(2) Includes D&A of $26 million and $79 million for the three and nine months ended September 30, 2021 and $25 million and $78 million for the three and nine months ended September 30, 2020, respectively, along with stock-based compensation of $6 million and $14 million for the three and nine months ended September 30, 2021, respectively, and $1 million and $3 million for the three and nine months ended September 30, 2020.

The following table summarizes the major classes of assets and liabilities of businesses held for sale.


	As of
	September 30, 2021		December 31, 2020
ASSETS
Cash and cash equivalents	$	62	$	88
Restricted cash	9		72
Receivables, net	209		178
Inventories	79		72
Prepaid expenses deposits and other current assets	116		143
Total current assets of businesses held for sale	475		553
Property and equipment, net	177		173

Intangible assets and software, net	298		295

Goodwill	631		562
Equity investments	258		262
Other assets	65		70
Total non-current assets of businesses held for sale	1,429		1,362
Total assets of businesses held for sale	$	1,904	$	1,915

LIABILITIES
Accounts payable	$	61	$	53
Accrued liabilities and other	190		242
Total current liabilities of businesses held for sale	251		295
Operating lease liabilities	35		34

Other	113		106
Total non-current liabilities of businesses held for sale	148		140
Total liabilities of businesses held for sale	$	399	$	435

(3) Revenue Recognition

The following table disaggregates revenues by type within each of our business segments:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Gaming
Gaming operations(1)	$	151	$	92	$	445	$	227
Gaming machine sales	95		71		249		216
Gaming systems	52		43		146		115
Table products	41		25		109		82
Total	$	339	$	231	$	949	$	640






SciPlay
Mobile	$	131	$	132	$	400	$	377
Web and other	16		19		52		58
Total	$	147	$	151	$	452	$	435


iGaming	$	53	$	50	$	171	$	144


(1) Gaming operations revenue for the nine months ended September 30, 2021 benefited from $44 million U.K. FOBT recovery received from certain U.K. customers related to a 2020 U.K. court ruling associated with overcharging of value-added tax for gaming operators that consequently reduced our net gaming revenues related to these customers and arrangements.

The amount of rental income revenue that is outside the scope of ASC 606 was $88 million and $270 million for the three and nine months ended September 30, 2021, respectively, and $62 million and $148 million for the three and nine months ended September 30, 2020, respectively.

Contract Liabilities and Other Disclosures

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


	Nine Months Ended September 30,
	2021

Contract liability balance, beginning of period(1)	$	27
Liabilities recognized during the period	26
Amounts recognized in revenue from beginning balance	(16)
Contract liability balance, end of period(1)	$	37

(1) Contract liabilities are included within Accrued liabilities and Other long-term liabilities in our consolidated balance sheets.

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on our consolidated balance sheets. Other than contracts with customers with financing arrangements exceeding 12 months, revenue recognition is generally proximal to conversion to cash. The following table summarizes our balances in these accounts for the periods indicated (other than contract liabilities disclosed above):


	Receivables		Contract Assets(1)
Beginning of period balance	$	457	$	20
End of period balance, September 30, 2021	433		24



(1) Contract assets are included primarily within Prepaid expenses, deposits and other current assets in our consolidated balance sheets.

As of September 30, 2021, we did not have material unsatisfied performance obligations for contracts expected to be long-term or contracts for which we recognize revenue at an amount other than for which we have the right to invoice for goods or services delivered or performed.

(4) Business Segments

We report our operations in three business segments—Gaming, SciPlay and iGaming—representing our different products and services. A detailed discussion regarding the products and services from which each reportable business segment derives its revenue is included in Notes 2 and 3 in our 2020 10-K. As described in Notes 1 and 2 herein, beginning in the third

quarter of 2021, we have reflected the Lottery and Sports Betting businesses as discontinued operations. Accordingly, Lottery is no longer a reportable business segment and our former Digital segment has been renamed to iGaming and the presentation was recast for all periods to exclude the Sports Betting business.

In evaluating financial performance, our Chief Operating Decision Maker focuses (“CODM”) on AEBITDA as management’s primary segment measure of profit or loss, which is described in footnote (2) to the below table. As a result of our strategic changes and pending divestitures of the Lottery and Sports Betting businesses, starting with the third quarter of 2021, we re-assessed how our CODM evaluates the operating results and performance of our Gaming business segment that resulted in an immaterial change to the Gaming business Segment AEBITDA calculation, which is our primary measure of the Gaming business segment performance measure of profit or loss. The Gaming business segment AEBITDA, has been recast for all periods presented herein to exclude EBITDA from equity investments to align with this new view. The accounting policies of our business segments are the same as those described within the Notes in our 2020 10-K. The following tables present our segment information:


	Three Months Ended September 30, 2021
	Gaming		SciPlay		iGaming		Unallocated and Reconciling Items(1)		Total
Total revenue	$	339	$	147	$	53	$	—	$	539
AEBITDA(2)	172		45		18		(32)		$	203
Reconciling items to Net loss from continuing operations before income taxes:
D&A	(73)		(4)		(13)		(6)		(96)

Restructuring and other	(1)		(2)		(1)		(41)		(45)


Interest expense							(120)		(120)

Gain on remeasurement of debt							12		12

Stock-based compensation							(26)		(26)
Net loss from continuing operations before income taxes									$	(72)
Assets as of September 30, 2021	$	4,179	$	676	$	467	$	624	$	5,946

(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net income from continuing operations before income taxes.
(2) AEBITDA is reconciled to net loss from continuing operations before income taxes with the following adjustments: (1) depreciation and amortization expense and impairment charges (including goodwill impairments); (2) restructuring and other, which 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; (3) interest expense; (4) loss (gain) on debt financing transactions; (5) change in fair value of investments and remeasurement of debt; (6) other expense (income), net including foreign currency (gains), and losses and earnings (loss) from equity investments; and (7) stock-based compensation. AEBITDA is presented as our primary segment measure of profit or loss.


	Three Months Ended September 30, 2020
	Gaming		SciPlay		iGaming		Unallocated and Reconciling Items(1)		Total
Total revenue	$	231	$	151	$	50	$	—	$	432
AEBITDA(2)	77		49		16		(25)		$	117
Reconciling items to Net loss from continuing operations before income taxes:
D&A	(85)		(3)		(13)		(10)		(111)

Restructuring and other	(10)		—		(1)		(6)		(17)


Interest expense							(131)		(131)
Loss on debt financing transactions							(1)		(1)
Loss on remeasurement of debt							(24)		(24)
Other expense, net							(1)		(1)
Stock-based compensation							(16)		(16)
Net loss from continuing operations before income taxes									$	(184)
Assets as of December 31, 2020	$	4,364	$	564	$	423	$	718	$	6,069

(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net loss from continuing operations before income taxes.
(2) AEBITDA is described in footnote (2) to the first table in this Note 4.


	Nine Months Ended September 30, 2021
	Gaming		SciPlay		iGaming		Unallocated and Reconciling Items(1)		Total
Total revenue	$	949	$	452	$	171	$	—	$	1,572
AEBITDA(2)	472		138		60		(93)		$	577
Reconciling items to Net loss from continuing operations before income taxes:
D&A	(220)		(11)		(38)		(20)		(289)

Restructuring and other	(7)		(3)		(1)		(85)		(96)


Interest expense							(360)		(360)

Gain on remeasurement of debt							30		30
Other income, net							17		17
Stock-based compensation							(81)		(81)
Net loss from continuing operations before income taxes									$	(202)
Assets as of September 30, 2021	$	4,179	$	676	$	467	$	624	$	5,946

(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net income from continuing operations before income taxes.
(2) AEBITDA is described in footnote (2) to the first table in this Note 4.


	Nine Months Ended September 30, 2020
	Gaming		SciPlay		iGaming		Unallocated and Reconciling Items(1)		Total
Total revenue	$	640	$	435	$	144	$	—	$	1,219
AEBITDA(2)	137		144		46		(82)		$	245
Reconciling items to Net loss from continuing operations before income taxes:
D&A	(260)		(7)		(36)		(33)		(336)
Goodwill impairment	(54)		—		—		—		(54)
Restructuring and other	(29)		(2)		(4)		(13)		(48)


Interest expense							(379)		(379)
Loss on debt financing transactions							(1)		(1)
Loss on remeasurement of debt							(26)		(26)
Other expense, net							(12)		(12)
Stock-based compensation							(38)		(38)
Net loss from continuing operations before income taxes									$	(649)
Assets as of December 31, 2020	$	4,364	$	564	$	423	$	718	$	6,069

(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net loss from continuing operations before income taxes.
(2) AEBITDA is described in footnote (2) to the first table in this Note 4.

(5) 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 and disposition related 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,
	2021		2020		2021		2020
Employee severance and related(1)	$	3	$	7	$	3	$	28

Strategic review and related(2)	31		—		57		—
Restructuring, integration and other(3)	11		10		36		20
Total	$	45	$	17	$	96	$	48

(1) The three and nine months ended September 30, 2020 includes $6 million and $28 million, respectively, in severance and other benefits granted to employees as a result of COVID-19 related austerity measures.
(2) Represents costs associated with the divestitures of the Lottery and Sports Betting businesses as further described in Note 1.
(3) The three and nine months ended September 30, 2021 largely consist of costs associated with business optimization initiatives.

(6) Receivables, Allowance for Credit Losses and Credit Quality of Receivables

Receivables

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


	As of
	September 30, 2021		December 31, 2020
Current:
Receivables	$	477	$	514
Allowance for credit losses	(62)		(76)
Current receivables, net	415		438
Long-term:
Receivables	20		24
Allowance for credit losses	(2)		(5)
Long-term receivables, net	18		19
Total receivables, net	$	433	$	457

Allowance for Credit Losses

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


	As of
	September 30, 2021		Balances over 90 days past due		December 31, 2020		Balances over 90 days past due
Receivables:
U.S. and Canada	$	319	$	43	$	339	$	85
International	178		41		199		45
Total receivables	497		84		538		130

Receivables allowance:
U.S. and Canada	(27)		(12)		(42)		(26)
International	(37)		(19)		(39)		(20)
Total receivables allowance	(64)		(31)		(81)		(46)
Receivables, net	$	433	$	53	$	457	$	84

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

The activity in our allowance for receivable credit losses for each of the three and nine months ended September 30, 2021 and 2020 is as follows:


	2021						2020
	Total		U.S. and Canada		International		Total
Beginning allowance for credit losses(1)	$	(81)	$	(43)	$	(38)	$	(45)
Provision	1		—		1		(28)
Charge-offs and recoveries	2		1		1		—
Allowance for credit losses as of March 31	(78)		(42)		(36)		(73)
Provision	(2)		(1)		(1)		(12)
Charge-offs	17		17		—		—
Allowance for credit losses as of June 30	(63)		(26)		(37)		(85)
Provision	(1)		(1)		—		(1)
Charge-offs	—		—		—		10
Allowance for credit losses as of September 30	$	(64)	$	(27)	$	(37)	$	(76)

(1) Reflects $6 million related to implementation of ASC 326 for the 2020 beginning balance.

At September 30, 2021, 12% of our total receivables, net, were past due by over 90 days compared to 18% at December 31, 2020.

Credit Quality of Receivables

We have certain concentrations of outstanding receivables in international locations that impact our assessment of the credit quality of our receivables. We monitor the macroeconomic and political environment in each of these locations in our assessment of the credit quality of our receivables. The international customers with significant concentrations (generally deemed to be exceeding 10%) of our receivables with terms longer than one year are in the Latin America region (“LATAM”) and are primarily comprised of Mexico, Peru and Argentina. The following table summarizes our LATAM receivables:


	As of September 30, 2021
	Total		Current or Not Yet Due		Balances Over 90 days Past Due
Receivables	$	106	$	44	$	62
Allowance for credit losses	(39)		(16)		(23)
Receivables, net	$	67	$	28	$	39

We increased our allowance for credit losses by $1 million and $40 million for the three and nine months ended September 30, 2020, respectively. These increases were primarily related to Gaming customers in LATAM (which transact with both domestic and international subsidiaries) as those customers were particularly affected by COVID-19 closures of gaming operations establishments with COVID-related closures lasting longer than in other geographic regions. We did not have material credit losses during the first half of 2021. We continuously review receivables and as information concerning credit quality arise, reassess our expectations of future losses and record an incremental reserve if warranted at that time. Our current allowance for credit losses represents our current expectation of credit losses; however future expectations could change as the ultimate impact of the COVID-19 disruption remains uncertain, particularly as to the financial stability of our customers during and after the COVID-19 disruption period.

The fair value of receivables is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of September 30, 2021 and December 31, 2020, the fair value of receivables, net, approximated the carrying value due to contractual terms of receivables generally being less than 24 months.

(7) Inventories

Inventories consisted of the following:


	As of
	September 30, 2021		December 31, 2020
Parts and work-in-process	$	69	$	86
Finished goods	36		33
Total inventories	$	105	$	119

Parts and work-in-process include parts for gaming machines and our finished goods inventory primarily consisting of gaming machines for sale.

During the three and nine months ended September 30, 2020, we recorded $15 million and $45 million, respectively, in inventory valuation charges related to inventory in our Gaming business segment. The charges were a result of: (1) leadership’s strategic plan to condense the amount of legacy platforms we will continue to service and support as we roll out new products and (2) the rapid demand reduction largely as a result of the COVID-19 disruptions and continued closures in the LATAM region. For additional information regarding our inventory valuation charges, see Note 7 in our 2020 10-K.

