10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

{Mark One}

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

For the quarterly period ended September 30, 2011

OR

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

For the transition period from          to        

Commission file number: 0-13063

SCIENTIFIC GAMES CORPORATION

(Exact name of registrant as specified in its charter)

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

750 Lexington Avenue, New York, New York 10022

(Address of principal executive offices)

(Zip Code)

(212) 754-2233

(Registrant’s telephone number, including area code)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

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

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

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

The registrant has the following number of shares outstanding of each of the registrant’s classes of common stock as of October 28, 2011:

Class A Common Stock: 92,137,470

Class B Common Stock: None

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL INFORMATION

AND OTHER INFORMATION

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011

PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010	4
	Consolidated Statements of Operations for the Three Months Ended September 30, 2011 and 2010	5
	Consolidated Statements of Operations for the Nine Months Ended September 30, 2011 and 2010	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II.	OTHER INFORMATION	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 6.	Exhibits	44

2

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,” “continue,” “believe,” “expect,” “anticipate,” “could,” “potential,” “opportunity,” 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 future results or performance. Actual results may differ materially from those projected in these statements due to a variety of risks and uncertainties and other factors, including, among other things: competition; material adverse changes in economic and industry conditions; technological change; retention and renewal of existing contracts and entry into new or revised contracts; availability and adequacy of cash flows to satisfy obligations and indebtedness or future needs; protection of intellectual property; security and integrity of software and systems; laws and government regulation, including those relating to gaming licenses, permits and operations; inability to identify, complete and integrate future acquisitions; inability to benefit from, and risks associated with joint ventures and strategic investments and relationships; failure of the Company’s Northstar joint venture to meet the net income targets or otherwise realize the anticipated benefits under its private management agreement with the Illinois Lottery; seasonality; inability to identify and capitalize on trends and changes in the lottery and gaming industries; inability to enhance and develop successful gaming concepts; dependence on suppliers and manufacturers; liability for product defects; fluctuations in foreign currency exchange rates and other factors associated with foreign operations; influence of certain stockholders; dependence on key personnel; failure to perform on contracts; resolution of pending or future litigation; labor matters; and stock price volatility. 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 Securities and Exchange Commission (“SEC”), including under the heading “Risk Factors” in our most recent Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q. 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 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 various 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. Similarly, industry forecasts, while we believe them to be accurate, are not independently verified by us and we do not make any representation as to the accuracy of that information. In general, there is less publicly available information concerning the international lottery industry than the lottery industry in the U.S.

3

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of September 30, 2011 and December 31, 2010

(Unaudited, in thousands, except per share amounts)

	September 30,			December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	86,879		$	124,281
Accounts receivable, net of allowance for doubtful accounts of $6,469 and $2,175 as of September 30, 2011 and December 31, 2010, respectively	187,236			178,179
Inventories	79,396			68,744
Deferred income taxes, current portion	2,339			2,448
Prepaid expenses, deposits and other current assets	52,435			40,013
Total current assets	408,285			413,665
Property and equipment, at cost	780,930			776,367
Less: accumulated depreciation	(342,631		)	(325,786		)
Net Property and equipment	438,299			450,581
Goodwill, net	766,288			763,915
Intangible assets, net	88,792			70,613
Other assets and investments	494,677			452,764
Total assets	$	2,196,341		$	2,151,538
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Debt payments due within one year	$	9,391		$	8,431
Accounts payable	64,640			50,642
Accrued liabilities	160,241			136,925
Total current liabilities	234,272			195,998
Deferred income taxes	61,382			60,858
Other long-term liabilities	57,517			53,765
Long-term debt, excluding current installments	1,382,393			1,388,259
Total liabilities	1,735,564			1,698,880
Commitments and contingencies
Stockholders’ equity:
Class A common stock, par value $0.01 per share, 199,300 shares authorized, 97,877 and 97,474 shares issued and 92,128 and 91,725 shares outstanding as of September 30, 2011 and December 31, 2010, respectively	979			975
Additional paid-in capital	689,861			674,691
Accumulated loss	(135,058		)	(131,021		)
Treasury stock, at cost, 5,749 shares held as of September 30, 2011 and December 31, 2010	(74,460		)	(74,460		)
Accumulated other comprehensive (loss)	(20,545		)	(17,527		)
Total stockholders’ equity	460,777			452,658
Total liabilities and stockholders’ equity	$	2,196,341		$	2,151,538

See accompanying notes to consolidated financial statements

4

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2011 and 2010

(Unaudited, in thousands, except per share amounts)

	Three Months Ended September 30,
	2011			2010
Revenue:
Instant tickets	$	126,693		$	115,968
Services	81,429			92,813
Sales	14,617			12,280
Total revenue	222,739			221,061
Operating expenses:
Cost of instant tickets (1)	71,785			67,138
Cost of services (1)	42,562			57,723
Cost of sales (1)	10,332			7,977
Selling, general and administrative expenses	47,660			36,435
Write-down of assets held for sale	—			2,155
Employee termination and restructuring costs	1,030			602
Depreciation and amortization	27,994			27,284
Operating income	21,376			21,747
Other (income) expense:
Interest expense	26,297			24,617
Earnings from equity investments	(8,895		)	(13,031		)
Loss on early extinguishment of debt	4,185			2,236
Other (income) expense, net	1,711			(3,011		)
	23,298			10,811
Net (loss) income before income taxes	(1,922		)	10,936
Income tax expense	2,202			2,232
Net (loss) income	$	(4,124	)	$	8,704
Basic and diluted net (loss) income per share:
Basic net (loss) income per share	$	(0.04	)	$	0.09
Diluted net (loss) income per share	$	(0.04	)	$	0.09
Weighted-average number of shares used in per share calculations:
Basic shares	92,125			91,844
Diluted shares	92,125			92,240

(1) Exclusive of depreciation and amortization.

See accompanying notes to consolidated financial statements

5

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2011 and 2010

(Unaudited, in thousands, except per share amounts)

	Nine Months Ended September 30,
	2011			2010
Revenue:
Instant tickets	$	370,972		$	343,506
Services	237,272			287,527
Sales	31,399			39,400
Total revenue	639,643			670,433
Operating expenses:
Cost of instant tickets (1)	211,151			199,282
Cost of services (1)	122,944			167,336
Cost of sales (1)	21,383			27,843
Selling, general and administrative expenses	130,640			115,543
Write-down of assets held for sale	—			8,029
Employee termination and restructuring costs	1,030			602
Depreciation and amortization	87,902			82,017
Operating income	64,593			69,781
Other (income) expense:
Interest expense	79,161			74,176
Earnings from equity investments	(27,469		)	(42,474		)
Loss on early extinguishment of debt	4,185			2,236
Other (income) expense, net	(159		)	9,555
	55,718			43,493
Net income before income taxes	8,875			26,288
Income tax expense	12,912			17,040
Net (loss) income	$	(4,037	)	$	9,248
Basic and diluted net (loss) income per share:
Basic net (loss) income per share	$	(0.04	)	$	0.10
Diluted net (loss) income per share	$	(0.04	)	$	0.10
Weighted-average number of shares used in per share calculations:
Basic shares	92,027			93,122
Diluted shares	92,027			93,648

(1) Exclusive of depreciation and amortization.

See accompanying notes to consolidated financial statements

6

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2011 and 2010

(Unaudited, in thousands, except per share amounts)

	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:
Net (loss) income	$	(4,037	)	$	9,248
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation and amortization	87,902			82,017
Change in deferred income taxes	2,326			11,541
Stock-based compensation	15,293			17,383
Non-cash interest expense	6,122			5,276
Undistributed earnings from equity investments	2,611			(8,062		)
Write-down of assets held for sale	—			8,029
Loss on extinguishment of debt	4,185			2,236
Changes in current assets and liabilities, net of effects of acquisitions
Accounts receivable	9,380			7,012
Inventories	(827		)	(2,375		)
Accounts payable	(2,125		)	(8,970		)
Accrued liabilities	14,671			(3,463		)
Other current assets and liabilities	16,163			22,886
Other	963			483
Net cash provided by operating activities	152,627			143,241
Cash flows from investing activities:
Capital expenditures	(5,863		)	(6,873		)
Lottery and gaming systems expenditures	(33,972		)	(45,257		)
Other intangible assets and software expenditures	(28,536		)	(26,335		)
Change in other assets and liabilities, net	(11,356		)	(571		)
Net equity investments	(37,878		)	(127,314		)
Business acquisitions, net of cash acquired	(50,177		)	(12,493		)
Net cash used in investing activities	(167,782		)	(218,843		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	—			355,541
Payments on long-term debt	(6,232		)	(242,758		)
Payments of financing fees	(9,186		)	(12,969		)
Purchases of treasury stock	—			(26,334		)
Net proceeds from issuance of common stock	(1,426		)	(2,067		)
Net cash (used in) provided by financing activities	(16,844		)	71,413
Effect of exchange rate changes on cash and cash equivalents	(5,403		)	(8,965		)
Decrease in cash and cash equivalents	(37,402		)	(13,154		)
Cash and cash equivalents, beginning of period	124,281			260,131
Change in cash and cash equivalents of held for sale operations at September 30, 2010	—			2,593
Cash and cash equivalents, end of period	$	86,879		$	249,570

See accompanying notes to consolidated financial statements

7

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2011 and 2010

(Unaudited, in thousands, except per share amounts)

Non-cash investing and financing activities

For the nine months ended September 30, 2011 and 2010

Our total investment in International Terminal Leasing (“ITL”), which is described in Note 3 of the Notes to Consolidated Financial Statements, was $35,961 as of September 30, 2011 which includes a non-cash investment of $4,859 during the nine months ended September 30, 2011.  There were no significant non-cash investing and financing activities for the nine months ended September 30, 2010.

8

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, in thousands, except per share amounts)

Notes to Consolidated Financial Statements

(1) Consolidated Financial Statements

Basis of Presentation

The Consolidated Balance Sheet as of September 30, 2011, the Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, have been prepared by Scientific Games Corporation and are unaudited. When used in these notes, the terms “we,” “us,” “our” and the “Company” refer to Scientific Games Corporation and all entities included in our consolidated financial statements unless otherwise specified or the context otherwise indicates. In the opinion of management, all adjustments necessary to present fairly our consolidated financial position as of September 30, 2011, the results of our operations for the three and nine months ended September 30, 2011 and 2010 and our cash flows for the nine months ended September 30, 2011 and 2010 have been made. Such adjustments are of a normal, recurring nature.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2010 Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results of operations for the full year.

Significant Accounting Policies

We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K. There have been no changes to our significant accounting policies during the period ended September 30, 2011 except as discussed below.

In September 2009, the Financial Accounting Standards Board (“FASB”) amended the Accounting Standards Codification (“ASC”) as summarized in Accounting Standards Update (“ASU”) 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements, and ASU 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. As summarized in ASU 2009-14, ASC Topic 985 has been amended to remove from the scope of industry-specific revenue accounting guidance for software and software related transactions, tangible products containing software components and non-software components that function together to deliver the product’s essential functionality. As summarized in ASU 2009-13, ASC Topic 605 has been amended: (1) to provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and the consideration allocated; (2) to require an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of the selling price; and (3) to eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. The accounting changes summarized in ASU 2009-14 and ASU 2009-13 are both effective for fiscal years beginning on or after June 15, 2010, with early adoption permitted. Adoption may either be on a prospective basis or by retrospective application.

We adopted these amendments to the ASC on January 1, 2011 on a prospective basis as applicable to our revenue generated from licensing branded properties that are coupled with a service component, where we also purchase and distribute prizes on behalf of lottery authorities. The impact of these accounting changes was not material to our consolidated financial statements for the three and nine months ended September 30, 2011.

9

Basic and Diluted Net Income (Loss) Per Share

The following represents a reconciliation of the numerator and denominator used in computing basic and diluted net (loss) income per share available to common stockholders for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Income (numerator)
Net (loss) income	$	(4,124	)	$	8,704	$	(4,037	)	$	9,248
Shares (denominator)
Weighted-average basic common shares outstanding	92,125			91,844		92,027			93,122
Effect of dilutive securities-stock rights	—			396		—			526
Weighted-average diluted common shares outstanding	92,125			92,240		92,027			93,648
Basic and diluted per share amounts
Basic net (loss) income per share	$	(0.04	)	$	0.09	$	(0.04	)	$	0.10
Diluted net (loss) income per share	$	(0.04	)	$	0.09	$	(0.04	)	$	0.10

There were no dilutive stock rights for the three and nine months ended September 30, 2011 due to the net loss reported for the periods. The weighted-average diluted common shares outstanding for the three and nine months ended September 30, 2010 excludes the effect of approximately 6,917 and 6,496 weighted-average stock rights outstanding, respectively, because their effect would be anti-dilutive.

(2) Reportable Segment Information

We operate in three reportable segments: Printed Products Group, Lottery Systems Group, and Diversified Gaming Group. During the first quarter of 2011 we reviewed the allocation of overhead expenses to our reportable segments as a result of the realignment of our management structure. Based on this review, we determined to no longer allocate certain overhead expenses to our reportable segments. This change, which was effective January 1, 2011, had no impact on the Company’s consolidated balance sheets or its statements of operations, cash flows or changes in stockholders’ equity for any periods. Prior period reportable segment information has been adjusted to reflect the change in reportable segment reporting.

The following tables set forth revenue, cost of revenue, depreciation, amortization, selling, general and administrative expenses, write-down of assets held for sale, employee termination and restructuring costs, and operating income for the three and nine months ended September 30, 2011 and 2010, by reportable segments. Corporate expenses, including interest expense, other (income) expense and corporate depreciation and amortization, are not allocated to the reportable segments and are presented as unallocated corporate costs.

10

	Three Months Ended September 30, 2011
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	126,693	$	—	$	—	$	126,693
Services	—		49,944		31,485		81,429
Sales	2,953		9,640		2,024		14,617
Total revenue	$	129,646	$	59,584	$	33,509	$	222,739
Cost of instant tickets (1)	$	71,785	$	—	$	—	$	71,785
Cost of services (1)	—		26,899		15,663		42,562
Cost of sales (1)	1,906		6,813		1,613		10,332
Selling, general and administrative expenses	13,029		6,626		4,238		23,893
Employee termination and restructuring costs	—		—		1,030		1,030
Depreciation and amortization	8,177		11,939		7,744		27,860
Segment operating income	$	34,749	$	7,307	$	3,221	$	45,277
Unallocated corporate costs							23,901
Consolidated operating income							$	21,376

(1) Exclusive of depreciation and amortization.

	Three Months Ended September 30, 2010
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	115,968	$	—	$	—	$	115,968
Services	—		46,630		46,183		92,813
Sales	1,024		6,141		5,115		12,280
Total revenue	$	116,992	$	52,771	$	51,298	$	221,061
Cost of instant tickets (1)	$	67,138	$	—	$	—	$	67,138
Cost of services (1)	—		26,450		31,273		57,723
Cost of sales (1)	954		4,063		2,960		7,977
Selling, general and administrative expenses	10,269		5,772		6,117		22,158
Write-down of assets held for sale	—		—		2,155		2,155
Employee termination and restructuring costs	—		—		602		602
Depreciation and amortization	8,184		10,969		8,005		27,158
Segment operating income	$	30,447	$	5,517	$	186	$	36,150
Unallocated corporate costs							14,403
Consolidated operating income							$	21,747

(1) Exclusive of depreciation and amortization.

11

	Nine Months Ended September 30, 2011
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	370,972	$	—	$	—	$	370,972
Services	—		150,356		86,916		237,272
Sales	6,810		22,447		2,142		31,399
Total revenue	$	377,782	$	172,803	$	89,058	$	639,643
Cost of instant tickets (1)	$	211,151	$	—	$	—	$	211,151
Cost of services (1)	—		79,087		43,857		122,944
Cost of sales (1)	4,150		15,585		1,648		21,383
Selling, general and administrative expenses	36,521		16,422		10,800		63,743
Employee termination and restructuring costs	—		—		1,030		1,030
Depreciation and amortization	24,745		35,185		27,581		87,511
Segment operating income	$	101,215	$	26,524	$	4,142	$	131,881
Unallocated corporate costs							67,288
Consolidated operating income							$	64,593

(1) Exclusive of depreciation and amortization.

	Nine Months Ended September 30, 2010
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	343,506	$	—	$	—	$	343,506
Services	—		148,334		139,193		287,527
Sales	6,625		24,518		8,257		39,400
Total revenue	$	350,131	$	172,852	$	147,450	$	670,433
Cost of instant tickets (1)	$	199,282	$	—	$	—	$	199,282
Cost of services (1)	—		78,760		88,576		167,336
Cost of sales (1)	4,931		17,708		5,204		27,843
Selling, general and administrative expenses	32,239		18,011		17,671		67,921
Write-down of assets held for sale	—		—		8,029		8,029
Employee termination and restructuring costs	—		—		602		602
Depreciation and amortization	25,150		32,622		23,872		81,644
Segment operating income	$	88,529	$	25,751	$	3,496	$	117,776
Unallocated corporate costs							47,995
Consolidated operating income							$	69,781

(1) Exclusive of depreciation and amortization.

12

The following table provides a reconciliation of reportable segment operating income to income (loss) before income taxes for each period:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Reported segment operating income	$	45,277		$	36,150		$	131,881		$	117,776
Unallocated corporate costs	(23,901		)	(14,403		)	(67,288		)	(47,995		)
Consolidated operating income	21,376			21,747			64,593			69,781
Interest expense	(26,297		)	(24,617		)	(79,161		)	(74,176		)
Earnings from equity investments	8,895			13,031			27,469			42,474
(Loss) on early extinguishment of debt	(4,185		)	(2,236		)	(4,185		)	(2,236		)
Other income (expense), net	(1,711		)	3,011			159			(9,555		)
Income (loss) before income taxes	$	(1,922	)	$	10,936		$	8,875		$	26,288

In evaluating financial performance, we focus on operating income as a segment’s measure of profit or loss. Segment operating income is income before other income (expense), net, interest expense, earnings from equity investments, loss on early extinguishment of debt, unallocated corporate expenses and income taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (see Note 1 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K).

(3) Equity Method Investments

Lotterie Nazionali S.r.l. / Consorzio Lotterie Nazionali

We are a 20% equity owner in Lotterie Nazionali S.r.l. (“LNS”), a joint venture comprised principally of us, Lottomatica Group S.p.A. (“Lottomatica”) and Arianna 2001, a company owned by the Federation of Italian Tobacconists, that was awarded the concession from the Italian Monopoli di Stato to be the exclusive operator of the Italian Gratta e Vinci instant ticket lottery beginning on October 1, 2010. The concession has an initial term of nine years (subject to a performance evaluation during the fifth year) and could be extended by the Monopoli di Stato for an additional nine years. LNS succeeded Consorzio Lotterie Nazionali (“CLN”), a consortium comprised of essentially the same group that owns LNS, as holder of the concession. Under the new concession, we are the primary supplier of instant lottery tickets for the joint venture, as we were under the prior concession. CLN, which had held the concession since 2004, is being wound up and the bulk of its assets have been transferred to LNS. LNS paid €800,000 in upfront fees under the terms of the new concession. We paid our pro rata share of these fees in 2010 (€160,000). The upfront fees associated with the new concession are amortized by LNS (anticipated to be approximately €89,000 each year of the new concession on a pre-tax basis), which reduces our earnings from our equity investment in LNS. Our share of the amortization is expected to be approximately €18,000 each year on a pre-tax basis. In light of the corporate structure of LNS, we record our earnings from our equity investment in LNS on an after-tax basis in accordance with applicable accounting rules, which impacts the comparability of our results of operations associated with LNS with our results of operations associated with CLN, since we recorded earnings from our equity investment in CLN on a pre-tax basis. Subject to applicable limitations, we are entitled to receive from LNS annual cash dividends as well as periodic return of capital payments over the life of the concession. In April 2011, we received a dividend of $22,012 from CLN. During 2011, we have received $10,870 from LNS comprised of a dividend of $4,238 received in the second quarter and return of capital payments of $6,266 and $366 received in the second and third quarter, respectively.

Northstar Lottery Group, LLC

We are a 20% equity owner in Northstar Lottery Group, LLC (“Northstar”), a joint venture with GTECH Corporation, a subsidiary of Lottomatica, that was formed to bid for the agreement to be the private manager for the Illinois lottery for a ten-year term. Northstar was selected as the private manager following a competitive procurement process and entered into a private management agreement with the State of Illinois on January 18, 2011 (the “PMA”). As the private manager, Northstar will, subject to the oversight of the Illinois lottery, manage the day-to-day operations of the lottery including lottery game development and portfolio management, retailer recruitment and training, supply of goods and services and overall marketing strategy. Under the terms of the PMA, Northstar is entitled to receive annual incentive compensation payments to the extent it is successful in increasing the lottery’s net income above specified target levels, subject to a cap of 5% of the applicable year’s net income. Northstar will be responsible for payments to the State to the extent such targets are not achieved, subject to a similar cap. Northstar is expected to be reimbursed on a

13

monthly basis for most of its operating expenses under the PMA. Under our agreement with Northstar, we are responsible for the design, development, manufacturing, warehousing and distribution of instant lottery tickets and will be compensated based on a percentage of retail sales.

On January 26, 2011, the Appellate Court of Illinois upheld a constitutional challenge to the revenue statute that, among other things, amended the lottery law to facilitate the PMA on grounds that the statute impermissibly addressed more than one subject. On July 11, 2011, the Illinois Supreme Court reversed the Appellate Court decision and upheld the revenue statute.  Operations under the PMA commenced on July 1, 2011. We contributed $10,000 to Northstar in March 2011 and an additional $2,000 in July 2011.  We account for our interest in Northstar under the equity method of accounting.

International Terminal Leasing

As contemplated by our strategic agreements with Video B Holdings Limited (“Video B”), a subsidiary of Playtech Limited, relating to our license of Video B’s back-end technology platform for our gaming machines, we formed ITL with Video B in the first quarter of 2011. The purpose of ITL is to acquire gaming terminals using funds contributed to the capital of ITL by each partner. The gaming terminals, which will employ Video B’s software, will be leased to whichever Company subsidiary is to provide the terminals to third-party customers. We account for our interest in ITL under the equity method of accounting. The equity interest of each partner is expected to vary based on the respective capital contributions from the partners; however, each partner has joint control regarding operating decisions of ITL. Intra-entity profits and losses will be eliminated as necessary. As of September 30, 2011 our investment in ITL was $35,961. The impact of ITL on our Consolidated Statements of Operations for the three and nine months ended September 30, 2011 was not material.

Sportech Plc

Upon the closing of the sale of our racing and venue management businesses (the “Racing Business”) to Sportech Plc (“Sportech”) on October 5, 2010, we received an equity interest in Sportech of approximately 20% of the shares then outstanding. Sportech operates football pools and associated games through various distribution channels including direct mail and telephone, agent-based collection and via the Internet. Sportech also operates a portfolio of online casino, poker, bingo and fixed-odds games through its e-Gaming division. Our interest in Sportech is accounted for under the equity method of accounting. We record our equity interest in Sportech on a 90-day lag as allowed under Accounting Standards Codification 323, Investments—Equity Method and Joint Ventures.

Shandong Inspur Scientific Games Technology, Ltd.

On April 16, 2007, we invested approximately $750 to establish Shandong Inspur Scientific Games Technology, Ltd. (“SIST”). On February 1, 2011, we sold our interest in SIST resulting in a gain of $397.

(4) Comprehensive (Loss) Income

The following presents a reconciliation of net (loss) income to comprehensive (loss) income for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Net (loss) income	$	(4,124	)	$	8,704	$	(4,037	)	$	9,248
Other comprehensive (loss) income
Foreign currency translation (loss) gain	(52,397		)	56,592		(4,435		)	(6,656		)
Gain on derivative financial instruments (1)	505			27		1,417			315
Other comprehensive (loss) income	(51,892		)	56,619		(3,018		)	(6,341		)
Comprehensive (loss) income	$	(56,016	)	$	65,323	$	(7,055	)	$	2,907

(1) For the three and nine months ended September 30, 2011, the gain on derivative financial instruments is net of income taxes of approximately $337 and $944, respectively.  For the three and nine months ended September 30, 2010, the gain on derivative financial instruments is net of income taxes of approximately $285 and $479, respectively.

14

(5) Inventories

Inventories consist of the following:

	September 30,		December 31,
	2011		2010
Parts and work-in-process	$	33,765	$	23,224
Finished goods	45,631		45,520
	$	79,396	$	68,744

Parts and work-in-process includes costs for equipment expected to be sold. Costs incurred for equipment associated with specific lottery and gaming contracts not yet placed in service are classified as construction in progress in property and equipment and are not depreciated.

(6) Long-Term Debt

Credit Agreement

We are party to a credit agreement, dated as of June 9, 2008, as amended and restated as of February 12, 2010, and amended as of December 16, 2010, March 11, 2011 and as further amended and restated as of August 25, 2011 (as so amended, the “Credit Agreement”), among Scientific Games International, Inc. (“SGI”), as borrower, the Company, as a guarantor, the several lenders from time to time parties thereto and JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent. A summary of the terms of the Credit Agreement, including the financial ratios that the Company is required to maintain under the terms of the Credit Agreement, is included in Note 8 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K.

On March 11, 2011, the Company and SGI entered into an amendment to the Credit Agreement. Under the amendment, from and after December 31, 2010, “consolidated EBITDA” (as such term is defined in the Credit Agreement) will generally include the Company’s share of the earnings of the Company’s joint venture that holds the Italian instant ticket concession, whether or not such earnings have been distributed to the Company, before interest expense (other than interest expense in respect of debt of such joint venture if such debt exceeds $25,000), income tax expense and depreciation and amortization expense, provided that the amount of “consolidated EBITDA” attributable to the Company’s interest in such joint venture that would not have otherwise been permitted to be included in “consolidated EBITDA” prior to giving effect to the amendment will be capped at $25,000 in any period of four consecutive quarters (or $30,000 in the case of any such period ending on or prior to June 30, 2012). Prior to giving effect to the amendment, “consolidated EBITDA” generally included only the Company’s share of the earnings of such joint venture that was distributed to the Company. In addition, under the terms of the amendment, any cash compensation expense incurred but not paid in a particular period will be added back for purposes of determining “consolidated EBITDA” so long as no cash payment in respect thereof is required prior to the scheduled maturity of the borrowings under the Credit Agreement. This add-back was revised pursuant to the subsequent amendment described below to permit up to $993 of non-cash compensation expense accrued prior to August 25, 2011 to be added back notwithstanding that cash payments may be required to be made in respect thereof prior to the scheduled maturity of the borrowings under the Credit Agreement.  “Consolidated EBITDA” is relevant for determining whether the Company is in compliance with the financial ratios required to be maintained under the terms of the Credit Agreement.

The amendment also provides that up to $100,000 of unrestricted cash and cash equivalents of the Company and its subsidiaries in excess of $15,000 will be netted against “consolidated total debt” for purposes of determining the Company’s “consolidated leverage ratio” and “consolidated senior debt ratio” (as such terms are defined in the Credit Agreement) as of any date from and after December 31, 2010. In connection with the amendment, SGI paid approximately $2,600 of fees and expenses to (or for the benefit of) the consenting lenders. For more information regarding the March 11, 2011 amendment, see our Current Report on Form 8-K filed with the SEC on March 14, 2011.

On August 25, 2011, the Company and SGI entered into an amendment to the Credit Agreement. In connection with the amendment, the scheduled maturity date of approximately $247,000 (or 99%) of the revolving credit facility commitments and approximately $555,800 (or 98%) of the outstanding term loans under the Credit Agreement was extended from June 9, 2013 to June 30, 2015.  Under the amended Credit Agreement, SGI has the flexibility to extend the maturity date of, or reduce or prepay without premium or penalty (other than break-funding costs), the approximately $16,400 of revolving credit facility commitments and outstanding term loans that were not extended in connection with the amendment, subject to certain conditions set forth in the amendment or the Credit Agreement, as applicable.  Under the terms of the amendment, we will be required to maintain the following

15

revised financial ratios:

·a “consolidated leverage ratio” (as such term is defined in the Credit Agreement) as of the last day of each fiscal quarter no more than the ratio set forth below with respect to the period during which such fiscal quarter ends:

·5.75 to 1.00 (through December 31, 2013);

·5.50 to 1.00 (January 1, 2014 through December 31, 2014); and

·5.25 to 1.00 (January 1, 2015 and thereafter); and

·a “consolidated senior debt ratio” (as such term is defined in the Credit Agreement) as of the last day of each fiscal quarter no more than 2.75 to 1.00.

The “consolidated interest coverage ratio” (as such term is defined in the Credit Agreement) that we are required to maintain (i.e., not less than 2.25 to 1.00 for any period of four consecutive quarters) was not changed by the amendment. .

Borrowings under the Credit Agreement bear interest at a rate per annum equal to, at SGI’s option, either (1) a base rate determined by reference to the higher of (a) the prime rate of JPMorgan, (b) the federal funds effective rate plus 0.50% and (c) the LIBOR rate for a deposit in dollars with a maturity of one month plus 1.00%, or (2) a reserve-adjusted LIBOR rate, in each case plus an applicable margin based on the consolidated leverage ratio as set forth in a grid.  Under the terms of the amendment, the two lowest applicable margin levels in the grid were eliminated such that the applicable margin now varies based on the consolidated leverage ratio from 1.50% to 2.50% above the base rate for base rate loans, and from 2.50% to 3.50% above LIBOR for LIBOR-based loans.

The amendment provides for additional refinancing flexibility in the form of (1) permitted bank debt or debt securities that may be unsecured or secured on a pari passu or junior basis with the collateral securing the obligations under the Credit Agreement and (2) replacement facilities under the Credit Agreement that can be used to refinance either the term loans or the revolving commitments under the Credit Agreement in whole.  In addition, SGI will have the capability to request one or more additional tranches of term loans, increase the existing tranche of term loans, or increase the revolving commitments in an amount not to exceed $200,000 after the effective date of the amendment (the “Incremental Facility”).  In lieu of incurring additional indebtedness pursuant to the Incremental Facility, the amendment also provides SGI with the flexibility to incur additional incremental indebtedness in the form of one or more series of debt securities in an aggregate principal amount not to exceed the amounts allowed to be incurred under the Incremental Facility.

In addition, the amendment renews most of the negative covenant baskets as of the effective date of the amendment and provides investment flexibility for SGI by allowing the borrower to move capital stock, property and cash from non-guarantor subsidiaries to loan parties and then back to non-guarantor subsidiaries, subject to certain limitations set forth in the Credit Agreement.  The amendment also provides SGI the ability to use an existing restricted payment basket comprised of $200,000 plus a permitted expenditure amount that is based in part on the cumulative consolidated net income of the Company for investments and prepayments of certain indebtedness. In connection with the amendment, SGI paid an aggregate of approximately $6,300 of fees and expenses to (or for the benefit of) the consenting and new lenders of which approximately $5,800 was capitalized as deferred financing fees. The Company recorded a loss on early extinguishment of debt of approximately $4,185 as a result of writing off deferred financing fees related to those lenders that chose not to extend the maturity date of their loans. For more information regarding the August 25, 2011 amendment, see our Current Report on Form 8-K filed with the SEC on August 31, 2011.

As of September 30, 2011, we had approximately $188,883 available for additional borrowing or letter of credit issuances under our revolving credit facility. There were no borrowings and $61,117 in outstanding letters of credit under our revolving credit facility as of September 30, 2011. Our ability to borrow under the Credit Agreement will depend on us remaining in compliance with the covenants contained in the Credit Agreement.

We were in compliance with our covenants under the Credit Agreement as of September 30, 2011.

Senior Subordinated Notes

On October 27, 2011, SGI completed a consent solicitation commenced on October 19, 2011 in which SGI sought and obtained consents from the holders of a majority in aggregate principal amount of SGI’s 7.875% senior subordinated notes due 2016 (the “2016 Notes”) to certain amendments to the indenture governing the 2016 Notes (the “Indenture”).  SGI paid consenting holders $5,000 in the aggregate in connection with the consent solicitation.

