Equity Investments

At December 31, 2012, the Company had investments in the following entities which are accounted for using the equity method of accounting. The Company records income or loss from equity method investments as "Earnings from equity investments" in the Consolidated Statements of Operations and Comprehensive Income and records the carrying value of each investment in "Equity investments" in the Consolidated Balance Sheets.

Lotterie Nazionali S.r.l.

We are a 20% equity owner in Lotterie Nazionali S.r.l. ("LNS"), an entity 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 LNS, 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 were transferred to LNS. As of December 31, 2012, our investment in CLN was approximately $5,000. 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 (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 approximately €18,000 each year 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.

For the years ended December 31, 2012 and December 31, 2011 we recorded income of approximately $17,900 and $18,600, respectively, representing our share of earnings of LNS. We recognized revenue from the sale of tickets to LNS during the years ended December 31, 2012 and December 31, 2011 of approximately $52,000 and $56,900, respectively. As of December 31, 2012 we had accounts receivable of approximately $14,200 from LNS.

Northstar Lottery Group, LLC

We are a 20% equity owner in Northstar Lottery Group, LLC ("Northstar"), an entity formed with GTECH Corporation, a subsidiary of Lottomatica, to be the private manager for the Illinois lottery. Northstar was selected as the private manager following a competitive procurement and entered into a private management agreement with the State of Illinois on January 18, 2011 (the "PMA") for a 10-year term. As the private manager, Northstar, subject to the oversight of the Illinois lottery, manages 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 (as defined in the PMA) above specified target levels, subject to a cap of 5% of the applicable year's net income. Northstar is responsible for payments to the State to the extent such targets are not achieved, subject to a similar cap. These net income target levels are subject to upward or downward adjustment under certain circumstances in accordance with the terms of the PMA. Northstar may seek downward adjustments to the net income targets in the event certain actions of the State (or the federal government) have a material adverse effect on the lottery's net income and Northstar's ability to receive incentive compensation payments. On November 6, 2012, an arbitrator determined that Northstar is entitled to a $28,400 downward adjustment to the net income target for the lottery's 2012 fiscal year and a $2,900 downward adjustment to the net income target for the lottery's 2013 fiscal year. We understand that the State has objected to the arbitrator's determination. As of the date of this Annual Report on Form 10-K, it is unclear if these adjusted net income targets are final or subject to further review or adjustment. Accordingly, as of the date of this Annual Report on Form 10-K, Northstar is unable to estimate, and therefore has not recorded, any amounts in respect of annual incentive compensation or net income shortfall payments for the year ended December 31, 2012.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share amounts)

(10) Equity Investments (Continued)

Northstar is 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 are compensated based on a percentage of retail sales. For the years ended December 31, 2012 and December 31, 2011 we recorded a loss of approximately $2,600 and $1,700, respectively, representing our share of the losses of Northstar. We recognized revenue from the sale of instant lottery tickets to Northstar during the years ended December 31, 2012 and December 31, 2011 of approximately $24,600 and $14,000, respectively. As of December 31, 2012 we had accounts receivable of approximately $10,300 from Northstar.

Beijing CITIC Scientific Games Technology Co., Ltd

On October 12, 2007, we invested $7,350 for a 49% interest in CSG. CSG established an instant ticket manufacturing facility that produces instant lottery tickets for sale to the China Sports Lottery for a 15-year period that began in 2009. For the years ended December 31, 2012, 2011 and 2010, we recorded income of approximately $8,300, $9,700 and $4,800, respectively, representing our share of the earnings of CSG. We are also entitled to a royalty fee from CSG for intellectual property rights equal to 1% of the total gross profits distributed by CSG.

Beijing Guard Libang Technology Co., Ltd

On November 15, 2007, we acquired a 50% interest in the ownership of Beijing Guard Libang Technology Co., Ltd. ("Guard Libang"), a provider of instant lottery ticket validation and inventory management systems to all of the China Welfare Lottery provincial jurisdictions, for approximately $28,000. For the years ended December 31, 2012, 2011 and 2010, we recorded income of approximately $1,700, $2,800 and $2,000, respectively, representing our share of earnings of Guard Libang.