(8) Property and Equipment, net

Property and equipment, net consisted of the following:


	As of
	September 30, 2021		December 31, 2020
Land	$	6	$	6
Buildings and leasehold improvements	56		59
Gaming machinery and equipment	715		701
Furniture and fixtures	24		25
Construction in progress	7		6
Other property and equipment	87		86
Less: accumulated depreciation	(677)		(641)
Total property and equipment, net	$	218	$	242

Depreciation expense is excluded from Cost of services, Cost of product sales and Other operating expenses and is separately presented within D&A.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Depreciation expense	$	29	$	34	$	90	$	105

(9) Intangible Assets, net and Goodwill

Intangible Assets, net

The following tables present certain information regarding our intangible assets as of September 30, 2021 and December 31, 2020:


	As of
	September 30, 2021				December 31, 2020
	Gross Carrying Value		Accumulated Amortization		Net Balance		Gross Carrying Value		Accumulated Amortization		Net Balance
Amortizable intangible assets:
Customer relationships	$	904	$	(429)	$	475	$	904	$	(384)	$	520
Intellectual property	903		(659)		244		893		(621)		272
Licenses	471		(369)		102		472		(344)		128
Brand names	126		(94)		32		127		(86)		41
Trade names	114		(46)		68		112		(38)		74
Patents and other	12		(7)		5		11		(6)		5
	2,530		(1,604)		926		2,519		(1,479)		1,040
Non-amortizable intangible assets:
Trade names	50		(2)		48		50		(2)		48
Total intangible assets	$	2,580	$	(1,606)	$	974	$	2,569	$	(1,481)	$	1,088

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Amortization expense	$	46	$	52	$	138	$	156

The table below reconciles the change in the carrying value of goodwill by business segment for the period from December 31, 2020 to September 30, 2021.


	Gaming(1)		SciPlay		iGaming		Totals
Balance as of December 31, 2020	$	2,425	$	124	$	181	$	2,730


Acquired goodwill	—		—		39		39
Foreign currency adjustments	(11)		—		(3)		(14)
Balance as of September 30, 2021	$	2,414	$	124	$	217	$	2,755

(1) Accumulated goodwill impairment charges for the Gaming segment as of September 30, 2021 were $989 million.

(10) Software, net

Software, net consisted of the following:


	As of
	September 30, 2021		December 31, 2020
Software	$	989	$	992
Accumulated amortization	(866)		(849)
Software, net	$	123	$	143

The following reflects amortization of software included within D&A:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Amortization expense	$	21	$	25	$	61	$	75

(11) Long-Term and Other Debt

Outstanding Debt and Finance Leases

The following table reflects our outstanding debt (in order of priority and maturity):


	As of
	September 30, 2021								December 31, 2020
	Final Maturity	Rate(s)	Face value		Unamortized debt discount/premium and deferred financing costs, net		Book value		Book value
Senior Secured Credit Facilities:
SGI Revolver	2024	variable	$	135	$	—	$	135	$	535
SGI Term Loan B-5	2024	variable	4,028		(39)		3,989		4,012
SciPlay Revolver	2024	variable	—		—		—		—
SGI Senior Notes:
2025 Secured Notes(1)	2025	5.000%	1,250		(11)		1,239		1,237
2026 Secured Euro Notes(2)	2026	3.375%	377		(4)		373		395
2025 Unsecured Notes	2025	8.625%	550		(7)		543		542
2026 Unsecured Euro Notes(2)	2026	5.500%	290		(3)		287		303
2026 Unsecured Notes	2026	8.250%	1,100		(11)		1,089		1,088
2028 Unsecured Notes	2028	7.000%	700		(8)		692		691
2029 Unsecured Notes	2029	7.250%	500		(6)		494		493


Finance lease obligations as of September 30, 2021 payable monthly through 2023 and other(3)	2023	4.219%	5		—		5		7
Total long-term debt outstanding			$	8,935	$	(89)	$	8,846	$	9,303
Less: current portion of long-term debt							(44)		(44)
Long-term debt, excluding current portion							$	8,802	$	9,259
Fair value of debt(4)			$	9,202

(1) In connection with the February 2018 Refinancing (see Note 15 in our 2020 10-K), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting $460 million of the fixed-rate, U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to a fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. These cross-currency swaps have been designated as a hedge of our net investment in certain subsidiaries.
(2) We designated a portion of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the change in foreign currency exchange rates of the Euro relative to the U.S. Dollar (see Note 12 for additional information). The total change in the face value of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes due to changes in foreign currency exchange rates since the issuance was a reduction of $46 million, of which gains of $12 million and $30 million were recognized on remeasurement of debt in the Consolidated Statements of Operations for the three and nine months ended September 30, 2021, respectively.
(3) Includes $5 million related to certain revenue transactions presented as debt in accordance with ASC 470.
(4) Fair value of our fixed rate and variable interest rate debt is classified within Level 2 in the fair value hierarchy and has been calculated based on the quoted market prices of our securities.

We were in compliance with the financial covenants under all debt agreements as of September 30, 2021 (for information regarding our financial covenants of all debt agreements, see Notes 1 and 15 in our 2020 10-K).

In July 2021, we amended our Credit Agreement to provide for additional flexibility on executing the recently announced strategic transactions, including among other items: (a) extended the time period for conversion of securities into cash for purposes of satisfying the 75% minimum cash proceeds requirement from 180 to 365 days for proceeds received from the intended disposition of our Sports Betting business (“the Disposition Transaction”), (b) amend the basket for non-cash consideration received in connection with a permitted disposition, (c) permit any capital stock received as consideration in the Disposition Transactions and (d) require that at least 25% of the net cash proceeds received from the Disposition Transactions will be used to prepay outstanding term loans within ten business days of the Disposition Transactions.

On September 30, 2021, SGI, the Company and the guarantors party thereto entered into supplemental indentures (the “Supplemental Indentures”) to the indentures (the “Indentures”) by and among SGI, the Company, the guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, pursuant to SGI’s previously announced consent solicitation with respect to SGI’s 5.000% Senior Secured Notes due 2025, 3.375% Senior Secured Notes due 2026, 8.625% Senior Notes due 2025, 5.500% Senior Notes due 2026, 8.250% Senior Notes due 2026, 7.000% Senior Notes due 2028 and 7.250% Senior

Notes due 2029. In connection with the Company’s previously announced evaluation of strategic alternatives for the intended divestiture of the Lottery business, the Supplemental Indentures amended the Indentures’ requirement that at least 75% of the consideration received as cash or cash equivalents to reduce that percentage to 60%, solely with respect to a potential initial public offering of the Company’s Lottery business occurring prior to June 30, 2022, subject to the terms and conditions described in the consent solicitation statement dated September 23, 2021.

For additional information regarding the terms of our credit facilities, Secured Notes and Unsecured Notes, see Note 15 in our 2020 10-K.

(12) Fair Value Measurements

The fair value of our financial assets and liabilities is determined by reference to market data and other valuation techniques as appropriate. We believe the fair value of our financial instruments, which are principally cash and cash equivalents, restricted cash, receivables, other current assets, accounts payable and accrued liabilities, approximates their recorded values. Our assets and liabilities measured at fair value on a recurring basis are described below.

Derivative Financial Instruments

As of September 30, 2021, we held the following derivative instruments that were accounted for pursuant to ASC 815:

Interest Rate Swap Contracts

We currently use interest rate swap contracts as described below to mitigate gains or losses associated with the change in expected cash flows due to fluctuations in interest rates on our variable rate debt.

In February 2018, we entered into interest rate swap contracts to hedge a portion of our interest expense associated with our variable rate debt to effectively fix the interest rate that we pay. These interest rate swap contracts are designated as cash flow hedges under ASC 815. We pay interest at a weighted-average fixed rate of 2.4418% and receive interest at a variable rate equal to one-month LIBOR. The total notional amount of interest rate swaps outstanding was $800 million as of September 30, 2021. These hedges mature in February 2022.

These hedges are highly effective in offsetting changes in our future expected cash flows due to the fluctuation in the one-month LIBOR rate associated with our variable rate debt. We qualitatively monitor the effectiveness of these hedges on a quarterly basis. As a result of the effective matching of the critical terms on our variable rate interest expense being hedged to the hedging instruments being used, we expect these hedges to remain highly effective.

All gains and losses from these hedges are recorded in Other comprehensive loss until the future underlying payment transactions occur. Any realized gains or losses resulting from the hedges are recognized (together with the hedged transaction) as Interest expense. We estimate the fair value of our interest rate swap contracts by discounting the future cash flows of both the fixed rate and variable rate interest payments based on market yield curves. The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820.

The following table shows the Gain (loss) and Interest expense recognized on our interest rate swap contracts:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Gain (loss) recorded in accumulated other comprehensive loss, net of tax	$	5	$	4	$	14	$	(10)
Interest expense recorded related to interest rate swap contracts	5		4		14		10

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 in the consolidated statements of operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	Interest expense				Interest expense
Total interest expense which reflects the effects of cash flow hedges	$	(120)	$	(131)	$	(360)	$	(379)
Hedged item	(5)		(5)		(14)		(15)
Derivative designated as hedging instrument	—		1		—		5

Cross-Currency Interest Rate Swaps

In connection with the February 2018 Refinancing described in Note 15 of our 2020 10-K, we entered into certain cross-currency interest rate swap agreements to achieve more beneficial interest rates by effectively converting $460 million of our fixed-rate U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. We have designated these cross-currency interest rate swap agreements as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.

We use the spot method to measure the effectiveness of our net investment hedge. Under this method, for each reporting period, the change in the fair value of the $460 million cross-currency interest rate swaps is reported in Foreign currency translation gain (loss) in Accumulated other comprehensive loss. The cross-currency basis spread (along with other components of the cross-currency swap’s fair value excluded from the spot method effectiveness assessment) are amortized and recorded to Interest expense. We evaluate the effectiveness of our net investment hedge at the beginning of each quarter.

The following table shows the fair value of our hedges:

As of

Balance Sheet Line Item

September 30, 2021

December 31, 2020

Interest rate swaps (1)(3)

Accrued liabilities/Other liabilities

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

Other assets

(1) Gains of $5 million and $14 million for the three and nine months ended September 30, 2021, respectively, are reflected in Derivative financial instrument unrealized gain (loss) in Other comprehensive gain (loss).

(2) Gains of $12 million and $25 million for the three and nine months ended September 30, 2021, respectively, are reflected in Foreign currency translation gain (loss) in Other comprehensive gain (loss).

(3) The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy.

Net Investment Non-derivative Hedge — 2026 Secured Euro Notes

For the third quarter of 2021, we designated $180 million of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.

We use the spot method to measure the effectiveness of our net investment non-derivative hedge. Under this method, for each reporting period, the change in the hedged portion of the carrying value of the 2026 Secured Euro Notes due to remeasurement is reported in Foreign currency translation gain (loss) in Other comprehensive loss, and the remaining remeasurement change is recognized in (Loss) gain on remeasurement of debt in our consolidated statements of operations. We evaluate the effectiveness of our net investment non-derivative hedge at the beginning of each quarter, and the inputs used to measure the fair value of this non-derivative hedge are categorized as Level 2 in the fair value hierarchy.

Contingent Acquisition Consideration Liabilities

In connection with our acquisitions, we have recorded certain contingent consideration liabilities, of which the values are primarily based on reaching certain earnings-based metrics. The related liabilities were recorded at fair value on the acquisition date as part of the consideration transferred and are remeasured each reporting period. The inputs used to measure the fair value of our liabilities are categorized as Level 3 in the fair value hierarchy.

Contingent acquisition consideration liabilities (including deferred purchase price) as of September 30, 2021, are $20 million, of which $1 million is included in Accrued liabilities with the remainder included in Other long-term liabilities.

Contingent acquisition consideration liabilities as of December 31, 2020, were $3 million, of which $1 million was included in Accrued liabilities with the remaining balance included in Other long-term liabilities.