16

SGI, the Company, as a guarantor, the other guarantors party thereto and The Bank of Nova Scotia Trust Company of New York, as trustee, entered into a supplemental indenture (the “Supplemental Indenture”) implementing the amendments to the Indenture.  The Supplemental Indenture amends the Indenture to conform certain provisions of the Indenture to those contained in the indenture governing the Company’s 8.125% senior subordinated notes due 2018 (the “2018 Notes”) and thereby provides the Company with additional flexibility for investment opportunities that it may decide to pursue, including potential strategic partnerships, joint ventures and other acquisitions.

In particular, the Supplemental Indenture amends the definition of “consolidated net income” in the Indenture to exclude certain items, including net after-tax impairment charges and asset write-offs, which will, among other things, increase the Company’s capacity to make additional “restricted investments” under the Indenture.  In addition, the Supplemental Indenture amends the definition of “permitted investments” to include certain investments relating to the Italian instant ticket concession held by the Company’s joint venture.  The primary effect of this amendment is to “grandfather” the investments the Company made in 2010 to cover the Company’s portion of the upfront fees associated with the new concession for purposes of determining the Company’s capacity to make additional “restricted investments” under the Indenture.

For more information regarding the consent solicitation and the Supplemental Indenture, see our Current Report on Form 8-K filed with the SEC on October 28, 2011.

Outstanding Debt and Capital Leases

As of September 30, 2011, we had total debt outstanding of $1,391,784 including $567,134 outstanding under our term loan facilities under the Credit Agreement, $345,449 in aggregate principal amount of SGI’s 9.25% senior subordinated notes due 2019 (the “2019 Notes”), $200,000 in aggregate principal amount of the 2016 Notes, $250,000 in aggregate principal amount of the 2018 Notes, and loans denominated in Chinese Renminbi Yuan (“RMB”) totaling RMB178,500 of which RMB116,000 matures in December 2012 and RMB62,500 matures in January 2013.

On May 6, 2011, we paid the remaining £628 aggregate principal amount outstanding of the promissory notes we issued to defer a portion of the earn-out payable in connection with our acquisition of The Global Draw Limited (“Global Draw”) in 2006.

(7) Derivative Financial Instruments

Effective October 17, 2008, SGI entered into a three-year interest rate swap agreement (the “Hedge”) with JPMorgan, which expired on October 17, 2011. Under the Hedge, which was designated as a cash flow hedge, SGI paid interest on a $100,000 notional amount of debt at a fixed rate of 3.49% and received interest on a $100,000 notional amount of debt at the then prevailing three-month LIBOR rate. The objective of the Hedge was to eliminate the variability of cash flows attributable to the LIBOR component of interest expense paid on $100,000 of our variable-rate debt. As of September 30, 2011, the Hedge was measured at a fair value of $126 using Level 2 valuation techniques of the fair value hierarchy and included in accrued liabilities on the Consolidated Balance Sheet.

Hedge effectiveness was measured quarterly on a retrospective basis using the cumulative dollar-offset approach in which the cumulative changes in the cash flows of the actual swap were compared to the cumulative changes in the cash flows of the hypothetical swap. The effective portion of the Hedge was recorded in other comprehensive (loss) income and any ineffective portion of the Hedge was recorded in the Consolidated Statements of Operations. During the three and nine months ended September 30, 2011, we recorded a gain of approximately $505 and $1,417, respectively, in other comprehensive (loss) income. During the three and nine months ended September 30, 2010, we recorded a gain of approximately $27 and $315, respectively, in other comprehensive (loss) income. There was no ineffective portion of the Hedge recorded in the Consolidated Statements of Operations in either period. Amounts recorded in other comprehensive (loss) income that were deferred on the effective hedged forecasted transactions were reclassified to earnings when the interest expense related to the hedged item affected earnings.

(8) Intangible Assets and Goodwill

The following presents certain information regarding our intangible assets as of September 30, 2011 and December 31, 2010. Amortizable intangible assets are amortized over their estimated useful lives with no estimated residual values.

17

Intangible Assets	Gross Carrying Amount		Accumulated Amortization		Net Balance
Balance as of September 30, 2011
Amortizable intangible assets:
Patents	$	12,755	$	5,024	$	7,731
Customer lists	36,248		19,684		$	16,564
Licenses	77,340		55,319		$	22,021
Intellectual property	23,396		17,832		$	5,564
Lottery contracts	1,500		1,170		$	330
	151,239		99,029		52,210
Non-amortizable intangible assets:
Trade name	38,700		2,118		36,582
Total intangible assets	$	189,939	$	101,147	$	88,792
Balance as of December 31, 2010
Amortizable intangible assets:
Patents	$	12,106	$	4,321	$	7,785
Customer lists	30,083		19,009		11,074
Licenses	62,124		46,381		15,743
Intellectual property	17,833		17,719		114
Lottery contracts	1,500		1,093		407
	123,646		88,523		35,123
Non-amortizable intangible assets:
Trade name	37,608		2,118		35,490
Total intangible assets	$	161,254	$	90,641	$	70,613

The aggregate intangible amortization expense for the three and nine months ended September 30, 2011 was approximately $3,800 and $11,300, respectively. The aggregate intangible amortization expense for the three and nine months ended September 30, 2010 was approximately $3,400 and $10,900, respectively.

The table below reconciles the change in the carrying amount of goodwill, by reporting segment, for the period from December 31, 2010 to September 30, 2011. In the nine months ended September 30, 2011, we recorded an increase in goodwill of approximately $4,700 as a result of acquisitions and a decrease of approximately $2,300 as a result of foreign currency translation.

Goodwill	Printed Products Group			Lottery Systems Group	Diversified Gaming Group	Totals
Balance as of December 31, 2010	$	335,481		186,944	241,490	763,915
Adjustments	(1,968		)	2,511	1,830	2,373
Balance as of September 30, 2011	$	333,513		189,455	243,320	766,288

(9) Pension and Other Post-Retirement Plans

We have defined benefit pension plans for our U.K.-based union employees and certain Canadian-based employees (the “U.K. Plan” and the “Canadian Plan,” respectively). Retirement benefits under the U.K. Plan are based on an employee’s average compensation over the two years preceding retirement. Retirement benefits under the Canadian Plan are generally based on the number of years of credited service. Our policy is to fund the minimum contribution permissible by the applicable tax authorities.

18

The following table sets forth the combined amount of net periodic benefit cost recognized for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Components of net periodic pension benefit cost:
Service cost	$	589		$	478		$	1,512		$	1,421
Interest cost	1,114			1,226			3,461			3,699
Expected return on plan assets	(1,161		)	(1,243		)	(3,485		)	(3,695		)
Amortization of actuarial gains	95			124			284			403
Amortization of prior service costs	(54		)	6			(59		)	28
Net periodic cost	$	583		$	591		$	1,713		$	1,856

We have a 401(k) plan for U.S.-based employees who are not covered by a collective bargaining agreement. We contribute 37.5 cents on the dollar for the first 6% of participant contributions for a match of up to 2.25% of eligible compensation.

(10) Income Taxes

The effective tax rates of (114.6)% and 145.5%, respectively, for the three and nine months ended September 30, 2011 were determined using an estimated annual effective tax rate after considering any discrete items for such periods. Due to a valuation allowance against our U.S. deferred tax assets, the effective tax rate for the three and nine months ended September 30, 2011 does not include the benefit of the current year forecasted U.S. tax loss. Income tax expense for the three and nine months ended September 30, 2011 is primarily due to income tax expense in foreign jurisdictions.

The effective tax rates of 20.4% and 64.8%, respectively, for the three and nine months ended September 30, 2010 were determined using an estimated annual effective tax rate after considering any discrete items for such periods.  The effective tax rate for the three and nine months ended September 30, 2010 includes the impact of a valuation allowance against certain U.S. state deferred tax assets and the release of certain reserves due to the expiration of statutes of limitation for tax-related claims.

In 2010, we established a valuation allowance of $149,583 against the U.S. deferred tax assets that, in the judgment of management, are more likely than not to expire before they can be utilized. In assessing the recoverability of our deferred tax assets, we analyzed all evidence, both positive and negative. We considered, among other things, our deferred tax liabilities, our historical earnings and losses, projections of future income, and tax-planning strategies available to us. We have not changed our assessment regarding the recoverability of our U.S. deferred tax assets for the three and nine months ended September 30, 2011.

(11) Stockholders’ Equity

The following demonstrates the change in the number of shares of our Class A common stock outstanding during the nine months ended September 30, 2011 and during the fiscal year ended December 31, 2010:

	Nine Months	Twelve Months
	Ended	Ended
	September 30,	December 31,
	2011	2010
Shares outstanding as of beginning of period	91,725	93,883
Shares issued as part of equity-based compensation plans and the Employee Stock Purchase Plan (“ESPP”), net of RSUs surrendered	403	461
Shares repurchased into treasury stock	—	(2,619	)
Shares outstanding as of end of period	92,128	91,725

19

(12) Stock-Based Compensation

We offer stock-based compensation through the use of stock options and restricted stock units (“RSUs”). We grant stock options to employees and directors under our equity-based compensation plans with exercise prices that are not less than the fair market value of our common stock at the date of grant. The terms of the stock option and RSU awards, including the vesting schedule of such awards, are determined at our discretion subject to the terms of the applicable equity-based compensation plan. Options granted over the last several years have generally been exercisable in four or five equal installments beginning on the first anniversary of the date of grant with a maximum term of ten years. RSUs typically vest in four or five equal installments beginning on the first anniversary of the date of grant or when certain performance targets are met. There are 13,500 shares of common stock authorized for awards under our 2003 Incentive Compensation Plan (the “Plan”) plus available shares from a preexisting equity-based compensation plan, which plans were approved by our stockholders. We also have outstanding stock options granted as part of inducement stock option awards that were not approved by stockholders as permitted by applicable stock exchange rules. We record compensation cost for all stock options and RSUs based on the fair value at the grant date.

The Company may grant certain awards the vesting of which is contingent upon the Company achieving certain performance targets. Upon determining that the performance target is probable, the fair value of the award is recognized over the service period, subject to potential adjustment.

In connection with A. Lorne Weil becoming Chief Executive Officer, the Company entered into an amendment to his employment agreement effective December 2, 2010. Pursuant to the amendment, the Company awarded to Mr. Weil sign-on equity awards consisting of 1,000 stock options with an exercise price of $9.00 per share (representing an approximately 12% premium to the market value of our common stock on the date of grant) and a ten-year term and 1,000 RSUs, which awards have a four-year vesting schedule, with 25% scheduled to vest on December 31, 2011 and on each of the next three anniversaries of such date (such options and RSUs, the “time-vesting equity awards”).  Mr. Weil was also awarded additional performance-conditioned awards consisting of 1,000 stock options with an exercise price of $8.06 per share (representing the market value of our common stock on the date of grant) and 1,000 RSUs, which awards have a five-year vesting schedule, with 20% of such options and RSUs scheduled to vest each year if specified performance targets are met (subject to certain “carryover” vesting provisions as described in the employment agreement amendment) (such performance-conditioned stock options and RSUs, the “performance-conditioned equity awards”). Delivery of shares in respect of any vested performance-vesting RSUs will occur on March 15, 2016. The performance-conditioned stock options will expire, and the performance-conditioned RSUs will be forfeited, on March 15, 2016 to the extent that such awards remain unvested on such date. Any performance-conditioned stock options that have vested by March 15, 2016 will expire ten years from the date of grant.

In light of the shares that have been returned to the pool of available shares under the Plan as a result of the completion of the stock option exchange offer described below, on August 18, 2011, the Company entered into an amendment to its employment agreement with Mr. Weil to eliminate (1) the Company’s cash settlement obligation in respect of 200 time-vesting stock options and 500 time-vesting RSUs granted to Mr. Weil on December 2, 2010 that would have been triggered by the unavailability of shares under the Plan and (2) the non-exercisability and forfeiture provisions in respect of the 1,000 performance-conditioned stock options and the 1,000 performance-conditioned RSUs granted to Mr. Weil on December 2, 2010 that would have been triggered by the unavailability of shares under the Plan.  All other terms of Mr. Weil’s employment agreement relating to such equity awards (including the service and performance-based conditions to vesting, exercise and settlement thereof), as set forth in Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 3, 2010, are unchanged and remain in full force and effect.

The elimination of the cash settlement obligation in respect of certain of Mr. Weil’s awards as described above resulted in the re-classification of such awards from liability awards (i.e., where the award’s fair value, which determines the measurement of the liability on the balance sheet, is re-measured at each reporting period until the award is settled, with fluctuations in the fair value recorded as increases or decreases in compensation expense) to equity awards (i.e., where the compensation expense related to the award is fixed at the grant date based on the award’s grant-date fair value).  The Company began recognizing compensation expense associated with Mr. Weil’s performance-conditioned equity awards during the third quarter.  Neither the performance targets associated with such awards nor the expensing of such awards is necessarily indicative of the Company’s future results generally or for any period.

In January 2011, the Company awarded an aggregate of 475 equity awards to certain officers consisting of approximately 113 performance-conditioned stock options, approximately 113 time-vesting stock options (with an exercise price of $10.02 per share and a ten-year term) and 250 time-vesting stock options (with an exercise price of $9.98 per share and a ten-year term). In light of the shares that have been returned to the pool of available shares under the Plan as a result of the completion of the stock option exchange offer described below, on August 18, 2011, the Company entered into amendments to its employment agreements with such officers to eliminate the non-exercisability and forfeiture provisions of such awards that would have been triggered by the unavailability of shares under the Plan.  As a result of the elimination of such non-exercisability and forfeiture provisions, the Company began recognizing the compensation expense of the approximately 363 time-vesting stock options, which was not material to our Consolidated Statements of Operations.

The equity awards that otherwise would have been forfeited or not exercisable and the equity awards that otherwise would have been settled in cash, as the case may be, to the extent that sufficient shares were not available under the Plan at the time of

20

delivery of the underlying shares, were not deemed to be granted for accounting purposes as stock-based equity awards until the elimination of such forfeiture, non-exercisability and cash settlement provisions effective on August 18, 2011 (and were not reflected in the tables below as granted or outstanding prior to such date). We had approximately 1,334 and 2,119 shares available for grants of equity awards under our equity-based compensation plans (excluding 480 and 514 shares available under our employee stock purchase plan) as of September 30, 2011 and December 31, 2010, respectively.

Stock Option Exchange Program

On August 16, 2011, pursuant to its stockholder-approved stock option exchange offer, the Company accepted for exchange (and cancelled) options to purchase an aggregate of 4,918 shares of the Company’s common stock (representing 97% of the total number of options eligible for exchange in the exchange offer) and, in exchange therefor, granted a total of 663 RSUs under the Plan.  Under the terms of the exchange offer, eligible employees (including executive officers) and directors could exchange all (but not less than all) of their outstanding stock options with an exercise price greater than $11.99 that were granted before July 19, 2010, whether vested or unvested, for a lesser number of new RSUs based on the exchange ratios that were established in order to comply with the terms of the option exchange approved by our stockholders. The RSUs granted in connection with the exchange offer are scheduled to vest on the later of August 16, 2012 or the date on which the corresponding option would have vested.  The option exchange offer did not result in significant incremental stock-based compensation expense.  For additional information regarding the stock option exchange offer, see the Tender Offer Statement on Schedule TO filed by the Company with the SEC on July 19, 2011, as amended on August 5, 2011 and August 16, 2011, and the Current Report on Form 8-K filed by the Company with the SEC on August 18, 2011.

Stock Options

A summary of the changes in stock options outstanding under our equity-based compensation plans during the nine months ended September 30, 2011 is presented below:

	Number of Options		Weighted Average Remaining Contract Term (Years)	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding as of December 31, 2010	6,751		6.0	$	20.72	$	1,814
Granted	754
Exercised	(2	)				15
Cancelled	(307	)
Options outstanding as of March 31, 2011	7,196		6.4	19.42		654
Granted	20
Exercised	(2	)				11
Cancelled	(51	)
Options outstanding as of June 30, 2011	7,163		6.1	19.41		3,288
Granted	1,720
Exercised	—					—
Cancelled	(4,967	)
Options outstanding as of September 30, 2011	3,916		8.2	9.72		150
Options exercisable as of September 30, 2011	551		1.7	$	14.26	$	150

The weighted-average grant date fair value of options granted during the three months ended September 30, 2011, June 30, 2011 and March 31, 2011 was $3.90, $4.61 and $4.62, respectively. For the three and nine months ended September 30, 2011, we recognized stock-based compensation expense of approximately $1,500 and $4,900, respectively, related to the vesting of stock options and the related tax benefit of approximately $600 and $1,800, respectively. For the three and nine months ended September 30, 2010, we recognized stock-based compensation expense of approximately $1,800 and $5,800, respectively, related to the vesting of stock options and the related tax benefit of approximately $700 and $2,300, respectively.

As of September 30, 2011, we had unrecognized compensation expense of approximately $12,000 relating to stock option awards that will be amortized over a weighted-average period of approximately two years.

21

Restricted Stock Units

A summary of the changes in RSUs outstanding under our equity-based compensation plans during the nine months ended September 30, 2011 is presented below:

	Number of Restricted Shares		Weighted Average Grant Date Fair Value Per Share
Non-vested units as of December 31, 2010	2,440		$	15.13
Granted	917		8.92
Vested	(482	)	18.43
Cancelled	(16	)	15.52
Non-vested units as of March 31, 2011	2,859		$	12.58
Granted	32		9.47
Vested	(44	)	25.31
Cancelled	(26	)	13.66
Non-vested units as of June 30, 2011	2,821		$	12.34
Granted	2,305		8.38
Vested	(22	)	18.31
Cancelled	(52	)	13.10
Non-vested units as of September 30, 2011	5,052		$	10.50

For the three and nine months ended September 30, 2011, we recognized stock-based compensation expense of approximately $4,100 and $10,300 related to the vesting of RSUs and the related tax benefit of approximately $1,600 and $3,900,  respectively. For the three and nine months ended September 30, 2010, we recognized equity-based compensation expense of approximately $3,000 and $11,500, respectively, related to the vesting of RSUs and the related tax benefit of approximately $1,200 and $4,500, respectively.

As of September 30, 2011, we had unrecognized compensation expense of approximately $42,000 relating to RSUs that will be amortized over a weighted-average period of approximately two years.

(13) Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

We conduct substantially all of our business through our domestic and foreign subsidiaries. SGI’s obligations under the Credit Agreement, the 2016 Notes and the 2019 Notes are fully and unconditionally and jointly and severally guaranteed by Scientific Games Corporation (the “Parent Company”) and our 100%-owned domestic subsidiaries other than SGI (the “Guarantor Subsidiaries”). Our 2018 Notes, which were issued by the Parent Company, are fully and unconditionally and jointly and severally guaranteed by our 100% owned domestic subsidiaries, including SGI.

Presented below is condensed consolidating financial information for (i) the Parent Company, (ii) SGI, (iii) the Guarantor Subsidiaries and (iv) our 100%-owned foreign subsidiaries and our non-100%-owned domestic and foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) as of September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010. The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, SGI, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries assuming the guarantee structures of our obligations as disclosed in Note 8 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K for all periods presented. The condensed consolidating financial information has also been recast for all periods presented to reflect entities included in the sale of the Racing Business as non-guarantors.

The condensed consolidating financial information reflects the investments of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting. Corporate interest and administrative expenses have not been allocated to the subsidiaries.

22

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2011

	Parent Company		SGI		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Cash and cash equivalents	$	20,680	$	106	$	—	$	68,705	$	(2,612	)	$	86,879
Accounts receivable, net	—		47,902		46,924		92,410		—			187,236
Inventories	—		26,840		14,589		37,967		—			79,396
Other current assets	15,247		3,586		5,755		30,186		—			54,774
Property and equipment, net	2,998		168,613		36,166		230,522		—			438,299
Investment in subsidiaries	571,939		726,496		—		908,216		(2,206,651		)	—
Goodwill	—		273,657		78,618		414,013		—			766,288
Intangible assets	—		41,686		26,215		20,891		—			88,792
Intercompany balances	125,579		—		217,193		—		(342,772		)	—
Other assets	17,009		80,456		11,858		391,455		(6,101		)	494,677
Total assets	$	753,452	$	1,369,342	$	437,318	$	2,194,365	$	(2,558,136	)	$	2,196,341
Liabilities and stockholders’ equity
Current installments of long-term debt	$	—	$	6,280	$	—	$	3,111	$	—		$	9,391
Other current liabilities	34,829		62,174		26,577		103,914		(2,613		)	224,881
Long-term debt, excluding current installments	250,000		1,106,303		—		26,090		—			1,382,393
Other non-current liabilities	7,846		40,362		15,711		54,980		—			118,899
Intercompany balances	—		48,728		—		294,045		(342,773		)	—
Stockholders’ equity	460,777		105,495		395,030		1,712,225		(2,212,750		)	460,777
Total liabilities and stockholders’ equity	$	753,452	$	1,369,342	$	437,318	$	2,194,365	$	(2,558,136	)	$	2,196,341

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2010

	Parent Company		SGI		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Cash and cash equivalents	$	62,639	$	150	$	—	$	62,770	$	(1,278	)	$	124,281
Accounts receivable, net	—		72,830		45,541		59,808		—			178,179
Inventories	—		29,416		16,210		23,118		—			68,744
Other current assets	14,997		2,783		4,564		20,117		—			42,461
Property and equipment, net	1,730		150,130		43,859		254,862		—			450,581
Investment in subsidiaries	510,260		670,471		—		386,690		(1,567,421		)	—
Goodwill	—		273,656		78,843		411,416		—			763,915
Intangible assets	—		42,170		20,481		7,962		—			70,613
Intercompany balances	133,483		—		164,982		—		(298,465		)	—
Other assets	18,457		98,933		6,046		335,429		(6,101		)	452,764
Total assets	$	741,566	$	1,340,539	$	380,526	$	1,562,172	$	(1,873,265	)	$	2,151,538
Liabilities and stockholders’ equity
Current installments of long-term debt	$	—	$	6,280	$	—	$	2,151	$	—		$	8,431
Other current liabilities	29,363		48,074		32,601		78,817		(1,288		)	187,567
Long-term debt, excluding current installments	250,000		1,110,573		—		27,686		—			1,388,259
Other non-current liabilities	9,545		43,188		8,141		53,749		—			114,623
Intercompany balances	—		27,292		—		271,186		(298,478		)	—
Stockholders’ equity	452,658		105,132		339,784		1,128,583		(1,573,499		)	452,658
Total liabilities and stockholders’ equity	$	741,566	$	1,340,539	$	380,526	$	1,562,172	$	(1,873,265	)	$	2,151,538

23

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended September 30, 2011

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	95,742		$	19,976		$	107,357		$	(336	)	$	222,739
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			29,288			39,379			57,417			(1,405		)	124,679
Selling, general and administrative expenses	15,476			14,710			2,404			15,096			(26		)	47,660
Employee termination and restructuring costs	—			—			—			1,030						1,030
Depreciation and amortization	134			7,449			4,734			15,677			—			27,994
Operating income (loss)	(15,610		)	44,295			(26,541		)	18,137			1,095			21,376
Interest expense	5,351			20,535			—			411			—			26,297
Other (income) expense	(529		)	48,233			(46,473		)	(5,325		)	1,095			(2,999		)
Income (loss) before equity in income of subsidiaries, and income taxes	(20,432		)	(24,473		)	19,932			23,051			—			(1,922		)
Equity in income (loss) of subsidiaries	17,197			19,766			—			—			(36,963		)	—
Income tax expense	889			(191		)	—			1,504			—			2,202
Net income (loss)	$	(4,124	)	$	(4,516	)	$	19,932		$	21,547		$	(36,963	)	$	(4,124	)

(1) Exclusive of depreciation and amortization.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended September 30, 2010

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	89,522		$	17,319		$	114,695		$	(475	)	$	221,061
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			27,826			38,178			67,354			(520		)	132,838
Selling, general and administrative expenses	8,931			12,064			2,463			12,936			41			36,435
Write-down of assets held for sale	—			—			—			2,155			—			2,155
Employee termination and restructuring costs	—			—			—			602			—			602
Depreciation and amortization	126			8,174			4,551			14,433			—			27,284
Operating income (loss)	(9,057		)	41,458			(27,873		)	17,215			4			21,747
Interest expense	3,502			21,118			—			(3		)	—			24,617
Other (income) expense	(1,485		)	38,548			(51,551		)	678			4			(13,806		)
Income (loss) before equity in income of subsidiaries, and income taxes	(11,074		)	(18,208		)	23,678			16,540			—			10,936
Equity in income (loss) of subsidiaries	15,338			17,574			—			—			(32,912		)	—
Income tax expense	(4,440		)	3			—			6,669			—			2,232
Net income (loss)	$	8,704		$	(637	)	$	23,678		$	9,871		$	(32,912	)	$	8,704

(1) Exclusive of depreciation and amortization.

24

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Nine Months Ended September 30, 2011

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	292,842		$	45,774		$	302,087		$	(1,060	)	$	639,643
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			91,087			108,403			159,074			(3,086		)	355,478
Selling, general and administrative expenses	45,932			39,365			7,539			39,599			(1,795		)	130,640
Employee termination and restructuring costs	—			—			—			1,030			—			1,030
Depreciation and amortization	390			22,562			14,343			50,607			—			87,902
Operating income (loss)	(46,322		)	139,828			(84,511		)	51,777			3,821			64,593
Interest expense	16,098			61,817			—			1,246			—			79,161
Other (income) expense	(2,748		)	137,429			(139,710		)	(22,235		)	3,821			(23,443		)
Income (loss) before equity in income of subsidiaries, and income taxes	(59,672		)	(59,418		)	55,199			72,766			—			8,875
Equity in income (loss) of subsidiaries	63,902			55,946			—			—			(119,848		)	—
Income tax expense	8,267			(486		)	8			5,123			—			12,912
Net income (loss)	$	(4,037	)	$	(2,986	)	$	55,191		$	67,643		$	(119,848	)	$	(4,037	)

(1) Exclusive of depreciation and amortization.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Nine Months Ended September 30, 2010

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	282,570		$	37,119		$	352,029		$	(1,285	)	$	670,433
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			88,025			106,257			201,517			(1,338		)	394,461
Selling, general and administrative expenses	32,506			40,189			6,473			36,302			73			115,543
Write-down of assets held for sale	—			—			—			8,029			—			8,029
Employee termination and restructuring costs	—			—			—			602			—			602
Depreciation and amortization	372			24,822			13,698			43,125			—			82,017
Operating income (loss)	(32,878		)	129,534			(89,309		)	62,454			(20		)	69,781
Interest expense	10,090			61,727			—			2,359			—			74,176
Other (income) expense	14,191			117,229			(157,544		)	(4,539		)	(20		)	(30,683		)
Income (loss) before equity in income of subsidiaries, and income taxes	(57,159		)	(49,422		)	68,235			64,634			—			26,288
Equity in income (loss) of subsidiaries	72,250			59,860			—			—			(132,110		)	—
Income tax expense	5,843			25			10			11,162			—			17,040
Net income (loss)	$	9,248		$	10,413		$	68,225		$	53,472		$	(132,110	)	$	9,248

(1) Exclusive of depreciation and amortization.

25

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2011

	Parent Company			SGI			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net cash provided by operating activities	$	(34,903	)	$	37,712		$	48,075		$	101,770		$	(27	)	$	152,627
Cash flows from investing activities:
Capital, lottery and gaming systems expenditures	(1,499		)	(23,768		)	(1,766		)	(12,802		)	—			(39,835		)
Business acquisitions, net of cash acquired	—			—			—			(50,177		)	0			(50,177		)
Other assets and investments	(368		)	(17,332		)	(9,108		)	(523,575		)	472,613			(77,770		)
Net cash provided by (used in) investing activities	(1,867		)	(41,100		)	(10,874		)	(586,554		)	472,613			(167,782		)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	—			(4,710		)	—			(1,522		)	—			(6,232		)
Net proceeds from stock issue	(1,426		)	—			20			470,235			(470,255		)	(1,426		)
Payment of financing fees	(67		)	(9,119		)	—			—			—			(9,186		)
Other, principally intercompany balances	(2,974		)	18,424			(38,555		)	22,938			167			—
Net cash provided by (used in) financing activities	(4,467		)	4,595			(38,535		)	491,651			(470,088		)	(16,844		)
Effect of exchange rate changes on cash	(720		)	(1,253		)	—			(934		)	(2,496		)	(5,403		)
Increase (decrease) in cash and cash equivalents	(41,959		)	(44		)	(1,334		)	5,935			—			(37,402		)
Cash and cash equivalents, beginning of period	62,639			150			2,279			59,213			—			124,281
Cash and cash equivalents of held for sale operations	—			—			—			—			—			—
Cash and cash equivalents, end of period	$	20,680		$	106		$	945		$	65,148		$	—		$	86,879

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2010

	Parent Company			SGI			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net cash provided by operating activities	$	(20,614	)	$	63		$	58,214		$	105,552		$	26		$	143,241
Cash flows from investing activities:
Capital, lottery and gaming systems expenditures	(71		)	(21,649		)	(3,546		)	(26,863		)	—			(52,129		)
Business acquisitions, net of cash acquired	—			—			(6,556		)	(5,937		)	—			(12,493		)
Other assets and investments	(129,480		)	(137,026		)	(12,039		)	(185,454		)	309,778			(154,221		)
Net cash provided by (used in) investing activities	(129,551		)	(158,675		)	(22,141		)	(218,254		)	309,778			(218,843		)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	132,495			32,705			—			(52,417		)	—			112,783
Net proceeds from stock issue	(2,067		)	135,915			4,887			168,999			(309,801		)	(2,067		)
Purchase of treasury stock	(26,334		)	—			—			—			—			(26,334		)
Payment of financing fees	(6,042		)	(6,927		)	—			—			—			(12,969		)
Other, principally intercompany balances	37,102			(3,130		)	(46,681		)	12,564			145			—
Net cash provided by (used in) financing activities	135,154			158,563			(41,794		)	129,146			(309,656		)	71,413
Effect of exchange rate changes on cash	—			60			—			(8,877		)	(148		)	(8,965		)
Increase (decrease) in cash and cash equivalents	(15,011		)	11			(5,721		)	7,567			—			(13,154		)
Cash and cash equivalents, beginning of period	147,220			137			3,278			109,496			—			260,131
Cash and cash equivalents of held for sale operations	—			—			1,524			1,069			—			2,593
Cash and cash equivalents, end of period	$	132,209		$	148		$	(919	)	$	118,132		$	—		$	249,570

26

(14) Acquisitions

On April 26, 2011 we entered into a purchase agreement to acquire all of the issued shares of Barcrest Group Limited, a U.K. company, and Cyberview Technology CZ s.r.o., a company incorporated in the Czech Republic (collectively, “Barcrest”), a leading supplier of gaming content and machines in Europe, from subsidiaries of International Game Technology for approximately £33,000 in cash (subject to certain adjustments), plus up to approximately £2,000 in deferred consideration, the payment of which was subject to the satisfaction of certain conditions relating to a third-party contract. On September 23, 2011, we completed the acquisition for approximately £31,406 (or approximately $48,400) in cash, subject to certain post-closing adjustments.  The £2,000 in deferred consideration will not be payable as the conditions relating to the third-party contract were not satisfied.  Barcrest is being integrated into our gaming divisions.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date based on a preliminary purchase price allocation, which is subject to change based on a final purchase price allocation that is expected to be completed in the fourth quarter of 2011:

At Sepember 23, 2011
Cash and cash equivalents	$	1,900
Accounts receivable, net of allowance of doubtful accounts of approximately $2,000 as of September 23, 2011	21,300
Inventories	10,300
Prepaid expenses, deposits and other current assets	1,000
Property and equipment	15,500
Deferred income taxes	700
Intangible assets	12,000
Total identifiable assets acquired	62,700
Accounts Payable	7,700
Accrued Liabilities	8,600
Total liabilities assumed	—
Net identifiable assets acquired	46,400
Goodwill	2,000
Net assets acquired	$	48,400

Of the approximate $12,000 of acquired intangible assets, approximately $900 was allocated to trade names, and not subject to amortization. The remaining $11,100 of intangible assets includes customer lists of approximately $5,700 (with a four-year weighted average useful life) and intellectual property of approximately $5,400 (with a 4.5-year weighted average useful life).