Roberts Communications Network, LLC

On February 28, 2007, we sold our racing communications business and our 70% interest in NASRIN, our data communications business, to Roberts Communications Network, LLC ("RCN") in exchange for a 29.4% interest in RCN. RCN provides communications services in the U.S. to racing and non-racing entities using both satellite and terrestrial services. For the years ended December 31, 2012, 2011 and 2010, we recorded income of approximately $6,400, $2,400 and $3,500, respectively, representing our share of earnings of RCN.

Sciplay

On January 21, 2010, we entered into a joint venture with Playtech Services (Cyprus) Limited (“Playtech Services”), a subsidiary of Playtech Limited ("Playtech"), in which we and Playtech Services each had a 50% interest in two entities, Sciplay International S.a.r.l. and Sciplay (Luxembourg) S.a.r.l. (collectively “Sciplay”). Sciplay focuses on providing end-to-end offerings of products and services that enable lotteries and certain other gaming operators to offer internet gaming solutions in a manner that is consistent with applicable regulatory regimes. On January 23, 2012, we entered into an agreement with Playtech Services that restructured this strategic relationship and, as part of the restructuring, the Sciplay-related entities became wholly owned subsidiaries of Scientific Games. The impact of this restructuring on our consolidated balance sheet and consolidated results of operations and comprehensive income as of and for the year ended December 31, 2012 was not material.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share amounts)

(10) Equity Investments (Continued)

Sportech Plc

Upon the closing of the sale of the Racing Business to Sportech, we received shares of Sportech stock representing approximately 20% of the shares then outstanding. Sportech is a U.K. based company that operates football pools and associated games through various distribution channels, including direct mail and telephone, agent-based collection and via the internet. Sportech provides wagering technology solutions to racetracks, and off-track wagering networks and also operates a portfolio of online casino, poker, bingo and fixed-odds games businesses. We record our equity interest in Sportech on a 90-day lag as allowed under ASC 323, Investments—Equity Method and Joint Ventures.

International Terminal Leasing

As contemplated by our strategic agreements with Video B Holdings Limited ("Video B"), a subsidiary of Playtech, 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 employ Video B's software, are leased to whichever company's subsidiary is to provide the terminals to third-party customers. The equity interest of each partner varies 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 are eliminated as necessary. During the years ended December 31, 2012 and 2011, we recorded a loss of approximately $3,800 and $2,700, respectively, attributable to our share of earnings of ITL.

Combined summary financial information

The combined summary financial information as of and for the years ended December 31, 2012, 2011 and 2010 is presented for all equity method investments owned during the respective periods. The audited financial statements of LNS are attached as Exhibit 99.1 to this Annual Report on Form 10-K. We intend to file the CSG unaudited financial statements for the year ended December 31, 2012 and the audited financial statements for the years ended December 31, 2011 and 2010, the CLN unaudited financial statements for the years ended December 31, 2012 and 2011 and the audited financial statements for the year ended December 31, 2010, and the Guard Libang unaudited financial statements for the year ended December 31, 2012 and the audited financial statements for the years ended December 31, 2011 and 2010 as exhibits to Form 10-K/A no later than June 30, 2013.



	Years Ended December 31,
	2012		2011		2010
Revenue	$	949,470	$	907,744	$	598,758
Revenue less cost of revenue	$	506,442	$	461,715	$	338,327
Net income	$	111,168	$	124,523	$	161,853



	As of December 31,
	2012		2011
Current assets	$	682,305	$	598,004
Non-current assets	$	1,273,906	$	1,377,045
Current liabilities	$	496,442	$	455,082
Non-current liabilities	$	148,532	$	93,363

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share amounts)

(10) Equity Investments (Continued)

As described in Note 1 (Description of the Business and Summary of Significant Accounting Policies), on a periodic basis, we assess whether there are any indicators that the fair value of our equity investments may be impaired. An equity investment is impaired only if the estimate of the fair value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. If an impairment were to occur, the loss would be measured as the excess of the carrying amount of the equity investment over the fair value of the equity investment. No other than temporary impairments were identified for the years ended December 31, 2012, 2011 and 2010.