(13) Stockholders’ Deficit

Changes in Stockholders’ Deficit

The following tables present certain information regarding our stockholders’ deficit as of September 30, 2021 and September 30, 2020:


	Nine Months Ended September 30, 2021
	Common Stock		Additional Paid in Capital		Accumulated Loss		Treasury Stock		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
January 1, 2021	$	1	$	1,268	$	(3,529)	$	(175)	$	(218)	$	129	$	(2,524)
Vesting of RSUs, net of tax withholdings and other	—		(13)		—		—		—		—		(13)
Stock-based compensation	—		17		—		—		—		—		17
Net loss	—		—		(15)		—		—		6		(9)
Other comprehensive gain	—		—		—		—		8		—		8
March 31, 2021	$	1	$	1,272	$	(3,544)	$	(175)	$	(210)	$	135	$	(2,521)
Vesting of RSUs, net of tax withholdings and other	—		(4)		—		—		—		—		(4)
Stock-based compensation	—		31		—		—		—		—		31
Net income	—		—		109		—		—		4		113
Other comprehensive gain	—		—		—		—		11		—		11
June 30, 2021	$	1	$	1,299	$	(3,435)	$	(175)	$	(199)	$	139	$	(2,370)
Vesting of RSUs, net of tax withholdings and other	—		(3)		—		—		—		—		(3)
Stock-based compensation	—		22		—		—		—		—		22
Net income	—		—		182		—		—		5		187
Other comprehensive loss	—		—		—		—		(27)		—		(27)
September 30, 2021	$	1	$	1,318	$	(3,253)	$	(175)	$	(226)	$	144	$	(2,191)


	Nine Months Ended September 30, 2020
	Common Stock		Additional Paid in Capital		Accumulated Loss		Treasury Stock		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
January 1, 2020	$	1	$	1,208	$	(2,954)	$	(175)	$	(292)	$	104	$	(2,108)
Vesting of RSUs, net of tax withholdings and other	—		(1)		—		—		—		—		(1)
Stock-based compensation	—		9		—		—		—		—		9
Net loss	—		—		(159)		—		—		4		(155)
Other comprehensive loss	—		—		—		—		(97)		—		(97)
Impact of ASC 326 adoption	—		—		(6)		—		—		—		(6)
March 31, 2020	$	1	$	1,216	$	(3,119)	$	(175)	$	(389)	$	108	$	(2,358)
Vesting of RSUs, net of tax withholdings and other	—		1		—		—		—		—		1

Stock-based compensation	—		13		—		—		—		1		14
Net loss	—		—		(203)		—		—		5		(198)
Other comprehensive gain	—		—		—		—		62		—		62
June 30, 2020	$	1	$	1,230	$	(3,322)	$	(175)	$	(327)	$	114	$	(2,479)

Stock-based compensation	—		16		—		—		—		1		17
Net loss	—		—		(117)		—		—		6		(111)
Other comprehensive gain	—		—		—		—		32		—		32
September 30, 2020	$	1	$	1,246	$	(3,439)	$	(175)	$	(295)	$	121	$	(2,541)

Stock Based Compensation

The following reflects total stock-based compensation expense recognized under all programs in our continuing operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Related to SGC stock options	$	3	$	1	$	25	$	3
Related to SGC RSUs	23		5		51		20
Related to SciPlay RSUs	—		10		5		15
Total(1)	$	26	$	16	$	81	$	38

(1) The increase in SGC stock based compensation expense for both 2021 periods is related to the acceleration of the expense as a result of attainment of certain targets for grants to consultants who are also on our board coupled with the new equity awards issued at a higher fair value given the increase in our stock price compared to the prior period.

Restricted Stock Units

A summary of the changes in RSUs outstanding under our equity-based compensation plans during the nine months ended September 30, 2021 is presented below:


	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value
Unvested RSUs as of December 31, 2020	3.3	$	19.07
Granted	1.2	$	55.01
Vested	1.4	$	25.00
Cancelled	0.1	$	18.60
Unvested RSUs as of September 30, 2021	6.0	$	30.77

The weighted-average grant date fair value of RSUs granted during the nine months ended September 30, 2021 and 2020 was $55.01 and $10.96, respectively. The fair value of each RSU grant is based on the market value of our common stock at the time of grant. At September 30, 2021, we had $67 million in total unrecognized stock-based compensation expense

relating to unvested RSUs that will be amortized over a weighted-average period of approximately two years, of which $14 million related to employees of discontinued operations. The fair value at vesting date of RSUs vested during the nine months ended September 30, 2021 and 2020 was $74.1 million and $15.5 million, respectively.

(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. We evaluate information such as historical financial results, historical taxable income, projected future taxable income, expected timing of the reversals of existing temporary differences and available prudent and feasible tax planning strategies in our analysis.

As more fully described in Note 1, on September 27, 2021, we entered into a definitive agreement to sell our Sports Betting business to Endeavor Group Holdings, Inc. in a taxable cash and stock transaction, expected to close in the second quarter of 2022. Although we remain in a three-year cumulative loss position in the U.S., the taxable gain to be recognized upon disposition of our Sports Betting business leads us to conclude that a portion of our net U.S. federal and certain state deferred tax assets are more likely than not to be realized. Accordingly, to the extent that we expect to realize deferred tax assets in relation to this divestiture, we reversed our valuation allowances on our U.S. deferred income tax assets in the three months ended September 30, 2021. This reversal resulted in a $181 million income tax benefit recognized as a discrete event in the quarter.

On October 27, 2021, we announced that we had entered into a definitive agreement to sell our Lottery business to Brookfield in a taxable cash transaction for total consideration of $6.05 billion (see Note 1 for additional details). As a result of this transaction, which is expected to close in the second quarter of 2022, we believe that there is a reasonable possibility that additional existing U.S. federal and certain state valuation allowances could be released within the next twelve months. If released, they may have a significant impact on net income in the quarter in which it is deemed appropriate to release the reserve.

We continue to maintain other valuation allowances for certain U.S. and non-U.S. jurisdictions with cumulative losses.

Our income tax benefit (including discrete items) was $172 million and $164 million for the three and nine months ended September 30, 2021, and our income tax expense was $3 million and $8 million for the three and nine months ended September 30, 2020, respectively. In 2021, our effective tax rate differs from the U.S. statutory rate of 21% primarily due to the aforementioned release in the third quarter of 2021 of certain valuation allowances recorded against our U.S. federal and state net deferred tax assets. In all periods, we recorded tax expense relative to pre-tax earnings in jurisdictions without valuation allowances, including our 19% noncontrolling interest in SciPlay. Additionally, our rate is impacted by an unfavorable adjustment for the legacy U.K. Gaming reporting unit goodwill impairment of $54 million recorded in the first quarter of 2020, which was not deductible for tax purposes.

As discussed in Note 1, the COVID-19 disruptions significantly impacted certain segments of our business during 2020 and 2021. We considered the COVID-19 disruptions in our ability to realize deferred tax assets in the future and determined that such conditions did not change our overall valuation allowance positions. Additionally, we continue to monitor and evaluate the tax implications resulting from any existing and forthcoming legislation passed in response to COVID-19 in the federal, state, and foreign jurisdictions where we have an income tax presence.

(15) Leases

Our total operating lease expense for the three and nine months ended September 30, 2021 were $6 million and $16 million, respectively and were $5 million and $16 million, for the three and nine months ended September 30, 2020. The total amount of variable and short-term lease payments was immaterial for all periods presented.

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


	As of
	September 30, 2021			December 31, 2020
Operating lease right-of-use assets(1)	$	46		$	52
Accrued liabilities	16			16
Operating lease liabilities	36			43
Total operating lease liabilities	$	52		$	59
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases for the nine-month periods ended September 30, 2021 and 2020, respectively	$	14		$	14
Weighted average remaining lease term, units in years	5			5
Weighted average discount rate	5		%	5		%

Lease liability maturities:


	Remainder of 2021		2022		2023		2024		2025		Thereafter		Less Imputed Interest		Total
Operating leases	$	5	$	16	$	13	$	12	$	7	$	4	$	(5)	$	52

As of September 30, 2021, we did not have material additional operating leases that have not yet commenced.

(16) Litigation

We are involved in various legal proceedings, which are described in Note 21 within our 2020 10-K. There have been no material changes to these matters since the 2020 10-K was filed with the SEC on March 1, 2021, except as described below.

We record an accrual for legal contingencies when it is both probable that a liability has been incurred and the amount or range of the loss can be reasonably estimated (although, as discussed below, there may be an exposure to loss in excess of the accrued liability). We evaluate our accruals for legal contingencies at least quarterly and, as appropriate, establish new accruals or adjust existing accruals to reflect (1) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments, (2) the advice and analyses of counsel and (3) the assumptions and judgment of management. Legal costs associated with our legal proceedings are expensed as incurred. We had accrued liabilities of $11 million and $3 million for all of our legal matters that were contingencies as of September 30, 2021 and December 31, 2020, respectively.

Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies could result in losses in excess of amounts we have accrued. We may be unable to estimate a range of possible losses for some matters pending against us or our subsidiaries, even when the amount of damages claimed against us or our subsidiaries is stated because, among other things: (1) the claimed amount may be exaggerated or unsupported; (2) the claim may be based on a novel legal theory or involve a large number of parties; (3) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (4) there may be uncertainty as to the outcome of pending appeals or motions; (5) the matter may not have progressed sufficiently through discovery or there may be significant factual or legal issues to be resolved or developed; and/or (6) there may be uncertainty as to the enforceability of legal judgments and outcomes in certain jurisdictions. Other matters have progressed sufficiently that we are able to estimate a range of possible loss. For those legal contingencies disclosed in Note 21 in our 2020 10-K and this Note 16 as well as those related to the previously disclosed settlement agreement entered into in February 2015 with SNAI S.p.a., as to which a loss is reasonably possible, whether in excess of a related accrued liability or where there is no accrued liability, and for which we are able to estimate a range of possible loss, the current estimated range is up to approximately $14 million in excess of the accrued liabilities (if any) related to those legal contingencies. This aggregate range represents management’s estimate of additional possible loss in excess of the accrued liabilities (if any) with respect to these matters based on currently available information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherent uncertainties. For example, at the time of making an estimate, management may have only preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co-defendants, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that management had not

accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which we are not able to estimate a range of possible loss. Accordingly, the estimated aggregate range of possible loss does not represent our maximum loss exposure. Any such losses could have a material adverse impact on our results of operations, cash flows or financial condition. The legal proceedings underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.

Washington State Matter

On April 17, 2018, a plaintiff, Sheryl Fife, filed a putative class action complaint, Fife v. Scientific Games Corporation, against SGC in the United States District Court for the Western District of Washington. The plaintiff seeks to represent a putative class of all persons in the State of Washington who purchased and allegedly lost virtual coins playing SGC’s online social casino games, including but not limited to Jackpot Party® Casino and Gold Fish® Casino. The complaint asserts claims for alleged violations of Washington’s Recovery of Money Lost at Gambling Act, Washington’s consumer protection statute, and for unjust enrichment, and seeks unspecified money damages (including treble damages as appropriate), the award of reasonable attorneys’ fees and costs, pre- and post-judgment interest, and injunctive and/or declaratory relief. On July 2, 2018, SGC filed a motion to dismiss the plaintiff’s complaint with prejudice, which the trial court denied on December 18, 2018. SGC filed its answer to the putative class action complaint on January 18, 2019. On August 24, 2020, the trial court granted plaintiff’s motion for leave to amend her complaint and to substitute a new plaintiff, Donna Reed, for the initial plaintiff, and re-captioned the matter Reed v. Scientific Games Corporation. On August 25, 2020, the plaintiff filed a first amended complaint against SGC, asserting the same claims, and seeking the same relief, as the complaint filed by Sheryl Fife. On September 8, 2020, SGC filed a motion to compel arbitration of plaintiff’s claims and to dismiss the action, or, in the alternative, to transfer the action to the United States District Court for the District of Nevada. On April 9, 2021, the plaintiff filed a motion to certify the putative class and for a preliminary injunction. On April 26, 2021, the district court stayed the lawsuit, pending its ruling on SGC’s motion to compel arbitration of plaintiff’s claims and to dismiss the action, or, in the alternative, to transfer the action to the United States District Court for the District of Nevada. On June 17, 2021, the district court denied that motion, and on June 23, 2021, SGC filed a notice of appeal from the district court’s denial of that motion, and also filed a motion to stay all district court proceedings, pending the appeals court’s ruling on the Company’s arbitration appeal. We believe it is reasonably possible that a conclusion of this matter may result in an unfavorable outcome with no current estimated range of possible loss.

TCS John Huxley Matter

On March 15, 2019, TCS John Huxley America, Inc., TCS John Huxley Europe Ltd., TCS John Huxley Asia Ltd., and Taiwan Fulgent Enterprise Co., Ltd. brought a civil action in the United States District Court for the Northern District of Illinois against SGC, Bally Technologies, Inc. and SG Gaming. In the complaint, the plaintiffs assert federal antitrust claims arising from the defendants’ procurement of particular U.S. and South African patents. The plaintiffs allege that the defendants used those patents to create an allegedly illegal monopoly in the market for automatic card shufflers sold to regulated casinos in the United States. On April 10, 2019, the defendants filed a motion to dismiss the plaintiffs’ complaint with prejudice. On April 25, 2019, the district court denied the defendants’ motion to dismiss without prejudice pursuant to the court’s local rules, after the plaintiffs advised that they intended to file an amended complaint. The plaintiffs filed their amended complaint on May 3, 2019, and on May 22, 2019, the defendants filed a motion to dismiss the plaintiffs’ amended complaint with prejudice. On March 20, 2020, the district court denied the defendants’ motion to dismiss the plaintiffs’ amended complaint, and defendants filed an answer to Plaintiffs’ amended complaint on June 19, 2020. On June 3, 2020, the trial court granted the defendants’ request to bifurcate proceedings in the case, with discovery to occur first into the statute of limitations and release defenses asserted by the defendants in their motion to dismiss, before proceeding into broader discovery. The trial court set a September 18, 2020, deadline for the parties to complete discovery relating to the statute of limitations and release defenses. On October 28, 2020, the court issued an order extending until January 15, 2021 the deadline for the parties to complete discovery relating to the statute of limitations defense. On February 9, 2021, the defendants filed a motion for summary judgment on their statute of limitations defense, addressing whether plaintiffs had actual knowledge of their claims prior to the start of the limitations period. The district court denied that motion for summary judgment on September 20, 2021. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit and intend to vigorously defend against them.