The approximate $2,000 of goodwill was assigned to our Diversified Gaming segment. None of the goodwill is expected to be deductible for income tax purposes.

The Company recognized approximately $1,700 and $4,300 of acquisition-related costs that were expensed in the three and nine months ended September 30, 2011, respectively. These costs are included in selling, general and administrative expenses in our Consolidated Statements of Operations.

Barcrest service and sales revenue for the period September 23, 2011 (date of acquisition) through September 30, 2011 was approximately $800 and $2,000, respectively. Barcrest net income was approximately $400 for the same period.

The following represents our unaudited pro forma revenue and net income (loss) for the three and nine months ended September 30, 2010 and 2011, as if the acquisition of Barcrest had occurred on January 1, 2010.

27

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010		2011			2010		2011
Revenue (1)	$	242,300	$	236,500		$	723,900	$	682,900
Net income (loss) (2) (3)	$	12,300	$	(4,000	)	$	15,900	$	(1,500	)

(1)	Pro forma adjustment made to eliminate intercompany revenue and costs of approximately $1,300 and $200 recorded for the three months ended September 30, 2011 and 2010, respectively. Pro forma adjustment made to eliminate intercompany revenue and costs of approximately $3,200 and $500 for the nine months ended September 30, 2011 and 2010, respectively.
(2)	Pro forma adjustment made to capitalize development costs in accordance with the Company’s accounting policies including approximately $600 and $500 for the three months ended September 30, 2011 and 2010 , respectively, and approximately $1,700 for the nine months ended September 30, 2011 and 2010.
(3)	Pro forma adjustment made to relect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to intangible assets have been applied on January 1, 2010 including approximately $800 and $700 for the three months ended September 30, 2011 and 2010, respectively and approximately $2,300 and $2,200 for the nine months ended September 30, 2011 and 2010, respectively.

28

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

The following Management’s Discussion and Analysis (“MD&A”) is intended to enhance the reader’s understanding of our operations and current business environment. This MD&A should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2010 and the “Business” section included in our 2010 Annual Report on Form 10-K.

This MD&A also 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” included in this Quarterly Report on Form 10-Q.

As used in this MD&A, the terms “we,” “us,” “our” and the “Company” mean Scientific Games Corporation together with its consolidated subsidiaries.

Overview

Introduction

We are a leading global supplier of products and services to lotteries and a leading provider of gaming technology and content to other gaming operators worldwide. We also gain access to technology and pursue global expansion opportunities through strategic joint ventures and minority equity investments.

We operate our business in three reportable segments: Printed Products Group; Lottery Systems Group; and Diversified Gaming Group.

Our revenue is segregated into three categories: instant ticket revenue; service revenue; and sales revenue. Instant ticket revenue includes revenue related to our instant ticket fulfillment/services businesses, including our MDI Entertainment, LLC (“MDI”) business. Revenue generated from our Lottery Systems business (including revenue from the validation of instant tickets) and our Diversified Gaming Group (our wide area gaming business) is generally categorized as service revenue. Revenue generated from our sales of lottery systems and terminals is categorized as sales revenue.

For the nine months ended September 30, 2011, we derived approximately 47% of our revenue from our customers outside of the U.S. The foreign currencies to which we are most exposed are the British Pound Sterling and the Euro. For the three and nine months ended September 30, 2011, foreign currency exchange rate fluctuations increased our revenues by approximately $5.9 million and $11.0 million, respectively, and our operating income by approximately $0.6 million and $1.1 million, respectively.

The discussion below highlights certain known trends, demands, commitments, events and uncertainties that have affected our recent financial and operating performance and/or may affect our future financial and operating performance in our three reportable segments.

Printed Products Group

Our Printed Products Group is primarily comprised of our global instant ticket and related services businesses, which include ticket design and manufacturing as well as value-added services such as game design, sales and marketing support, specialty games and promotions, inventory management and warehousing and fulfillment services. We also provide lotteries with cooperative service partnerships (“CSPs”), under which we provide an extended suite of services to help our customers efficiently and effectively manage their operations to achieve higher profitability. The Printed Products Group includes MDI, a leading provider of licensed games, promotional entertainment and Internet-based services to the lottery industry. The Printed Products Group also includes our interest in Lotterie Nazionali S.r.l (“LNS”), our joint venture that holds the concession to operate the Gratta e Vinci instant ticket lottery in Italy (which succeeded our joint venture with Consorzio Lotterie Nazionali (“CLN”)), our interest in Northstar Lottery Group, LLC (“Northstar”), our joint venture that was awarded the private management agreement for the Illinois lottery in 2010 (executed in January 2011), and our interest in CSG Lottery Technology (Beijing) Co. Ltd. (“CSG”), our instant ticket printing joint venture in China.

Based on third-party data, our U.S. customers’ total instant ticket lottery retail sales increased approximately 5.6% and 5.8% for the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010. Most of our U.S. customers reported year-over-year growth in sales of instant tickets, which we believe was primarily driven by sales of higher price-point games. Our Printed Products instant ticket revenue increased 9.2% and 8.0% for the three and nine months ended September 30,

29

2011, respectively, compared to the same periods in 2010. We experienced an increase in revenue from our U.S. CSP and instant ticket contracts reflecting the improvement in retail sales and the commencement of our CSP agreement with Northstar on July 1, 2011.  The increase in revenue for these periods also reflected higher sales of licensed games by MDI, in part due to the successful introduction in the second quarter of a multi-state licensed game. There has also been an increase in interest within the lottery industry in player loyalty programs, which we believe may result in growth opportunities for MDI’s Properties Plus® offering.  In the third quarter, the Iowa lottery launched Properties Plus and the Tennessee lottery awarded MDI a contract for a player loyalty system.  In addition, the Missouri lottery is expected to begin a Properties Plus program in the first half of 2012. Our results also reflected higher revenue from our international customers year to date over the prior-year period, which was predominately driven by higher sales to LNS, higher revenue from our European CSP and instant ticket contracts and increased sales of higher price-point games.

We believe we are likely to continue to experience a highly competitive procurement environment in all of our segments, which could lead to contract rate reductions and/or additional service requirements in connection with re-bids, extensions and renewals of our domestic and international contracts. See the table in “Business—Contract Procurement” in Item 1 of our 2010 Annual Report on Form 10-K for information regarding the scheduled expiration dates of our U.S. lottery contracts and certain international contracts. Our strategy to counter-balance this highly competitive environment includes working with our lottery customers to grow their sales through a variety of methods including launching new products, implementing innovative marketing tools and expanding retail distribution. We are seeing evidence of increased interest by domestic and international lotteries in exploring privatization (full or partial) or new ownership structures in order to maximize their revenue, which we believe could provide new growth opportunities for the Company in the coming years.

Our LNS joint venture commenced operations under the new concession to operate the Italian instant ticket lottery on October 1, 2010. Under the concession, we are the primary supplier of instant lottery tickets for the joint venture, as we were under the prior concession. Over the life of the new concession, we expect that we will supply no less than 80% of LNS’ instant ticket requirements. The upfront fees paid in 2010 associated with the new concession will be amortized by LNS (anticipated to be approximately €89.0 million per year of the new concession), which reduces our earnings from equity investments. Our share of the amortization is expected to be approximately €18.0 million per year on a pre-tax basis. In light of the corporate structure of LNS, we record earnings from our equity investment in LNS on an after-tax basis in accordance with applicable accounting rules, which will impact the comparability of our results of operations from our Italian joint venture during 2011 since we recorded earnings from our equity investment in CLN on a pre-tax basis. Subject to applicable limitations, we are entitled to receive from LNS annual cash dividends as well as periodic return of capital payments over the life of the concession. In April 2011, we received a dividend of $22.0 million from CLN. We received $10.9 million from LNS during 2011 comprised of a dividend of approximately $4.2 million received in the second quarter and return of capital payments of $6.3 million and $0.4 million received in the second and third quarter, respectively.

Our Northstar joint venture, in which we are a 20% equity holder, was awarded the agreement to be the private manager for the Illinois lottery for a ten-year term following a competitive procurement process, which agreement was executed on January 18, 2011 (the “PMA”). As the private manager, Northstar will, subject to the oversight of the Illinois lottery, manage the day-to-day operations of the lottery including lottery game development and portfolio management, retailer recruitment and training, supply of goods and services and overall marketing strategy. On January 26, 2011, the Illinois Appellate Court upheld a constitutional challenge to the revenue statute that, among other things, amended the lottery law to facilitate the PMA, on grounds that the statute impermissibly addressed more than one subject. On July 11, 2011, the Illinois Supreme Court reversed the Appellate Court decision and upheld the revenue statute. Operations under the PMA commenced on July 1, 2011. We contributed $10.0 million to Northstar in March 2011 and an additional $2.0 million in July 2011. Northstar is entitled to receive annual incentive compensation payments to the extent it is successful in increasing the lottery’s net income above specified target levels, subject to a cap of 5% of the applicable year’s net income. Northstar will be responsible for payments to the State to the extent such targets are not achieved, subject to a similar cap. Earnings from our equity investment in Northstar may be impacted to the extent the lottery achieves, or fails to achieve, such targets.  Northstar is expected to be reimbursed on a monthly basis for most of its operating expenses under the PMA. Under our CSP agreement with Northstar, we are responsible for the design, development, manufacturing, warehousing and distribution of instant lottery tickets and will be compensated based on a percentage of retail sales. Our Printed Products instant ticket revenue reflects the commencement of our CSP agreement with Northstar. The impact of Northstar on our earnings from our equity investments was not material for the three months ended September 30, 2011.

Lottery Systems Group

Our Lottery Systems Group provides customized computer software, software support, equipment and data communication services to lotteries. The Lottery Systems Group also provides lotteries with transaction processing software for the accounting and validation of both instant and online lottery games, point-of-sale terminals, video lottery terminals (“VLTs”), central site computers, communications technology, and ongoing support and maintenance for these products. We are also the exclusive instant ticket validation network provider to the China Sports Lottery (“CSL”). The Lottery Systems Group also includes our 50% interest in Guard Libang, a provider of systems and services to a majority of the China Welfare Lottery jurisdictions.

30

Based on third-party data, Lottery Systems customers’ retail sales in the U.S. increased approximately 0.5% for the three months ended September 30, 2011 and decreased approximately 0.7% for the nine months ended September 30, 2011 compared to the same periods in 2010, which we believe is primarily due to fluctuations in jackpot amounts. Our Lottery Systems service revenue increased 7.1% for the three months ended September 30, 2011 and 1.4% for the nine months ended September 30, 2011 compared to the same periods in 2010. The increase for the quarter and the nine months ended September 30, 2011 reflected improved terms under certain contracts, growth in instant ticket validation revenue in the U.S. and from the CSL and increased international revenue.  Our sales revenue also increased due to increased terminal sales in the U.S. and to international customers compared to the prior-year period.

During 2010, the lottery authority in Maine awarded a new online lottery contract to one of our competitors, which award was subsequently invalidated as a result of our protest. The competitor’s appeal of the protest ruling was denied on October 21, 2011. Our contract with Maine was extended for one year until June 30, 2012 pending further action by the Maine lottery authority. During 2009, the Indiana lottery awarded us an online lottery contract that began in August 2010. In 2010, following a competitive procurement process, we were awarded a new lottery systems contract in Iowa, which commenced in July 2011.

U.S. lottery directors recently authorized certain changes to the Powerball® multi-state online lottery game, including an increase in the ticket price to $2, which are anticipated to take effect on January 15, 2012.  The increase in the Powerball ticket price represents the first price increase in the history of the U.S. multi-state online lottery and potentially provides an impetus for growth in online lottery retail sales.  We have also recently seen an increase in bidding opportunities to provide central monitoring and control systems for video gaming networks, particularly in jurisdictions in North America, as these jurisdictions pursue VLTs as an opportunity to address budget deficits.

In China, instant ticket retail sales of the CSL increased approximately 24% for the three and nine months ended September 30, 2011 compared to the same periods in 2010. We believe the increase is a result of our strategic initiatives related to our China operations, which focus on accelerating growth through the offering of higher price-point instant tickets such as the launch of a 30RMB ticket in the third quarter, the expansion of the retailer and validation network, the introduction of tickets with licensed brands and advertising campaigns to build brand awareness. We also continue to focus on the pursuit of additional distribution channels (e.g., mobile phones). The rate we receive on retail sales under our China instant ticket validation contract decreased by 0.2% in January 2011 and is scheduled to decrease by an additional 0.1% in January 2012 and an additional 0.1% in January 2014. To the extent we are not able to continue to offset these rate reductions by retail sales growth, our revenue and gross margin from this contract may be adversely affected.

Diversified Gaming Group

Our Diversified Gaming Group provides services and systems to operators in the wide area gaming industry. The Diversified Gaming Group includes The Global Draw Limited (“Global Draw”), Games Media Limited (“Games Media”) and Barcrest Group Limited (“Barcrest”), leading suppliers of wide area gaming machines, server-based gaming systems and game content to licensed bookmakers primarily in betting shops and to pub operators in the U.K. and Europe. The Diversified Gaming Group also includes our equity interest in Roberts Communication Network, LLC (“RCN”), which provides communications services to racing and non-racing customers, Sportech Plc (“Sportech”), a leading operator and supplier of football pools and associated games, Sciplay, our joint venture to deliver Internet gaming solutions to government-sponsored and other lotteries and certain other gaming operators, and International Terminal Leasing (“ITL”).

The Diversified Gaming Group included our racing and venue management businesses (the “Racing Business”) prior to its sale on October 5, 2010 to Sportech. Due to the Company’s continued involvement with Sportech, including our equity interest in Sportech, the disposal of the Racing Business did not qualify as discontinued operations and was not reflected as such in our Consolidated Statements of Operations. Our interest in Sportech is accounted for under the equity method of accounting. The comparability of our results of operations during 2011 has been affected by the sale of the Racing Business.

On April 26, 2011, we entered into a purchase agreement to acquire all of the issued shares of Barcrest, a leading supplier of gaming content and machines in Europe, from subsidiaries of International Game Technology for approximately £33.0 million in cash (subject to certain adjustments), plus up to approximately £2.0 million in deferred consideration, the payment of which was subject to the satisfaction of certain conditions relating to a third-party contract. On September 23, 2011, we completed the acquisition for approximately £31.4 million in cash, subject to certain post-closing adjustments.  The £2.0 million in deferred consideration will not be payable as the conditions relating to the third-party contract were not satisfied.  Barcrest is being integrated into our gaming divisions and will affect the comparability of our results of operations during 2011 and 2012.

In 2010, Global Draw began migrating its server-based gaming machines to a new state-of-the-art back-end technology platform and rolling out this new technology to its customers in the U.K. Global Draw completed the U.K. migration in the second quarter of 2011 and began migrating international server-based gaming machines to the new technology during the third quarter.   In 2010, Global Draw was awarded a four-year contract to supply approximately 7,600 server-based gaming machines to Ladbrokes,

31

which we believe represents approximately 95% of its terminal base. In March 2011, Global Draw was awarded the remaining 5% of Ladbrokes’ terminal base. We have completed the installation of gaming machines in the Ladbrokes estate, representing a significant portion of the increase in Global Draw’s installed gaming machine base from September 30, 2010. Operating results for the three and nine months ended September 30, 2011 reflects the increase in revenue resulting from the higher installed base of gaming machines.

As contemplated by our strategic agreements with Video B Holdings Limited (“Video B”), a subsidiary of Playtech Limited, relating to our license of Video B’s back-end technology platform for our gaming machines, we formed ITL with Video B in the first quarter of 2011. The purpose of ITL is to acquire gaming terminals using funds contributed to the capital of ITL by each partner. The terminals, which will employ Video B’s software, will be leased to whichever Company subsidiary is to provide the terminals to third-party gaming operator customers. The impact of ITL on our Consolidated Statements of Operations for the three and nine months ended September 30, 2011 was not material.

Results of Operations

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

The following analysis compares the results of operations for the quarter ended September 30, 2011 to the results of operations for the quarter ended September 30, 2010.

Revenue Analysis

For the quarter ended September 30, 2011, total revenue was $222.7 million compared to $221.1 million for the quarter ended September 30, 2010, an increase of $1.6 million, or 1%, which included the effect of the sale of the Racing Business of $30.2 million. Our instant ticket revenue for the quarter ended September 30, 2011 was $126.7 million compared to $116.0 million for the quarter ended September 30, 2010, an increase of $10.7 million, or 9%. Our service revenue for the quarter ended September 30, 2011 was $81.4 million compared to $92.8 million for the quarter ended September 30, 2010, a decrease of $11.4 million, or 12%, which included the effect of the sale of the Racing Business of $25.2 million. Our sales revenue for the quarter ended September 30, 2011 was $14.6 million compared to $12.3 million for the quarter ended September 30, 2010, an increase of $2.3 million, or 19%, which included the effect of the sale of the Racing Business of $5.0 million.

Printed Products

For the quarter ended September 30, 2011, total revenue for Printed Products was $129.6 million compared to $117.0 million for the quarter ended September 30, 2010, an increase of $12.6 million, or 11%. For the quarter ended September 30, 2011, instant ticket revenue was $126.7 million compared to $116.0 million for the quarter ended September 30, 2010, an increase of $10.7 million, or 9%. This increase reflected higher revenue of $7.3 million from U.S. customers primarily due to the commencement of our CSP agreement with Northstar, sales of higher price-point games and increased sales of licensed games. Our international revenue increased $0.9 million primarily due to growth in revenue from our European contracts and higher price-point games, offset by a decrease in sales to LNS due to the timing of orders. Revenue also increased as a result of favorable foreign currency translation of $2.5 million.

Printed Products sales revenue for the quarter ended September 30, 2011 was $3.0 million compared to $1.0 million for the quarter ended September 30, 2010, an increase of $2.0 million, primarily due to an increase in phone card sales during the quarter.

Lottery Systems

For the quarter ended September 30, 2011, total revenue for Lottery Systems was $59.6 million compared to $52.8 million for the quarter ended September 30, 2010, an increase of $6.8 million, or 13%. Lottery Systems service revenue for the quarter ended September 30, 2011 was $49.9 million compared to $46.6 million for the quarter ended September 30, 2010, an increase of $3.3 million, or 7%. The service revenue increase reflected increased U.S. revenue of $0.7 million, primarily due to higher instant ticket validation revenue in the U.S. and improved terms under certain contracts, increased revenue from the CSL of $0.8 million and increased international revenue of $0.8 million.  Revenue also increased $1.0 million due to favorable foreign currency translation.

Lottery Systems sales revenue for the quarter ended September 30, 2011 was $9.6 million compared to $6.1 million for the quarter ended September 30, 2010, an increase of $3.5 million. The increase was primarily due to increased terminal sales to international customers of $2.0 million, increased sales of hardware in the U.S. of $0.7 million and the impact of foreign currency translation of $0.8 million.

32

Diversified Gaming

For the quarter ended September 30, 2011, total revenue for Diversified Gaming was $33.5 million compared to $51.3 million for the quarter ended September 30, 2010, a decrease of $17.8 million, or 35%. Diversified Gaming service revenue for the quarter ended September 30, 2011 was $31.5 million compared to $46.2 million for the quarter ended September 30, 2010, a decrease of $14.7 million, or 32%. The decrease in service revenue was primarily due to the sale of the Racing Business resulting in a decrease of $25.2 million. The decrease was partially offset by increased revenue of $9.0 million primarily due to the expansion of Global Draw’s terminal base in the U.K. during 2011, higher revenue per terminal, and the acquisition of Barcrest of $0.8 million. Revenue also increased $1.6 million due to favorable foreign currency translation.

Diversified Gaming sales revenue for the quarter ended September 30, 2011 was $3.1 million lower than for the quarter ended September 30, 2010, including a decrease of $5.0 million due to the sale of the Racing Business which was partially offset by $2.0 million of sales revenue from Barcrest customers.

Cost of Revenue Analysis

Cost of instant ticket revenue of $71.8 million for the quarter ended September 30, 2011 was $4.6 million, or 7%, higher than for the quarter ended September 30, 2010. Cost of services of $42.6 million for the quarter ended September 30, 2011 was $15.2 million, or 26%, lower than for the quarter ended September 30, 2010. Cost of sales of $10.3 million for the quarter ended September 30, 2011 was $2.4 million, or 30%, higher than for the quarter ended September 30, 2010.

Printed Products

Cost of instant ticket revenue of $71.8 million for the quarter ended September 30, 2011 was $4.6 million, or 7%, higher than for the quarter ended September 30, 2010. The increase reflected higher costs of $2.8 million as a result of increased revenue and higher costs of $1.7 million due to the impact of foreign currency translation.

Cost of sales of $1.9 million for the quarter ended September 30, 2011 was $1.0 million higher than for the quarter ended September 30, 2010, primarily due to the increase in phone card sales.

Lottery Systems

Cost of services of $26.9 million for the quarter ended September 30, 2011 was $0.4 million, or 2%, higher than for the quarter ended September 30, 2010, primarily due to impact of foreign currency translation.

Cost of sales of $6.8 million for the quarter ended September 30, 2011 was $2.8 million higher than for the quarter ended September 30, 2010 due to the increase in international terminal sales, higher sales of hardware in the U.S. and the impact of foreign currency translation.

Diversified Gaming

Cost of services of $15.7 million for the quarter ended September 30, 2011 was $15.6 million lower than for the quarter ended September 30, 2010. The decrease reflected a decline in costs of $20.0 million due to the sale of the Racing Business. The decrease was partially offset by an increase in costs of $3.5 million, primarily due to the expansion of Global Draw’s terminal base and the impact of foreign currency translation of $0.9 million.

Cost of sales of $1.6 million for the quarter ended September 30, 2011 was $1.3 million lower than for the quarter ended September 30, 2010. The decrease reflected a decline in costs of $2.9 million due to the sale of the Racing Business, partially offset by costs associated with Barcrest sales revenue.

Selling, General and Administrative Expense Analysis

Selling, general and administrative expense of $47.7 million for the quarter ended September 30, 2011 was $11.2 million, or 31%, higher than for the quarter ended September 30, 2010. The increase reflected increased headcount, consultant and incentive compensation expense of $4.7 million, an increase of $0.9 million related to our Asia-Pacific Business Incentive Compensation Plan (the “Asia-Pacific Plan”) and an increase in stock-based compensation expense of $0.7 million, a portion of which was attributable to performance-conditioned equity awards granted to our Chief Executive Officer in December 2010.  The increase also reflected $3.9 million of higher acquisition-related due diligence and advisory fees and a charge taken related to a potential customer claim, the impact of foreign currency translation of $1.0 million, an increase in expense of $0.9 million to support the expansion of the Global Draw business, an increase in management transition costs

33

of $0.8 million, and $0.7 million of expenses related to the recent credit agreement amendment and stock option exchange program. The increase was partially offset by lower expenses of $3.1 million due to the sale of the Racing Business.

Employee Termination and Restructuring Costs

Employee termination and restructuring costs of $1.0 million and $0.6 million for the three months ended September 30, 2011 and 2010, respectively, were a result of our cost reduction initiatives related to Global Draw’s migration to a new back-end technology platform.

Write-down of Assets Held for Sale

Write-down of assets held for sale of $2.2 million included in the three months ended September 30, 2010 resulted from valuing the held-for-sale assets of the Racing Business at fair market value less estimated costs to sell.

Depreciation and Amortization Expense Analysis

Depreciation and amortization expense of $28.0 million for the quarter ended September 30, 2011 increased $0.7 million, or 3%, from the quarter ended September 30, 2010, primarily due to increases in our international Lottery Systems Group.

Other (Income) Expense Analysis

Interest expense of $26.3 million for the quarter ended September 30, 2011 increased $1.7 million, or 7%, from the quarter ended September 30, 2010, primarily attributable to the issuance of our 8.125% senior subordinated notes due 2018 (the “2018 Notes”) and the retirement of our 6.25% senior subordinated notes due 2012 (the “2012 Notes”) in 2010.

Earnings from equity investments of $8.9 million for the quarter ended September 30, 2011 decreased $4.1 million, or 32%, from the quarter ended September 30, 2010. The decrease primarily related to a decline in earnings from our equity investment in our Italian joint venture of $5.5 million. The Company’s share of earnings from the Italian joint venture is now reported on an after-tax basis (it was previously reported on a pre-tax basis under the prior instant ticket concession) and reflects the amortization of a portion of the upfront fees for the new concession, which together reduced our earnings from our equity investment in the Italian joint venture by approximately $9.1 million. The decrease was offset by an increase of $1.4 million from CSG and $0.7 million from Sportech.

Loss on early extinguishment of debt of $4.2 million for the quarter ended September 30, 2011 was the result of the write- off of deferred financing fees proportionally attributable to those lenders that chose not to extend the maturity date of their loans under the August 25, 2011 credit agreement amendment. Loss on early extinguishment of debt of $2.2 million for the quarter ended September 30, 2010 was the result of the write-off of deferred financing fees related to the purchase and retirement of $107.6 million in aggregate principal amount of the 2012 Notes.

Other expense for the quarter ended September 30, 2011 of $1.7 million increased $4.7 million from other income of $3.0 million for the quarter ended September 30, 2010, primarily due to the gain on foreign currency hedging contracts related to the Italian instant ticket concession tender of $3.2 million in the quarter ended September 30, 2010. The foreign currency forward contracts were settled in 2010. Other expense also increased $1.1 million due to foreign currency transaction expense.

Income Tax Expense Analysis

Income tax expense was $2.2 million for the quarter ended September 30, 2011 compared to $2.2 million for the quarter ended September 30, 2010. The effective income tax rates for the quarters ended September 30, 2011 and 2010 were (114.6)% and 20.4%, respectively. Due to a valuation allowance against our U.S. deferred tax assets, the effective tax rate for the quarter ended September 30, 2011 does not include the benefit of the current year forecasted U.S. tax loss. Income tax expense for the quarter ended September 30, 2011 was primarily attributable to income tax expense in our foreign jurisdictions. The effective tax rate for the quarter ended September 30, 2010 included the release of certain reserves related to the expiration of the statute of limitations for certain tax-related claims.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

The following analysis compares the results of operations for the nine months ended September 30, 2011 to the results of operations for the nine months ended September 30, 2010.

34

Revenue Analysis

For the nine months ended September 30, 2011, total revenue was $639.6 million compared to $670.4 million for the nine months ended September 30, 2010, a decrease of $30.8 million, or 5%, which included the effect of the sale of the Racing Business of $82.7 million. Our instant ticket revenue for the nine months ended September 30, 2011 was $371.0 million compared to $343.5 million for the nine months ended September 30, 2010, an increase of $27.5 million, or 8%. Our service revenue for the nine months ended September 30, 2011 was $237.3 million compared to $287.5 million for the nine months ended September 30, 2010, a decrease of $50.2 million, or 17%, which included the effect of the sale of the Racing Business of $75.0 million.  Our sales revenue for the nine months ended September 30, 2011 was $31.4 million compared to $39.4 million for the nine months ended September 30, 2010, a decrease of $8.0 million, or 20%, which included the effect of the sale of the Racing Business of $7.7 million.

Printed Products

For the nine months ended September 30, 2011, total revenue for Printed Products was $377.8 million compared to $350.1 million in the nine months ended September 30, 2010, an increase of $27.7 million, or 8%. For the nine months ended September 30, 2011, instant ticket revenue was $371.0 million compared to $343.5 million for the nine months ended September 30, 2010, an increase of $27.5 million, or 8%.  This increase reflected higher revenue of $9.1 million due to sales of licensed games and higher revenue of $4.2 million from U.S. customers due in part to the commencement of the CSP agreement with Northstar and increased sales of higher price-point games.  International revenue increased $8.6 million primarily due to increased sales to LNS, our European CSP customers and other international customers and increased sales of higher price-point instant tickets. Revenue for the nine months ended September 30, 2011 also included favorable foreign currency translation of $5.4 million.

Printed Products sales revenue for the nine months ended September 30, 2011 was $6.8 million compared to $6.6 million for the nine months ended September 30, 2010, an increase of $0.2 million, primarily due to an increase in phone card sales.

Lottery Systems

For the nine months ended September 30, 2011, total revenue of $172.8 million for Lottery Systems was flat compared to $172.9 million for the nine months ended September 30, 2010. Lottery Systems service revenue for the nine months ended September 30, 2011 was $150.4 million compared to $148.3 million for the nine months ended September 30, 2010, an increase of $2.1 million, or 1%.  The service revenue increase primarily reflected increased instant ticket validation revenue in the U.S. of $1.9 million and from the CSL of $2.2 million, increased international service revenue of $1.6 million and favorable foreign currency translation of $1.5 million. The increase in revenue was offset by lower revenue of $4.3 million due to the loss of contracts in New Hampshire and Vermont on June 30, 2010.

Lottery Systems sales revenue for the nine months ended September 30, 2011 was $22.4 million compared to $24.5 million for the nine months ended September 30, 2011, a decrease of $2.1 million, or 8%. The decrease was primarily due to a large hardware order from two European customers in the prior-year period that was not repeated to the same extent in 2011, resulting in lower revenue of $8.6 million.  The decrease in sales revenue was partially offset by increased sales of hardware of $5.5 million to U.S. and international customers and favorable foreign currency translation of $1.0 million.

Diversified Gaming

For the nine months ended September 30, 2011, total revenue for Diversified Gaming was $89.1 million compared to $147.5 million for the nine months ended September 30, 2010, a decrease of $58.4 million, or 40%, which included the effect of the sale of the Racing Business of $82.7 million.  Diversified Gaming service revenue for the nine months ended September 30, 2011 was $86.9 million compared to $139.2 million for the nine months ended September 30, 2010, a decrease of $52.3 million, or 38%.  The decrease in service revenue was principally due to the sale of the Racing Business, resulting in a decrease of $75.0 million. The decrease was partially offset by increased revenue of $18.7 million primarily from the expansion of Global Draw’s terminal base, higher revenue per terminal and higher revenue of $3.1 million due to favorable foreign currency translation.

Diversified Gaming sales revenue for the nine months ended September 30, 2011 was $6.1 million lower than for the nine months ended September 30, 2010, due to a decrease of $7.7 million from the sale of the Racing Business, partially offset by terminal sales to Barcrest customers.

Cost of Revenue Analysis

Cost of instant ticket revenue of $211.2 million for the nine months ended September 30, 2011 was $11.9 million, or 6%, higher than for the nine months ended September 30, 2010. Cost of services of $122.9 million for the nine months ended September 30, 2011

35

was $44.4 million, or 27%, lower than for the nine months ended September 30, 2010. Cost of sales of $21.4 million for the nine months ended September 30, 2011 was $6.5 million, or 23%, lower than for the nine months ended September 30, 2010.

Printed Products

Cost of instant ticket revenue of $211.2 million for the nine months ended September 30, 2011 was $11.9 million, or 6%, higher than for the nine months ended September 30, 2010. The increase reflected higher costs of $7.8 million as a result of increased revenue and higher costs of $3.9 million due to the impact of foreign exchange rates.

Cost of sales of $4.2 million for the nine months ended September 30, 2011 was $0.8 million lower than for the nine months ended September 30, 2010, reflecting cost efficiencies related to phone card sales.

Lottery Systems

Cost of services of $79.1 million for the nine months ended September 30, 2011 was $0.3 million higher than for the nine months ended September 30, 2010. The increase was due to increased costs of $1.9 million from our U.S. and international businesses and $0.7 million due to the impact of foreign currency translation.  The increase in costs was partially offset by lower costs of $2.2 million due to the loss of our New Hampshire and Vermont online lottery contracts on June 30, 2010.

