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