Tonkawa Tribe Matter

On September 3, 2020, the Tonkawa Tribe of Indians of Oklahoma d/b/a Tonkawa Enterprises filed a putative class action complaint in the United States District Court for the District of Nevada against SGC, Bally Technologies, Inc. and SG Gaming, f/k/a Bally Gaming, Inc. On October 5, 2020, the plaintiff filed a first amended complaint to add Cow Creek Band of Umpqua Tribe of Indians and the Umpqua Indian Development Corp., d/b/a Seven Feathers Casino as a plaintiff. On October 26, 2020, the plaintiffs filed a second amended complaint. In the complaint, the plaintiffs assert federal antitrust claims arising

from the defendants’ procurement of particular U.S. patents. The plaintiffs allege that the defendants used those patents to create an allegedly illegal monopoly in the market for card shufflers sold or leased to regulated casinos in the United States. The plaintiffs seek to represent a putative class of all regulated United States casinos directly leasing or purchasing card shufflers from the defendants on or after April 1, 2009. The complaint seeks unspecified money damages, the award of plaintiff’s costs of suit, including reasonable attorneys’ fees and expert fees, and the award of pre-judgment and post-judgment interest. On November 19, 2020, the defendants filed a motion to dismiss plaintiffs’ second amended complaint. On November 20, 2020, Plaintiffs filed a motion for partial summary judgment, seeking a finding that defendants are collaterally estopped from re-litigating issues litigated in the 2018 litigation versus Shuffle Tech International Corp., Aces Up Gaming, and Poydras-Talrick Holdings. On August 27, 2021, the Nevada district court entered an order transferring the lawsuit to the United States District Court for the Northern District of Illinois. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit and intend to vigorously defend against them.

Casino Queen Matter

On April 2, 2021, Casino Queen, Inc. and Casino Queen Marquette, Inc. filed a putative class action complaint in the United States District Court for the Northern District of Illinois against SGC, Bally Technologies, Inc. and SG Gaming, f/k/a Bally Gaming, Inc. In the complaint, the plaintiffs assert federal antitrust claims arising from the defendants’ procurement of particular U.S. patents. The plaintiffs allege that the defendants used those patents to create an allegedly illegal monopoly in the market for automatic card shufflers sold or leased in the United States. The plaintiffs seek to represent a putative class of all persons and entities that directly purchased or leased automatic card shufflers within the United States from the defendants, or any predecessor, subsidiary, or affiliate thereof, at any time between April 1, 2009, and the present. The complaint seeks unspecified money damages, which the complaint asks the court to treble, the award of plaintiffs’ costs of suit, including attorneys’ fees, and the award of pre-judgment and post-judgment interest. On June 11, 2021, the defendants filed a motion to dismiss plaintiffs’ complaint. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit and intend to vigorously defend against them.

Colombia litigation

Our subsidiary, SGI, owned a minority interest in Wintech de Colombia S.A., or Wintech (now liquidated), which formerly operated the Colombian national lottery under a contract with Empresa Colombiana de Recursos para la Salud, S.A. (together with its successors, “Ecosalud”), an agency of the Colombian government. The contract provided for a penalty against Wintech, SGI and the other shareholders of Wintech of up to $5.0 million if certain levels of lottery sales were not achieved. In addition, SGI delivered to Ecosalud a $4.0 million surety bond as a further guarantee of performance under the contract. Wintech started the instant lottery in Colombia but, due to difficulties beyond its control, including, among other factors, social and political unrest in Colombia, frequently interrupted telephone service and power outages, and competition from another lottery being operated in a province of Colombia that we believe was in violation of Wintech’s exclusive license from Ecosalud, the projected sales level was not met for the year ended June 30, 1993.

In 1993, Ecosalud issued a resolution declaring that the contract was in default. In 1994, Ecosalud issued a liquidation resolution asserting claims for compensation and damages against Wintech, SGI and other shareholders of Wintech for, among other things, realization of the full amount of the penalty, plus interest, and the amount of the bond. SGI filed separate actions opposing each resolution with the Tribunal Contencioso of Cundinamarca in Colombia (the “Tribunal”), which upheld both resolutions. SGI appealed each decision to the Council of State. In May 2012, the Council of State upheld the contract default resolution, which decision was notified to us in August 2012. In October 2013, the Council of State upheld the liquidation resolution, which decision was notified to us in December 2013.

In July 1996, Ecosalud filed a lawsuit against SGI in the U.S. District Court for the Northern District of Georgia asserting many of the same claims asserted in the Colombia proceedings, including breach of contract, and seeking damages. In March 1997, the District Court dismissed Ecosalud’s claims. Ecosalud appealed the decision to the U.S. Court of Appeals for the Eleventh Circuit. The Court of Appeals affirmed the District Court’s decision in 1998.

In June 1999, Ecosalud filed a collection proceeding against SGI to enforce the liquidation resolution and recover the claimed damages. In May 2013, the Tribunal denied SGI’s merit defenses to the collection proceeding and issued an order of payment of approximately 90 billion Colombian pesos, or approximately $30.2 million, plus default interest (potentially accrued since 1994 at a 12% statutory interest rate). SGI filed an appeal to the Council of State, and on December 10, 2020, the Council of State issued a ruling affirming the Tribunal’s decision. On December 16, 2020, SGI filed a motion for clarification of the Council of State’s ruling, which the Council of State denied on April 15, 2021. On April 22, 2021, SGI filed a motion for reconsideration relating to that decision.

SGI believes it has various defenses, including on the merits, against Ecosalud’s claims. Although we believe these claims will not result in a material adverse effect on our consolidated results of operations, cash flows or financial position, it is not feasible to predict the final outcome, and we cannot assure that these claims will not ultimately be resolved adversely to us or result in material liability. SGI is not part of the Lottery Business for purposes of any divestiture of the Lottery Business that may occur, and the Colombia litigation matter will remain with SGI upon divestiture of the Lottery Business.

SciPlay IPO Matter (New York)

On or about October 14, 2019, the Police Retirement System of St. Louis filed a putative class action complaint in New York state court against SciPlay, certain of its executives and directors, and SciPlay’s underwriters with respect to its IPO (the “PRS Action”). The complaint was amended on November 18, 2019. The plaintiff seeks to represent a class of all persons or entities who acquired Class A common stock of SciPlay pursuant and/or traceable to the Registration Statement filed and issued in connection with the SciPlay IPO, which commenced on or about May 3, 2019. The complaint asserts claims for alleged violations of Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77, and seeks certification of the putative class; compensatory damages of at least $146 million, and the award of the plaintiff’s and the class’s reasonable costs and expenses incurred in the action. On or about December 9, 2019, Hongwei Li filed a putative class action complaint in New York state court asserting substantively similar causes of action under the Securities Act of 1933 and substantially similar factual allegations as those alleged in the PRS Action (the “Li Action”). On December 18, 2019, the New York state court entered a stipulated order consolidating the PRS Action and the Li Action into a single lawsuit. On December 23, 2019, the defendants moved to dismiss the consolidated action. On August 28, 2020, the court issued an oral ruling granting in part and denying in part the defendants’ motion to dismiss. On December 14, 2020, plaintiffs in the consolidated action filed a motion to certify the putative class. On May 12, 2021, the parties in the consolidated action reached an agreement in principle to settle the consolidated action. On July 27, 2021, the parties in the consolidated action entered into a settlement agreement to settle the consolidated action. On August 11, 2021, the New York court granted preliminary approval to the parties’ proposed settlement, stayed non-settlement related proceedings in the consolidated action pending final approval of the settlement and scheduled a hearing for final approval of the settlement on November 15, 2021.

SciPlay IPO Matter (Nevada)

On or about November 4, 2019, plaintiff John Good filed a putative class action complaint in Nevada state court against SciPlay, certain of its executives and directors, SGC, and SciPlay’s underwriters with respect to the SciPlay IPO. The plaintiff seeks to represent a class of all persons who purchased Class A common stock of SciPlay in or traceable to the SciPlay IPO that it completed on or about May 7, 2019. The complaint asserts claims for alleged violations of Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77, and seeks certification of the putative class; compensatory damages, and the award of the plaintiff’s and the class’s reasonable costs and expenses incurred in the action. On February 27, 2020, the trial court entered a stipulated order that, among other things, stayed the lawsuit pending entry of an order resolving the motion to dismiss that was pending in the SciPlay IPO matter in New York state court. On September 29, 2020, the trial court entered a stipulated order that extended the stay pending a ruling on class certification in the SciPlay IPO matter in New York state court. On May 12, 2021, the parties in the Nevada lawsuit reached an agreement in principle to settle the lawsuit and so informed the Nevada court, which vacated non-settlement related proceedings in the lawsuit, pending final approval of the settlement agreement by the New York court.

Based on our assessment under ASC 410 and ASC 450 and consideration of the SciPlay IPO matters pending in New York and Nevada described above, we determined that both loss and insurance proceeds loss recovery, which we believe is recoverable under our insurance policy, are deemed probable and reasonably estimable. As a result, we recorded approximately $8 million in Accrued liabilities and Prepaid expenses and other current assets as of September 30, 2021, with no material impact on our statement of operations income for the three and nine-month periods ended September 30, 2021.

For additional information regarding our pending litigation matters, see Note 21 in our 2020 10-K.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to enhance the reader’s understanding of our operations and current business environment from management’s perspective and should be read in conjunction with the description of our business included under Part I, Item 1 “Condensed Consolidated Financial Statements” and Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and under Part I, Item 1 “Business,” Item 1A “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 10-K.

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the disclosures and information contained and referenced under “Forward-Looking Statements” and “Risk Factors” included in this Quarterly Report on Form 10-Q and “Risk Factors” included in our 2020 10-K. As used in this MD&A, the terms “we,” “us,” “our” and the “Company” mean SGC together with its consolidated subsidiaries.

BUSINESS OVERVIEW

We are a leading developer of technology-based products and services and associated content for the worldwide gaming, lottery, social and digital gaming industries. Our portfolio of revenue-generating activities primarily includes supplying gaming machines and game content, casino-management systems and table game products and services to licensed gaming entities; providing instant and draw-based lottery products, lottery systems and lottery content and services to lottery operators; providing social casino and other mobile games to retail customers; and providing a comprehensive suite of digital RMG and sports wagering solutions, distribution platforms, content, products and services. We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments. As described in Notes 1 and 2, beginning in the third quarter of 2021, we have reflected the Lottery and Sports Betting businesses as discontinued operations. Accordingly, Lottery is no longer a reportable business segment and we renamed our Digital business segment to iGaming business segment and the presentation was recast for all periods to exclude the Sports Betting business. Accordingly, we report our results of continuing operations in three business segments—Gaming, SciPlay and iGaming—representing our different products and services.

Recent Events

Strategic Review Update

On June 29, 2021, we announced that the Company (1) with the support of its Board of Directors, completed the strategic review, which reaffirmed the strategy to become a content-led growth company with a particular focus on digital markets; and (2) intends to divest the Lottery and Sports Betting (component of our former Digital business segment) businesses creating the path to significantly de-lever and position the Company for enhanced growth. On September 27, 2021, we announced that we had entered into a definitive agreement to sell our Sports Betting business to Endeavor Group Holdings, Inc. (“Endeavor”) in a cash and stock transaction. Under the terms of the agreement, we will receive $1 billion in cash, subject to customary purchase price closing adjustments, and approximately 7.6 million shares of Endeavor Class A common stock (valued at approximately $200 million as of the purchase agreement date). On October 27, 2021, we announced that we entered into a definitive agreement to sell our Lottery business to Brookfield for total consideration of $6.05 billion consisting of $5.825 billion in cash and an earn-out of up to $225 million based on the achievement of certain EBITDA targets in 2022 and 2023. We expect to complete these transactions during the first half of 2022. Beginning in the third quarter of 2021, we have reflected these businesses as discontinued operations in our consolidated statements of operations and reflected the assets and liabilities of these businesses as held for sale in our consolidated balance sheets, for all periods presented. These businesses held for sale are included in our covenant compliance requirements until disposed of and all of their related cash flows are available to the Company without restriction. Refer to Note 2 for further information.

Additionally, as described in Note 1, on July 15, 2021, we submitted a proposal to SciPlay’s board of directors to acquire the remaining 19% equity interest in SciPlay that we do not currently own in an all-stock transaction, following which SciPlay would become a wholly-owned subsidiary of Scientific Games. This proposed transaction is part of our recently announced strategy to become a content-led growth company with a particular focus on digital markets that we believe will unlock the value of our products and technologies. This proposed transaction is subject to the approval of an independent special committee of the SciPlay board of directors, as well as the negotiation and execution of a mutually acceptable merger agreement.

Retrospective reclassifications have been made to prior period financial statements and disclosures to present the Lottery and Sports Betting businesses as discontinued operations (see Note 2). Unless otherwise noted, amounts, percentages and discussion for all periods included below reflect the results of operations and financial condition from the Company’s continuing operations.

Acquisitions

During 2021, we acquired several businesses to expand the portfolio and content for each of our three continuing business segments and businesses held for sale, as noted below (see Note 1 for additional information).

Acquisitions Related to Continuing Operations

•In July of 2021, SciPlay acquired privately-held Koukoi.

•In August of 2021, we acquired privately-held Lightning Box, which has been included in our iGaming business segment.

•In October of 2021, we acquired ACS’s table game solution PlayOn™, subsequently renamed to AToM™, which will be included in our Gaming business segment.

•In November of 2021, we acquired Authentic Gaming, a premium provider of live casino solutions, which will be included in our iGaming business segment.

Acquisitions Related to Discontinued Operations

•In May of 2021, we acquired SportCast, which has been included in the Sports Betting business.

•In September of 2021, we acquired Sideplay, which has been included in the Lottery business.

Impacts of COVID-19 on Business Operations and Financial Results

As also described in the “Description of the Business and Summary of Significant Accounting Policies - Impact of COVID-19” in Note 1 of our 2020 10-K, COVID-19 disruptions continue to impact our results of operations and particularly certain aspects of our Gaming business segment operations due to the widespread closures of gaming operation establishments and restricted reopening of a substantial number of gaming operation establishments coupled with global economic uncertainty. While most gaming establishments have reopened globally and have begun to operate at full capacity, there is a continued risk of future COVID-related developments impacting Gaming business segment results. Additionally, we noted that the U.S. and U.K. markets have rebounded which has had a notable impact on our Gaming operations primarily due to the lifting of restrictions and further elevated by consumer pent up demand from prior periods resulting in higher gross gaming revenues. Gaming operations revenue for the nine months ended September 30, 2021 benefited from the FOBT recovery as described in the Consolidated Results section below.