Cost of sales of $15.6 million for the nine months ended September 30, 2011 was $2.1 million, or 12%, lower than for the nine months ended September 30, 2010. The decrease was primarily due to a large hardware order from two European customers in the prior-year period that was not repeated to the same extent in 2011, resulting in lower costs of $5.9 million. The decrease in cost of sales was partially offset by increased costs of $2.9 million related to increased hardware sales to U.S. and international customers and the impact of foreign currency translation of $0.9 million.

Diversified Gaming

Cost of services of $43.9 million for the nine months ended September 30, 2011 was $44.7 million lower than for the nine months ended September 30, 2010.  The decrease in cost of services was primarily due to a decline of $57.2 million due to the sale of the Racing Business. The decrease was partially offset by an increase in costs of $11.0 million, primarily due to the expansion of Global Draw’s terminal base, and higher costs of $1.5 million due to the impact of foreign exchange rates.

Cost of sales for the nine months ended September 30, 2011 was $3.6 million lower than for the nine months ended September 30, 2010, due to a decrease in costs related to the sale of the Racing Business of $4.7 million, which was partially offset by an increase in costs of $1.7 million related to terminal sales to Barcrest customers.

Selling, General and Administrative Expense Analysis

Selling, general and administrative expense of $130.6 million for the nine months ended September 30, 2011 was $15.1 million, or 13%, higher than for the nine months ended September 30, 2010.  The increase reflected increased headcount, consultant and incentive compensation expense of $10.1 million and an increase of $1.9 million related to our Asia-Pacific Plan. The increase also reflected $8.8 million of higher acquisition-related due diligence and advisory fees and a charge taken related to a potential customer claim, an increase in expense of $2.0 million to support the expansion of the Global Draw business, increased management transition costs of $0.9 million and the impact of foreign currency translation of $1.7 million. The increase was partially offset by lower expenses of $8.9 million due to the sale of the Racing Business and lower stock-based compensation expense of $2.1 million.

Employee Termination and Restructuring Costs

Employee termination and restructuring costs of $1.0 million and $0.6 million for the nine months ended September 30, 2011 and 2010, respectively, were a result of our cost reduction initiatives related to Global Draw’s migration to a new back-end technology platform.

Write-down of Assets Held for Sale

Write-down of assets held for sale of $8.0 million included in the nine months ended September 30, 2010 was the result of valuing the held-for-sale assets of the Racing Business at fair market value less estimated costs to sell.

36

Depreciation and Amortization Expense Analysis

Depreciation and amortization expense of $87.9 million for the nine months ended September 30, 2011 increased $5.9 million, or 7%, from the nine months ended September 30, 2010.  The increase was primarily due to accelerated depreciation expense of approximately $6.4 million recorded by Global Draw on existing technology as it migrated to a new back-end technology platform.

Other (Income) Expense Analysis

Interest expense of $79.2 million for the nine months ended September 30, 2011 increased $5.0 million, or 7%, from the nine months ended September 30, 2010, primarily attributable to the issuance of the 2018 Notes and the retirement of the 2012 Notes in 2010.

Loss on early extinguishment of debt of $4.2 million for the nine months ended September 30, 2011 was the result of the write- off of deferred financing fees proportionally attributable to those lenders that chose not to extend the maturity date of their loans under the August 25, 2011 credit agreement amendment. Loss on early extinguishment of debt of $2.2 million for the nine months ended September 30, 2010 was the result of the write-off of deferred financing fees related to the purchase and retirement of $107.6 million in aggregate principal amount of the 2012 Notes.

Earnings from equity investments of $27.5 million for the nine months ended September 30, 2011 decreased $15.0 million, or 35%, from the nine months ended September 30, 2010. The decrease primarily related to a decline in earnings from our equity investment in our Italian joint venture of $18.2 million. The Company’s share of earnings from the Italian joint venture is now reported on an after-tax basis (it was previously reported on a pre-tax basis under the prior instant ticket concession) and reflects the amortization of a portion of the upfront fees for the new concession, which together reduced our earnings from our equity investment in the Italian joint venture by approximately $27.5 million. The decrease was partially offset by an increase of $4.5 million from CSG.

Other income for the nine months ended September 30, 2011 of $0.2 million increased $9.8 million from other expense of $9.6 million in the nine months ended September 30, 2010, primarily due to the loss on foreign currency hedging contracts related to the Italian instant ticket concession tender of $12.6 million for the nine months ended September 30, 2010. The foreign currency forward contracts were settled in 2010.

Income Tax Expense Analysis

Income tax expense was $12.9 million for the nine months ended September 30, 2011 compared to $17.0 million for the nine months ended September 30, 2010. The effective income tax rates for the nine months ended September 30, 2011 and 2010 were 145.5% and 64.8%, respectively. Due to a valuation allowance against our U.S. deferred tax assets, the effective tax rate for the nine months ended September 30, 2011 does not include the benefit of the current year forecasted U.S. tax loss. Income tax expense for the nine months ended September 30, 2011 was primarily attributable to income tax expense in our foreign jurisdictions.  The effective tax rate for the nine months ended September 30, 2010 includes a valuation allowance of $11.8 million against certain U.S. state deferred tax assets.

Critical Accounting Policies

There have been no changes to our critical accounting policies from those discussed under the caption “Critical Accounting Policies” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2010 Annual Report on Form 10-K except as noted below.

In September 2009, the Financial Accounting Standards Board (“FASB”) amended the Accounting Standards Codification (“ASC”) as summarized in Accounting Standards Update (“ASU”) 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements, and ASU 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. As summarized in ASU 2009-14, ASC Topic 985 has been amended to remove from the scope of industry-specific revenue accounting guidance for software and software related transactions tangible products containing software components and non-software components that function together to deliver the product’s essential functionality. As summarized in ASU 2009-13, ASC Topic 605 has been amended: (1) to provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and the consideration allocated; (2) to require an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of the selling price; and (3) to eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. The accounting changes summarized in ASU 2009-14 and ASU 2009-13 are both effective for fiscal years beginning on or after June 15, 2010, with early adoption permitted. Adoption may either be on a prospective basis or by retrospective application.

We adopted these amendments to the ASC on January 1, 2011 on a prospective basis as applicable to our revenue generated from licensing branded properties that are coupled with a service component, where we also purchase and distribute prizes on behalf of

37

lottery authorities. The impact of these accounting changes was not material to our consolidated financial statements for the three and nine months ended September 30, 2011.

Liquidity, Capital Resources and Working Capital

We are party to a credit agreement, dated as of June 9, 2008, as amended and restated as of February 12, 2010  and amended as of December 16, 2010, March 11, 2011 and as further amended and restated as of August 25, 2011 (as so amended the “Credit Agreement”), among Scientific Games International, Inc. (“SGI”), as borrower, the Company, as a guarantor, the several lenders from time to time parties thereto and JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent. A summary of the terms of the Credit Agreement and the financial ratios that the Company is required to maintain under the terms of the Credit Agreement is included in Note 8 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K.

On March 11, 2011, the Company and SGI entered into an amendment to the Credit Agreement. Under the amendment, from and after December 31, 2010, “consolidated EBITDA” (as such term is defined in the Credit Agreement) will generally include the Company’s share of the earnings of the Company’s joint venture that holds the Italian instant ticket concession, whether or not such earnings have been distributed to the Company, before interest expense (other than interest expense in respect of debt of such joint venture if such debt exceeds $25 million), income tax expense and depreciation and amortization expense, provided that the amount of “consolidated EBITDA” attributable to the Company’s interest in such joint venture that would not have otherwise been permitted to be included in “consolidated EBITDA” prior to giving effect to the amendment will be capped at $25 million in any period of four consecutive quarters (or $30 million in the case of any such period ending on or prior to June 30, 2012). Prior to giving effect to the amendment, “consolidated EBITDA” generally included only the Company’s share of the earnings of such joint venture that was distributed to the Company. In addition, under the terms of the amendment, any cash compensation expense incurred but not paid in a particular period will be added back for purposes of determining “consolidated EBITDA” so long as no cash payment in respect thereof is required prior to the scheduled maturity of the borrowings under the Credit Agreement. This add-back was revised pursuant to the subsequent amendment described below to permit up to $993,000 of non-cash compensation expense accrued prior to August 25, 2011 to be added back notwithstanding that cash payments may be required to be made in respect thereof prior to the scheduled maturity of the borrowings under the Credit Agreement.  “Consolidated EBITDA” is relevant for determining whether the Company is in compliance with the financial ratios required to be maintained under the terms of the Credit Agreement.

The amendment also provided that up to $100 million of unrestricted cash and cash equivalents of the Company and its subsidiaries in excess of $15 million will be netted against “consolidated total debt” for purposes of determining the Company’s “consolidated leverage ratio” and “consolidated senior debt ratio” (as such terms are defined in the Credit Agreement) as of any date from and after December 31, 2010. In connection with the amendment, SGI paid approximately $2.6 million of fees and expenses to (or for the benefit of) the consenting lenders. For more information regarding the March 11, 2011 amendment, see our Current Report on Form 8-K filed with the SEC on March 14, 2011.

On August 25, 2011, the Company and SGI entered into an amendment to the Credit Agreement. In connection with the amendment, the scheduled maturity date of approximately $247 million (or 99%) of the revolving credit facility commitments and approximately $555.8 million (or 98%) of the outstanding term loans under the Credit Agreement were extended from June 9, 2013 to June 30, 2015.  Under the amended Credit Agreement, SGI has the flexibility to extend the maturity date of, or reduce or prepay without premium or penalty (other than break-funding costs), the approximately $16.4 million of revolving credit facility commitments and outstanding term loans that were not extended in connection with the amendment, subject to certain conditions set forth in the amendment or the Credit Agreement, as applicable.  Under the terms of the amendment, we will be required to maintain the following revised financial ratios:

·a “consolidated leverage ratio” (as such term is defined in the Credit Agreement) as of the last day of each fiscal quarter no more than the ratio set forth below with respect to the period during which such fiscal quarter ends:

·5.75 to 1.00 (through December 31, 2013);

·5.50 to 1.00 (January 1, 2014 through December 31, 2014); and

·5.25 to 1.00 (January 1, 2015 and thereafter); and

·a “consolidated senior debt ratio” (as such term is defined in the Credit Agreement) as of the last day of each fiscal quarter no more than 2.75 to 1.00.

The “consolidated interest coverage ratio” (as such term is defined in the Credit Agreement) that we are required to maintain (i.e., not less than 2.25 to 1.00 for any period of four consecutive quarters) was not changed by the amendment.

38

Borrowings under the Credit Agreement bear interest at a rate per annum equal to, at SGI’s option, either (1) a base rate determined by reference to the higher of (a) the prime rate of JPMorgan, (b) the federal funds effective rate plus 0.50% and (c) the LIBOR rate for a deposit in dollars with a maturity of one month plus 1.00%, or (2) a reserve-adjusted LIBOR rate, in each case plus an applicable margin based on the consolidated leverage ratio as set forth in a grid.  Under the terms of the amendment, the two lowest applicable margin levels in the grid were eliminated such that the applicable margin now varies based on the consolidated leverage ratio from 1.50% to 2.50% above the base rate for base rate loans, and from 2.50% to 3.50% above LIBOR for LIBOR-based loans.

The amendment provides for additional refinancing flexibility in the form of (1) permitted bank debt or debt securities that may be unsecured or secured on a pari passu or junior basis with the collateral securing the obligations under the Credit Agreement and (2) replacement facilities under the Credit Agreement that can be used to refinance either the term loans or the revolving commitments under the Credit Agreement in whole.  In addition, SGI will have the capability to request one or more additional tranches of term loans, increase the existing tranche of term loans, or increase the revolving commitments in an amount not to exceed $200 million after the effective date of the amendment (the “Incremental Facility”).  In lieu of incurring additional indebtedness pursuant to the Incremental Facility, the amendment also provides SGI with the flexibility to incur additional incremental indebtedness in the form of one or more series of debt securities in an aggregate principal amount not to exceed the amounts allowed to be incurred under the Incremental Facility.

In addition, the amendment renews most of the negative covenant baskets as of the effective date of the amendment and provides investment flexibility for SGI by allowing the borrower to move capital stock, property and cash from non-guarantor subsidiaries to loan parties and then back to non-guarantor subsidiaries, subject to certain limitations set forth in the Credit Agreement.  The amendment also provides SGI the ability to use an existing restricted payment basket comprised of $200 million plus a permitted expenditure amount that is based in part on the cumulative consolidated net income of the Company for investments and prepayments of certain indebtedness. . In connection with the amendment, SGI paid an aggregate of approximately $6.3 million of fees and expenses to (or for the benefit of) the consenting and new lenders of which approximately $5.8 million was capitalized as deferred financing fees. The Company recorded a loss on early extinguishment of debt of approximately $4.2 million as a result of writing off deferred financing fees related to those lenders that chose not to extend the maturity date of their loans. For more information regarding the August 25, 2011 amendment, see our Current Report on Form 8-K filed with the SEC on August 31, 2011.

We were in compliance with our covenants under the Credit Agreement as of September 30, 2011.

On October 27, 2011, SGI completed a consent solicitation commenced on October 19, 2011 in which SGI sought and obtained consents from the holders of a majority in aggregate principal amount of SGI’s 7.875% senior subordinated notes due 2016 (the “2016 Notes”) to certain amendments to the indenture governing the 2016 Notes (the “Indenture”).  SGI paid consenting holders $5.0 million in the aggregate in connection with the consent solicitation.

SGI, the Company, as a guarantor, the other guarantors party thereto and The Bank of Nova Scotia Trust Company of New York, as trustee, entered into a supplemental indenture (the “Supplemental Indenture”) implementing the amendments to the Indenture.  The Supplemental Indenture amends the Indenture to conform certain provisions of the Indenture to those contained in the indenture governing the Company’s 8.125% senior subordinated notes due 2018 (the “2018 Notes”) and thereby provides the Company with additional flexibility for investment opportunities that it may decide to pursue, including potential strategic partnerships, joint ventures and other acquisitions.

In particular, the Supplemental Indenture amends the definition of “consolidated net income” in the Indenture to exclude certain items, including net after-tax impairment charges and asset write-offs, which will, among other things, increase the Company’s capacity to make additional “restricted investments” under the Indenture.  In addition, the Supplemental Indenture amends the definition of “permitted investments” to include certain investments relating to the Italian instant ticket concession held by the Company’s joint venture.  The primary effect of this amendment is to “grandfather” the investments the Company made in 2010 to cover the Company’s portion of the upfront fees associated with the new concession for purposes of determining the Company’s capacity to make additional “restricted investments” under the Indenture. For more information regarding the consent solicitation and the Supplemental Indenture, see our Current Report on Form 8-K filed with the SEC on October 28, 2011.

As of September 30, 2011, we had approximately $188.9 million available for additional borrowing or letter of credit issuances under our revolving credit facility. There were no borrowings and $61.1 million in outstanding letters of credit under our revolving credit facility as of September 30, 2011. Our ability to borrow under the Credit Agreement will depend on us remaining in compliance with the covenants contained in the Credit Agreement.

On May 6, 2011, we paid the remaining ₤0.6 million aggregate principal amount outstanding of the promissory notes we issued to defer a portion of the earn-out payable in connection with our acquisition of Global Draw in 2006.

39

Periodically, we bid on new online lottery or wide area gaming contracts. Once awarded, these contracts generally require significant upfront capital expenditures for terminal assembly, customization of software, software and equipment installation and telecommunications configuration. Historically, we have funded these upfront costs through cash flows generated from operations, available cash on hand and borrowings under our credit facilities. Our ability to continue to commit to new contracts will depend on, among other things, our then present liquidity levels and/or our ability to borrow at commercially acceptable rates to finance the initial upfront costs. The actual level of capital expenditures will ultimately largely depend on the extent to which we are successful in winning new contracts.

We own a 20% equity interest in Northstar. We contributed $10.0 million to Northstar in March 2011 and an additional $2.0 million in July 2011. Under the terms of its private management agreement with the State of Illinois (the “PMA”), Northstar is entitled to receive annual incentive compensation payments to the extent it is successful in increasing the Illinois lottery’s net income above specified target levels, subject to a cap of 5% of the applicable year’s net income. Northstar will be responsible for payments to the State to the extent such targets are not achieved, subject to a similar cap. We may be required to make capital contributions to Northstar to fund our pro rata share (i.e., based on our percentage interest in Northstar) of any shortfall payments that may be owed by Northstar to the State under the PMA.  Northstar is expected to be reimbursed on a monthly basis for most of its operating expenses under the PMA.

During the third quarter of 2011, we received a dividend from CSG of approximately $1.0 million.

At September 30, 2011, our available cash, short-term investments and borrowing capacity totaled $275.8 million (including cash and cash equivalents of $86.9 million and availability of $188.9 million under the revolving credit facility) compared to $258.6 million at December 31, 2010 (including cash and cash equivalents of $124.3 million and availability of $134.3 million under the revolving credit facility). The amount of our available cash and short-term investments fluctuate principally based on the timing of collections from our customers, cash expenditures associated with new and existing lottery and gaming systems contracts, borrowings or repayments under our credit facilities, the funding of joint ventures, acquisitions and changes in our working capital position. Our borrowing capacity under the revolving credit facility will depend on the balance of loans borrowed and outstanding letters of credit issued under such facility as well as the level of certain financial ratios under the Credit Agreement.

The $37.4 million decrease in our available cash since December 31, 2010 principally reflects the net cash provided by operating activities of $152.6 million for the nine months ended September 30, 2011 and $5.4 million from the impact of foreign exchange rates, offset by $6.2 million of debt repayments, $68.4 million of capital expenditures, lottery and gaming systems expenditures and other intangible assets and software expenditures, a $31.1 million investment in ITL related to the roll-out of terminals for the Ladbrokes betting shop estate, a $12.0 million investment in Northstar (offset by a $6.6 million return of capital payment from LNS), $9.2 million for the payment of financing fees and $50.2 million for acquisitions. The $152.6 million of net cash provided by operating activities was derived from approximately $115.3 million of net cash provided by operations and approximately $37.3 million from changes in working capital. The working capital changes principally reflected decreases in accounts receivable and increases in accrued liabilities, offset by decreases in accounts payable. Capital expenditures were $5.9 million in the nine months ended September 30, 2011 compared to $6.9 million in the corresponding period in 2010. Lottery and gaming systems expenditures totaled $34.0 million in the nine months ended September 30, 2011 compared to $45.3 million in the corresponding period in 2010, and consisted primarily of expenditures associated with our lottery contract in Iowa. Other intangible assets and software expenditures of $28.5 million during the nine months ended September 30, 2011 consisted primarily of licensed properties and gaming contracts related to Global Draw. Cash flow from financing activities principally reflected payment of the term loan facilities under the Credit Agreement and payment of financing fees.

In December 2010, the Company adopted the Asia-Pacific Plan. The purpose of the Asia Pacific Plan is to provide an equitable and competitive compensation opportunity to certain key employees and consultants of the Company who are involved in the Company’s business in China (and potentially other jurisdictions in the Asia-Pacific region) (the “Asia-Pacific Business”) and to promote the creation of long-term value for the Company’s stockholders by directly linking Asia-Pacific Plan participants’ compensation under the plan to the appreciation in value of such business. Each participant will be eligible to receive a cash payment following the end of 2014 equal to a pre-determined share of an Asia-Pacific Business incentive compensation pool. The incentive compensation pool will equal a certain percentage of the growth in the value of the Asia-Pacific Business over four years, calculated in the manner provided under the Asia-Pacific Plan and subject to a cap of (1) $35 million, in the event an Asia-Pacific Business liquidity event does not occur by December 31, 2014 or (2) $50 million, in the event an Asia-Pacific Business liquidity event occurs by December 31, 2014. An “Asia-Pacific Business liquidity event” means an initial public offering of at least 20% of the Asia-Pacific Business or a strategic investment by a third-party to acquire at least 20% of the Asia-Pacific Business, in each case, that is approved by the Company.

We believe that our cash flow from operations, available cash and available borrowing capacity under the Credit Agreement will be sufficient to meet our liquidity needs, including anticipated capital expenditures, for the next 12 months; however, there can be

40

no assurance that this will be the case. We believe that substantially all cash held by foreign entities is available to meet liquidity needs as necessary. Our contracts are periodically renewed and there can be no assurance that we will be successful in sustaining our cash flow from operations through renewal of our existing contracts or through the addition of new contracts. In addition, lottery customers in the U.S. generally require service providers to provide performance bonds in connection with the contract. Our ability to obtain performance bonds on commercially reasonable terms is subject 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, there can be no assurance that we will continue to be able to obtain performance bonds on commercially reasonable terms or at all. If we need to refinance all or part of our indebtedness, at or before maturity, or provide letters of credit or cash in lieu of performance bonds, there can be no assurance that we will be able to obtain new financing or refinance any of our indebtedness on commercially reasonable terms or at all.

41

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We have no material changes to the disclosure under “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” included in our 2010 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. The evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our 2010 Annual Report on Form 10-K other than as set forth below, which risk factors should be read in conjunction with the other risk factors disclosed in our 2010 Annual Report on Form 10-K.

We may not succeed in realizing the anticipated benefits of our joint ventures and strategic investments and relationships.

Part of our corporate strategy is to pursue growth through joint ventures and strategic investments as a means to, among other things, gain access to new and tactically important geographies, business opportunities and technical expertise, while simultaneously offering the potential for reducing capital requirements.

These joint ventures and strategic investments currently include LNS (which succeeded CLN as the holder of the concession to operate the instant ticket lottery in Italy that began on October 1, 2010), our joint ventures in China, RCN, our Northstar joint venture to act as the private manager of the Illinois lottery, our Sciplay joint venture with Playtech to deliver Internet gaming solutions to lotteries and certain other gaming operators and our equity investment in Sportech. We are party to other strategic agreements with Playtech relating to gaming machines that contemplate our use of and reliance on Playtech’s back-end technology platform in international territories. Failure to timely migrate to the new back-end technology platform could result in Global Draw being unable to meet certain contractual commitments, which could negatively impact our business, results of operations and prospects. We cannot assure you that we will be able to successfully develop and market Internet and land-based gaming products under our agreements with Playtech. As of June 30, 2011, Global Draw completed the migration to the new back-end technology platform in the U.K.

Our Northstar joint venture, in which we are a 20% equity holder, was awarded the agreement to be the private manager for the Illinois lottery for a ten-year term following a competitive procurement process, which agreement was executed on January 18, 2011. See “Business—Operational Overview—Printed Products—Northstar Lottery Group” in Item 1 of our Annual Report on Form 10-K.  On January 26, 2011, the Illinois Appellate Court upheld a constitutional challenge to the revenue statute that, among other things, amended the Illinois lottery law to facilitate the PMA, on grounds that the statute impermissibly addressed more than one subject. On July 11, 2011, the Illinois Supreme Court reversed the Appellate Court decision and upheld the revenue statute. Operations under the PMA commenced on July 1, 2011.

We may not realize the anticipated benefits of these joint ventures, investments and other strategic relationships or others that we may enter into, or may not realize them in the timeframe expected. These arrangements pose significant risks that could have a negative effect on our operations, including: the potential diversion of our management’s attention from our core business to, for example, integrate technologies; the potential failure to realize anticipated synergies, economies of scale or other value associated with the arrangements; unanticipated costs and other unanticipated events or circumstances; possible adverse effects on our operating results during any integration process; impairment charges if joint ventures, or strategic investments or relationships are not as successful as we originally anticipate; and our possible inability to achieve the intended objectives of the arrangements and a resulting failure to execute on our strategic initiatives.

42

Furthermore, our joint ventures and other strategic relationships pose risks arising from our reliance on our partners and our lack of sole decision-making authority, which may give rise to disputes between us and our joint venture and other strategic partners. Our joint venture and other strategic partners may have economic or business interests or goals that are inconsistent with our interests and goals, take actions contrary to our objectives or policies, undergo a change of control, experience financial and other difficulties or be unable or unwilling to fulfill their obligations under our arrangements.

The failure to avoid the risks described above or other risks associated with such arrangements could have a material adverse effect on our business, financial condition and results of operations.

Our revenues fluctuate due to seasonality and timing of equipment sales and, therefore, our periodic operating results are not guarantees of future performance.

Our revenues can fluctuate due to seasonality in some components of our business. The summer season historically has been the weakest part of the year for certain parts of our lottery business, particularly where our revenues are tied to a percentage of retail sales such as under our CSP contracts. The third quarter is typically the weakest quarter for Global Draw, which could adversely affect the amounts wagered and our corresponding service revenues.

In addition, our revenues in our Lottery Systems Group can be somewhat dependent on the size of jackpots of lottery games such as Powerball® and Mega Millions® during the relevant period.

Lottery and gaming equipment sales and software license revenues usually reflect a limited number of large transactions, which may not recur on an annual basis. Consequently, revenues and operating margins can vary substantially from period to period as a result of the timing and magnitude of major equipment sales and software license revenue. As a general matter, lottery and gaming equipment sales generate lower operating margins than revenue from other aspects of our business. In addition, instant ticket sales may vary depending on the season and timing of contract awards, changes in customer budgets, ticket inventory levels, lottery retail sales and general economic conditions.

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

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
7/1/2011 - 7/31/2011	6,022	$	9.95	—	$	173.7 million
8/1/2011 - 8/31/2011	1,484	$	8.83	—	$	173.7 million
9/1/2011 - 9/30/2011	—	$	—	—	$	173.7 million
Total	7,506	$	9.73	—	$	173.7 million

(1)	There were no shares purchased as part of the publicly announced repurchase program during the quarter ended September 30, 2011. The activity in this column reflects 7,506 shares acquired from employees to satisfy the withholding taxes associated with the vesting of restricted stock units during the quarter ended September 30, 2011.
(2)	The $200 million stock repurchase program, which expires on December 31, 2011, was publicly announced on May 10, 2010.

43

Exhibits

Item 6.

Exhibit Number
10.1	Employment Agreement made as of August 1, 2011 by and between the Company and Jeffrey Johnson (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 26, 2011).
10.2	Amendment to Separation Agreement, dated as of August 12, 2011, by and between Ira H. Raphaelson and the Company (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 18, 2011).
10.3	Amendment to Employment Agreement, dated as of August 18, 2011, by and between A. Lorne Weil and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 18, 2011).
10.4	Second Amendment and Restatement Agreement, dated as of August 25, 2011, among SGI, as borrower, the Company, as guarantor, and several lenders from time to time parties thereto and JP Morgan, as administrative agent, which amended and restated in its entirety the Credit Agreement, dated as of June 9, 2008 as amended and restated as of February 12, 2010 and amended as of December 16, 2010 and March 11, 2011 among such parties, as set forth in Exhibit A to such Second Amendment and Restatement Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with on August 31, 2011).
10.5	Letter Agreement, dated as of September 28, 2011, by and between the Company and Larry A. Potts (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 3, 2011).
10.6	Employment Agreement, dated as of September 29, 2011, by and between the Company and Grier C. Raclin (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 3, 2011).
10.7	Letter Agreement, dated as of June 29, 2011, by and between the Company and Steven W. Beason (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 3, 2011).
31.1	Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (†)
31.2	Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (†)
32.1	Certification of the Chief Executive Officer of the Company pursuant to 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 the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (†)
101	Financial statements from the quarterly report on Form 10-Q of the Company for the quarter ended September 30, 2011, filed on November 2, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements tagged as blocks of text. (†)(*)

(†) Filed herewith.

(*) Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act, except as shall be expressly set forth by specific reference in such filing or document.

44

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/ Jeffrey S. Lipkin
	Name:	Jeffrey S. Lipkin
	Title:	Senior Vice President and Chief Financial Officer
	By:	/s/ Jeffrey B. Johnson
	Name:	Jeffrey B. Johnson
	Title:	Vice President, Chief Accounting Officer and Corporate Controller
Dated: November 2, 2011

45

INDEX TO EXHIBITS

Exhibit Number
10.1	Employment Agreement made as of August 1, 2011 by and between the Company and Jeffrey Johnson (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 26, 2011).
10.2	Amendment to Separation Agreement, dated as of August 12, 2011, by and between Ira H. Raphaelson and the Company (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 18, 2011).
10.3	Amendment to Employment Agreement, dated as of August 18, 2011, by and between A. Lorne Weil and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 18, 2011).
10.4	Second Amendment and Restatement Agreement, dated as of August 25, 2011, among SGI, as borrower, the Company, as guarantor, and several lenders from time to time parties thereto and JP Morgan, as administrative agent, which amended and restated in its entirety the Credit Agreement, dated as of June 9, 2008 as amended and restated as of February 12, 2010 and amended as of December 16, 2010 and March 11, 2011 among such parties, as set forth in Exhibit A to such Second Amendment and Restatement Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with on August 31, 2011).
10.5	Letter Agreement, dated as of September 28, 2011, by and between the Company and Larry A. Potts (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 3, 2011).
10.6	Employment Agreement, dated as of September 29, 2011, by and between the Company and Grier C. Raclin (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 3, 2011).
10.7	Letter Agreement, dated as of June 29, 2011, by and between the Company and Steven W. Beason (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 3, 2011).
31.1	Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (†)
31.2	Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (†)
32.1	Certification of the Chief Executive Officer of the Company pursuant to 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 the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (†)
101	Financial statements from the quarterly report on Form 10-Q of the Company for the quarter ended September 30, 2011, filed on November 2, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements tagged as blocks of text. (†)(*)

(†) Filed herewith.

(*) Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act, except as shall be expressly set forth by specific reference in such filing or document.

46

EX-31.1

Exhibit 31.1

Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, A. Lorne Weil, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of Scientific Games Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2011

/s/ A. Lorne Weil

A. Lorne Weil

Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey S. Lipkin, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of Scientific Games Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2011

/s/ Jeffrey S. Lipkin

Jeffrey S. Lipkin

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Scientific Games Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, A. Lorne Weil, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ A. Lorne Weil

A. Lorne Weil

Chief Executive Officer

November 2, 2011

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Scientific Games Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey S. Lipkin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Jeffrey S. Lipkin

Jeffrey S. Lipkin

Chief Financial Officer

November 2, 2011

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data	3 Months Ended				9 Months Ended
	Sep. 30, 2011		Sep. 30, 2010		Sep. 30, 2011		Sep. 30, 2010
Revenue:
Instant tickets	$ 126,693		$ 115,968		$ 370,972		$ 343,506
Services	81,429		92,813		237,272		287,527
Sales	14,617		12,280		31,399		39,400
Total revenue	222,739		221,061		639,643		670,433
Operating expenses:
Cost of instant tickets	71,785	[1]	67,138	[1]	211,151	[1]	199,282	[1]
Cost of services	42,562	[1]	57,723	[1]	122,944	[1]	167,336	[1]
Cost of sales	10,332	[1]	7,977	[1]	21,383	[1]	27,843	[1]
Selling, general and administrative expenses	47,660		36,435		130,640		115,543
Write-down of assets held for sale			2,155				8,029
Employee termination and restructuring costs	1,030		602		1,030		602
Depreciation and amortization	27,994		27,284		87,902		82,017
Operating income	21,376		21,747		64,593		69,781
Other (income) expense:
Interest expense	26,297		24,617		79,161		74,176
Earnings from equity investments	(8,895)		(13,031)		(27,469)		(42,474)
Loss on early extinguishment of debt	4,185		2,236		4,185		2,236
Other (income) expense, net	1,711		(3,011)		(159)		9,555
Total other (income) expense	23,298		10,811		55,718		43,493
Net (loss) income before income taxes	(1,922)		10,936		8,875		26,288
Income tax expense	2,202		2,232		12,912		17,040
Net (loss) income	$ (4,124)		$ 8,704		$ (4,037)		$ 9,248
Basic and diluted net (loss) income per share:
Basic net (loss) income per share (in dollars per share)	$ (0.04)		$ 0.09		$ (0.04)		$ 0.10
Diluted net (loss) income per share (in dollars per share)	$ (0.04)		$ 0.09		$ (0.04)		$ 0.10
Weighted-average number of shares used in per share calculations:
Basic shares (in shares)	92,125		91,844		92,027		93,122
Diluted shares (in shares)	92,125		92,240		92,027		93,648

[1] Exclusive of depreciation and amortization.