We continue to see fluctuations in infection rates and regulations for various regions along with ongoing domestic and international travel restrictions or warnings, social distancing measures, reduced operating capacity and an overall economic and general uncertainty regarding the magnitude and length of time that these disruptions will continue. These circumstances may change in the future and such changes could be material. We continue to assess the situation jurisdiction by jurisdiction, actively managing our cash flows and continuing to evaluate additional measures that may reduce operating costs and conserve cash to preserve liquidity as we execute on our strategic initiatives. For more information on the effects that COVID-19 has had on each of our business segments, refer to the individual business segment sections below.

Impact of COVID-19 on Liquidity

Our only financial maintenance covenant (excluding SciPlay’s Revolver) is contained in SGI’s credit agreement. For information regarding the impact of COVID-19 on liquidity and other requirements, please refer to the “Description of the Business and Summary of Significant Accounting Policies” in Note 1 and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the “Business Overview” along with the “Liquidity, Capital Resources and Working Capital” sections of our 2020 10-K. In October 2021, we made a voluntary payment of $135 million on SGI’s revolving credit facility leaving the entire revolving credit facility undrawn and available.

Segments

We report our operations in three business segments—Gaming, SciPlay and iGaming (former Digital business segment excluding Sports betting)—representing our different products and services. See “Business Segments Results” below and Note 4 for additional business segment information. As a result of our strategic changes and pending divestitures of the Lottery and Sports Betting businesses, starting with the third quarter of 2021, we re-assessed how our CODM evaluates the operating results and performance of our Gaming business segment that resulted in an immaterial change to the Gaming business Segment AEBITDA calculation, which is our primary measure of the Gaming business segment performance measure of profit or loss. The Gaming business segment AEBITDA, has been recast for all periods presented herein to exclude EBITDA from equity investments to align with this new view.

Foreign Exchange

Our results are impacted by changes in foreign currency exchange rates used in the translation of foreign functional currencies into USD and the remeasurement of foreign currency transactions or balances. The impact of foreign currency exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity. Our exposure to foreign currency volatility on revenue is as follows:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
($ in millions)	Revenue		% Consolidated Revenue		Revenue		% Consolidated Revenue		Revenue		% Consolidated Revenue		Revenue		% Consolidated Revenue
Foreign Currency:
British Pound Sterling	$	40	7	%	$	39	9	%	$	140	9	%	$	99	8	%
Euro	41		8	%	35		8	%	119		8	%	108		9	%

We also have foreign currency exposure related to certain of our equity investments, cross-currency interest rate swaps, and Euro-denominated debt. See Part I, Item 1A in our 2020 10-K, “Consolidated Results — Other Factors Affecting 2020 and 2019 Net Loss Attributable to SGC Comparability” under Item 7 in our 2020 10-K and Item 3 “Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q.

CONSOLIDATED RESULTS


	Three Months Ended September 30,				Variance				Nine Months Ended September 30,				Variance
($ in millions)	2021		2020		2021 vs. 2020				2021		2020		2021 vs. 2020
Total revenue	$	539	$	432	$	107	25	%	$	1,572	$	1,219	$	353	29	%
Total operating expenses	505		462		43		9	%	1,466		1,454		12		1	%
Operating income (loss)	34		(30)		64		213	%	106		(235)		341		145	%
Net loss from continuing operations before income taxes	(72)		(184)		112		61	%	(202)		(649)		447		69	%
Net income (loss) from continuing operations	100		(187)		287		153	%	(38)		(657)		619		94	%
Net income from discontinued operations, net of tax	87		76		11		14	%	329		193		136		70	%
Net income (loss) attributable to SGC	$	182	$	(117)	$	299	256	%	$	276	$	(479)	$	755	158	%

Revenue


Consolidated Revenue by Business Segment
(in millions)

Three Months Ended September 30, 2021 and 2020						Nine Months Ended September 30, 2021 and 2020

As described in the “Recent Events – Impact of COVID-19” section above, our total revenue, primarily revenues for the Gaming business segment, were significantly impacted in the prior year periods. Although these business disruptions continued to adversely impact certain aspects of our Gaming revenue in the first half of 2021, the re-opening of venues, lifting of restrictions, increased travel, and distribution of vaccines along with pent up consumer demand have caused the Gaming business segment to see more activity and thereby have helped drive the three and nine-month improvements for the periods presented. Particularly, our Gaming operations revenue demonstrated strong growth and exceeded third quarter 2019 levels driven by strong product performance and increased market share. Machine and table product revenue continue to be impacted by reduced capital expenditures of casino operators coupled with ongoing COVID-19 restrictions impacting casino operating capacity.

SciPlay revenue decreased for the three-month period as a result of declining paying player engagement due to the easing of stay-at-home measures compared to the height of COVID-19 prevention measures in the prior comparable year and softness in the middle of the quarter at Jackpot Party® Casino since stabilized in October, partially offset by strong monetization metrics and by growth at Gold Fish® Casino. Revenue increased for the nine-month period due to elevated player engagement from continued COVID-19 prevention measures during the first quarter of 2021 compared to limited COVID-19 prevention measures during the first quarter of 2020 in addition to the introduction of new content and features resulting in increased paying player interaction.

iGaming revenues increased for both periods due to continuing growth in the U.S. market as iGaming is live in five U.S. states with a 27% market share.

Gaming operations revenue for the nine months ended September 30, 2021 benefited from $44 million U.K. FOBT recovery received from certain U.K. customers. The FOBT recovery is related to a 2020 U.K. court ruling, associated with overcharging of value-added tax for previous services rendered to gaming operators and consequently reduced our net gaming revenue in those affected prior periods related to these customers and arrangements.

Operating Expenses


	Three Months Ended September 30,				Variance				Nine Months Ended September 30,				Variance
($ in millions)	2021		2020		2021 vs. 2020				2021		2020		2021 vs. 2020
Operating expenses:
Cost of services	$	90	$	86	$	4	5	%	$	273	$	250	$	23	9	%
Cost of product sales	63		66		(3)		(5)	%	166		197		(31)		(16)	%

Selling, general and administrative	164		146		18		12	%	502		459		43		9	%
Research and development	47		36		11		31	%	140		110		30		27	%
Depreciation, amortization and impairments	96		111		(15)		(14)	%	289		336		(47)		(14)	%
Goodwill impairment	—		—		—		—		—		54		(54)		nm
Restructuring and other	45		17		28		165	%	96		48		48		100	%
Total operating expenses	$	505	$	462	$	43	9	%	$	1,466	$	1,454	$	12	1	%

(1) nm = not meaningful.

Cost of Revenue

Total cost of revenue increased as a direct result of higher revenue due to the global economy beginning to recover as easing of COVID-19 restrictions continues. The increases in total cost of revenue for the three-month period were partially offset by the prior year period including $15 million in Gaming cost of product inventory valuation charges for excess and obsolete inventory. The decrease in total cost of revenue for the nine-month period was primarily due to prior year period including $45 million in Gaming cost of product inventory valuation charges for excess and obsolete inventory.

SG&A

SG&A increased in both periods primarily due to (1) higher stock-based compensation expenses of $10 million and $43 million, respectively, primarily driven by the acceleration of the expense as a result of attainment of certain targets for some of our directors coupled with the new equity awards issued at a higher fair value given the increase in our stock price compared to the prior period and (2) higher salaries, wages and other compensation of $21 million and $53 million, respectively as a result of the prior year experiencing temporary austerity measures implemented to reduce costs during the COVID-19 disruption. The increase in SG&A for the nine-month period was partially offset by the prior year period including $41 million

in higher Gaming business segment allowance for credit loss charges that reflected credit deterioration and credit weakness specifically in our Latin America receivables portfolio due to the COVID-19 disruptions.

As a result of the pending divestitures of the Lottery and Sports Betting businesses, the Company's compensation committee is in the process of modifying various incentive and equity awards for the key employees of the businesses being sold, which are expected to result in a material increase in stock based compensation expense during the fourth quarter and through the close of these transactions.

R&D

R&D increased in both periods primarily due to higher salaries and benefits compared to the prior year periods reflecting lower operating costs as a result of the temporary austerity measures implemented to reduce costs during the COVID-19 disruptions.

D&A

The decrease in D&A for both periods is primarily due to certain gaming equipment, intangible assets and software primarily associated with historical acquisitions becoming fully depreciated and amortized in the prior year period.

Goodwill Impairment

Goodwill impairment recorded during the prior year nine-month period was related to our legacy U.K. Gaming reporting unit.

Restructuring and Other

The increase in restructuring and other in both periods is primarily due to charges related to the announced sales of the Lottery and Sports Betting businesses and to a lesser extent business optimization initiatives implementation costs primarily associated with efficiency programs, partially offset by higher COVID-19 business disruption charges in the prior year periods.

Other Factors Affecting Net Income (Loss) Attributable to SGC


	Three Months Ended September 30,				Nine Months Ended September 30,				Factor Affecting Net Income (Loss) Attributable to SGC
(in millions)	2021		2020		2021		2020		2021 vs. 2020



Gain (loss) on remeasurement of debt	$	12	$	(24)	$	30	$	(26)	Gains and (losses) are attributable to remeasurement of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes and reflect changes in the Euro vs. the U.S. Dollar foreign exchange rates between the periods. 73% of our Euro Notes were not treated as a net investment hedge in the third quarter of 2021 compared to 82% in the third quarter of 2020.
Other income (expense), net	2		2		22		(8)		The increase for the nine month period is primarily due to higher impact of foreign currency exchange rates coupled with a $7 million gain on sale of certain assets included in the current year.
Income tax benefit (expense)	172		(3)		164		(8)		The increase is primarily due to the release of the valuation allowance recorded during the third quarter of 2021 (see Note 14 and below).

As described in Note 14 and as a result of the signed definitive agreement to sell our Sports Betting business, during the third quarter of 2021 we reversed a portion of our valuation allowance on our U.S. federal and state deferred tax assets, which resulted in a $181 million income tax benefit recorded during the third quarter of 2021. Additionally, as a result of the pending sale of the Lottery business (as described in Note 1 and above) we have concluded that there is a reasonable possibility that additional existing U.S. federal and state valuation allowances could be released within the next twelve months. If released, they may have a significant impact on net income in the quarter in which it is deemed appropriate to release the reserve. We continue to maintain other valuation allowances for certain non-U.S. jurisdictions with cumulative losses.

Discontinued Operations

The $19 million or 7% increase in revenue for the three-month period is primarily due to higher Lottery instant products and systems revenue due to the impact of COVID-19 on the prior year results, coupled with higher revenue from the Sports Betting business due to continued growth and expansion in the U.S. sports-betting market. The increase in revenue drove the increase in net income from discontinued operations, net of tax by $11 million or 14%. The increase in operating expenses and operating income associated with discontinued operations is primarily driven by the higher revenues as described above. Refer to Note 2 for further information on our discontinued operations.

The $117 million or 16% increase in revenue for the nine-month period is primarily due to higher Lottery instant products and systems revenue due to the impact of COVID-19 on the prior year results coupled with the large lottery jackpots in the first half of 2021 driving both instant products sales and system increases, coupled with higher revenue from the Sports Betting business due to continued growth and expansion in the U.S. sports-betting market. These increases in revenue drove the increase in net income from discontinued operations, net of tax by $136 million or 70%. The increase in operating expenses and operating income associated with discontinued operations is primarily driven by the higher revenues as described above.

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

BUSINESS SEGMENTS RESULTS (for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020)

GAMING

Our Gaming business segment designs, develops, manufactures, markets and distributes a comprehensive portfolio of gaming products and services. We provide our Gaming portfolio of products and services to commercial casinos, Native American casinos, wide-area gaming operators such as LBOs, arcade and bingo operators in the U.K. and continental Europe, and government agencies and their affiliated operators.

We generate Gaming revenue from both services and product sales. Our services revenue includes revenue earned from Participation gaming machines, other leased gaming machines (including VLTs and electronic table games), supplied table products and services (including Shufflers), casino management technology solutions and systems, and other services revenues. Our product sales revenue includes the sale of new and used gaming machines, electronic table games, VLTs and VGTs, casino-management technology solutions and systems, table products, proprietary table game licensing, conversion kits (including game, hardware or operating system conversions) and spare parts.

For additional information, refer to the Gaming primary business activities summary included within “Business Segment Results” under Item 7 of our 2020 10-K.

Current Year Update

See the “Business Overview – Recent Events – Impact of COVID-19” section above for a description of the COVID-19 impact on our Gaming business segment, which had an overall adverse effect on our results of operations and cash flows in 2020 and continuing into the third quarter of 2021, but to a lesser extent. Our results of operations and cash flows are recovering as social distancing measures (including reduced floor capacities, table play customer limitations and reduction of slot machines available for play) have generally been rolled back, however some measures continue to be enforced in certain jurisdictions. We are starting to see an increase in the demand for our Gaming products as the easing of restrictions continues and gaming operators are beginning to return to pre-COVID levels. Particularly, we are seeing strong demand and orders, however we are experiencing some supply chain challenges that could impact our ability to meet demand for our products and delay the timing of fulfillment of these orders and consequently the timing of revenue recognition.

In October of 2021, we acquired ACS’s table game solution PlayOnTM, a cashless product line that provides players with a debit solution at live table games (see Note 1). PlayOnTM was renamed to AToMTM.

See also “Description of the Business and Summary of Significant Accounting Policies - Impact of COVID-19” in Note 1 of our 2020 10-K.

Results of Operations and KPIs


Three and Nine Months Ended September 30, 2021 and 2020

Revenue


	Three Months Ended September 30,				Variance				Nine Months Ended September 30,				Variance
($ in millions)	2021		2020		2021 vs. 2020				2021		2020		2021 vs. 2020
Revenue:
Gaming operations	$	151	$	92	$	59	64	%	$	445	$	227	$	218	96	%
Machine sales	95		71		24		34	%	249		216		33		15	%
Systems	52		43		9		21	%	146		115		31		27	%
Table products	41		25		16		64	%	109		82		27		33	%
Total revenue	$	339	$	231	$	108	47	%	$	949	$	640	$	309	48	%

F/X impact on revenue	$	3	$	1	$	2	200	%	$	15	$	(1)	$	16	(1,600)	%

Gaming KPIs:
U.S. and Canada units:
Installed base at period end	30,396		30,208		188		1	%	30,396		30,208		188		1	%
Average daily revenue per unit	$	42.66	$	26.90	$	15.76	59	%	$	41.13	$	21.18	$	19.95	94	%

International units(1):
Installed base at period end	30,644		33,493		(2,849)		(9)	%	30,644		33,493		(2,849)		(9)	%
Average daily revenue per unit	$	11.78	$	5.65	$	6.13	108	%	$	7.99	$	4.05	$	3.94	97	%

Gaming machine unit sales:
U.S. and Canada new unit shipments	3,223		3,114		109		4	%	8,387		7,435		952		13	%
International new unit shipments	1,780		1,887		(107)		(6)	%	4,187		6,807		(2,620)		(38)	%
Total new unit shipments	5,003		5,001		2		—	%	12,574		14,242		(1,668)		(12)	%
Average sales price per new unit	$	16,099	$	12,881	$	3,218	25	%	$	16,582	$	14,436	$	2,146	15	%
(1) Excludes the impact of game content licensing revenue.

Gaming revenue was adversely affected in 2020 which continued to a lesser extent into 2021, but is recovering as social distancing measures are being rolled back, although some measures continue to be enforced in certain jurisdictions, as noted above. While the restrictions continue to be eased and removed in some geographies, the mitigation measures are expected to continue for an indeterminate amount of time, which will continue to affect consumer behavior, and thus, we continue to see some impact on our Gaming segment.

Gaming Operations

Gaming operations revenue increased for both periods primarily due to the significant impact of COVID-19 disruptions on the prior year periods as described in the Consolidated Results – Revenue section above. During the three-month period, Gaming operations had a 188-unit increase in the U.S. and Canada installed base along with increases in average daily revenue per unit for the three and nine-month periods of $15.76 and $19.95 for the U.S. and Canada units and $6.13 and $3.94 for the International units, respectively, which were all primarily caused by the COVID-19 disruptions in the prior year and current year recovery. Additionally, International ending installed base units decreased by 2,849-units primarily due to the closure of certain LBOs in the U.K. that haven’t yet recovered from the pandemic along with the reduction of some underperforming units in Latin America. Additionally, Gaming operations revenue for the nine months ended September 30, 2021 benefited from FOBT recovery in the U.K. as described in the Consolidated Results - Revenue section above.

Gaming Machine Sales

Gaming machine sales revenue increased primarily due to higher sales of replacement units in the U.S and Canada along with a higher average sales price per new unit. Additionally, the impact of COVID-19 on the prior year periods as described above, resulted in lower unit shipments in the prior year periods. The following table summarizes Gaming machine sales changes:


	Three Months Ended September 30,		Variance			Nine Months Ended September 30,		Variance
	2021	2020	2021 vs. 2020			2021	2020	2021 vs. 2020
U.S. and Canada unit shipments:
Replacement units	2,887	1,523	1,364	90	%	7,051	3,907	3,144	80	%
Casino opening and expansion units	336	1,591	(1,255)	(79)	%	1,336	3,528	(2,192)	(62)	%
Total unit shipments	3,223	3,114	109	4	%	8,387	7,435	952	13	%

International unit shipments:
Replacement units	1,690	1,887	(197)	(10)	%	2,346	6,246	(3,900)	(62)	%
Casino opening and expansion units	90	—	90	nm		1,841	561	1,280	228	%
Total unit shipments	1,780	1,887	(107)	(6)	%	4,187	6,807	(2,620)	(38)	%

Operating Expenses and AEBITDA

Operating expenses decreased in the three-month period by $2 million primarily due to $9 million in lower restructuring and other, $12 million in lower D&A primarily driven by fully depreciated assets related to prior acquisitions, which were partially offset by $9 million in higher SG&A costs and $8 million in higher R&D costs, both due to higher Salaries and Benefits caused by the austerity measures implemented in the prior year in response to the COVID-19 disruptions coupled with $3 million in higher cost of revenue associated with the increase in revenue as described above.

Operating expenses decreased in the nine-month period by $130 million, primarily due to a number of charges in the prior year period, which did not recur in 2021. The prior year period included: (1) a $54 million goodwill impairment charge related to our U.K. Gaming unit, which was recorded during the first quarter of 2020; (2) $41 million in higher allowance for credit loss charges; and (3) $45 million in inventory valuation charges to cost of products.

AEBITDA as a percentage of revenue (“AEBITDA margin”) for the three and nine-month periods increased by 18 and 29 percentage points to 51% and 50%, respectively, which is primarily related to increased revenues coupled with the lower allowance for credit loss and inventory valuation charges in the current year periods as described above. The nine-month period ended September 30, 2021 also benefited from the FOBT recovery in the U.K. of $44 million.

SCIPLAY

Our SciPlay business segment is a leading developer and publisher of social games on mobile and web platforms. SciPlay currently offers eight core games, including social casino games Jackpot Party® Casino, Gold Fish® Casino, Quick

Hit® Slots and Hot Shot Casino®, and casual games 88 Fortunes® Slots, Bingo Showdown®, MONOPOLY® Slots, and Solitaire Pets™ Adventure. SciPlay’s social casino games typically include slots-style game play and occasionally include table games-style game play, while SciPlay’s casual games blend slots-style or bingo game play with adventure game features. All of SciPlay’s games are offered and played on multiple platforms, including Apple, Google, Facebook, Amazon, and the Microsoft platform. In addition to SciPlay’s internally created games, SciPlay’s content library includes recognizable, real-world slot and table games content from SGC. This content allows players who like playing land-based slot machines to enjoy some of those same titles in SciPlay’s free-to-play games. SciPlay has access to SGC’s library of more than 1,500 iconic casino titles, including titles and content from third-party licensed brands such as MONOPOLY™, THE FLINTSTONES™, JAMES BOND™, MICHAEL JACKSON™ and PLAYBOY™.

We generate substantially all of our revenue from the sale of coins, chips and cards which players can use to play our games. Players who install our games receive free coins, chips and cards upon the initial launch of the game and additional free coins, chips and cards at specific time intervals. Players may exhaust the coins, chips and cards that they receive for free and may choose to purchase additional coins, chips and cards in order to extend their time of game play. Once obtained, coins, chips and cards (either free or purchased) cannot be redeemed for cash nor exchanged for anything other than game play within our apps. We distribute our games through various global social web and mobile platforms such as Facebook, Apple, Google, Amazon, Microsoft, and other web and mobile platforms. The games are primarily our WMS®, Bally®, Barcrest®, and SHFL® branded games. We offer both third-party branded games and original content.

Current Year Update

In March 2020, the World Health Organization declared the rapidly spreading COVID-19 outbreak a pandemic. In response to the COVID-19 pandemic, governments across the world implemented measures to prevent its spread, including the temporary closure of all non-essential businesses and travel restrictions. Many of our current and potential players had significantly more free time to play our games during this period. As business closures, stay-at-home measures, and travel restrictions have begun to be lifted during 2021, we have seen player engagement recede in recent quarters as our players’ lives return to normal. However, we are still seeing a higher level of paying player engagement as compared to the pre-COVID time period. We are not able to predict and quantify the ultimate impact of further COVID-19 developments on our results of operations in future periods.

In July of 2021, SciPlay acquired privately held Koukoi, a Finland-based developer and operator of casual mobile games which allows us to expand our casual games portfolio (see Note 1).

Results of Operations and KPIs


Three and Nine Months Ended September 30, 2021 and 2020

Revenue


	Three Months Ended September 30,						Variance				Nine Months Ended September 30,						Variance
($ in millions)	2021			2020			2021 vs. 2020				2021			2020			2021 vs. 2020
Revenue:
Mobile	$	131		$	132		$	(1)	(1)	%	$	400		$	377		$	23	6	%
Web and other	16			19			(3)		(16)	%	52			58			(6)		(10)	%
Total revenue	$	147		$	151		$	(4)	(3)	%	$	452		$	435		$	17	4	%



SciPlay KPIs:

Mobile Penetration(1)	89		%	87		%	2pp		nm		88		%	87		%	1pp		nm
Average MAU(2)	6.1			7.3			(1.2)		(16)	%	6.3			7.6			(1.3)		(17)	%
Average DAU(3)	2.3			2.6			(0.3)		(12)	%	2.4			2.7			(0.3)		(11)	%
ARPDAU(4)	$	0.69		$	0.63		$	0.06	10	%	$	0.70		$	0.59		$	0.11	19	%
nm = not meaningful. pp = percentage points. (1) Mobile penetration is defined as the percentage of business to consumer SciPlay revenue generated from mobile platforms. (2) MAU = Monthly Active Users is a count of visitors to our sites during a month. An individual who plays multiple games or from multiple devices may, in certain circumstances, be counted more than once. However, we use third-party data to limit the occurrence of multiple counting. (3) DAU = Daily Active Users is a count of visitors to our sites during a day. An individual who plays multiple games or from multiple devices may, in certain circumstances, be counted more than once. However, we use third-party data to limit the occurrence of multiple counting. (4) ARPDAU = Average revenue per DAU is calculated by dividing revenue for a period by the DAU for the period by the number of days for the period.

For the three-month period, revenues decreased as a result of declining paying player engagement due to the easing of stay-at-home measures compared to the height of COVID-19 prevention measures in the prior comparable year and softness in the middle of the quarter in Jackpot Party® Casino which has since stabilized in October, partially offset by strong monetization metrics and by growth at Gold Fish® Casino.

For the nine-month period, revenues increased due to elevated player engagement from continued COVID-19 prevention measures during the first quarter of 2021 compared to limited COVID-19-prevention measures for most of the first quarter of 2020 in addition to the introduction of new content and features resulting in increased paying player interaction.

The increase in mobile penetration percentage for both comparable periods primarily reflects a continued trend of players migrating from web to mobile platforms to play our games.

Average MAU and average DAU for both comparable periods decreased due to the turnover in users. ARPDAU increased as a function of lower average DAU for periods presented.

Operating Expenses and AEBITDA

For the three-month period, operating expenses decreased primarily due to a $10 million decrease in stock-based compensation along with a $2 million decrease in marketing expenses as a result of a decrease in user acquisition spend.

For the nine-month period, operating expenses increased primarily due to a $5 million increase in R&D as a result of higher compensation and benefit costs due to a 7% increase in research and development headcount, coupled with an increase in D&A.

AEBITDA for the three-month period decreased primarily due to the decline in revenue, while AEBITDA for the nine-month period decreased primarily due to an increase in operating expenses, as described above, which was partially offset by an increase in revenue.

AEBITDA margin decreased for the three-month period by 2 percentage points to 31%, primarily due to higher SG&A and R&D expenses. AEBITDA margin for the nine-month period decreased by 2 percentage points to 31% primarily due to the increase in operating expenses driven by R&D expenses, as described above.

iGAMING

Beginning in the third quarter of 2021, we renamed our Digital business segment to iGaming business segment and the presentation was recast for all periods to exclude the Sports Betting business due to the pending sale, as described in Note 1. Our iGaming business segment provides a comprehensive suite of digital online gaming content, including digital RMG, distribution platforms, content, products and services. We derive revenue from our content aggregation platforms, including Open Gaming System, remote gaming servers, and various other platforms, which can deliver a wide spectrum of internally developed and branded casino-style games and popular third-party provider casino-style games to gaming operators. We also

provide the Open Platform System which offers a wide range of reporting and administrative functions and tools providing operators full control over all areas of digital gaming operations. Generally, we host the play of our game content on our centrally located servers that are integrated with the online casino operators’ websites.

Current Year Update

We continue to expand our customer base and capitalize on growth in the U.S. by leveraging our industry leading platforms, content and solutions. Currently, iGaming is live in five U.S. states with a 27% market share.

In August of 2021, we acquired Lightning Box, which expanded our iGaming content portfolio (see Note 1 for additional information).

In November 2021, we acquired Authentic Gaming, a premium provider of live casino solutions, providing a foothold in a key vertical and the fastest growing part of the iGaming market. The acquisition enhances our premium product offering and is highly synergistic with our leading iGaming platform and our land-based and proprietary table game content.

Results of Operations and KPIs


Three and Nine Months Ended September 30, 2021 and 2020

The increases in revenue of 6% and 19% and in AEBITDA of 13% and 30% for the three and nine months periods, respectively, are primarily due to iGaming market expansion in the U.S. and higher player activity and turnover. The revenue increase was partially offset by the winding down of our SG Universe® services, which had a $2 million and $10 million impact on the three and nine month periods, respectively, which impacted our three and nine month period revenue by 4% and 9%, respectively.