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net (loss) income	$ (4,037)	$ 9,248
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation and amortization	87,902	82,017
Change in deferred income taxes	2,326	11,541
Stock-based compensation	15,293	17,383
Non-cash interest expense	6,122	5,276
Undistributed earnings from equity investments	2,611	(8,062)
Write-down of assets held for sale		8,029
Loss on extinguishment of debt	4,185	2,236
Changes in current assets and liabilities, net of effects of acquisitions
Accounts receivable	9,380	7,012
Inventories	(827)	(2,375)
Accounts payable	(2,125)	(8,970)
Accrued liabilities	14,671	(3,463)
Other current assets and liabilities	16,163	22,886
Other	963	483
Net cash provided by operating activities	152,627	143,241
Cash flows from investing activities:
Capital expenditures	(5,863)	(6,873)
Lottery and gaming systems expenditures	(33,972)	(45,257)
Other intangible assets and software expenditures	(28,536)	(26,335)
Change in other assets and liabilities, net	(11,356)	(571)
Net equity investments	(37,878)	(127,314)
Business acquisitions, net of cash acquired	(50,177)	(12,493)
Net cash used in investing activities	(167,782)	(218,843)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		355,541
Payments on long-term debt	(6,232)	(242,758)
Payments of financing fees	(9,186)	(12,969)
Purchases of treasury stock		(26,334)
Net proceeds from issuance of common stock	(1,426)	(2,067)
Net cash (used in) provided by financing activities	(16,844)	71,413
Effect of exchange rate changes on cash and cash equivalents	(5,403)	(8,965)
Decrease in cash and cash equivalents	(37,402)	(13,154)
Cash and cash equivalents, beginning of period	124,281	260,131
Change in cash and cash equivalents of held for sale operations at September 30, 2010		2,593
Cash and cash equivalents, end of period	86,879	249,570
Non-cash investing and financing activities
Total cash and noncash payment to International Terminal Leasing	35,961
Non-cash investment	$ 4,859

XML

Intangible Assets and Goodwill (Tables)

9 Months Ended

Sep. 30, 2011

Intangible Assets and Goodwill

Disclosure of acquired intangible assets

Intangible Assets	Gross Carrying Amount		Accumulated Amortization		Net Balance
Balance as of September 30, 2011
Amortizable intangible assets:
Patents	$	12,755	$	5,024	$	7,731
Customer lists	36,248		19,684		$	16,564
Licenses	77,340		55,319		$	22,021
Intellectual property	23,396		17,832		$	5,564
Lottery contracts	1,500		1,170		$	330
	151,239		99,029		52,210
Non-amortizable intangible assets:
Trade name	38,700		2,118		36,582
Total intangible assets	$	189,939	$	101,147	$	88,792
Balance as of December 31, 2010
Amortizable intangible assets:
Patents	$	12,106	$	4,321	$	7,785
Customer lists	30,083		19,009		11,074
Licenses	62,124		46,381		15,743
Intellectual property	17,833		17,719		114
Lottery contracts	1,500		1,093		407
	123,646		88,523		35,123
Non-amortizable intangible assets:
Trade name	37,608		2,118		35,490
Total intangible assets	$	161,254	$	90,641	$	70,613

Reconciliation of the carrying amount of goodwill, by reporting segment

Goodwill	Printed Products Group			Lottery Systems Group	Diversified Gaming Group	Totals
Balance as of December 31, 2010	$	335,481		186,944	241,490	763,915
Adjustments	(1,968		)	2,511	1,830	2,373
Balance as of September 30, 2011	$	333,513		189,455	243,320	766,288

XML

CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 86,879	$ 124,281
Accounts receivable, net of allowance for doubtful accounts of $6,469 and $2,175 as of September 30, 2011 and December 31, 2010, respectively	187,236	178,179
Inventories	79,396	68,744
Deferred income taxes, current portion	2,339	2,448
Prepaid expenses, deposits and other current assets	52,435	40,013
Total current assets	408,285	413,665
Property and equipment, at cost	780,930	776,367
Less: accumulated depreciation	(342,631)	(325,786)
Net Property and equipment	438,299	450,581
Goodwill, net	766,288	763,915
Intangible assets, net	88,792	70,613
Other assets and investments	494,677	452,764
Total assets	2,196,341	2,151,538
Current liabilities:
Debt payments due within one year	9,391	8,431
Accounts payable	64,640	50,642
Accrued liabilities	160,241	136,925
Total current liabilities	234,272	195,998
Deferred income taxes	61,382	60,858
Other long-term liabilities	57,517	53,765
Long-term debt, excluding current installments	1,382,393	1,388,259
Total liabilities	1,735,564	1,698,880
Commitments and contingencies
Stockholders' equity:
Class A common stock, par value $0.01 per share, 199,300 shares authorized, 97,877 and 97,474 shares issued and 92,128 and 91,725 shares outstanding as of September 30, 2011 and December 31, 2010, respectively	979	975
Additional paid-in capital	689,861	674,691
Accumulated loss	(135,058)	(131,021)
Treasury stock, at cost, 5,749 shares held as of September 30, 2011 and December 31, 2010	(74,460)	(74,460)
Accumulated other comprehensive (loss)	(20,545)	(17,527)
Total stockholders' equity	460,777	452,658
Total liabilities and stockholders' equity	$ 2,196,341	$ 2,151,538

XML

Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation

Stock options outstanding under equity-based compensation plans

	Number of Options		Weighted Average Remaining Contract Term (Years)	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding as of December 31, 2010	6,751		6.0	$	20.72	$	1,814
Granted	754
Exercised	(2	)				15
Cancelled	(307	)
Options outstanding as of March 31, 2011	7,196		6.4	19.42		654
Granted	20
Exercised	(2	)				11
Cancelled	(51	)
Options outstanding as of June 30, 2011	7,163		6.1	19.41		3,288
Granted	1,720
Exercised	—					—
Cancelled	(4,967	)
Options outstanding as of September 30, 2011	3,916		8.2	9.72		150
Options exercisable as of September 30, 2011	551		1.7	$	14.26	$	150

RSUs outstanding under equity-based compensation plans

	Number of Restricted Shares		Weighted Average Grant Date Fair Value Per Share
Non-vested units as of December 31, 2010	2,440		$	15.13
Granted	917		8.92
Vested	(482	)	18.43
Cancelled	(16	)	15.52
Non-vested units as of March 31, 2011	2,859		$	12.58
Granted	32		9.47
Vested	(44	)	25.31
Cancelled	(26	)	13.66
Non-vested units as of June 30, 2011	2,821		$	12.34
Granted	2,305		8.38
Vested	(22	)	18.31
Cancelled	(52	)	13.10
Non-vested units as of September 30, 2011	5,052		$	10.50

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2011	Oct. 28, 2011 Class A Common Stock	Oct. 28, 2011 Class B Common Stock
Entity Registrant Name	SCIENTIFIC GAMES CORP
Entity Central Index Key	0000750004
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		92,137,470	0
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

XML

Intangible Assets and Goodwill

9 Months Ended

Sep. 30, 2011

Intangible Assets and Goodwill

Intangible Assets and Goodwill

(8) Intangible Assets and Goodwill

The following presents certain information regarding our intangible assets as of September 30, 2011 and December 31, 2010. Amortizable intangible assets are amortized over their estimated useful lives with no estimated residual values.

Intangible Assets	Gross Carrying Amount		Accumulated Amortization		Net Balance
Balance as of September 30, 2011
Amortizable intangible assets:
Patents	$	12,755	$	5,024	$	7,731
Customer lists	36,248		19,684		$	16,564
Licenses	77,340		55,319		$	22,021
Intellectual property	23,396		17,832		$	5,564
Lottery contracts	1,500		1,170		$	330
	151,239		99,029		52,210
Non-amortizable intangible assets:
Trade name	38,700		2,118		36,582
Total intangible assets	$	189,939	$	101,147	$	88,792
Balance as of December 31, 2010
Amortizable intangible assets:
Patents	$	12,106	$	4,321	$	7,785
Customer lists	30,083		19,009		11,074
Licenses	62,124		46,381		15,743
Intellectual property	17,833		17,719		114
Lottery contracts	1,500		1,093		407
	123,646		88,523		35,123
Non-amortizable intangible assets:
Trade name	37,608		2,118		35,490
Total intangible assets	$	161,254	$	90,641	$	70,613

The aggregate intangible amortization expense for the three and nine months ended September 30, 2011 was approximately $3,800 and $11,300, respectively. The aggregate intangible amortization expense for the three and nine months ended September 30, 2010 was approximately $3,400 and $10,900, respectively.

The table below reconciles the change in the carrying amount of goodwill, by reporting segment, for the period from December 31, 2010 to September 30, 2011. In the nine months ended September 30, 2011, we recorded an increase in goodwill of approximately $4,700 as a result of acquisitions and a decrease of approximately $2,300 as a result of foreign currency translation.

Goodwill	Printed Products Group			Lottery Systems Group	Diversified Gaming Group	Totals
Balance as of December 31, 2010	$	335,481		186,944	241,490	763,915
Adjustments	(1,968		)	2,511	1,830	2,373
Balance as of September 30, 2011	$	333,513		189,455	243,320	766,288

XML

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries (Tables)

9 Months Ended

Sep. 30, 2011

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2011

	Parent Company		SGI		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Cash and cash equivalents	$	20,680	$	106	$	—	$	68,705	$	(2,612	)	$	86,879
Accounts receivable, net	—		47,902		46,924		92,410		—			187,236
Inventories	—		26,840		14,589		37,967		—			79,396
Other current assets	15,247		3,586		5,755		30,186		—			54,774
Property and equipment, net	2,998		168,613		36,166		230,522		—			438,299
Investment in subsidiaries	571,939		726,496		—		908,216		(2,206,651		)	—
Goodwill	—		273,657		78,618		414,013		—			766,288
Intangible assets	—		41,686		26,215		20,891		—			88,792
Intercompany balances	125,579		—		217,193		—		(342,772		)	—
Other assets	17,009		80,456		11,858		391,455		(6,101		)	494,677
Total assets	$	753,452	$	1,369,342	$	437,318	$	2,194,365	$	(2,558,136	)	$	2,196,341
Liabilities and stockholders’ equity
Current installments of long-term debt	$	—	$	6,280	$	—	$	3,111	$	—		$	9,391
Other current liabilities	34,829		62,174		26,577		103,914		(2,613		)	224,881
Long-term debt, excluding current installments	250,000		1,106,303		—		26,090		—			1,382,393
Other non-current liabilities	7,846		40,362		15,711		54,980		—			118,899
Intercompany balances	—		48,728		—		294,045		(342,773		)	—
Stockholders’ equity	460,777		105,495		395,030		1,712,225		(2,212,750		)	460,777
Total liabilities and stockholders’ equity	$	753,452	$	1,369,342	$	437,318	$	2,194,365	$	(2,558,136	)	$	2,196,341

As of December 31, 2010

	Parent Company		SGI		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Cash and cash equivalents	$	62,639	$	150	$	—	$	62,770	$	(1,278	)	$	124,281
Accounts receivable, net	—		72,830		45,541		59,808		—			178,179
Inventories	—		29,416		16,210		23,118		—			68,744
Other current assets	14,997		2,783		4,564		20,117		—			42,461
Property and equipment, net	1,730		150,130		43,859		254,862		—			450,581
Investment in subsidiaries	510,260		670,471		—		386,690		(1,567,421		)	—
Goodwill	—		273,656		78,843		411,416		—			763,915
Intangible assets	—		42,170		20,481		7,962		—			70,613
Intercompany balances	133,483		—		164,982		—		(298,465		)	—
Other assets	18,457		98,933		6,046		335,429		(6,101		)	452,764
Total assets	$	741,566	$	1,340,539	$	380,526	$	1,562,172	$	(1,873,265	)	$	2,151,538
Liabilities and stockholders’ equity
Current installments of long-term debt	$	—	$	6,280	$	—	$	2,151	$	—		$	8,431
Other current liabilities	29,363		48,074		32,601		78,817		(1,288		)	187,567
Long-term debt, excluding current installments	250,000		1,110,573		—		27,686		—			1,388,259
Other non-current liabilities	9,545		43,188		8,141		53,749		—			114,623
Intercompany balances	—		27,292		—		271,186		(298,478		)	—
Stockholders’ equity	452,658		105,132		339,784		1,128,583		(1,573,499		)	452,658
Total liabilities and stockholders’ equity	$	741,566	$	1,340,539	$	380,526	$	1,562,172	$	(1,873,265	)	$	2,151,538

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended September 30, 2011

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	95,742		$	19,976		$	107,357		$	(336	)	$	222,739
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			29,288			39,379			57,417			(1,405		)	124,679
Selling, general and administrative expenses	15,476			14,710			2,404			15,096			(26		)	47,660
Employee termination and restructuring costs	—			—			—			1,030						1,030
Depreciation and amortization	134			7,449			4,734			15,677			—			27,994
Operating income (loss)	(15,610		)	44,295			(26,541		)	18,137			1,095			21,376
Interest expense	5,351			20,535			—			411			—			26,297
Other (income) expense	(529		)	48,233			(46,473		)	(5,325		)	1,095			(2,999		)
Income (loss) before equity in income of subsidiaries, and income taxes	(20,432		)	(24,473		)	19,932			23,051			—			(1,922		)
Equity in income (loss) of subsidiaries	17,197			19,766			—			—			(36,963		)	—
Income tax expense	889			(191		)	—			1,504			—			2,202
Net income (loss)	$	(4,124	)	$	(4,516	)	$	19,932		$	21,547		$	(36,963	)	$	(4,124	)

(1) Exclusive of depreciation and amortization.

Three Months Ended September 30, 2010

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	89,522		$	17,319		$	114,695		$	(475	)	$	221,061
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			27,826			38,178			67,354			(520		)	132,838
Selling, general and administrative expenses	8,931			12,064			2,463			12,936			41			36,435
Write-down of assets held for sale	—			—			—			2,155			—			2,155
Employee termination and restructuring costs	—			—			—			602			—			602
Depreciation and amortization	126			8,174			4,551			14,433			—			27,284
Operating income (loss)	(9,057		)	41,458			(27,873		)	17,215			4			21,747
Interest expense	3,502			21,118			—			(3		)	—			24,617
Other (income) expense	(1,485		)	38,548			(51,551		)	678			4			(13,806		)
Income (loss) before equity in income of subsidiaries, and income taxes	(11,074		)	(18,208		)	23,678			16,540			—			10,936
Equity in income (loss) of subsidiaries	15,338			17,574			—			—			(32,912		)	—
Income tax expense	(4,440		)	3			—			6,669			—			2,232
Net income (loss)	$	8,704		$	(637	)	$	23,678		$	9,871		$	(32,912	)	$	8,704

(1) Exclusive of depreciation and amortization.

Nine Months Ended September 30, 2011

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	292,842		$	45,774		$	302,087		$	(1,060	)	$	639,643
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			91,087			108,403			159,074			(3,086		)	355,478
Selling, general and administrative expenses	45,932			39,365			7,539			39,599			(1,795		)	130,640
Employee termination and restructuring costs	—			—			—			1,030			—			1,030
Depreciation and amortization	390			22,562			14,343			50,607			—			87,902
Operating income (loss)	(46,322		)	139,828			(84,511		)	51,777			3,821			64,593
Interest expense	16,098			61,817			—			1,246			—			79,161
Other (income) expense	(2,748		)	137,429			(139,710		)	(22,235		)	3,821			(23,443		)
Income (loss) before equity in income of subsidiaries, and income taxes	(59,672		)	(59,418		)	55,199			72,766			—			8,875
Equity in income (loss) of subsidiaries	63,902			55,946			—			—			(119,848		)	—
Income tax expense	8,267			(486		)	8			5,123			—			12,912
Net income (loss)	$	(4,037	)	$	(2,986	)	$	55,191		$	67,643		$	(119,848	)	$	(4,037	)

(1) Exclusive of depreciation and amortization.

Nine Months Ended September 30, 2010

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	282,570		$	37,119		$	352,029		$	(1,285	)	$	670,433
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			88,025			106,257			201,517			(1,338		)	394,461
Selling, general and administrative expenses	32,506			40,189			6,473			36,302			73			115,543
Write-down of assets held for sale	—			—			—			8,029			—			8,029
Employee termination and restructuring costs	—			—			—			602			—			602
Depreciation and amortization	372			24,822			13,698			43,125			—			82,017
Operating income (loss)	(32,878		)	129,534			(89,309		)	62,454			(20		)	69,781
Interest expense	10,090			61,727			—			2,359			—			74,176
Other (income) expense	14,191			117,229			(157,544		)	(4,539		)	(20		)	(30,683		)
Income (loss) before equity in income of subsidiaries, and income taxes	(57,159		)	(49,422		)	68,235			64,634			—			26,288
Equity in income (loss) of subsidiaries	72,250			59,860			—			—			(132,110		)	—
Income tax expense	5,843			25			10			11,162			—			17,040
Net income (loss)	$	9,248		$	10,413		$	68,225		$	53,472		$	(132,110	)	$	9,248

(1) Exclusive of depreciation and amortization.

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2011

	Parent Company			SGI			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net cash provided by operating activities	$	(34,903	)	$	37,712		$	48,075		$	101,770		$	(27	)	$	152,627
Cash flows from investing activities:
Capital, lottery and gaming systems expenditures	(1,499		)	(23,768		)	(1,766		)	(12,802		)	—			(39,835		)
Business acquisitions, net of cash acquired	—			—			—			(50,177		)	0			(50,177		)
Other assets and investments	(368		)	(17,332		)	(9,108		)	(523,575		)	472,613			(77,770		)
Net cash provided by (used in) investing activities	(1,867		)	(41,100		)	(10,874		)	(586,554		)	472,613			(167,782		)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	—			(4,710		)	—			(1,522		)	—			(6,232		)
Net proceeds from stock issue	(1,426		)	—			20			470,235			(470,255		)	(1,426		)
Payment of financing fees	(67		)	(9,119		)	—			—			—			(9,186		)
Other, principally intercompany balances	(2,974		)	18,424			(38,555		)	22,938			167			—
Net cash provided by (used in) financing activities	(4,467		)	4,595			(38,535		)	491,651			(470,088		)	(16,844		)
Effect of exchange rate changes on cash	(720		)	(1,253		)	—			(934		)	(2,496		)	(5,403		)
Increase (decrease) in cash and cash equivalents	(41,959		)	(44		)	(1,334		)	5,935			—			(37,402		)
Cash and cash equivalents, beginning of period	62,639			150			2,279			59,213			—			124,281
Cash and cash equivalents of held for sale operations	—			—			—			—			—			—
Cash and cash equivalents, end of period	$	20,680		$	106		$	945		$	65,148		$	—		$	86,879

Nine Months Ended September 30, 2010

	Parent Company			SGI			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net cash provided by operating activities	$	(20,614	)	$	63		$	58,214		$	105,552		$	26		$	143,241
Cash flows from investing activities:
Capital, lottery and gaming systems expenditures	(71		)	(21,649		)	(3,546		)	(26,863		)	—			(52,129		)
Business acquisitions, net of cash acquired	—			—			(6,556		)	(5,937		)	—			(12,493		)
Other assets and investments	(129,480		)	(137,026		)	(12,039		)	(185,454		)	309,778			(154,221		)
Net cash provided by (used in) investing activities	(129,551		)	(158,675		)	(22,141		)	(218,254		)	309,778			(218,843		)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	132,495			32,705			—			(52,417		)	—			112,783
Net proceeds from stock issue	(2,067		)	135,915			4,887			168,999			(309,801		)	(2,067		)
Purchase of treasury stock	(26,334		)	—			—			—			—			(26,334		)
Payment of financing fees	(6,042		)	(6,927		)	—			—			—			(12,969		)
Other, principally intercompany balances	37,102			(3,130		)	(46,681		)	12,564			145			—
Net cash provided by (used in) financing activities	135,154			158,563			(41,794		)	129,146			(309,656		)	71,413
Effect of exchange rate changes on cash	—			60			—			(8,877		)	(148		)	(8,965		)
Increase (decrease) in cash and cash equivalents	(15,011		)	11			(5,721		)	7,567			—			(13,154		)
Cash and cash equivalents, beginning of period	147,220			137			3,278			109,496			—			260,131
Cash and cash equivalents of held for sale operations	—			—			1,524			1,069			—			2,593
Cash and cash equivalents, end of period	$	132,209		$	148		$	(919	)	$	118,132		$	—		$	249,570

XML

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010	Sep. 30, 2010	Dec. 31, 2009
Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries
Parent company's percentage ownership of guarantors (as a percent)	100.00%
Assets
Cash and cash equivalents	$ 86,879		$ 124,281	$ 249,570	$ 260,131
Accounts receivable, net	187,236		178,179
Inventories	79,396		68,744
Other current assets	54,774		42,461
Property and equipment, net	438,299		450,581
Investment in subsidiaries		37,000
Goodwill	766,288		763,915
Intangible assets	88,792		70,613
Other assets	494,677		452,764
Total assets	2,196,341		2,151,538
Liabilities and stockholders' equity
Current installments of long-term debt	9,391		8,431
Other current liabilities	224,881		187,567
Long-term debt, excluding current installments	1,382,393		1,388,259
Other non-current liabilities	118,899		114,623
Stockholders' equity	460,777		452,658
Total liabilities and stockholders' equity	2,196,341		2,151,538
Parent Company
Assets
Cash and cash equivalents	20,680		62,639
Other current assets	15,247		14,997
Property and equipment, net	2,998		1,730
Investment in subsidiaries	571,939		510,260
Intercompany balances	125,579		133,483
Other assets	17,009		18,457
Total assets	753,452		741,566
Liabilities and stockholders' equity
Other current liabilities	34,829		29,363
Long-term debt, excluding current installments	250,000		250,000
Other non-current liabilities	7,846		9,545
Stockholders' equity	460,777		452,658
Total liabilities and stockholders' equity	753,452		741,566
SGI
Assets
Cash and cash equivalents	106		150
Accounts receivable, net	47,902		72,830
Inventories	26,840		29,416
Other current assets	3,586		2,783
Property and equipment, net	168,613		150,130
Investment in subsidiaries	726,496		670,471
Goodwill	273,657		273,656
Intangible assets	41,686		42,170
Other assets	80,456		98,933
Total assets	1,369,342		1,340,539
Liabilities and stockholders' equity
Current installments of long-term debt	6,280		6,280
Other current liabilities	62,174		48,074
Long-term debt, excluding current installments	1,106,303		1,110,573
Other non-current liabilities	40,362		43,188
Intercompany balances	48,728		27,292
Stockholders' equity	105,495		105,132
Total liabilities and stockholders' equity	1,369,342		1,340,539
Guarantor Subsidiaries
Assets
Accounts receivable, net	46,924		45,541
Inventories	14,589		16,210
Other current assets	5,755		4,564
Property and equipment, net	36,166		43,859
Goodwill	78,618		78,843
Intangible assets	26,215		20,481
Intercompany balances	217,193		164,982
Other assets	11,858		6,046
Total assets	437,318		380,526
Liabilities and stockholders' equity
Other current liabilities	26,577		32,601
Other non-current liabilities	15,711		8,141
Stockholders' equity	395,030		339,784
Total liabilities and stockholders' equity	437,318		380,526
Non-Guarantor Subsidiaries
Assets
Cash and cash equivalents	68,705		62,770
Accounts receivable, net	92,410		59,808
Inventories	37,967		23,118
Other current assets	30,186		20,117
Property and equipment, net	230,522		254,862
Investment in subsidiaries	908,216		386,690
Goodwill	414,013		411,416
Intangible assets	20,891		7,962
Other assets	391,455		335,429
Total assets	2,194,365		1,562,172
Liabilities and stockholders' equity
Current installments of long-term debt	3,111		2,151
Other current liabilities	103,914		78,817
Long-term debt, excluding current installments	26,090		27,686
Other non-current liabilities	54,980		53,749
Intercompany balances	294,045		271,186
Stockholders' equity	1,712,225		1,128,583
Total liabilities and stockholders' equity	2,194,365		1,562,172
Eliminating Entries
Assets
Cash and cash equivalents	(2,612)		(1,278)
Investment in subsidiaries	(2,206,651)		(1,567,421)
Intercompany balances	(342,772)		(298,465)
Other assets	(6,101)		(6,101)
Total assets	(2,558,136)		(1,873,265)
Liabilities and stockholders' equity
Other current liabilities	(2,613)		(1,288)
Intercompany balances	(342,773)		(298,478)
Stockholders' equity	(2,212,750)		(1,573,499)
Total liabilities and stockholders' equity	$ (2,558,136)		$ (1,873,265)

XML

Intangible Assets and Goodwill (Details 2) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011
Goodwill
Balance at the beginning of the period	$ 763,915
Foreign currency translation adjustment	2,373
Balance at the end of the period	766,288
Printed Products Group
Goodwill
Balance at the beginning of the period	335,481
Foreign currency translation adjustment	(1,968)
Balance at the end of the period	333,513
Lottery Systems Group
Goodwill
Balance at the beginning of the period	186,944
Foreign currency translation adjustment	2,511
Balance at the end of the period	189,455
Diversified Gaming Group
Goodwill
Balance at the beginning of the period	241,490
Foreign currency translation adjustment	1,830
Balance at the end of the period	$ 243,320

XML

Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2011

Stockholders' Equity

Schedule of change in the number of shares of Class A common stock

	Nine Months	Twelve Months
	Ended	Ended
	September 30,	December 31,
	2011	2010
Shares outstanding as of beginning of period	91,725	93,883
Shares issued as part of equity-based compensation plans and the Employee Stock Purchase Plan (“ESPP”), net of RSUs surrendered	403	461
Shares repurchased into treasury stock	—	(2,619	)
Shares outstanding as of end of period	92,128	91,725

XML

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

9 Months Ended

Sep. 30, 2011

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

(13) Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

We conduct substantially all of our business through our domestic and foreign subsidiaries. SGI’s obligations under the Credit Agreement, the 2016 Notes and the 2019 Notes are fully and unconditionally and jointly and severally guaranteed by Scientific Games Corporation (the “Parent Company”) and our 100%-owned domestic subsidiaries other than SGI (the “Guarantor Subsidiaries”). Our 2018 Notes, which were issued by the Parent Company, are fully and unconditionally and jointly and severally guaranteed by our 100% owned domestic subsidiaries, including SGI.

Presented below is condensed consolidating financial information for (i) the Parent Company, (ii) SGI, (iii) the Guarantor Subsidiaries and (iv) our 100%-owned foreign subsidiaries and our non-100%-owned domestic and foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) as of September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010. The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, SGI, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries assuming the guarantee structures of our obligations as disclosed in Note 8 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K for all periods presented. The condensed consolidating financial information has also been recast for all periods presented to reflect entities included in the sale of the Racing Business as non-guarantors.