AEBITDA margin for the three and nine-month periods increased by 2 and 3 percentage points to 34% and 35%, respectively.

RECENTLY ISSUED ACCOUNTING GUIDANCE

We do not expect that any recently issued accounting guidance will have a significant effect on our consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

For a description of our policies regarding our critical accounting estimates, see “Critical Accounting Estimates” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 10-K.

There have been no significant changes in our critical accounting estimate policies or the application of those policies to our condensed consolidated financial statements from those presented in Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 10-K.

LIQUIDITY, CAPITAL RESOURCES AND WORKING CAPITAL

Cash and Available Liquidity

As of September 30, 2021, our principal sources of liquidity, other than cash flows provided by operating activities, were cash and cash equivalents, including SciPlay cash and cash equivalents (for our SciPlay business segment), cash and cash equivalents of businesses held for sale and amounts available under the SciPlay Revolver (for our SciPlay business segment).

Cash and Available Revolver Capacity


(in millions)	Cash and cash equivalents		Revolver capacity		Revolver capacity drawn or committed to letters of credit		Total
SGC (excluding SciPlay and businesses held for sale)	$	451	$	650	$	(147)	$	954
Businesses held for sale	62		—		—		62
SciPlay	331		150		—		481
Total as of September 30, 2021	$	844	$	800	$	(147)	$	1,497


SGC (excluding SciPlay and businesses held for sale)	$	659	$	650	$	(547)	$	762
Businesses held for sale	88		—		—		88
SciPlay	269		150		—		419
Total as of December 31, 2020	$	1,016	$	800	$	(547)	$	1,269

Total cash held by our foreign subsidiaries (including discontinued operations) was $197 million and $173 million as of September 30, 2021 and December 31, 2020, respectively. We believe that substantially all cash held outside the U.S. is free from legal encumbrances or similar restrictions that would prevent it from being available to meet our global liquidity needs.

Our Gaming operations and Lottery systems businesses (included in our discontinued operations) generally require significant upfront capital expenditures, and we may need to incur additional capital expenditures in order to retain or win new contracts. Our ability to make payments on and to refinance our indebtedness and other obligations depends on our ability to generate cash in the future. We may also, from time to time, repurchase or otherwise retire or refinance our debt, through our subsidiaries or otherwise. In the event we pursue significant acquisitions or other expansion opportunities, we may need to raise additional capital. If we do not have adequate liquidity to support these activities, we may be unable to obtain financing for these cash needs on favorable terms or at all. For additional information regarding our cash needs and related risks, see “Risk Factors” under Part I, Item 1A in our 2020 10-K.

In addition, Lottery (included in our discontinued operations) customers in the U.S. generally require service providers to provide performance bonds in connection with the relevant contract. As of September 30, 2021, our outstanding performance bonds totaled $270 million. Our ability to obtain performance bonds on commercially reasonable terms is subject to our financial condition and to prevailing market conditions, which may be impacted by economic and political events. Although we have not experienced difficulty in obtaining such bonds to date, we cannot assure that we will continue to be able to obtain performance bonds on commercially reasonable terms, or at all. For additional information regarding our surety or performance bonds in connection with our contracts, see “Risk Factors” under Part I, Item 1A in our 2020 10-K.

In October 2021, we made a voluntary payment of $135 million on SGI’s revolving credit facility leaving the entire revolving credit facility undrawn and available.

Cash Flow Summary


	Nine Months Ended September 30,				Variance
($ in millions)	2021		2020		2021 vs. 2020






Net cash provided by operating activities from:
Continuing operations	$	199	$	2	$	197
Discontinued operations	260		310		(50)
Net cash provided by operating activities	459		312		147
Net cash used in investing activities from:
Continuing operations	(148)		(91)		(57)
Discontinued operations	(58)		(43)		(15)
Net cash used in investing activities	(206)		(134)		(72)
Net cash (used in) provided by financing activities from:
Continuing operations	(484)		591		(1,075)
Discontinued operations	(8)		(4)		(4)
Net cash (used in) provided by financing activities	(492)		587		(1,079)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3)		1		(4)
(Decrease) increase in cash, cash equivalents and restricted cash	$	(242)	$	766	$	(1,008)

Cash Flows from Operating Activities


	Nine Months Ended September 30,				Variance
($ in millions)	2021		2020		2021 vs. 2020
Net income (loss)	$	291	$	(464)	$	755
Less: income from discontinued operations, net of tax	(329)		(193)		(136)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities from continuing operations	358		560		(202)

Changes in working capital accounts, excluding the effects of acquisitions	51		90		(39)
Changes in deferred income taxes and other	(172)		9		(181)

Net cash provided by operating activities from continuing operations	$	199	$	2	$	197

Net cash provided by operating activities (after adjustments to reconcile net loss from continuing operations to net cash provided by operating activities from continuing operations and changes in deferred income taxes and other) increased primarily due to a $236 million increase in earnings as a result of the lifting of certain COVID-19 related restrictions, which was partially offset by a $39 million unfavorable change in working capital accounts. The current year improvement includes $44 million in FOBT recovery as described in the Consolidated Results – Revenue section above, which based on its nature is not expected to recur in future periods.

Changes in working capital accounts, excluding the effects of acquisitions from continuing operations, for the nine months ended September 30, 2021 were primarily driven by higher billings as recovery from the COVID-19 pandemic continues to gain momentum with eased restrictions and continued progress towards the return to pre-COVID levels of business, coupled with cash management and timing of expenditures.

Net cash provided by operating activities from discontinued operations increased due to higher cash flows from discontinued operations driven by higher Lottery instant products and systems revenue due to the impact of COVID-19 on the prior year results coupled with the large lottery jackpots in the first half of 2021 driving both instant products sales and system increases.

Cash Flows from Investing Activities

Net cash used in investing activities from continuing operations increased primarily due to higher acquisitions of businesses completed during 2021, as described in Note 1, and higher capital expenditures. Capital expenditures are composed of investments in systems, equipment and other assets related to contracts, property and equipment, intangible assets and software.

Net cash used in investing activities from discontinued operations increased primarily due to acquisitions completed during 2021, as described in Note 1, higher additions to equity method investments and capital expenditures.

Cash Flows from Financing Activities

Net cash used in financing activities increased primarily due to repayments of $400 million under SGI’s revolving credit facility compared to the prior year period $440 million net draw on SGI’s revolving credit facility and net issuance of senior term loans of $209 million, coupled with $10 million in higher licensing payments during 2021.

Credit Agreement and Other Debt

For additional information regarding our credit agreement and other debt, interest rate risk and interest rate hedging instruments, see Notes 15 and 16 and Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our 2020 10-K and Item 3 below.

We intend to repay, refinance and/or restructure a significant portion of our existing indebtedness to significantly de-lever and position the Company for enhanced growth following the receipt of cash from the pending divestitures (see Note 1), which we would expect to significantly change the terms and outstanding amounts of our debt.

Off-Balance Sheet Arrangements

As of September 30, 2021, we did not have any significant off-balance sheet arrangements.

Contractual Obligations

There have been no material changes to our contractual obligations disclosed under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity, Capital Resources and Working Capital — Contractual Obligations” in our 2020 10-K, other than those related to the acquisitions described in Note 1.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign exchange rates and commodity prices. The following are our primary exposures to market risks:

Interest Rate Risk

As of September 30, 2021, the face value of long-term debt was $8,935 million, including $4,163 million of variable-rate obligations. Assuming a constant outstanding balance for our variable-rate long term debt, a hypothetical 1% change in interest rates would decrease/increase interest expense by approximately $42 million. All of our interest rate sensitive financial instruments are held for other than trading purposes.

We currently use interest rate swap contracts to mitigate interest rate risk associated with a portion of our variable rate debt instruments. The objective of our interest rate swap contracts, which are designated as cash flow hedges of the future interest payments, is to eliminate the variability of cash flows attributable to the LIBOR component of interest expense to be paid on a portion of our variable rate debt.

Cross-Currency Interest Rate Swaps

In connection with the February 2018 Refinancing (see Note 15 in our 2020 10-K), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting $460 million of our fixed-rate U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to a fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. 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 with respect to the U.S. Dollar.

As of September 30, 2021, if these cross-currency interest rate swap agreements were ineffective, the fluctuations in the exchange rates between the Euro and the U.S. Dollar would impact the amount of U.S. Dollars that we would require to settle the Euro-denominated debt at maturity of these agreements. A hypothetical 10% change in the U.S. Dollar in comparison to the Euro exchange rate upon inception of the cross-currency interest rate swap would have increased/decreased our obligation to cash settle the exchanged principal portion in U.S. Dollars by approximately $46 million.

Net Investment Non-Derivative Hedge - 2026 Secured Euro Notes

In February 2018, 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 changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar.

Fluctuations in the exchange rates between the Euro and the U.S. Dollar will impact the amount of U.S. Dollars that we will require to settle the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes at maturity. A hypothetical 10% change in U.S. Dollar in comparison to the Euro as of September 30, 2021, would have increased/decreased our obligation to cash settle the principal portion of the 2026 Secured and Unsecured Euro Notes in U.S. Dollars by approximately $67 million.

The completion of the pending disposition of the discontinued operations is expected to result in a reduction of net investments in our international subsidiaries available for hedging, which could result in increased volatility in our operating results.

For additional information regarding interest rate swap contracts, cross-currency interest rate swaps and net investment non-derivative hedges, see Note 12.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 3a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of September 30, 2021.

There were no changes in our internal control over financial reporting during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our legal proceedings, see Note 16 in this Quarterly Report on Form 10-Q and Note 21 in our 2020 10-K.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed under Item 1A “Risk Factors” included in our 2020 10-K, except as noted below.

We have signed definitive agreements to sell our Lottery and Sports Betting businesses (the “Pending Divestitures”) and have submitted a proposal to acquire the public shares of our SciPlay business (the “Proposed SciPlay Acquisition”), but there can be no assurance regarding the timing of completion of the Pending Divestitures or Proposed SciPlay Acquisition, that a definitive agreement will be executed for the Proposed SciPlay Acquisition, that the Pending Divestitures or the Proposed SciPlay Acquisition will yield additional value for our stockholders or that the Pending Divestitures or the Proposed SciPlay Acquisition will not adversely impact our business, financial results, results of operations, cash flows or stock price.

On June 29, 2021, we announced our intention to divest our Lottery and Sports Betting businesses. On July 15, 2021, we submitted a proposal to the board of directors of SciPlay Corporation to acquire the remaining 19% equity interest in SciPlay Corporation that we do not currently own in an all-stock transaction, following which SciPlay would become a wholly-owned subsidiary of Scientific Games. On September 27, 2021, we announced that we had entered into a definitive agreement to sell our Sports Betting business to Endeavor in a cash and stock transaction valued at $1.2 billion, subject to certain customary adjustments. On October 27, 2021, we announced that we entered into a definitive agreement to sell our Lottery business to Brookfield for total consideration of $6.05 billion consisting of $5.825 billion in cash and an earn-out of up to $225 million based on the achievement of certain EBITDA targets in 2022 and 2023.

The Proposed SciPlay Acquisition and the Pending Divestitures expose us to a number of risks and uncertainties, including continued diversion of management’s time to the processes; the incurrence of significant expenses associated with the review and pursuit of any transaction; increased difficulties in attracting, retaining or motivating key management personnel; the potential loss of key customers, suppliers, vendors and other key business partners; in the case of the Proposed SciPlay Acquisition, the failure to reach a definitive agreement for the acquisition, the inability to obtain necessary regulatory approvals or otherwise satisfy conditions required in order to consummate such transactions; the need to provide transition services, which may result in additional costs and the diversion of resources and focus; a reduction of net investments in our international subsidiaries available for hedging, which could result in increased volatility in our operating results; and exposure to potential litigation. Any of these factors could disrupt our business and could have a material adverse effect on our business, financial condition, results of operations, cash flows or stock price.

Additionally, we may not be able to realize the anticipated operational, strategic or financial benefits from the Proposed SciPlay Acquisition and the Pending Divestitures including (i) our ability to transform and execute on our strategic

vision to become the leading cross-platform global game company and (ii) any repayment, refinancing and/or restructuring of existing indebtedness on terms acceptable to us with net proceeds of the Pending Divestitures. There can be no assurance that any of these transactions and anticipated benefits will provide greater value to our stockholders than that reflected in our current stock price. The proposed transactions and anticipated benefits are dependent upon a number of factors that may be beyond our control, including among other factors, market conditions (including the impact of the COVID-19 pandemic), industry trends, regulatory developments, litigation and the interest of third parties in these businesses.

We depend on our suppliers and contract manufacturers, and any failure of these parties to meet our performance and quality standards or requirements could cause us to incur additional costs or lose customers.

Our production of instant lottery products, in particular, depends upon a continuous supply of raw materials, supplies, power and natural resources. Our operating results could be adversely affected by an interruption or cessation in the supply of these items or a serious quality assurance lapse, including as a result of the insolvency of any of our key suppliers.