The condensed consolidating financial information reflects the investments of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting. Corporate interest and administrative expenses have not been allocated to the subsidiaries.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2011

	Parent Company		SGI		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Cash and cash equivalents	$	20,680	$	106	$	—	$	68,705	$	(2,612	)	$	86,879
Accounts receivable, net	—		47,902		46,924		92,410		—			187,236
Inventories	—		26,840		14,589		37,967		—			79,396
Other current assets	15,247		3,586		5,755		30,186		—			54,774
Property and equipment, net	2,998		168,613		36,166		230,522		—			438,299
Investment in subsidiaries	571,939		726,496		—		908,216		(2,206,651		)	—
Goodwill	—		273,657		78,618		414,013		—			766,288
Intangible assets	—		41,686		26,215		20,891		—			88,792
Intercompany balances	125,579		—		217,193		—		(342,772		)	—
Other assets	17,009		80,456		11,858		391,455		(6,101		)	494,677
Total assets	$	753,452	$	1,369,342	$	437,318	$	2,194,365	$	(2,558,136	)	$	2,196,341
Liabilities and stockholders’ equity
Current installments of long-term debt	$	—	$	6,280	$	—	$	3,111	$	—		$	9,391
Other current liabilities	34,829		62,174		26,577		103,914		(2,613		)	224,881
Long-term debt, excluding current installments	250,000		1,106,303		—		26,090		—			1,382,393
Other non-current liabilities	7,846		40,362		15,711		54,980		—			118,899
Intercompany balances	—		48,728		—		294,045		(342,773		)	—
Stockholders’ equity	460,777		105,495		395,030		1,712,225		(2,212,750		)	460,777
Total liabilities and stockholders’ equity	$	753,452	$	1,369,342	$	437,318	$	2,194,365	$	(2,558,136	)	$	2,196,341

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2010

	Parent Company		SGI		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Cash and cash equivalents	$	62,639	$	150	$	—	$	62,770	$	(1,278	)	$	124,281
Accounts receivable, net	—		72,830		45,541		59,808		—			178,179
Inventories	—		29,416		16,210		23,118		—			68,744
Other current assets	14,997		2,783		4,564		20,117		—			42,461
Property and equipment, net	1,730		150,130		43,859		254,862		—			450,581
Investment in subsidiaries	510,260		670,471		—		386,690		(1,567,421		)	—
Goodwill	—		273,656		78,843		411,416		—			763,915
Intangible assets	—		42,170		20,481		7,962		—			70,613
Intercompany balances	133,483		—		164,982		—		(298,465		)	—
Other assets	18,457		98,933		6,046		335,429		(6,101		)	452,764
Total assets	$	741,566	$	1,340,539	$	380,526	$	1,562,172	$	(1,873,265	)	$	2,151,538
Liabilities and stockholders’ equity
Current installments of long-term debt	$	—	$	6,280	$	—	$	2,151	$	—		$	8,431
Other current liabilities	29,363		48,074		32,601		78,817		(1,288		)	187,567
Long-term debt, excluding current installments	250,000		1,110,573		—		27,686		—			1,388,259
Other non-current liabilities	9,545		43,188		8,141		53,749		—			114,623
Intercompany balances	—		27,292		—		271,186		(298,478		)	—
Stockholders’ equity	452,658		105,132		339,784		1,128,583		(1,573,499		)	452,658
Total liabilities and stockholders’ equity	$	741,566	$	1,340,539	$	380,526	$	1,562,172	$	(1,873,265	)	$	2,151,538

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended September 30, 2011

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	95,742		$	19,976		$	107,357		$	(336	)	$	222,739
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			29,288			39,379			57,417			(1,405		)	124,679
Selling, general and administrative expenses	15,476			14,710			2,404			15,096			(26		)	47,660
Employee termination and restructuring costs	—			—			—			1,030						1,030
Depreciation and amortization	134			7,449			4,734			15,677			—			27,994
Operating income (loss)	(15,610		)	44,295			(26,541		)	18,137			1,095			21,376
Interest expense	5,351			20,535			—			411			—			26,297
Other (income) expense	(529		)	48,233			(46,473		)	(5,325		)	1,095			(2,999		)
Income (loss) before equity in income of subsidiaries, and income taxes	(20,432		)	(24,473		)	19,932			23,051			—			(1,922		)
Equity in income (loss) of subsidiaries	17,197			19,766			—			—			(36,963		)	—
Income tax expense	889			(191		)	—			1,504			—			2,202
Net income (loss)	$	(4,124	)	$	(4,516	)	$	19,932		$	21,547		$	(36,963	)	$	(4,124	)

(1) Exclusive of depreciation and amortization.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended September 30, 2010

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	89,522		$	17,319		$	114,695		$	(475	)	$	221,061
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			27,826			38,178			67,354			(520		)	132,838
Selling, general and administrative expenses	8,931			12,064			2,463			12,936			41			36,435
Write-down of assets held for sale	—			—			—			2,155			—			2,155
Employee termination and restructuring costs	—			—			—			602			—			602
Depreciation and amortization	126			8,174			4,551			14,433			—			27,284
Operating income (loss)	(9,057		)	41,458			(27,873		)	17,215			4			21,747
Interest expense	3,502			21,118			—			(3		)	—			24,617
Other (income) expense	(1,485		)	38,548			(51,551		)	678			4			(13,806		)
Income (loss) before equity in income of subsidiaries, and income taxes	(11,074		)	(18,208		)	23,678			16,540			—			10,936
Equity in income (loss) of subsidiaries	15,338			17,574			—			—			(32,912		)	—
Income tax expense	(4,440		)	3			—			6,669			—			2,232
Net income (loss)	$	8,704		$	(637	)	$	23,678		$	9,871		$	(32,912	)	$	8,704

(1) Exclusive of depreciation and amortization.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Nine Months Ended September 30, 2011

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	292,842		$	45,774		$	302,087		$	(1,060	)	$	639,643
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			91,087			108,403			159,074			(3,086		)	355,478
Selling, general and administrative expenses	45,932			39,365			7,539			39,599			(1,795		)	130,640
Employee termination and restructuring costs	—			—			—			1,030			—			1,030
Depreciation and amortization	390			22,562			14,343			50,607			—			87,902
Operating income (loss)	(46,322		)	139,828			(84,511		)	51,777			3,821			64,593
Interest expense	16,098			61,817			—			1,246			—			79,161
Other (income) expense	(2,748		)	137,429			(139,710		)	(22,235		)	3,821			(23,443		)
Income (loss) before equity in income of subsidiaries, and income taxes	(59,672		)	(59,418		)	55,199			72,766			—			8,875
Equity in income (loss) of subsidiaries	63,902			55,946			—			—			(119,848		)	—
Income tax expense	8,267			(486		)	8			5,123			—			12,912
Net income (loss)	$	(4,037	)	$	(2,986	)	$	55,191		$	67,643		$	(119,848	)	$	(4,037	)

(1) Exclusive of depreciation and amortization.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Nine Months Ended September 30, 2010

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	282,570		$	37,119		$	352,029		$	(1,285	)	$	670,433
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			88,025			106,257			201,517			(1,338		)	394,461
Selling, general and administrative expenses	32,506			40,189			6,473			36,302			73			115,543
Write-down of assets held for sale	—			—			—			8,029			—			8,029
Employee termination and restructuring costs	—			—			—			602			—			602
Depreciation and amortization	372			24,822			13,698			43,125			—			82,017
Operating income (loss)	(32,878		)	129,534			(89,309		)	62,454			(20		)	69,781
Interest expense	10,090			61,727			—			2,359			—			74,176
Other (income) expense	14,191			117,229			(157,544		)	(4,539		)	(20		)	(30,683		)
Income (loss) before equity in income of subsidiaries, and income taxes	(57,159		)	(49,422		)	68,235			64,634			—			26,288
Equity in income (loss) of subsidiaries	72,250			59,860			—			—			(132,110		)	—
Income tax expense	5,843			25			10			11,162			—			17,040
Net income (loss)	$	9,248		$	10,413		$	68,225		$	53,472		$	(132,110	)	$	9,248

(1) Exclusive of depreciation and amortization.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2011

	Parent Company			SGI			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net cash provided by operating activities	$	(34,903	)	$	37,712		$	48,075		$	101,770		$	(27	)	$	152,627
Cash flows from investing activities:
Capital, lottery and gaming systems expenditures	(1,499		)	(23,768		)	(1,766		)	(12,802		)	—			(39,835		)
Business acquisitions, net of cash acquired	—			—			—			(50,177		)	0			(50,177		)
Other assets and investments	(368		)	(17,332		)	(9,108		)	(523,575		)	472,613			(77,770		)
Net cash provided by (used in) investing activities	(1,867		)	(41,100		)	(10,874		)	(586,554		)	472,613			(167,782		)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	—			(4,710		)	—			(1,522		)	—			(6,232		)
Net proceeds from stock issue	(1,426		)	—			20			470,235			(470,255		)	(1,426		)
Payment of financing fees	(67		)	(9,119		)	—			—			—			(9,186		)
Other, principally intercompany balances	(2,974		)	18,424			(38,555		)	22,938			167			—
Net cash provided by (used in) financing activities	(4,467		)	4,595			(38,535		)	491,651			(470,088		)	(16,844		)
Effect of exchange rate changes on cash	(720		)	(1,253		)	—			(934		)	(2,496		)	(5,403		)
Increase (decrease) in cash and cash equivalents	(41,959		)	(44		)	(1,334		)	5,935			—			(37,402		)
Cash and cash equivalents, beginning of period	62,639			150			2,279			59,213			—			124,281
Cash and cash equivalents of held for sale operations	—			—			—			—			—			—
Cash and cash equivalents, end of period	$	20,680		$	106		$	945		$	65,148		$	—		$	86,879

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2010

	Parent Company			SGI			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net cash provided by operating activities	$	(20,614	)	$	63		$	58,214		$	105,552		$	26		$	143,241
Cash flows from investing activities:
Capital, lottery and gaming systems expenditures	(71		)	(21,649		)	(3,546		)	(26,863		)	—			(52,129		)
Business acquisitions, net of cash acquired	—			—			(6,556		)	(5,937		)	—			(12,493		)
Other assets and investments	(129,480		)	(137,026		)	(12,039		)	(185,454		)	309,778			(154,221		)
Net cash provided by (used in) investing activities	(129,551		)	(158,675		)	(22,141		)	(218,254		)	309,778			(218,843		)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	132,495			32,705			—			(52,417		)	—			112,783
Net proceeds from stock issue	(2,067		)	135,915			4,887			168,999			(309,801		)	(2,067		)
Purchase of treasury stock	(26,334		)	—			—			—			—			(26,334		)
Payment of financing fees	(6,042		)	(6,927		)	—			—			—			(12,969		)
Other, principally intercompany balances	37,102			(3,130		)	(46,681		)	12,564			145			—
Net cash provided by (used in) financing activities	135,154			158,563			(41,794		)	129,146			(309,656		)	71,413
Effect of exchange rate changes on cash	—			60			—			(8,877		)	(148		)	(8,965		)
Increase (decrease) in cash and cash equivalents	(15,011		)	11			(5,721		)	7,567			—			(13,154		)
Cash and cash equivalents, beginning of period	147,220			137			3,278			109,496			—			260,131
Cash and cash equivalents of held for sale operations	—			—			1,524			1,069			—			2,593
Cash and cash equivalents, end of period	$	132,209		$	148		$	(919	)	$	118,132		$	—		$	249,570

XML

Comprehensive (Loss) Income

9 Months Ended

Sep. 30, 2011

Comprehensive (Loss) Income

Comprehensive (Loss) Income

(4) Comprehensive (Loss) Income

The following presents a reconciliation of net (loss) income to comprehensive (loss) income for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Net (loss) income	$	(4,124	)	$	8,704	$	(4,037	)	$	9,248
Other comprehensive (loss) income
Foreign currency translation (loss) gain	(52,397		)	56,592		(4,435		)	(6,656		)
Gain on derivative financial instruments (1)	505			27		1,417			315
Other comprehensive (loss) income	(51,892		)	56,619		(3,018		)	(6,341		)
Comprehensive (loss) income	$	(56,016	)	$	65,323	$	(7,055	)	$	2,907

(1) For the three and nine months ended September 30, 2011, the gain on derivative financial instruments is net of income taxes of approximately $337 and $944, respectively.  For the three and nine months ended September 30, 2010, the gain on derivative financial instruments is net of income taxes of approximately $285 and $479, respectively.

XML

Long-Term Debt (Details) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		1 Months Ended									9 Months Ended							9 Months Ended		9 Months Ended
	Sep. 30, 2011 USD ($)	Sep. 30, 2010 USD ($)	Sep. 30, 2011 USD ($)	Sep. 30, 2010 USD ($)	May 31, 2011 Global Draw Promissory Notes GBP (£)	Oct. 31, 2011 7.875% senior subordinated notes due 2016 USD ($)	Oct. 19, 2011 7.875% senior subordinated notes due 2016 USD ($)	Sep. 30, 2011 7.875% senior subordinated notes due 2016 USD ($)	Sep. 30, 2011 8.125% senior subordinated notes due 2018 USD ($)	Sep. 30, 2011 9.25% senior subordinated notes due 2019 USD ($)	Sep. 30, 2011 China Loans CNY	Sep. 30, 2011 Maturing in 2012 CNY	Sep. 30, 2011 Maturing in 2013 CNY	Sep. 30, 2011 Credit agreement Base rate Level	Sep. 30, 2011 Credit agreement LIBOR Year	Sep. 30, 2011 Credit agreement Prime	Sep. 30, 2011 Credit agreement Federal funds effective rate	Sep. 30, 2011 Credit agreement Adjusted LIBOR Rate	Sep. 30, 2011 Credit agreement Minimum Denominator Numerator	Sep. 30, 2011 Credit agreement Maximum Numerator Denominator	Sep. 30, 2011 Secured senior term loan and revolving credit facility USD ($) Quarter	Aug. 25, 2011 Secured senior term loan and revolving credit facility USD ($)	Sep. 30, 2011 Secured senior term loan and revolving credit facility Minimum USD ($)	Sep. 30, 2011 Secured senior term loan and revolving credit facility Maximum USD ($)	Sep. 30, 2011 Senior secured revolving credit facility USD ($)	Aug. 25, 2011 Senior secured revolving credit facility USD ($)	Sep. 30, 2011 Senior secured term loan credit facility USD ($)	Aug. 25, 2011 Senior secured term loan credit facility USD ($)	Sep. 30, 2011 Maximum Reporting Date through December 31 2013 Denominator Numerator	Sep. 30, 2011 Maximum January 1 2014 through December 31 2014 Numerator Denominator	Sep. 30, 2011 Maximum January 1 2015 and Thereafter Numerator Denominator
Debt Instrument
Debt threshold of joint venture that holds the Italian instant ticket concession for interest expense to be included in EBITDA calculation																							$ 25,000
EBITDA from joint ventures in any period of four consecutive quarters to be included in determining compliance with debt agreement																								25,000
EBITDA from joint ventures to be included in determining compliance with debt agreement in the case of any such period ending on or prior to June 30, 2012																								30,000
Number of consecutive periods over which to measure amount of EBITDA from joint ventures to be included in determining compliance with debt agreement (in quarters)																					4
Threshold of unrestricted cash and cash equivalents to determine amount that will be netted against consolidated total debt to determine ratios																							15,000
Amount of unrestricted cash and cash equivalents to be netted against consolidated total debt to determine consolidated leverage ratio and consolidated senior debt ratio																								100,000
Estimate of future payments to be made to holders of the Notes for consent to amend the Notes							5,000
Outstanding debt and capital leases	1,391,784		1,391,784					200,000	250,000	345,449	178,500	116,000	62,500														567,134
Maximum non-cash expense permitted to be added back in consolidated EBITDA																									993
Loans repaid					628
Debt Instrument, interest rate, stated percentage								7.875%	8.125%	9.25%
Amount available under credit facility																									188,883
Amount outstanding under credit facility																									61,117
Fees and expenses			6,300																		2,600
Financing fees capitalized			5,800
Loss on early extinguishment of debt	4,185	2,236	4,185	2,236
Amount paid to consenting holders under consent solicitation						5,000
Percentage of outstanding debt that the scheduled maturity was extended on																										99.00%
Amount of debt that the scheduled maturity date was extended on																										247,000		555,800
Percentage of outstanding debt and capital leases																												98.00%
Amount of outstanding debt that was not extended in connection with the amendment																						16,400
Consolidated leverage ratio, numerator																													5.75	5.50	5.25
Consolidated leverage ratio, denominator																													1.00	1.00	1.00
Consolidated senior debt ratio as of the last day of each fiscal quarter, numerator																				2.75
Consolidated senior debt ratio as of the last day of each fiscal quarter, denominator																				1.00
Consolidated interest coverage ratio for any period of four consecutive quarters, numerator																			2.25
Consolidated interest coverage ratio for any period of four consecutive quarters, denominator																			1.00
Maximum potential additional borrowing capacity																									$ 200,000
Base rate of interest on debt														Base rate	LIBOR rate	Prime rate	Federal funds effective rate	Reserve adjusted LIBOR rate
Basis spread on variable interest rate															1.00%		0.50%
Basis spread on variable interest rate, low end of range														1.50%	2.50%
Basis spread on variable interest rate, high end of range														2.50%	3.50%
Dollar deposits, maturity period (in years)															1
Number of lowest applicable margin levels														2

XML

Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes

Income Taxes

(10) Income Taxes

The effective tax rates of (114.6)% and 145.5%, respectively, for the three and nine months ended September 30, 2011 were determined using an estimated annual effective tax rate after considering any discrete items for such periods. Due to a valuation allowance against our U.S. deferred tax assets, the effective tax rate for the three and nine months ended September 30, 2011 does not include the benefit of the current year forecasted U.S. tax loss. Income tax expense for the three and nine months ended September 30, 2011 is primarily due to income tax expense in foreign jurisdictions.

The effective tax rates of 20.4% and 64.8%, respectively, for the three and nine months ended September 30, 2010 were determined using an estimated annual effective tax rate after considering any discrete items for such periods.  The effective tax rate for the three and nine months ended September 30, 2010 includes the impact of a valuation allowance against certain U.S. state deferred tax assets and the release of certain reserves due to the expiration of statutes of limitation for tax-related claims.

In 2010, we established a valuation allowance of $149,583 against the U.S. deferred tax assets that, in the judgment of management, are more likely than not to expire before they can be utilized. In assessing the recoverability of our deferred tax assets, we analyzed all evidence, both positive and negative. We considered, among other things, our deferred tax liabilities, our historical earnings and losses, projections of future income, and tax-planning strategies available to us. We have not changed our assessment regarding the recoverability of our U.S. deferred tax assets for the three and nine months ended September 30, 2011.

XML

Consolidated Financial Statements (Tables)

9 Months Ended

Sep. 30, 2011

Consolidated Financial Statements

Reconciliation of the numerator and denominator used in computing the basic and diluted net income (loss) per share

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Income (numerator)
Net (loss) income	$	(4,124	)	$	8,704	$	(4,037	)	$	9,248
Shares (denominator)
Weighted-average basic common shares outstanding	92,125			91,844		92,027			93,122
Effect of dilutive securities-stock rights	—			396		—			526
Weighted-average diluted common shares outstanding	92,125			92,240		92,027			93,648
Basic and diluted per share amounts
Basic net (loss) income per share	$	(0.04	)	$	0.09	$	(0.04	)	$	0.10
Diluted net (loss) income per share	$	(0.04	)	$	0.09	$	(0.04	)	$	0.10

XML

Stockholders' Equity

9 Months Ended

Sep. 30, 2011

Stockholders' Equity

Stockholders' Equity

(11) Stockholders’ Equity

The following demonstrates the change in the number of shares of our Class A common stock outstanding during the nine months ended September 30, 2011 and during the fiscal year ended December 31, 2010:

	Nine Months	Twelve Months
	Ended	Ended
	September 30,	December 31,
	2011	2010
Shares outstanding as of beginning of period	91,725	93,883
Shares issued as part of equity-based compensation plans and the Employee Stock Purchase Plan (“ESPP”), net of RSUs surrendered	403	461
Shares repurchased into treasury stock	—	(2,619	)
Shares outstanding as of end of period	92,128	91,725

XML

Equity Method Investments (Details) In Thousands, unless otherwise specified		1 Months Ended	3 Months Ended		9 Months Ended	12 Months Ended	1 Months Ended			9 Months Ended		9 Months Ended	1 Months Ended
	Jun. 30, 2011 USD ($)	Oct. 31, 2010 Lotterie Nazionali S.r.l. ("LNS") Year	Sep. 30, 2011 Lotterie Nazionali S.r.l. ("LNS") USD ($)	Jun. 30, 2011 Lotterie Nazionali S.r.l. ("LNS") USD ($)	Sep. 30, 2011 Lotterie Nazionali S.r.l. ("LNS") USD ($)	Dec. 31, 2010 Lotterie Nazionali S.r.l. ("LNS") EUR (€)	Apr. 30, 2011 Consorzio Lotterie Nazionali (CLN) USD ($)	Jul. 31, 2011 Northstar Lottery Group, LLC USD ($)	Mar. 31, 2011 Northstar Lottery Group, LLC USD ($)	Sep. 30, 2011 Northstar Lottery Group, LLC Year	Sep. 30, 2011 International Terminal Leasing USD ($)	Sep. 30, 2011 Sportech Plc Day	Feb. 28, 2011 Shandong Inspur Scientific Games Technology, Ltd USD ($)	Apr. 16, 2007 Shandong Inspur Scientific Games Technology, Ltd USD ($)
Equity Method Investments
Equity interest (as a percent)			20.00%		20.00%					20.00%		20.00%
Initial term of upfront fees for new concession (in years)		9
Performance evaluation term of upfront fees (in years)		5
Additional term of upfront fees associated with the new concession (in years)		9
Upfront fees associated with the new concession						€ 800,000
Upfront fees share related to the entity						160,000
Upfront fees amortization						89,000
Proportionate share of amortization of upfront fees						18,000
Return on earnings dividend				4,238			22,012
Amount received from equity method investee					10,870
Return of capital payment received from equity method investee			366	6,266
Term of private management of Illinois lottery (in years)										10
Maximum percentage of net income to be entitled to receive annual incentive compensation payments (as a percent)										5.00%
Contribution to the equity method investee								2,000	10,000
Investments	37,000										35,961
Investment														750
Time lag allowed under Accounting Standards Codification (in days)												90
Gain on sale of interest													$ 397

XML

Pension and Other Post-Retirement Plans

9 Months Ended

Sep. 30, 2011

Pension and Other Post-Retirement Plans

Pension and Other Post-Retirement Plans

(9) Pension and Other Post-Retirement Plans

We have defined benefit pension plans for our U.K.-based union employees and certain Canadian-based employees (the “U.K. Plan” and the “Canadian Plan,” respectively). Retirement benefits under the U.K. Plan are based on an employee’s average compensation over the two years preceding retirement. Retirement benefits under the Canadian Plan are generally based on the number of years of credited service. Our policy is to fund the minimum contribution permissible by the applicable tax authorities.

The following table sets forth the combined amount of net periodic benefit cost recognized for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Components of net periodic pension benefit cost:
Service cost	$	589		$	478		$	1,512		$	1,421
Interest cost	1,114			1,226			3,461			3,699
Expected return on plan assets	(1,161		)	(1,243		)	(3,485		)	(3,695		)
Amortization of actuarial gains	95			124			284			403
Amortization of prior service costs	(54		)	6			(59		)	28
Net periodic cost	$	583		$	591		$	1,713		$	1,856

We have a 401(k) plan for U.S.-based employees who are not covered by a collective bargaining agreement. We contribute 37.5 cents on the dollar for the first 6% of participant contributions for a match of up to 2.25% of eligible compensation.

XML

Reportable Segment Information

9 Months Ended

Sep. 30, 2011

Reportable Segment Information

Reportable Segment Information

(2) Reportable Segment Information

We operate in three reportable segments: Printed Products Group, Lottery Systems Group, and Diversified Gaming Group. During the first quarter of 2011 we reviewed the allocation of overhead expenses to our reportable segments as a result of the realignment of our management structure. Based on this review, we determined to no longer allocate certain overhead expenses to our reportable segments. This change, which was effective January 1, 2011, had no impact on the Company’s consolidated balance sheets or its statements of operations, cash flows or changes in stockholders’ equity for any periods. Prior period reportable segment information has been adjusted to reflect the change in reportable segment reporting.

The following tables set forth revenue, cost of revenue, depreciation, amortization, selling, general and administrative expenses, write-down of assets held for sale, employee termination and restructuring costs, and operating income for the three and nine months ended September 30, 2011 and 2010, by reportable segments. Corporate expenses, including interest expense, other (income) expense and corporate depreciation and amortization, are not allocated to the reportable segments and are presented as unallocated corporate costs.

	Three Months Ended September 30, 2011
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	126,693	$	—	$	—	$	126,693
Services	—		49,944		31,485		81,429
Sales	2,953		9,640		2,024		14,617
Total revenue	$	129,646	$	59,584	$	33,509	$	222,739
Cost of instant tickets (1)	$	71,785	$	—	$	—	$	71,785
Cost of services (1)	—		26,899		15,663		42,562
Cost of sales (1)	1,906		6,813		1,613		10,332
Selling, general and administrative expenses	13,029		6,626		4,238		23,893
Employee termination and restructuring costs	—		—		1,030		1,030
Depreciation and amortization	8,177		11,939		7,744		27,860
Segment operating income	$	34,749	$	7,307	$	3,221	$	45,277
Unallocated corporate costs							23,901
Consolidated operating income							$	21,376

(1) Exclusive of depreciation and amortization.

	Three Months Ended September 30, 2010
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	115,968	$	—	$	—	$	115,968
Services	—		46,630		46,183		92,813
Sales	1,024		6,141		5,115		12,280
Total revenue	$	116,992	$	52,771	$	51,298	$	221,061
Cost of instant tickets (1)	$	67,138	$	—	$	—	$	67,138
Cost of services (1)	—		26,450		31,273		57,723
Cost of sales (1)	954		4,063		2,960		7,977
Selling, general and administrative expenses	10,269		5,772		6,117		22,158
Write-down of assets held for sale	—		—		2,155		2,155
Employee termination and restructuring costs	—		—		602		602
Depreciation and amortization	8,184		10,969		8,005		27,158
Segment operating income	$	30,447	$	5,517	$	186	$	36,150
Unallocated corporate costs							14,403
Consolidated operating income							$	21,747

(1) Exclusive of depreciation and amortization.

	Nine Months Ended September 30, 2011
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	370,972	$	—	$	—	$	370,972
Services	—		150,356		86,916		237,272
Sales	6,810		22,447		2,142		31,399
Total revenue	$	377,782	$	172,803	$	89,058	$	639,643
Cost of instant tickets (1)	$	211,151	$	—	$	—	$	211,151
Cost of services (1)	—		79,087		43,857		122,944
Cost of sales (1)	4,150		15,585		1,648		21,383
Selling, general and administrative expenses	36,521		16,422		10,800		63,743
Employee termination and restructuring costs	—		—		1,030		1,030
Depreciation and amortization	24,745		35,185		27,581		87,511
Segment operating income	$	101,215	$	26,524	$	4,142	$	131,881
Unallocated corporate costs							67,288
Consolidated operating income							$	64,593

(1) Exclusive of depreciation and amortization.

	Nine Months Ended September 30, 2010
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	343,506	$	—	$	—	$	343,506
Services	—		148,334		139,193		287,527
Sales	6,625		24,518		8,257		39,400
Total revenue	$	350,131	$	172,852	$	147,450	$	670,433
Cost of instant tickets (1)	$	199,282	$	—	$	—	$	199,282
Cost of services (1)	—		78,760		88,576		167,336
Cost of sales (1)	4,931		17,708		5,204		27,843
Selling, general and administrative expenses	32,239		18,011		17,671		67,921
Write-down of assets held for sale	—		—		8,029		8,029
Employee termination and restructuring costs	—		—		602		602
Depreciation and amortization	25,150		32,622		23,872		81,644
Segment operating income	$	88,529	$	25,751	$	3,496	$	117,776
Unallocated corporate costs							47,995
Consolidated operating income							$	69,781

(1) Exclusive of depreciation and amortization.

The following table provides a reconciliation of reportable segment operating income to income (loss) before income taxes for each period:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Reported segment operating income	$	45,277		$	36,150		$	131,881		$	117,776
Unallocated corporate costs	(23,901		)	(14,403		)	(67,288		)	(47,995		)
Consolidated operating income	21,376			21,747			64,593			69,781
Interest expense	(26,297		)	(24,617		)	(79,161		)	(74,176		)
Earnings from equity investments	8,895			13,031			27,469			42,474
(Loss) on early extinguishment of debt	(4,185		)	(2,236		)	(4,185		)	(2,236		)
Other income (expense), net	(1,711		)	3,011			159			(9,555		)
Income (loss) before income taxes	$	(1,922	)	$	10,936		$	8,875		$	26,288

In evaluating financial performance, we focus on operating income as a segment’s measure of profit or loss. Segment operating income is income before other income (expense), net, interest expense, earnings from equity investments, loss on early extinguishment of debt, unallocated corporate expenses and income taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (see Note 1 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K).

XML

Inventories

9 Months Ended

Sep. 30, 2011

Inventories

Inventories

(5) Inventories

Inventories consist of the following:

	September 30,		December 31,
	2011		2010
Parts and work-in-process	$	33,765	$	23,224
Finished goods	45,631		45,520
	$	79,396	$	68,744

Parts and work-in-process includes costs for equipment expected to be sold. Costs incurred for equipment associated with specific lottery and gaming contracts not yet placed in service are classified as construction in progress in property and equipment and are not depreciated.

XML

Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010
Income Taxes
Effective tax rates (as a percent)	114.60%	20.40%	145.50%	64.80%
Valuation allowance for state deferred tax assets					$ 149,583

XML

Reportable Segment Information (Details 2) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Reconciliation of reportable segment operating income to consolidated income before income taxes
Operating income	$ 21,376	$ 21,747	$ 64,593	$ 69,781
Interest expense	(26,297)	(24,617)	(79,161)	(74,176)
Earnings from equity investments	8,895	13,031	27,469	42,474
(Loss) on early extinguishment of debt	(4,185)	(2,236)	(4,185)	(2,236)
Other expense (income), net	(1,711)	3,011	159	(9,555)
Income (loss) before income taxes	(1,922)	10,936	8,875	26,288
Total Operating Segments
Reconciliation of reportable segment operating income to consolidated income before income taxes
Operating income	45,277	36,150	131,881	117,776
Unallocated corporate costs
Reconciliation of reportable segment operating income to consolidated income before income taxes
Unallocated corporate costs	$ (23,901)	$ (14,403)	$ (67,288)	$ (47,995)

XML

Long-Term Debt

9 Months Ended

Sep. 30, 2011

Long-Term Debt

Long-Term Debt

(6) Long-Term Debt

Credit Agreement

We are party to a credit agreement, dated as of June 9, 2008, as amended and restated as of February 12, 2010, and amended as of December 16, 2010, March 11, 2011 and as further amended and restated as of August 25, 2011 (as so amended, the “Credit Agreement”), among Scientific Games International, Inc. (“SGI”), as borrower, the Company, as a guarantor, the several lenders from time to time parties thereto and JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent. A summary of the terms of the Credit Agreement, including the financial ratios that the Company is required to maintain under the terms of the Credit Agreement, is included in Note 8 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K.

On March 11, 2011, the Company and SGI entered into an amendment to the Credit Agreement. Under the amendment, from and after December 31, 2010, “consolidated EBITDA” (as such term is defined in the Credit Agreement) will generally include the Company’s share of the earnings of the Company’s joint venture that holds the Italian instant ticket concession, whether or not such earnings have been distributed to the Company, before interest expense (other than interest expense in respect of debt of such joint venture if such debt exceeds $25,000), income tax expense and depreciation and amortization expense, provided that the amount of “consolidated EBITDA” attributable to the Company’s interest in such joint venture that would not have otherwise been permitted to be included in “consolidated EBITDA” prior to giving effect to the amendment will be capped at $25,000 in any period of four consecutive quarters (or $30,000 in the case of any such period ending on or prior to June 30, 2012). Prior to giving effect to the amendment, “consolidated EBITDA” generally included only the Company’s share of the earnings of such joint venture that was distributed to the Company. In addition, under the terms of the amendment, any cash compensation expense incurred but not paid in a particular period will be added back for purposes of determining “consolidated EBITDA” so long as no cash payment in respect thereof is required prior to the scheduled maturity of the borrowings under the Credit Agreement. This add-back was revised pursuant to the subsequent amendment described below to permit up to $993 of non-cash compensation expense accrued prior to August 25, 2011 to be added back notwithstanding that cash payments may be required to be made in respect thereof prior to the scheduled maturity of the borrowings under the Credit Agreement.  “Consolidated EBITDA” is relevant for determining whether the Company is in compliance with the financial ratios required to be maintained under the terms of the Credit Agreement.

The amendment also provides that up to $100,000 of unrestricted cash and cash equivalents of the Company and its subsidiaries in excess of $15,000 will be netted against “consolidated total debt” for purposes of determining the Company’s “consolidated leverage ratio” and “consolidated senior debt ratio” (as such terms are defined in the Credit Agreement) as of any date from and after December 31, 2010. In connection with the amendment, SGI paid approximately $2,600 of fees and expenses to (or for the benefit of) the consenting lenders. For more information regarding the March 11, 2011 amendment, see our Current Report on Form 8-K filed with the SEC on March 14, 2011.

On August 25, 2011, the Company and SGI entered into an amendment to the Credit Agreement. In connection with the amendment, the scheduled maturity date of approximately $247,000 (or 99%) of the revolving credit facility commitments and approximately $555,800 (or 98%) of the outstanding term loans under the Credit Agreement was extended from June 9, 2013 to June 30, 2015.  Under the amended Credit Agreement, SGI has the flexibility to extend the maturity date of, or reduce or prepay without premium or penalty (other than break-funding costs), the approximately $16,400 of revolving credit facility commitments and outstanding term loans that were not extended in connection with the amendment, subject to certain conditions set forth in the amendment or the Credit Agreement, as applicable.  Under the terms of the amendment, we will be required to maintain the following revised financial ratios:

· a “consolidated leverage ratio” (as such term is defined in the Credit Agreement) as of the last day of each fiscal quarter no more than the ratio set forth below with respect to the period during which such fiscal quarter ends:

· 5.75 to 1.00 (through December 31, 2013);

· 5.50 to 1.00 (January 1, 2014 through December 31, 2014); and

· 5.25 to 1.00 (January 1, 2015 and thereafter); and

· a “consolidated senior debt ratio” (as such term is defined in the Credit Agreement) as of the last day of each fiscal quarter no more than 2.75 to 1.00.

The “consolidated interest coverage ratio” (as such term is defined in the Credit Agreement) that we are required to maintain (i.e., not less than 2.25 to 1.00 for any period of four consecutive quarters) was not changed by the amendment. .

Borrowings under the Credit Agreement bear interest at a rate per annum equal to, at SGI’s option, either (1) a base rate determined by reference to the higher of (a) the prime rate of JPMorgan, (b) the federal funds effective rate plus 0.50% and (c) the LIBOR rate for a deposit in dollars with a maturity of one month plus 1.00%, or (2) a reserve-adjusted LIBOR rate, in each case plus an applicable margin based on the consolidated leverage ratio as set forth in a grid.  Under the terms of the amendment, the two lowest applicable margin levels in the grid were eliminated such that the applicable margin now varies based on the consolidated leverage ratio from 1.50% to 2.50% above the base rate for base rate loans, and from 2.50% to 3.50% above LIBOR for LIBOR-based loans.

The amendment provides for additional refinancing flexibility in the form of (1) permitted bank debt or debt securities that may be unsecured or secured on a pari passu or junior basis with the collateral securing the obligations under the Credit Agreement and (2) replacement facilities under the Credit Agreement that can be used to refinance either the term loans or the revolving commitments under the Credit Agreement in whole.  In addition, SGI will have the capability to request one or more additional tranches of term loans, increase the existing tranche of term loans, or increase the revolving commitments in an amount not to exceed $200,000 after the effective date of the amendment (the “Incremental Facility”).  In lieu of incurring additional indebtedness pursuant to the Incremental Facility, the amendment also provides SGI with the flexibility to incur additional incremental indebtedness in the form of one or more series of debt securities in an aggregate principal amount not to exceed the amounts allowed to be incurred under the Incremental Facility.

In addition, the amendment renews most of the negative covenant baskets as of the effective date of the amendment and provides investment flexibility for SGI by allowing the borrower to move capital stock, property and cash from non-guarantor subsidiaries to loan parties and then back to non-guarantor subsidiaries, subject to certain limitations set forth in the Credit Agreement.  The amendment also provides SGI the ability to use an existing restricted payment basket comprised of $200,000 plus a permitted expenditure amount that is based in part on the cumulative consolidated net income of the Company for investments and prepayments of certain indebtedness. In connection with the amendment, SGI paid an aggregate of approximately $6,300 of fees and expenses to (or for the benefit of) the consenting and new lenders of which approximately $5,800 was capitalized as deferred financing fees. The Company recorded a loss on early extinguishment of debt of approximately $4,185 as a result of writing off deferred financing fees related to those lenders that chose not to extend the maturity date of their loans. For more information regarding the August 25, 2011 amendment, see our Current Report on Form 8-K filed with the SEC on August 31, 2011.

As of September 30, 2011, we had approximately $188,883 available for additional borrowing or letter of credit issuances under our revolving credit facility. There were no borrowings and $61,117 in outstanding letters of credit under our revolving credit facility as of September 30, 2011. Our ability to borrow under the Credit Agreement will depend on us remaining in compliance with the covenants contained in the Credit Agreement.

We were in compliance with our covenants under the Credit Agreement as of September 30, 2011.

Senior Subordinated Notes

On October 27, 2011, SGI completed a consent solicitation commenced on October 19, 2011 in which SGI sought and obtained consents from the holders of a majority in aggregate principal amount of SGI’s 7.875% senior subordinated notes due 2016 (the “2016 Notes”) to certain amendments to the indenture governing the 2016 Notes (the “Indenture”).  SGI paid consenting holders $5,000 in the aggregate in connection with the consent solicitation.

SGI, the Company, as a guarantor, the other guarantors party thereto and The Bank of Nova Scotia Trust Company of New York, as trustee, entered into a supplemental indenture (the “Supplemental Indenture”) implementing the amendments to the Indenture.  The Supplemental Indenture amends the Indenture to conform certain provisions of the Indenture to those contained in the indenture governing the Company’s 8.125% senior subordinated notes due 2018 (the “2018 Notes”) and thereby provides the Company with additional flexibility for investment opportunities that it may decide to pursue, including potential strategic partnerships, joint ventures and other acquisitions.

In particular, the Supplemental Indenture amends the definition of “consolidated net income” in the Indenture to exclude certain items, including net after-tax impairment charges and asset write-offs, which will, among other things, increase the Company’s capacity to make additional “restricted investments” under the Indenture.  In addition, the Supplemental Indenture amends the definition of “permitted investments” to include certain investments relating to the Italian instant ticket concession held by the Company’s joint venture.  The primary effect of this amendment is to “grandfather” the investments the Company made in 2010 to cover the Company’s portion of the upfront fees associated with the new concession for purposes of determining the Company’s capacity to make additional “restricted investments” under the Indenture.

For more information regarding the consent solicitation and the Supplemental Indenture, see our Current Report on Form 8-K filed with the SEC on October 28, 2011.

Outstanding Debt and Capital Leases

As of September 30, 2011, we had total debt outstanding of $1,391,784 including $567,134 outstanding under our term loan facilities under the Credit Agreement, $345,449 in aggregate principal amount of SGI’s 9.25% senior subordinated notes due 2019 (the “2019 Notes”), $200,000 in aggregate principal amount of the 2016 Notes, $250,000 in aggregate principal amount of the 2018 Notes, and loans denominated in Chinese Renminbi Yuan (“RMB”) totaling RMB178,500 of which RMB116,000 matures in December 2012 and RMB62,500 matures in January 2013.

On May 6, 2011, we paid the remaining £628 aggregate principal amount outstanding of the promissory notes we issued to defer a portion of the earn-out payable in connection with our acquisition of The Global Draw Limited (“Global Draw”) in 2006.

XML

Stock-Based Compensation (Details) (USD $) In Thousands, except Share data, unless otherwise specified			1 Months Ended	3 Months Ended				9 Months Ended			9 Months Ended	1 Months Ended	9 Months Ended	1 Months Ended						3 Months Ended				9 Months Ended		1 Months Ended	9 Months Ended		1 Months Ended
	Sep. 30, 2011	Dec. 31, 2010	Aug. 31, 2011 Stock Options	Sep. 30, 2011 Stock Options Year	Jun. 30, 2011 Stock Options Year	Mar. 31, 2011 Stock Options Year	Sep. 30, 2010 Stock Options	Sep. 30, 2011 Stock Options Year	Sep. 30, 2010 Stock Options	Dec. 31, 2010 Stock Options Year	Sep. 30, 2011 Stock Options Performance-conditioned awards	Aug. 31, 2011 Stock Options Performance-conditioned awards Chief Executive Officer	Sep. 30, 2011 Stock Options Performance-conditioned awards Chief Executive Officer	Jan. 31, 2011 Stock Options Performance-conditioned awards Officers	Jan. 31, 2011 Stock Options Time-vesting equity awards Officers Year	Aug. 31, 2011 Stock Options Chief Executive Officer	Dec. 31, 2010 Stock Options Chief Executive Officer Year	Aug. 31, 2011 Stock Options Officers	Jan. 31, 2011 Stock Options Officers	Sep. 30, 2011 Restricted Stock Units Year	Jun. 30, 2011 Restricted Stock Units	Mar. 31, 2011 Restricted Stock Units	Sep. 30, 2010 Restricted Stock Units	Sep. 30, 2011 Restricted Stock Units Installment	Sep. 30, 2010 Restricted Stock Units	Aug. 31, 2011 Restricted Stock Units Performance-conditioned awards Chief Executive Officer	Sep. 30, 2011 Restricted Stock Units Performance-conditioned awards Chief Executive Officer	Sep. 30, 2011 Restricted Stock Units Time-vesting equity awards	Aug. 31, 2011 Restricted Stock Units Chief Executive Officer	Dec. 31, 2010 Restricted Stock Units Chief Executive Officer	Sep. 30, 2011 Restricted Stock Units Chief Executive Officer	Sep. 30, 2011 Employee stock purchase plan	Dec. 31, 2010 Employee stock purchase plan	Jul. 19, 2011 Minimum Eligible employees and directors
Share-based compensation arrangement by share-based payment award
Shares available for grant (in shares)	1,334	2,119																														480	514
Number of options
Options outstanding at the beginning of the period (in shares)				7,163,000	7,196,000	6,751,000		6,751,000
Granted (in shares)				1,720,000	20,000	754,000								113,000					475,000
Exercised (in shares)					(2,000)	(2,000)
Cancelled (in shares)				(4,967,000)	(51,000)	(307,000)
Options outstanding at the end of the period (in shares)				3,916,000	7,163,000	7,196,000		3,916,000
Options granted (in shares)													1,000				1,000
Options exercisable at the end of the period (in shares)				551				551					1,000				1,000										1,000			1,000
Weighted average remaining contract term
Options outstanding - weighted average remaining contract term (in years)				8.2	6.1	6.4		8.2		6.0
Options exercisable - weighted average remaining contract term (in years)				1.7
Weighted average exercise price per share
Exercise price of options granted (in dollars per share)													$ 8.06				$ 9.00
Exercise price (in dollars per share)																																		$ 11.99
Weighted average exercise price of options outstanding (in dollars per share)				$ 9.72	$ 19.41	$ 19.42		$ 9.72		$ 20.72
Options exercisable - weighted average exercise price (in dollars per share)				$ 14.26				$ 14.26
Aggregate intrinsic value
Aggregate intrinsic value of options exercised (in dollars)					$ 11	$ 15
Aggregate intrinsic value of options outstanding (in dollars)				150	3,288	654		150		1,814
Weighted-average grant date fair value of options granted (in dollars per share)				$ 3.90	$ 4.61	$ 4.62
Options Exercisable - aggregate intrinsic value (in dollars)				150				150
Compensation expense, tax benefit and unearned compensation
Stock-based compensation expense recognized (in dollars)				4,900			1,800	1,500	5,800											4,100			3,000	10,300	11,500
Tax benefit recognized related to stock based compensation expenses (in dollars)				1,800			700	600	2,300											1,600			1,200	3,900	4,500
Unearned compensation expense that will be amortized (in dollars)				$ 12,000				$ 12,000												$ 42,000				$ 42,000
Weighted-average period of amortization (in years)				2																2
Number of restricted shares
Non-vested units outstanding at the beginning of the period (in shares)																				2,821,000	2,859,000	2,440,000		2,440,000
Granted (in shares)																				2,305,000	32,000	917,000					1,000			1,000
Vested (in shares)																				(22,000)	(44,000)	(482,000)
Cancelled (in shares)																				(52,000)	(26,000)	(16,000)
Non-vested units outstanding at the end of the period (in shares)																				5,052,000	2,821,000	2,859,000		5,052,000
Weighted Average Grant Date Fair Value
Maximum term of grant (in years)								10							10		10
Non-vested units outstanding at the beginning of the period (in dollars per share)																				$ 12.34	$ 12.58	$ 15.13		$ 15.13
Granted (in dollars per share)																				$ 8.38	$ 9.47	$ 8.92
Vested (in dollars per share)																				$ 18.31	$ 25.31	$ 18.43
Cancelled (in dollars per share)																				$ 13.10	$ 13.66	$ 15.52		$ 13.10
Non-vested units outstanding at the end of the period (in dollars per share)																				$ 10.50	$ 12.34	$ 12.58		$ 10.50
Exercisable period, minimum (in years)								4
Exercisable period, maximum (in years)								5
Number of installments for vesting of RSUs, minimum																								4
Number of installments for vesting of RSUs, maximum																								5
Common stock authorized for awards under 2003 Incentive Compensation Plan	13,500
Approximate percentage of premium to the market value of the entity's stock																	12.00%
Vesting period (in years)																											5Y			4Y
Portion of awards vesting each period (as a percent)													20.00%														20.00%				25.00%
Number of shares to be settled in cash due to unavailability of sufficient shares under the plan for the delivery of the shares issuable upon exercise (in shares)											200																	500
Number of awards for which cash settlement obligation was eliminated (in shares)																200													500
Options exchanged as a percentage of options eligible for exchange			97.00%
Grants in period with a specified exercise price (in shares)															363
Number of awards for which non-exercisability and forfeiture provisions were eliminated												1,000						475								1,000
Additional grants in period with a specified exercise price (in shares)															250
Number of options exchanged and cancelled (in shares)			4,918
Grants in period with a specified exercise price (in dollars per share)															$ 10.02
Additional grants in period with a specified exercise price (in dollars per share)															$ 9.98

XML

Acquisitions (Tables)

9 Months Ended

Sep. 30, 2011

Acquisitions

Schedule of estimated fair values of the assets acquired and liabilities assumed of Barcrest at the acquisition date

At Sepember 23, 2011
Cash and cash equivalents	$	1,900
Accounts receivable, net of allowance of doubtful accounts of approximately $2,000 as of September 23, 2011	21,300
Inventories	10,300
Prepaid expenses, deposits and other current assets	1,000
Property and equipment	15,500
Deferred income taxes	700
Intangible assets	12,000
Total identifiable assets acquired	62,700
Accounts Payable	7,700
Accrued Liabilities	8,600
Total liabilities assumed	—
Net identifiable assets acquired	46,400
Goodwill	2,000
Net assets acquired	$	48,400

Schedule of pro forma results of operations

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010		2011			2010		2011
Revenue (1)	$	242,300	$	236,500		$	723,900	$	682,900
Net income (loss) (2) (3)	$	12,300	$	(4,000	)	$	15,900	$	(1,500	)

(1)	Pro forma adjustment made to eliminate intercompany revenue and costs of approximately $1,300 and $200 recorded for the three months ended September 30, 2011 and 2010, respectively. Pro forma adjustment made to eliminate intercompany revenue and costs of approximately $3,200 and $500 for the nine months ended September 30, 2011 and 2010, respectively.
(2)	Pro forma adjustment made to capitalize development costs in accordance with the Company’s accounting policies including approximately $600 and $500 for the three months ended September 30, 2011 and 2010 , respectively, and approximately $1,700 for the nine months ended September 30, 2011 and 2010.
(3)	Pro forma adjustment made to relect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to intangible assets have been applied on January 1, 2010 including approximately $800 and $700 for the three months ended September 30, 2011 and 2010, respectively and approximately $2,300 and $2,200 for the nine months ended September 30, 2011 and 2010, respectively.

XML

Comprehensive (Loss) Income (Details) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Comprehensive (Loss) Income
Net income (loss)	$ (4,124)	$ 8,704	$ (4,037)	$ 9,248
Other comprehensive (loss) income
Foreign currency translation (loss) gain	(52,397)	56,592	(4,435)	(6,656)
Gain on derivative financial instruments	505	27	1,417	315
Other comprehensive (loss) income	(51,892)	56,619	(3,018)	(6,341)
Comprehensive (loss) income	(56,016)	65,323	(7,055)	2,907
Gain on derivative financial instruments, tax portion	$ 337	$ 285	$ 944	$ 479

XML

Stockholders' Equity (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2011	Dec. 31, 2010
Change in the number of shares of Class A common stock outstanding
Shares outstanding as of beginning of period	91,725,000	93,883,000
Shares issued as part of equity-based compensation plans and the Employee Stock Purchase Plan ("ESPP"), net of RSUs surrendered	403	461
Shares repurchased into treasury stock		(2,619)
Shares outstanding as of end of period	92,128,000

XML

Reportable Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2011		Sep. 30, 2010		Sep. 30, 2011 Segment		Sep. 30, 2010
Reportable Segment Information
Number of operating segments					3
Revenue:
Instant tickets	$ 126,693		$ 115,968		$ 370,972		$ 343,506
Services	81,429		92,813		237,272		287,527
Sales	14,617		12,280		31,399		39,400
Total revenue	222,739		221,061		639,643		670,433
Cost of instant tickets	71,785	[1]	67,138	[1]	211,151	[1]	199,282	[1]
Cost of services	42,562	[1]	57,723	[1]	122,944	[1]	167,336	[1]
Cost of sales	10,332	[1]	7,977	[1]	21,383	[1]	27,843	[1]
Selling, general and administrative expenses	47,660		36,435		130,640		115,543
Write-down of assets held for sale			2,155				8,029
Employee termination and restructuring costs	1,030		602		1,030		602
Depreciation and amortization	27,994		27,284		87,902		82,017
Operating income	21,376		21,747		64,593		69,781
Total Operating Segments
Revenue:
Instant tickets	126,693		115,968		370,972		343,506
Services	81,429		92,813		237,272		287,527
Sales	14,617		12,280		31,399		39,400
Total revenue	222,739		221,061		639,643		670,433
Cost of instant tickets	71,785		67,138		211,151		199,282
Cost of services	42,562		57,723		122,944		167,336
Cost of sales	10,332		7,977		21,383		27,843
Selling, general and administrative expenses	23,893		22,158		63,743		67,921
Write-down of assets held for sale			2,155				8,029
Employee termination and restructuring costs	1,030		602		1,030		602
Depreciation and amortization	27,860		27,158		87,511		81,644
Operating income	45,277		36,150		131,881		117,776
Printed Products Group
Revenue:
Instant tickets	126,693		115,968		370,972		343,506
Sales	2,953		1,024		6,810		6,625
Total revenue	129,646		116,992		377,782		350,131
Cost of instant tickets	71,785		67,138		211,151		199,282
Cost of sales	1,906		954		4,150		4,931
Selling, general and administrative expenses	13,029		10,269		36,521		32,239
Depreciation and amortization	8,177		8,184		24,745		25,150
Operating income	34,749		30,447		101,215		88,529
Lottery Systems Group
Revenue:
Services	49,944		46,630		150,356		148,334
Sales	9,640		6,141		22,447		24,518
Total revenue	59,584		52,771		172,803		172,852
Cost of services	26,899		26,450		79,087		78,760
Cost of sales	6,813		4,063		15,585		17,708
Selling, general and administrative expenses	6,626		5,772		16,422		18,011
Depreciation and amortization	11,939		10,969		35,185		32,622
Operating income	7,307		5,517		26,524		25,751
Diversified Gaming Group
Revenue:
Services	31,485		46,183		86,916		139,193
Sales	2,024		5,115		2,142		8,257
Total revenue	33,509		51,298		89,058		147,450
Cost of services	15,663		31,273		43,857		88,576
Cost of sales	1,613		2,960		1,648		5,204
Selling, general and administrative expenses	4,238		6,117		10,800		17,671
Write-down of assets held for sale			2,155				8,029
Employee termination and restructuring costs	1,030		602		1,030		602
Depreciation and amortization	7,744		8,005		27,581		23,872
Operating income	3,221		186		4,142		3,496
Unallocated corporate costs
Revenue:
Unallocated corporate costs	$ 23,901		$ 14,403		$ 67,288		$ 47,995

[1] Exclusive of depreciation and amortization.

XML

Acquisitions

9 Months Ended

Sep. 30, 2011

Acquisitions

Acquisitions

(14) Acquisitions

On April 26, 2011 we entered into a purchase agreement to acquire all of the issued shares of Barcrest Group Limited, a U.K. company, and Cyberview Technology CZ s.r.o., a company incorporated in the Czech Republic (collectively, “Barcrest”), a leading supplier of gaming content and machines in Europe, from subsidiaries of International Game Technology for approximately £33,000 in cash (subject to certain adjustments), plus up to approximately £2,000 in deferred consideration, the payment of which was subject to the satisfaction of certain conditions relating to a third-party contract. On September 23, 2011, we completed the acquisition for approximately £31,406 (or approximately $48,400) in cash, subject to certain post-closing adjustments.  The £2,000 in deferred consideration will not be payable as the conditions relating to the third-party contract were not satisfied.  Barcrest is being integrated into our gaming divisions.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date based on a preliminary purchase price allocation, which is subject to change based on a final purchase price allocation that is expected to be completed in the fourth quarter of 2011:

At Sepember 23, 2011
Cash and cash equivalents	$	1,900
Accounts receivable, net of allowance of doubtful accounts of approximately $2,000 as of September 23, 2011	21,300
Inventories	10,300
Prepaid expenses, deposits and other current assets	1,000
Property and equipment	15,500
Deferred income taxes	700
Intangible assets	12,000
Total identifiable assets acquired	62,700
Accounts Payable	7,700
Accrued Liabilities	8,600
Total liabilities assumed	—
Net identifiable assets acquired	46,400
Goodwill	2,000
Net assets acquired	$	48,400

Of the approximate $12,000 of acquired intangible assets, approximately $900 was allocated to trade names, and not subject to amortization. The remaining $11,100 of intangible assets includes customer lists of approximately $5,700 (with a four-year weighted average useful life) and intellectual property of approximately $5,400 (with a 4.5-year weighted average useful life).

The approximate $2,000 of goodwill was assigned to our Diversified Gaming segment. None of the goodwill is expected to be deductible for income tax purposes.

The Company recognized approximately $1,700 and $4,300 of acquisition-related costs that were expensed in the three and nine months ended September 30, 2011, respectively. These costs are included in selling, general and administrative expenses in our Consolidated Statements of Operations.

Barcrest service and sales revenue for the period September 23, 2011 (date of acquisition) through September 30, 2011 was approximately $800 and $2,000, respectively. Barcrest net income was approximately $400 for the same period.

The following represents our unaudited pro forma revenue and net income (loss) for the three and nine months ended September 30, 2010 and 2011, as if the acquisition of Barcrest had occurred on January 1, 2010.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010		2011			2010		2011
Revenue (1)	$	242,300	$	236,500		$	723,900	$	682,900
Net income (loss) (2) (3)	$	12,300	$	(4,000	)	$	15,900	$	(1,500	)

(1)	Pro forma adjustment made to eliminate intercompany revenue and costs of approximately $1,300 and $200 recorded for the three months ended September 30, 2011 and 2010, respectively. Pro forma adjustment made to eliminate intercompany revenue and costs of approximately $3,200 and $500 for the nine months ended September 30, 2011 and 2010, respectively.
(2)	Pro forma adjustment made to capitalize development costs in accordance with the Company’s accounting policies including approximately $600 and $500 for the three months ended September 30, 2011 and 2010 , respectively, and approximately $1,700 for the nine months ended September 30, 2011 and 2010.
(3)	Pro forma adjustment made to relect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to intangible assets have been applied on January 1, 2010 including approximately $800 and $700 for the three months ended September 30, 2011 and 2010, respectively and approximately $2,300 and $2,200 for the nine months ended September 30, 2011 and 2010, respectively.

XML

Derivative Financial Instruments

9 Months Ended

Sep. 30, 2011

Derivative Financial Instruments

Derivative Financial Instruments

(7) Derivative Financial Instruments

Effective October 17, 2008, SGI entered into a three-year interest rate swap agreement (the “Hedge”) with JPMorgan, which expired on October 17, 2011. Under the Hedge, which was designated as a cash flow hedge, SGI paid interest on a $100,000 notional amount of debt at a fixed rate of 3.49% and received interest on a $100,000 notional amount of debt at the then prevailing three-month LIBOR rate. The objective of the Hedge was to eliminate the variability of cash flows attributable to the LIBOR component of interest expense paid on $100,000 of our variable-rate debt. As of September 30, 2011, the Hedge was measured at a fair value of $126 using Level 2 valuation techniques of the fair value hierarchy and included in accrued liabilities on the Consolidated Balance Sheet.

Hedge effectiveness was measured quarterly on a retrospective basis using the cumulative dollar-offset approach in which the cumulative changes in the cash flows of the actual swap were compared to the cumulative changes in the cash flows of the hypothetical swap. The effective portion of the Hedge was recorded in other comprehensive (loss) income and any ineffective portion of the Hedge was recorded in the Consolidated Statements of Operations. During the three and nine months ended September 30, 2011, we recorded a gain of approximately $505 and $1,417, respectively, in other comprehensive (loss) income. During the three and nine months ended September 30, 2010, we recorded a gain of approximately $27 and $315, respectively, in other comprehensive (loss) income. There was no ineffective portion of the Hedge recorded in the Consolidated Statements of Operations in either period. Amounts recorded in other comprehensive (loss) income that were deferred on the effective hedged forecasted transactions were reclassified to earnings when the interest expense related to the hedged item affected earnings.

XML

Comprehensive (Loss) Income (Tables)

9 Months Ended

Sep. 30, 2011

Comprehensive (Loss) Income

Reconciliation of net (loss) income to comprehensive (loss) income

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Net (loss) income	$	(4,124	)	$	8,704	$	(4,037	)	$	9,248
Other comprehensive (loss) income
Foreign currency translation (loss) gain	(52,397		)	56,592		(4,435		)	(6,656		)
Gain on derivative financial instruments (1)	505			27		1,417			315
Other comprehensive (loss) income	(51,892		)	56,619		(3,018		)	(6,341		)
Comprehensive (loss) income	$	(56,016	)	$	65,323	$	(7,055	)	$	2,907

(1) For the three and nine months ended September 30, 2011, the gain on derivative financial instruments is net of income taxes of approximately $337 and $944, respectively.  For the three and nine months ended September 30, 2010, the gain on derivative financial instruments is net of income taxes of approximately $285 and $479, respectively.

XML

Pension and Other Post-Retirement Plans (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Components of net periodic pension benefit cost
Service cost	$ 589,000	$ 478,000	$ 1,512,000	$ 1,421,000
Interest cost	1,114,000	1,226,000	3,461,000	3,699,000
Expected return on plan assets	(1,161,000)	(1,243,000)	(3,485,000)	(3,695,000)
Amortization of actuarial gains	95,000	124,000	284,000	403,000
Amortization of prior service costs	(54,000)	6,000	(59,000)	28,000
Net periodic cost	583,000	591,000	1,713,000	1,856,000
Maximum percentage of participant contributions eligible for Employer contribution match, towards defined contribution plan (as a percent)			6.00%
Employer's matching contribution on the dollar for the first 6 percent of participant contributions, effective January 1, 2010			$ 0.375
Percentage of employer's contribution under 401(k) plan matching up to 6 percent of participant contributions subject to maximum percentage of eligible compensation, effective from January 1, 2010 (as a percent)			2.25%
U.K.-based union employees, U.K. Plan
Defined benefit plan disclosure
Number of years of employee's average compensation preceding retirement (in years)			2

XML

Consolidated Financial Statements (Details) (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Income (numerator)
Net (loss) income	$ (4,124)	$ 8,704	$ (4,037)	$ 9,248
Shares (denominator)
Weighted-average basic common shares outstanding (in shares)	92,125	91,844	92,027	93,122
Effect of dilutive securities-stock rights (in shares)		396		526
Weighted-average diluted common shares outstanding (in shares)	92,125	92,240	92,027	93,648
Basic and diluted net (loss) income per share:
Basic net (loss) income per share (in dollars per share)	$ (0.04)	$ 0.09	$ (0.04)	$ 0.10
Diluted net (loss) income per share (in dollars per share)	$ (0.04)	$ 0.09	$ (0.04)	$ 0.10
Anti-dilutive weighted-average stock rights outstanding (in shares)		6,917		6,496

XML

Consolidated Financial Statements

9 Months Ended

Sep. 30, 2011

Consolidated Financial Statements

Consolidated Financial Statements

(1) Consolidated Financial Statements

Basis of Presentation

The Consolidated Balance Sheet as of September 30, 2011, the Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, have been prepared by Scientific Games Corporation and are unaudited. When used in these notes, the terms “we,” “us,” “our” and the “Company” refer to Scientific Games Corporation and all entities included in our consolidated financial statements unless otherwise specified or the context otherwise indicates. In the opinion of management, all adjustments necessary to present fairly our consolidated financial position as of September 30, 2011, the results of our operations for the three and nine months ended September 30, 2011 and 2010 and our cash flows for the nine months ended September 30, 2011 and 2010 have been made. Such adjustments are of a normal, recurring nature.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2010 Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results of operations for the full year.

Significant Accounting Policies

We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K. There have been no changes to our significant accounting policies during the period ended September 30, 2011 except as discussed below.

In September 2009, the Financial Accounting Standards Board (“FASB”) amended the Accounting Standards Codification (“ASC”) as summarized in Accounting Standards Update (“ASU”) 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements, and ASU 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. As summarized in ASU 2009-14, ASC Topic 985 has been amended to remove from the scope of industry-specific revenue accounting guidance for software and software related transactions, tangible products containing software components and non-software components that function together to deliver the product’s essential functionality. As summarized in ASU 2009-13, ASC Topic 605 has been amended: (1) to provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and the consideration allocated; (2) to require an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of the selling price; and (3) to eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. The accounting changes summarized in ASU 2009-14 and ASU 2009-13 are both effective for fiscal years beginning on or after June 15, 2010, with early adoption permitted. Adoption may either be on a prospective basis or by retrospective application.

We adopted these amendments to the ASC on January 1, 2011 on a prospective basis as applicable to our revenue generated from licensing branded properties that are coupled with a service component, where we also purchase and distribute prizes on behalf of lottery authorities. The impact of these accounting changes was not material to our consolidated financial statements for the three and nine months ended September 30, 2011.

Basic and Diluted Net Income (Loss) Per Share

The following represents a reconciliation of the numerator and denominator used in computing basic and diluted net (loss) income per share available to common stockholders for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Income (numerator)
Net (loss) income	$	(4,124	)	$	8,704	$	(4,037	)	$	9,248
Shares (denominator)
Weighted-average basic common shares outstanding	92,125			91,844		92,027			93,122
Effect of dilutive securities-stock rights	—			396		—			526
Weighted-average diluted common shares outstanding	92,125			92,240		92,027			93,648
Basic and diluted per share amounts
Basic net (loss) income per share	$	(0.04	)	$	0.09	$	(0.04	)	$	0.10
Diluted net (loss) income per share	$	(0.04	)	$	0.09	$	(0.04	)	$	0.10

There were no dilutive stock rights for the three and nine months ended September 30, 2011 due to the net loss reported for the periods. The weighted-average diluted common shares outstanding for the three and nine months ended September 30, 2010 excludes the effect of approximately 6,917 and 6,496 weighted-average stock rights outstanding, respectively, because their effect would be anti-dilutive.

XML

Inventories (Tables)

9 Months Ended

Sep. 30, 2011

Inventories

Disclosure of inventories

	September 30,		December 31,
	2011		2010
Parts and work-in-process	$	33,765	$	23,224
Finished goods	45,631		45,520
	$	79,396	$	68,744

XML

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries (Details 2) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Condensed Financial Statements
Operating revenues	$ 222,739	$ 221,061	$ 639,643	$ 670,433
Cost of instant ticket revenues, cost of services and cost of sales	124,679	132,838	355,478	394,461
Selling, general and administrative expenses	47,660	36,435	130,640	115,543
Write-down of assets held for sale		2,155		8,029
Employee termination and restructuring costs	1,030	602	1,030	602
Depreciation and amortization	27,994	27,284	87,902	82,017
Operating income	21,376	21,747	64,593	69,781
Interest expense	26,297	24,617	79,161	74,176
Other (income) expense	(2,999)	(13,806)	(23,443)	(30,683)
Net (loss) income before income taxes	(1,922)	10,936	8,875	26,288
Income tax expense	2,202	2,232	12,912	17,040
Net (loss) income	(4,124)	8,704	(4,037)	9,248
Parent Company
Condensed Financial Statements
Selling, general and administrative expenses	15,476	8,931	45,932	32,506
Depreciation and amortization	134	126	390	372
Operating income	(15,610)	(9,057)	(46,322)	(32,878)
Interest expense	5,351	3,502	16,098	10,090
Other (income) expense	(529)	(1,485)	(2,748)	14,191
Net (loss) income before income taxes	(20,432)	(11,074)	(59,672)	(57,159)
Equity in income (loss) of subsidiaries	17,197	15,338	63,902	72,250
Income tax expense	889	(4,440)	8,267	5,843
Net (loss) income	(4,124)	8,704	(4,037)	9,248
SGI
Condensed Financial Statements
Operating revenues	95,742	89,522	292,842	282,570
Cost of instant ticket revenues, cost of services and cost of sales	29,288	27,826	91,087	88,025
Selling, general and administrative expenses	14,710	12,064	39,365	40,189
Depreciation and amortization	7,449	8,174	22,562	24,822
Operating income	44,295	41,458	139,828	129,534
Interest expense	20,535	21,118	61,817	61,727
Other (income) expense	48,233	38,548	137,429	117,229
Net (loss) income before income taxes	(24,473)	(18,208)	(59,418)	(49,422)
Equity in income (loss) of subsidiaries	19,766	17,574	55,946	59,860
Income tax expense	(191)	3	(486)	25
Net (loss) income	(4,516)	(637)	(2,986)	10,413
Guarantor Subsidiaries
Condensed Financial Statements
Operating revenues	19,976	17,319	45,774	37,119
Cost of instant ticket revenues, cost of services and cost of sales	39,379	38,178	108,403	106,257
Selling, general and administrative expenses	2,404	2,463	7,539	6,473
Depreciation and amortization	4,734	4,551	14,343	13,698
Operating income	(26,541)	(27,873)	(84,511)	(89,309)
Other (income) expense	(46,473)	(51,551)	(139,710)	(157,544)
Net (loss) income before income taxes	19,932	23,678	55,199	68,235
Income tax expense			8	10
Net (loss) income	19,932	23,678	55,191	68,225
Non-Guarantor Subsidiaries
Condensed Financial Statements
Operating revenues	107,357	114,695	302,087	352,029
Cost of instant ticket revenues, cost of services and cost of sales	57,417	67,354	159,074	201,517
Selling, general and administrative expenses	15,096	12,936	39,599	36,302
Write-down of assets held for sale		2,155		8,029
Employee termination and restructuring costs	1,030	602	1,030	602
Depreciation and amortization	15,677	14,433	50,607	43,125
Operating income	18,137	17,215	51,777	62,454
Interest expense	411	(3)	1,246	2,359
Other (income) expense	(5,325)	678	(22,235)	(4,539)
Net (loss) income before income taxes	23,051	16,540	72,766	64,634
Income tax expense	1,504	6,669	5,123	11,162
Net (loss) income	21,547	9,871	67,643	53,472
Eliminating Entries
Condensed Financial Statements
Operating revenues	(336)	(475)	(1,060)	(1,285)
Cost of instant ticket revenues, cost of services and cost of sales	(1,405)	(520)	(3,086)	(1,338)
Selling, general and administrative expenses	(26)	41	(1,795)	73
Operating income	1,095	4	3,821	(20)
Other (income) expense	1,095	4	3,821	(20)
Equity in income (loss) of subsidiaries	(36,963)	(32,912)	(119,848)	(132,110)
Net (loss) income	$ (36,963)	$ (32,912)	$ (119,848)	$ (132,110)

XML

Pension and Other Post-Retirement Plans (Tables)

9 Months Ended

Sep. 30, 2011

Pension and Other Post-Retirement Plans

Combined amount of net periodic benefit cost recognized

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Components of net periodic pension benefit cost:
Service cost	$	589		$	478		$	1,512		$	1,421
Interest cost	1,114			1,226			3,461			3,699
Expected return on plan assets	(1,161		)	(1,243		)	(3,485		)	(3,695		)
Amortization of actuarial gains	95			124			284			403
Amortization of prior service costs	(54		)	6			(59		)	28
Net periodic cost	$	583		$	591		$	1,713		$	1,856

XML

Equity Method Investments

9 Months Ended

Sep. 30, 2011

Equity Method Investments

Equity Method Investments

(3) Equity Method Investments

Lotterie Nazionali S.r.l. / Consorzio Lotterie Nazionali

We are a 20% equity owner in Lotterie Nazionali S.r.l. (“LNS”), a joint venture comprised principally of us, Lottomatica Group S.p.A. (“Lottomatica”) and Arianna 2001, a company owned by the Federation of Italian Tobacconists, that was awarded the concession from the Italian Monopoli di Stato to be the exclusive operator of the Italian Gratta e Vinci instant ticket lottery beginning on October 1, 2010. The concession has an initial term of nine years (subject to a performance evaluation during the fifth year) and could be extended by the Monopoli di Stato for an additional nine years. LNS succeeded Consorzio Lotterie Nazionali (“CLN”), a consortium comprised of essentially the same group that owns LNS, as holder of the concession. Under the new concession, we are the primary supplier of instant lottery tickets for the joint venture, as we were under the prior concession. CLN, which had held the concession since 2004, is being wound up and the bulk of its assets have been transferred to LNS. LNS paid €800,000 in upfront fees under the terms of the new concession. We paid our pro rata share of these fees in 2010 (€160,000). The upfront fees associated with the new concession are amortized by LNS (anticipated to be approximately €89,000 each year of the new concession on a pre-tax basis), which reduces our earnings from our equity investment in LNS. Our share of the amortization is expected to be approximately €18,000 each year on a pre-tax basis. In light of the corporate structure of LNS, we record our earnings from our equity investment in LNS on an after-tax basis in accordance with applicable accounting rules, which impacts the comparability of our results of operations associated with LNS with our results of operations associated with CLN, since we recorded earnings from our equity investment in CLN on a pre-tax basis. Subject to applicable limitations, we are entitled to receive from LNS annual cash dividends as well as periodic return of capital payments over the life of the concession. In April 2011, we received a dividend of $22,012 from CLN. During 2011, we have received $10,870 from LNS comprised of a dividend of $4,238 received in the second quarter and return of capital payments of $6,266 and $366 received in the second and third quarter, respectively.