Similarly, the operation of our instant ticket printing presses and the manufacture and maintenance of our gaming machines and gaming and lottery systems are dependent upon a regular and continuous supply of raw materials and components, many of which are manufactured or produced outside of the U.S. Certain of the components we use are customized for our products. The assembly of certain of our products and other hardware is performed by third parties. Any interruption or cessation in the supply of these items or services or any material quality assurance lapse with respect thereto could materially adversely affect our ability to fulfill customer orders, results of operations, cash flows and financial condition. We may be unable to find adequate replacements for our suppliers within a reasonable time frame, on favorable commercial terms or at all. The impact of the foregoing may be magnified as we continue to seek to streamline our gaming supply chain by reducing the number of our suppliers. Further, manufacturing costs may unexpectedly increase and we may not be able to successfully recover any or all of such cost increases. Additionally, in the three-month period ended on June 30, 2021, we experienced pressures on the supply chain related to parts sourcing, which contributed to approximately $5 million of inventory obsolescence charge. Because of the use of certain shared parts in some of our gaming machines in both old and new cabinets, supply chain pressures on availability of these parts may require us to re-allocate shared parts, rendering further units obsolete if such conditions sustain for an extended period of time.

In our Lottery systems business, we transmit certain wagering data using cellular technology and satellite transponders, generally pursuant to long-term contracts. The technical failure of any of these cellular or satellite services would require us to obtain other communication services, including other cellular or satellite access. In some cases, we employ backup systems to limit our exposure in the event of such a failure. While these networks are inherently highly redundant, we cannot assure access to such other cellular services or satellites or, if available, the ability to obtain the use of such other cellular services or satellites on favorable terms or in a timely manner. While cellular and satellite failures are infrequent, the operation of each is outside of our control.

In addition, in all of our businesses, we rely upon a number of significant third-party suppliers and vendors delivering parts, equipment and services on schedule in order for us to meet our contractual commitments. Furthermore, we outsource the manufacturing of certain of our sub-assemblies to third parties in the U.S., Europe, Central America and Asia. The willingness of such third parties to provide their services to us may be affected by various factors. Changes in law or regulation in any jurisdiction in which we operate may make the provision of key services to us unlawful in such jurisdictions. To the extent that third parties are unwilling or unable to provide services to us, this may have an adverse impact on our operations, financial performance and prospects. Failure of these third parties to meet their delivery commitments could result in us being in breach of, and subsequently losing, the affected customer orders, which loss could have a material adverse effect on our results of operations, cash flows and financial condition. We rely on network and/or telecommunications services for certain of our products. For instance, any disruption to our network or telecommunications could impact our linked or networked games, which could reduce our revenue.

In our Digital sports business, we rely on providers of third party sports data feeds. During the prior year, the outbreak of COVID-19 resulted in the suspension or cancellation of the majority of sporting events, which have mostly re-commenced during the current year, however potential future cancellations could negatively impact the financial condition of our sportsbook customers, their ability to purchase development and other services, their risk of payment default, or their spending levels as they seek to reduce costs, each of which could negatively impact our Digital business revenue.

In our Lottery, SciPlay and Digital businesses, we often rely on third-party data center providers to, among other things, host our remote game servers. Our Lottery, SciPlay and Digital businesses could be adversely impacted by breaches of or disruptions to these third-party data centers, including through disruptions in our RMG and lottery businesses, potential service level penalties with respect to our customers, reputational harm, the disclosure of proprietary information or the information of our customers or the theft of our or our customers assets, and to the extent any such data center provider was unable or unwilling to continue to provide services to us.

In certain regions, we enter into agreements with local distributors for the distribution of our land-based gaming products to one or more customers. Changes to these distributor relationships, including modification or termination of our agreements or difficulties with any such distributor could prevent us from delivering products or services to our customers on a timely basis, or at all, and could negatively impact our business. Additionally, the outbreak of COVID-19 and any resulting unfavorable social, political and economic conditions have negatively impacted our suppliers and contract manufacturers in varied ways in different communities, which could lead to interruption or cessation of services provided to us. For more information on the impact of the outbreak of COVID-19, see the risk factor captioned “The recent COVID-19 pandemic and similar health epidemics, contagious disease outbreaks and public perception thereof, significantly disrupted our operations and adversely affected and continue to adversely affect our business, results of operations, cash flows and financial condition.”

The provisions of our bylaws requiring exclusive forum in the Eighth Judicial District Court of Clark County, Nevada for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.

Our bylaws provide that, to the fullest extent permitted by law, and unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada, will be the sole and exclusive forum for any actions, suits or proceedings, whether civil, administrative or investigative or that assert any claim or counterclaim (i) brought in our name or right or on our behalf, (ii) asserting a claim for breach of any fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) arising or asserting a claim arising pursuant to any provision of Nevada Revised Statutes (“NRS”), Chapters 78 or 92A or any provision of our articles of incorporation or our bylaws or (iv) asserting a claim governed by the internal affairs doctrine. Our bylaws further provide that, in the event that the Eighth Judicial District Court of Clark County, Nevada does not have jurisdiction over any such action, suit or proceeding, then any other state district court located in the State of Nevada will be the sole and exclusive forum therefor and in the event that no state district court in the State of Nevada has jurisdiction over any such action, suit or proceeding, then a federal court located within the State of Nevada will be the sole and exclusive forum therefor. Application of the choice of forum provisions may be limited in some instances by law. Section 27 of the Exchange Act establishes exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. In addition, Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over lawsuits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. To the extent our bylaws restrict the courts in which claims arising under the federal securities laws may be brought, there is uncertainty as to whether a court would enforce such a provision and we note that our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

Although we believe these provisions benefit us by providing increased consistency in the application of Nevada law in the types of lawsuits to which they apply, these provisions may have the effect of increasing the costs to bring a claim, and limiting a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors and officers. This may discourage lawsuits against us or our directors and officers. The enforceability of similar choice of forum provisions in other companies’ articles of incorporation and bylaws has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our bylaws to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provisions contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.

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

There was no stock repurchase activity during the three months ended September 30, 2021.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit Number						Description
2.1						Equity Purchase Agreement, dated as of September 27, 2021, by and among Scientific Games Corporation, Endeavor Operating Company, LLC and Endeavor Group Holdings, Inc. (solely for the purposes set forth therein) (incorporated by reference to Exhibit 2.1 to Scientific Games Corporation's Current Report on Form 8-K filed on September 28, 2021).

2.2						Equity Purchase Agreement, dated as of October 27, 2021, by and between Scientific Games Corporation and BCP Acquisitions LLC (incorporated by reference to Exhibit 2.1 to Scientific Games Corporation's Current Report on Form 8-K filed on October 28, 2021).

3.1(a)						Articles of Merger filed with the Secretary of State of the State of Nevada on January 10, 2018 (incorporated by reference to Exhibit 3.3 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).

3.1(b)						Certificate of Merger filed with the Secretary of State of the State of Delaware on January 10, 2018 (incorporated by reference to Exhibit 3.4 to Scientific Games Corporation's Current Report on Form 8-K filed on January 10, 2018).

3.1(c)						Amended and Restated Articles of Incorporation of Scientific Games Corporation, filed with the Secretary of State of the State of Nevada on January 10, 2018 (incorporated by reference to Exhibit 3.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).

3.2						Amended and Restated Bylaws of Scientific Games Corporation, effective as of January 10, 2018 (incorporated by reference to Exhibit 3.2 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).

4.1						Supplemental Indenture, dated as of August 19, 2021, by and among Scientific Games International, Inc., Scientific Games, Inc. and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee and collateral agent, relating to the Indenture, dated as of October 17, 2017, as amended and supplemented, relating to the 5.000% Senior Secured Notes due 2025.(†)

4.2						Supplemental Indenture, dated as of August 19, 2021, by and among Scientific Games International, Inc., Scientific Games, Inc. and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of July 1, 2020, as amended and supplemented, relating to the 8.625% Senior Unsecured Notes due 2025.(†)

4.3						Supplemental Indenture, dated as of August 19, 2021, by and among Scientific Games International, Inc., Scientific Games, Inc. and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, registrar and transfer agent, relating to the Indenture, dated as of February 14, 2018, as amended and supplemented, relating to the 5.500% Senior Unsecured Notes due 2026.(†)

4.4						Supplemental Indenture, dated as of August 19, 2021, by and among Scientific Games International, Inc., Scientific Games, Inc. and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, collateral agent, registrar and transfer agent, relating to the Indenture, dated as of February 14, 2018, as amended and supplemented, relating to the 3.375% Senior Secured Notes due 2026.(†)

4.5						Supplemental Indenture, dated as of August 19, 2021, by and among Scientific Games International, Inc., Scientific Games, Inc. and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of March 19, 2019, as amended and supplemented, relating to the 8.250% Senior Unsecured Notes due 2026.(†)

4.6						Supplemental Indenture, dated as of August 19, 2021, by and among Scientific Games International, Inc., Scientific Games, Inc. and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of November 26, 2019, as amended and supplemented, relating to the 7.000% Senior Unsecured Notes due 2028.(†)

4.7						Supplemental Indenture, dated as of August 19, 2021, by and among Scientific Games International, Inc., Scientific Games, Inc. and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of November 26, 2019, as amended and supplemented, relating to the 7.250% Senior Unsecured Notes due 2029.(†)


4.8						Supplemental Indenture, dated as of September 30, 2021, among Scientific Games International, Inc., as issuer, Scientific Games Corporation, the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of October 17, 2017, as amended and supplemented, relating to the 5.000% Senior Secured Notes due 2025 (incorporated by reference to Exhibit 4.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on October 1, 2021).

4.9						Supplemental Indenture, dated as of September 30, 2021, among Scientific Games International, Inc., as issuer, Scientific Games Corporation, the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of February 14, 2018, as amended and supplemented, relating to the 3.375% Senior Secured Notes due 2026 (incorporated by reference to Exhibit 4.2 to Scientific Games Corporation’s Current Report on Form 8-K filed on October 1, 2021).

4.10						Supplemental Indenture, dated as of September 30, 2021, among Scientific Games International, Inc., as issuer, Scientific Games Corporation, the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of July 1, 2020, as amended and supplemented relating to the 8.625% Senior Unsecured Notes due 2025 (incorporated by reference to Exhibit 4.3 to Scientific Games Corporation’s Current Report on Form 8-K filed on October 1, 2021).

4.11						Supplemental Indenture, dated as of September 30, 2021, among Scientific Games International, Inc., as issuer, Scientific Games Corporation, the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of February 14, 2018, as amended and supplemented, relating to the 5.500% Senior Unsecured Notes due 2026 (incorporated by reference to Exhibit 4.4 to Scientific Games Corporation’s Current Report on Form 8-K filed on October 1, 2021).

4.12						Supplemental Indenture, dated as of September 30, 2021, among Scientific Games International, Inc., as issuer, Scientific Games Corporation, the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of March 19, 2019, as amended and supplemented, relating to the 8.250% Senior Unsecured Notes due 2026 (incorporated by reference to Exhibit 4.5 to Scientific Games Corporation’s Current Report on Form 8-K filed on October 1, 2021).

4.13						Supplemental Indenture, dated as of September 30, 2021, among Scientific Games International, Inc., as issuer, Scientific Games Corporation, the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of November 26, 2019, as amended and supplemented, relating to the 7.000% Senior Unsecured Notes due 2028 (incorporated by reference to Exhibit 4.6 to Scientific Games Corporation’s Current Report on Form 8-K filed on October 1, 2021).

4.14						Supplemental Indenture, dated as of September 30, 2021, among Scientific Games International, Inc., as issuer, Scientific Games Corporation, the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of November 26, 2019, as amended and supplemented, relating to the 7.250% Senior Unsecured Notes due 2029 (incorporated by reference to Exhibit 4.7 to Scientific Games Corporation’s Current Report on Form 8-K filed on October 1, 2021).

10.1						Employment Agreement, dated as of August 2, 2021 (effective as of September 1, 2021), by and between Scientific Games Corporation and James Sottile (incorporated by reference to Exhibit 10.3 to Scientific Games Corporations Quarterly Report on Form 10-Q for the quarter ended June 30, 2021).*

10.2						Amendment to Employment Agreement, dated as of September 15, 2021, by and between Scientific Games Corporation and Patrick J. McHugh.*(†)

10.3						Amended and Restated Employment Agreement, dated as of October 15, 2021, by and between Scientific Games Corporation and Constance P. James.*(†)

10.4						Amendment No. 8, dated as of July 28, 2021, among Scientific Games International, Inc., as the borrower, Scientific Games Corporation, as a guarantor, the several banks and other financial institutions or entities from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent, issuing lender and swingline lender, which amended and restated the Credit Agreement, dated as of October 18, 2013 (as amended, supplemented, amended and restated or otherwise modified from time to time, including without limitation, by that certain Amendment No. 1, dated as of October 1, 2014, Amendment No. 2, dated as of February 14, 2017, Amendment No. 3, dated as of August 14, 2017, Amendment No. 4, dated as of February 14, 2018, Amendment No. 5, dated as of November 20, 2019, Amendment No. 6, dated as of May 8, 2020, and Amendment No. 7, dated as of October 8, 2020) (incorporated by reference to Exhibit 10.1 to Scientific Games Corporation's Current Report on Form 8-K filed on July 28, 2021).


31.1						Certification of the Chief Executive Officer of Scientific Games Corporation pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (†)

31.2						Certification of the Chief Financial Officer of Scientific Games Corporation pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (†)

32.1						Certification of the Chief Executive Officer of Scientific Games Corporation pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.2						Certification of the Chief Financial Officer of Scientific Games Corporation pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Label Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

(†) Filed herewith.

** Furnished herewith.

*Management contracts and compensation plans and arrangements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SCIENTIFIC GAMES CORPORATION
		(Registrant)

		By:	/s/ Constance P. James
		Name:	Constance P. James
		Title:	Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary







		By:	/s/ Michael F. Winterscheidt
		Name:	Michael F. Winterscheidt
		Title:	Senior Vice President and Chief Accounting Officer
Dated:	November 9, 2021