Northstar Lottery Group, LLC

We are a 20% equity owner in Northstar Lottery Group, LLC (“Northstar”), a joint venture with GTECH Corporation, a subsidiary of Lottomatica, that was formed to bid for the agreement to be the private manager for the Illinois lottery for a ten-year term. Northstar was selected as the private manager following a competitive procurement process and entered into a private management agreement with the State of Illinois on January 18, 2011 (the “PMA”). As the private manager, Northstar will, subject to the oversight of the Illinois lottery, manage the day-to-day operations of the lottery including lottery game development and portfolio management, retailer recruitment and training, supply of goods and services and overall marketing strategy. Under the terms of the PMA, Northstar is entitled to receive annual incentive compensation payments to the extent it is successful in increasing the lottery’s net income above specified target levels, subject to a cap of 5% of the applicable year’s net income. Northstar will be responsible for payments to the State to the extent such targets are not achieved, subject to a similar cap. Northstar is expected to be reimbursed on a monthly basis for most of its operating expenses under the PMA. Under our agreement with Northstar, we are responsible for the design, development, manufacturing, warehousing and distribution of instant lottery tickets and will be compensated based on a percentage of retail sales.

On January 26, 2011, the Appellate Court of Illinois upheld a constitutional challenge to the revenue statute that, among other things, amended the lottery law to facilitate the PMA on grounds that the statute impermissibly addressed more than one subject. On July 11, 2011, the Illinois Supreme Court reversed the Appellate Court decision and upheld the revenue statute.  Operations under the PMA commenced on July 1, 2011. We contributed $10,000 to Northstar in March 2011 and an additional $2,000 in July 2011.  We account for our interest in Northstar under the equity method of accounting.

International Terminal Leasing

As contemplated by our strategic agreements with Video B Holdings Limited (“Video B”), a subsidiary of Playtech Limited, relating to our license of Video B’s back-end technology platform for our gaming machines, we formed ITL with Video B in the first quarter of 2011. The purpose of ITL is to acquire gaming terminals using funds contributed to the capital of ITL by each partner. The gaming terminals, which will employ Video B’s software, will be leased to whichever Company subsidiary is to provide the terminals to third-party customers. We account for our interest in ITL under the equity method of accounting. The equity interest of each partner is expected to vary based on the respective capital contributions from the partners; however, each partner has joint control regarding operating decisions of ITL. Intra-entity profits and losses will be eliminated as necessary. As of September 30, 2011 our investment in ITL was $35,961. The impact of ITL on our Consolidated Statements of Operations for the three and nine months ended September 30, 2011 was not material.

Sportech Plc

Upon the closing of the sale of our racing and venue management businesses (the “Racing Business”) to Sportech Plc (“Sportech”) on October 5, 2010, we received an equity interest in Sportech of approximately 20% of the shares then outstanding. Sportech operates football pools and associated games through various distribution channels including direct mail and telephone, agent-based collection and via the Internet. Sportech also operates a portfolio of online casino, poker, bingo and fixed-odds games through its e-Gaming division. Our interest in Sportech is accounted for under the equity method of accounting. We record our equity interest in Sportech on a 90-day lag as allowed under Accounting Standards Codification 323, Investments—Equity Method and Joint Ventures.

Shandong Inspur Scientific Games Technology, Ltd.

On April 16, 2007, we invested approximately $750 to establish Shandong Inspur Scientific Games Technology, Ltd. (“SIST”). On February 1, 2011, we sold our interest in SIST resulting in a gain of $397.

XML

Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

(12) Stock-Based Compensation

We offer stock-based compensation through the use of stock options and restricted stock units (“RSUs”). We grant stock options to employees and directors under our equity-based compensation plans with exercise prices that are not less than the fair market value of our common stock at the date of grant. The terms of the stock option and RSU awards, including the vesting schedule of such awards, are determined at our discretion subject to the terms of the applicable equity-based compensation plan. Options granted over the last several years have generally been exercisable in four or five equal installments beginning on the first anniversary of the date of grant with a maximum term of ten years. RSUs typically vest in four or five equal installments beginning on the first anniversary of the date of grant or when certain performance targets are met. There are 13,500 shares of common stock authorized for awards under our 2003 Incentive Compensation Plan (the “Plan”) plus available shares from a preexisting equity-based compensation plan, which plans were approved by our stockholders. We also have outstanding stock options granted as part of inducement stock option awards that were not approved by stockholders as permitted by applicable stock exchange rules. We record compensation cost for all stock options and RSUs based on the fair value at the grant date.

The Company may grant certain awards the vesting of which is contingent upon the Company achieving certain performance targets. Upon determining that the performance target is probable, the fair value of the award is recognized over the service period, subject to potential adjustment.

In connection with A. Lorne Weil becoming Chief Executive Officer, the Company entered into an amendment to his employment agreement effective December 2, 2010. Pursuant to the amendment, the Company awarded to Mr. Weil sign-on equity awards consisting of 1,000 stock options with an exercise price of $9.00 per share (representing an approximately 12% premium to the market value of our common stock on the date of grant) and a ten-year term and 1,000 RSUs, which awards have a four-year vesting schedule, with 25% scheduled to vest on December 31, 2011 and on each of the next three anniversaries of such date (such options and RSUs, the “time-vesting equity awards”).  Mr. Weil was also awarded additional performance-conditioned awards consisting of 1,000 stock options with an exercise price of $8.06 per share (representing the market value of our common stock on the date of grant) and 1,000 RSUs, which awards have a five-year vesting schedule, with 20% of such options and RSUs scheduled to vest each year if specified performance targets are met (subject to certain “carryover” vesting provisions as described in the employment agreement amendment) (such performance-conditioned stock options and RSUs, the “performance-conditioned equity awards”). Delivery of shares in respect of any vested performance-vesting RSUs will occur on March 15, 2016. The performance-conditioned stock options will expire, and the performance-conditioned RSUs will be forfeited, on March 15, 2016 to the extent that such awards remain unvested on such date. Any performance-conditioned stock options that have vested by March 15, 2016 will expire ten years from the date of grant.

In light of the shares that have been returned to the pool of available shares under the Plan as a result of the completion of the stock option exchange offer described below, on August 18, 2011, the Company entered into an amendment to its employment agreement with Mr. Weil to eliminate (1) the Company’s cash settlement obligation in respect of 200 time-vesting stock options and 500 time-vesting RSUs granted to Mr. Weil on December 2, 2010 that would have been triggered by the unavailability of shares under the Plan and (2) the non-exercisability and forfeiture provisions in respect of the 1,000 performance-conditioned stock options and the 1,000 performance-conditioned RSUs granted to Mr. Weil on December 2, 2010 that would have been triggered by the unavailability of shares under the Plan.  All other terms of Mr. Weil’s employment agreement relating to such equity awards (including the service and performance-based conditions to vesting, exercise and settlement thereof), as set forth in Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 3, 2010, are unchanged and remain in full force and effect.

The elimination of the cash settlement obligation in respect of certain of Mr. Weil’s awards as described above resulted in the re-classification of such awards from liability awards (i.e., where the award’s fair value, which determines the measurement of the liability on the balance sheet, is re-measured at each reporting period until the award is settled, with fluctuations in the fair value recorded as increases or decreases in compensation expense) to equity awards (i.e., where the compensation expense related to the award is fixed at the grant date based on the award’s grant-date fair value).  The Company began recognizing compensation expense associated with Mr. Weil’s performance-conditioned equity awards during the third quarter.  Neither the performance targets associated with such awards nor the expensing of such awards is necessarily indicative of the Company’s future results generally or for any period.

In January 2011, the Company awarded an aggregate of 475 equity awards to certain officers consisting of approximately 113 performance-conditioned stock options, approximately 113 time-vesting stock options (with an exercise price of $10.02 per share and a ten-year term) and 250 time-vesting stock options (with an exercise price of $9.98 per share and a ten-year term). In light of the shares that have been returned to the pool of available shares under the Plan as a result of the completion of the stock option exchange offer described below, on August 18, 2011, the Company entered into amendments to its employment agreements with such officers to eliminate the non-exercisability and forfeiture provisions of such awards that would have been triggered by the unavailability of shares under the Plan.  As a result of the elimination of such non-exercisability and forfeiture provisions, the Company began recognizing the compensation expense of the approximately 363 time-vesting stock options, which was not material to our Consolidated Statements of Operations.

The equity awards that otherwise would have been forfeited or not exercisable and the equity awards that otherwise would have been settled in cash, as the case may be, to the extent that sufficient shares were not available under the Plan at the time of delivery of the underlying shares, were not deemed to be granted for accounting purposes as stock-based equity awards until the elimination of such forfeiture, non-exercisability and cash settlement provisions effective on August 18, 2011 (and were not reflected in the tables below as granted or outstanding prior to such date). We had approximately 1,334 and 2,119 shares available for grants of equity awards under our equity-based compensation plans (excluding 480 and 514 shares available under our employee stock purchase plan) as of September 30, 2011 and December 31, 2010, respectively.

Stock Option Exchange Program

On August 16, 2011, pursuant to its stockholder-approved stock option exchange offer, the Company accepted for exchange (and cancelled) options to purchase an aggregate of 4,918 shares of the Company’s common stock (representing 97% of the total number of options eligible for exchange in the exchange offer) and, in exchange therefor, granted a total of 663 RSUs under the Plan.  Under the terms of the exchange offer, eligible employees (including executive officers) and directors could exchange all (but not less than all) of their outstanding stock options with an exercise price greater than $11.99 that were granted before July 19, 2010, whether vested or unvested, for a lesser number of new RSUs based on the exchange ratios that were established in order to comply with the terms of the option exchange approved by our stockholders. The RSUs granted in connection with the exchange offer are scheduled to vest on the later of August 16, 2012 or the date on which the corresponding option would have vested.  The option exchange offer did not result in significant incremental stock-based compensation expense.  For additional information regarding the stock option exchange offer, see the Tender Offer Statement on Schedule TO filed by the Company with the SEC on July 19, 2011, as amended on August 5, 2011 and August 16, 2011, and the Current Report on Form 8-K filed by the Company with the SEC on August 18, 2011.

Stock Options

A summary of the changes in stock options outstanding under our equity-based compensation plans during the nine months ended September 30, 2011 is presented below:

	Number of Options		Weighted Average Remaining Contract Term (Years)	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding as of December 31, 2010	6,751		6.0	$	20.72	$	1,814
Granted	754
Exercised	(2	)				15
Cancelled	(307	)
Options outstanding as of March 31, 2011	7,196		6.4	19.42		654
Granted	20
Exercised	(2	)				11
Cancelled	(51	)
Options outstanding as of June 30, 2011	7,163		6.1	19.41		3,288
Granted	1,720
Exercised	—					—
Cancelled	(4,967	)
Options outstanding as of September 30, 2011	3,916		8.2	9.72		150
Options exercisable as of September 30, 2011	551		1.7	$	14.26	$	150

The weighted-average grant date fair value of options granted during the three months ended September 30, 2011, June 30, 2011 and March 31, 2011 was $3.90, $4.61 and $4.62, respectively. For the three and nine months ended September 30, 2011, we recognized stock-based compensation expense of approximately $1,500 and $4,900, respectively, related to the vesting of stock options and the related tax benefit of approximately $600 and $1,800, respectively. For the three and nine months ended September 30, 2010, we recognized stock-based compensation expense of approximately $1,800 and $5,800, respectively, related to the vesting of stock options and the related tax benefit of approximately $700 and $2,300, respectively.

As of September 30, 2011, we had unrecognized compensation expense of approximately $12,000 relating to stock option awards that will be amortized over a weighted-average period of approximately two years.

Restricted Stock Units

A summary of the changes in RSUs outstanding under our equity-based compensation plans during the nine months ended September 30, 2011 is presented below:

	Number of Restricted Shares		Weighted Average Grant Date Fair Value Per Share
Non-vested units as of December 31, 2010	2,440		$	15.13
Granted	917		8.92
Vested	(482	)	18.43
Cancelled	(16	)	15.52
Non-vested units as of March 31, 2011	2,859		$	12.58
Granted	32		9.47
Vested	(44	)	25.31
Cancelled	(26	)	13.66
Non-vested units as of June 30, 2011	2,821		$	12.34
Granted	2,305		8.38
Vested	(22	)	18.31
Cancelled	(52	)	13.10
Non-vested units as of September 30, 2011	5,052		$	10.50

For the three and nine months ended September 30, 2011, we recognized stock-based compensation expense of approximately $4,100 and $10,300 related to the vesting of RSUs and the related tax benefit of approximately $1,600 and $3,900,  respectively. For the three and nine months ended September 30, 2010, we recognized equity-based compensation expense of approximately $3,000 and $11,500, respectively, related to the vesting of RSUs and the related tax benefit of approximately $1,200 and $4,500, respectively.

As of September 30, 2011, we had unrecognized compensation expense of approximately $42,000 relating to RSUs that will be amortized over a weighted-average period of approximately two years.

XML

Inventories (Details) (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Inventories
Parts and work-in-process	$ 33,765	$ 23,224
Finished goods	45,631	45,520
Inventories, total	$ 79,396	$ 68,744

XML

Reportable Segment Information (Tables)

9 Months Ended

Sep. 30, 2011

Reportable Segment Information

Operating Information by Segment

	Three Months Ended September 30, 2011
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	126,693	$	—	$	—	$	126,693
Services	—		49,944		31,485		81,429
Sales	2,953		9,640		2,024		14,617
Total revenue	$	129,646	$	59,584	$	33,509	$	222,739
Cost of instant tickets (1)	$	71,785	$	—	$	—	$	71,785
Cost of services (1)	—		26,899		15,663		42,562
Cost of sales (1)	1,906		6,813		1,613		10,332
Selling, general and administrative expenses	13,029		6,626		4,238		23,893
Employee termination and restructuring costs	—		—		1,030		1,030
Depreciation and amortization	8,177		11,939		7,744		27,860
Segment operating income	$	34,749	$	7,307	$	3,221	$	45,277
Unallocated corporate costs							23,901
Consolidated operating income							$	21,376

(1) Exclusive of depreciation and amortization.

	Three Months Ended September 30, 2010
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	115,968	$	—	$	—	$	115,968
Services	—		46,630		46,183		92,813
Sales	1,024		6,141		5,115		12,280
Total revenue	$	116,992	$	52,771	$	51,298	$	221,061
Cost of instant tickets (1)	$	67,138	$	—	$	—	$	67,138
Cost of services (1)	—		26,450		31,273		57,723
Cost of sales (1)	954		4,063		2,960		7,977
Selling, general and administrative expenses	10,269		5,772		6,117		22,158
Write-down of assets held for sale	—		—		2,155		2,155
Employee termination and restructuring costs	—		—		602		602
Depreciation and amortization	8,184		10,969		8,005		27,158
Segment operating income	$	30,447	$	5,517	$	186	$	36,150
Unallocated corporate costs							14,403
Consolidated operating income							$	21,747

(1) Exclusive of depreciation and amortization.

	Nine Months Ended September 30, 2011
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	370,972	$	—	$	—	$	370,972
Services	—		150,356		86,916		237,272
Sales	6,810		22,447		2,142		31,399
Total revenue	$	377,782	$	172,803	$	89,058	$	639,643
Cost of instant tickets (1)	$	211,151	$	—	$	—	$	211,151
Cost of services (1)	—		79,087		43,857		122,944
Cost of sales (1)	4,150		15,585		1,648		21,383
Selling, general and administrative expenses	36,521		16,422		10,800		63,743
Employee termination and restructuring costs	—		—		1,030		1,030
Depreciation and amortization	24,745		35,185		27,581		87,511
Segment operating income	$	101,215	$	26,524	$	4,142	$	131,881
Unallocated corporate costs							67,288
Consolidated operating income							$	64,593

(1) Exclusive of depreciation and amortization.

	Nine Months Ended September 30, 2010
	Printed Products Group		Lottery Systems Group		Diversified Gaming Group		Totals
Revenue:
Instant tickets	$	343,506	$	—	$	—	$	343,506
Services	—		148,334		139,193		287,527
Sales	6,625		24,518		8,257		39,400
Total revenue	$	350,131	$	172,852	$	147,450	$	670,433
Cost of instant tickets (1)	$	199,282	$	—	$	—	$	199,282
Cost of services (1)	—		78,760		88,576		167,336
Cost of sales (1)	4,931		17,708		5,204		27,843
Selling, general and administrative expenses	32,239		18,011		17,671		67,921
Write-down of assets held for sale	—		—		8,029		8,029
Employee termination and restructuring costs	—		—		602		602
Depreciation and amortization	25,150		32,622		23,872		81,644
Segment operating income	$	88,529	$	25,751	$	3,496	$	117,776
Unallocated corporate costs							47,995
Consolidated operating income							$	69,781

(1) Exclusive of depreciation and amortization.

Reconciliation of segment operating income to consolidated income before income taxes

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Reported segment operating income	$	45,277		$	36,150		$	131,881		$	117,776
Unallocated corporate costs	(23,901		)	(14,403		)	(67,288		)	(47,995		)
Consolidated operating income	21,376			21,747			64,593			69,781
Interest expense	(26,297		)	(24,617		)	(79,161		)	(74,176		)
Earnings from equity investments	8,895			13,031			27,469			42,474
(Loss) on early extinguishment of debt	(4,185		)	(2,236		)	(4,185		)	(2,236		)
Other income (expense), net	(1,711		)	3,011			159			(9,555		)
Income (loss) before income taxes	$	(1,922	)	$	10,936		$	8,875		$	26,288

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data	Sep. 30, 2011	Dec. 31, 2010
CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 6,469	$ 2,175
Class A common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Class A common stock, shares authorized	199,300	199,300
Class A common stock, shares issued	97,877	97,474
Class A common stock, shares outstanding	92,128	91,725
Treasury stock, at cost, shares held	5,749	5,749

XML

Derivative Financial Instruments (Details) (USD $)	3 Months Ended		9 Months Ended		1 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Oct. 31, 2008 SGI	Oct. 17, 2008 SGI	Sep. 30, 2011 Level 2
Derivatives Fair Value
Period of interest rate swap agreement (in years)					3Y
Notional amount of debt						$ 100,000,000
Interest rate swap, fixed interest rate (as a percent)						3.49%
Interest rate swap, variable interest rate description					three-month LIBOR
Fair value of interest rate swap agreement							126
Gain on derivative financial instruments	$ 505,000	$ 27,000	$ 1,417,000	$ 315,000

XML

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries (Details 3) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Condensed Financial Statements
Net cash provided by operating activities	$ 152,627	$ 143,241
Cash flows from investing activities:
Capital and wagering systems expenditures	(39,835)	(52,129)
Business acquisitions, net of cash acquired	(50,177)	(12,493)
Other assets and investments	(77,770)	(154,221)
Net cash used in investing activities	(167,782)	(218,843)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	(6,232)	112,783
Net proceeds from issuance of stock	(1,426)	(2,067)
Purchases of treasury stock		(26,334)
Payments of financing fees	(9,186)	(12,969)
Net cash (used in) provided by financing activities	(16,844)	71,413
Effect of exchange rate changes on cash	(5,403)	(8,965)
Decrease in cash and cash equivalents	(37,402)	(13,154)
Cash and cash equivalents, beginning of period	124,281	260,131
Cash and cash equivalents of held for sale operations		2,593
Cash and cash equivalents, end of period	86,879	249,570
Parent Company
Condensed Financial Statements
Net cash provided by operating activities	(34,903)	(20,614)
Cash flows from investing activities:
Capital and wagering systems expenditures	(1,499)	(71)
Other assets and investments	(368)	(129,480)
Net cash used in investing activities	(1,867)	(129,551)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt		132,495
Net proceeds from issuance of stock	(1,426)	(2,067)
Purchases of treasury stock		(26,334)
Payments of financing fees	(67)	(6,042)
Other, principally intercompany balances	(2,974)	37,102
Net cash (used in) provided by financing activities	(4,467)	135,154
Effect of exchange rate changes on cash	(720)
Decrease in cash and cash equivalents	(41,959)	(15,011)
Cash and cash equivalents, beginning of period	62,639	147,220
Cash and cash equivalents, end of period	20,680	132,209
SGI
Condensed Financial Statements
Net cash provided by operating activities	37,712	63
Cash flows from investing activities:
Capital and wagering systems expenditures	(23,768)	(21,649)
Other assets and investments	(17,332)	(137,026)
Net cash used in investing activities	(41,100)	(158,675)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	(4,710)	32,705
Net proceeds from issuance of stock		135,915
Payments of financing fees	(9,119)	(6,927)
Other, principally intercompany balances	18,424	(3,130)
Net cash (used in) provided by financing activities	4,595	158,563
Effect of exchange rate changes on cash	(1,253)	60
Decrease in cash and cash equivalents	(44)	11
Cash and cash equivalents, beginning of period	150	137
Cash and cash equivalents, end of period	106	148
Guarantor Subsidiaries
Condensed Financial Statements
Net cash provided by operating activities	48,075	58,214
Cash flows from investing activities:
Capital and wagering systems expenditures	(1,766)	(3,546)
Business acquisitions, net of cash acquired		(6,556)
Other assets and investments	(9,108)	(12,039)
Net cash used in investing activities	(10,874)	(22,141)
Cash flows from financing activities:
Net proceeds from issuance of stock	20	4,887
Other, principally intercompany balances	(38,555)	(46,681)
Net cash (used in) provided by financing activities	(38,535)	(41,794)
Decrease in cash and cash equivalents	(1,334)	(5,721)
Cash and cash equivalents, beginning of period	2,279	3,278
Cash and cash equivalents of held for sale operations		1,524
Cash and cash equivalents, end of period	945	(919)
Non-Guarantor Subsidiaries
Condensed Financial Statements
Net cash provided by operating activities	101,770	105,552
Cash flows from investing activities:
Capital and wagering systems expenditures	(12,802)	(26,863)
Business acquisitions, net of cash acquired	(50,177)	(5,937)
Other assets and investments	(523,575)	(185,454)
Net cash used in investing activities	(586,554)	(218,254)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	(1,522)	(52,417)
Net proceeds from issuance of stock	470,235	168,999
Other, principally intercompany balances	22,938	12,564
Net cash (used in) provided by financing activities	491,651	129,146
Effect of exchange rate changes on cash	(934)	(8,877)
Decrease in cash and cash equivalents	5,935	7,567
Cash and cash equivalents, beginning of period	59,213	109,496
Cash and cash equivalents of held for sale operations		1,069
Cash and cash equivalents, end of period	65,148	118,132
Eliminating Entries
Condensed Financial Statements
Net cash provided by operating activities	(27)	26
Cash flows from investing activities:
Other assets and investments	472,613	309,778
Net cash used in investing activities	472,613	309,778
Cash flows from financing activities:
Net proceeds from issuance of stock	(470,255)	(309,801)
Other, principally intercompany balances	167	145
Net cash (used in) provided by financing activities	(470,088)	(309,656)
Effect of exchange rate changes on cash	$ (2,496)	$ (148)

XML

Acquisitions (Details) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended				9 Months Ended		0 Months Ended	1 Months Ended	3 Months Ended		9 Months Ended				0 Months Ended	3 Months Ended		9 Months Ended
	Sep. 30, 2011 USD ($)	Sep. 30, 2010 USD ($)	Sep. 30, 2011 USD ($)	Sep. 30, 2010 USD ($)	Sep. 30, 2011 Customer lists Barcrest Year	Sep. 23, 2011 Customer lists Barcrest USD ($)	Sep. 30, 2011 Intellectual property Barcrest Year	Sep. 23, 2011 Intellectual property Barcrest USD ($)	Sep. 30, 2011 Barcrest USD ($)	Apr. 30, 2011 Barcrest GBP (£)	Sep. 30, 2011 Barcrest USD ($)	Sep. 30, 2010 Barcrest USD ($)	Sep. 30, 2011 Barcrest USD ($) Year	Sep. 30, 2010 Barcrest USD ($)	Sep. 23, 2011 Barcrest USD ($)	Sep. 23, 2011 Barcrest GBP (£)	Sep. 30, 2011 Diversified Gaming Group USD ($)	Sep. 30, 2011 Diversified Gaming Group USD ($)	Sep. 30, 2010 Diversified Gaming Group USD ($)	Sep. 30, 2011 Diversified Gaming Group USD ($)	Sep. 30, 2010 Diversified Gaming Group USD ($)
Acquisitions:
Estimated purchase price of acquisition at time of purchase agreement (in pounds)										£ 33,000
Deferred consideration (in pounds)										2,000
Actual purchase price at time of acquisition															48,400	31,406
Estimated fair values of the assets acquired and liabilities assumed at the acquisition date
Cash and cash equivalents															1,900
Accounts receivable, net of allowance of doubtful accounts of $2,000															21,300
Allowance of doubtful accounts															2,000
Inventories															10,300
Prepaid expenses, deposits and other current assets															1,000
Property and equipment															15,500
Deferred income taxes															700
Intangible assets															12,000
Total identifiable assets acquired															62,700
Accounts Payable															7,700
Accrued Liabilities															8,600
Total liabilities assumed
Net identifiable assets acquired															46,400
Goodwill															2,000
Net assets acquired															48,400
Trade names not subject to amortization															900
Acquired intangible assets						5,700		5,400							11,100
Weighted average useful life of acquired intangible assets (in years)					4		4.5						4
Acquisition related costs											1,700		4,300
Services	81,429	92,813	237,272	287,527					800									31,485	46,183	86,916	139,193
Sales	14,617	12,280	31,399	39,400					2,000									2,024	5,115	2,142	8,257
Goodwill																	2,000
Net (loss) income	(4,124)	8,704	(4,037)	9,248					400
Proforma information
Revenue											236,500	242,300	682,900	723,900
Net income (loss)											(4,000)	12,300	(1,500)	15,900
Adjustment made to eliminate intercompany revenue and costs											1,300	200	3,200	500
Adjustment made to reduce expenses in accordance with the Company's accounting policies											600	500	1,700	1,700
Adjustment made to reflect additional depreciation and amortization											$ 800	$ 700	$ 2,300	$ 2,200

XML

Intangible Assets and Goodwill (Details) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010
Amortizable intangible assets:
Amortizable intangible assets, Gross Carrying Amount	$ 151,239		$ 151,239		$ 123,646
Amortizable intangible assets, Accumulated Amortization	99,029		99,029		88,523
Amortizable intangible assets, Net Balance	52,210		52,210		35,123
Non-amortizable intangible assets
Total intangible assets, Gross Carrying Amount	189,939		189,939		161,254
Total intangible assets, Accumulated Amortization	101,147		101,147		90,641
Total intangible assets, Net Balance	88,792		88,792		70,613
Aggregate intangible amortization expense	3,800	3,400	11,300	10,900
Increase in goodwill resulting from acquisitions			4,700
Decrease in goodwill as a result of foreign currency translation			2,373
Patents
Amortizable intangible assets:
Amortizable intangible assets, Gross Carrying Amount	12,755		12,755		12,106
Amortizable intangible assets, Accumulated Amortization	5,024		5,024		4,321
Amortizable intangible assets, Net Balance	7,731		7,731		7,785
Customer lists
Amortizable intangible assets:
Amortizable intangible assets, Gross Carrying Amount	36,248		36,248		30,083
Amortizable intangible assets, Accumulated Amortization	19,684		19,684		19,009
Amortizable intangible assets, Net Balance	16,564		16,564		11,074
Licenses
Amortizable intangible assets:
Amortizable intangible assets, Gross Carrying Amount	77,340		77,340		62,124
Amortizable intangible assets, Accumulated Amortization	55,319		55,319		46,381
Amortizable intangible assets, Net Balance	22,021		22,021		15,743
Intellectual property
Amortizable intangible assets:
Amortizable intangible assets, Gross Carrying Amount	23,396		23,396		17,833
Amortizable intangible assets, Accumulated Amortization	17,832		17,832		17,719
Amortizable intangible assets, Net Balance	5,564		5,564		114
Lottery contracts
Amortizable intangible assets:
Amortizable intangible assets, Gross Carrying Amount	1,500		1,500		1,500
Amortizable intangible assets, Accumulated Amortization	1,170		1,170		1,093
Amortizable intangible assets, Net Balance	330		330		407
Trade name
Non-amortizable intangible assets
Non-amortizable intangible assets, Gross Carrying Amount	38,700		38,700		37,608
Non-amortizable intangible assets, Accumulated Amortization	2,118		2,118		2,118
Non-amortizable intangible assets, Net Balance	$ 36,582		$ 36,582		$ 35,490