6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2021

Commission file number 001-37775

BROOKFIELD BUSINESS PARTNERS L.P.

(Exact name of Registrant as specified in its charter)

73 Front Street, Fifth Floor

Hamilton, HM 12

Bermuda

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  x             Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

The information in this Form 6-K is incorporated by reference into the registrant's registration statement on Form F-1 (File No. 333-258347) and Form F-3 (File No. 333-258765).

DOCUMENTS FILED AS PART OF THIS FORM 6-K

See the Exhibit Index to this Form 6-K.

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.

Date:    November 29, 2021	BROOKFIELD BUSINESS PARTNERS, L.P., by its general partner, Brookfield Business Partners Limited
	By:	/s/ Jane Sheere
		Name:	Jane Sheere
		Title:	Corporate Secretary

EXHIBIT INDEX

EXHIBIT	DESCRIPTION
99.1	The unaudited interim financial statements of Modulaire Investments 2 S.à r.l. as at September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020
99.2	The audited combined financial statements of the Lottery Business (a carve-out of certain operations of Scientific Games Corporation) as of December 31, 2020, 2019 and 2018, and for each of the three years in the period ended December 31, 2020
99.3	The unaudited combined financial statements of the Lottery Business (a carve-out of certain operations of Scientific Games Corporation) as of September 30, 2021 and December 31, 2020 and for the nine months ended September 30, 2021 and 2020
99.4	The unaudited pro forma financial statements of Brookfield Business Partners L.P. as of September 30, 2021 and for the periods ended September 30, 2021 and December 31, 2020

EX-99.1

Exhibit 99.1 

 

30 September 2021 Financial Information

Modulaire Investments 2 S.à r.l.

Modulaire Investments 2 S.à r.l. 30 September 2021

Interim Condensed Consolidated Financial Statements

Table of contents of interim condensed consolidated financial statements

Condensed consolidated Income Statements	3
Condensed consolidated Statements of Comprehensive Income	4
Condensed consolidated Balance Sheets	5
Condensed consolidated Statements of Changes in Equity	6
Condensed consolidated Statements of Cash Flows	8
Notes to the Interim Condensed Consolidated Financial Statements	9

2

Modulaire Investments 2 S.à r.l. 30 September 2021

Modulaire Investments 2 S.à r.l.

Condensed Consolidated Income Statements

(Euro in millions)

	Note		Nine months ended 30 September
			2021			2020
Revenues
Leasing and services				759			589
Sales of modular units and buildings				281			277
Total revenues		5		1,040			866
Costs of sales
Costs of sales of goods and providing services				(511	)		(450	)
Depreciation of rental equipment				(115	)		(101	)
Gross profit				414			315
Expenses
Administrative expenses				(274	)		(225	)
Operating Profit				140			90
Finance expense, net		6		(151	)		(173	)
Currency (losses) / gains, net		6		(17	)		18
Loss before income tax				(28	)		(65	)
Income tax expense				(7	)		(10	)
Net loss for the period				(35	)		(75	)
Net loss attributable to non-controlling interest				(1	)		(1	)
Net loss attributable to the owners of the Company				(36	)		(76	)

The accompanying notes which are an integral part of these Interim Condensed Consolidated Financial Statements

3

Modulaire Investments 2 S.à r.l. 30 September 2021

Modulaire Investments 2 S.à r.l.

Condensed Consolidated Statements of Comprehensive Income

(Euro in Millions)

	Nine months ended 30 September
	2021			2020
Net loss for the period		(35	)		(75	)
Other comprehensive (loss) / profit
Items that may be reclassified to profit or loss:
Foreign currency translation		(13	)		9
Change in unrealized losses on cash flow hedge		(1	)		(2	)
Total other comprehensive (loss) / profit		(14	)		7
Comprehensive loss for the period		(49	)		(68	)
Less: comprehensive profit attributable to non-controlling interest		(1	)		(1	)
Comprehensive loss attributable to the owners of the Company		(50	)		(69	)

The accompanying notes which are an integral part of these Interim Condensed Consolidated Financial Statements.

4

Modulaire Investments 2 S.à r.l. 30 September 2021

Modulaire Investments 2 S.à r.l.

Condensed Consolidated Balance Sheets

(Euro in Millions)

			30 September			31 December
	Note		2021			2020
Assets
Non-Current assets
Goodwill				508			442
Other intangible assets				238			225
Rental equipment		8		1,293			1,111
Other property, plant and equipment		9		203			178
Other non-current assets		10		15			170
Deferred tax assets				4			5
Total non-current assets				2,261			2,131
Current assets
Cash and cash equivalents				146			291
Trade receivables and contract assets				313			262
Inventories				78			62
Prepaid expenses and other current assets				51			27
Other current financial assets		10		196			20
Total current assets				784			662
Total assets				3,045			2,793
Equity
Share capital				1			1
Share premium				605			605
Accumulated other comprehensive income				215			202
Accumulated deficit				(751	)		(715	)
Equity attributable to the owners of the Company				70			93
Non-Controlling interests				22			22
Total Equity				92			115
Liabilities
Non-current liabilities
Long-term debt		10		2,070			1,949
Deferred tax liabilities				92			89
Non-current provisions				15			18
Other non-current liabilities				73			50
Total non-current liabilities				2,250			2,106
Current liabilities
Trade payables and accrued liabilities		10		311			304
Current tax payable				20			23
Deferred revenue and customer deposits				88			66
Current provisions				12			14
Current portion of long-term debt and interest		10		272			165
Total current liabilities				703			572
Total liabilities				2,953			2,678
Total liabilities and equity				3,045			2,793

See the accompanying notes which are an integral part of these Interim Condensed Consolidated Financial
Statements.

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Modulaire Investments 2 S.à r.l. 30 September 2021

Modulaire Investments 2 S.à r.l.

Condensed Consolidated Statements of Changes in Equity

(€ in millions)

			Accumulated comprehensive income
	Owner Share capital	Owner Share premium	Other reserves		Foreign currency translation	Accumulated deficit		Total shareholders’ equity		Non controlling interest (NCI)	Total Equity
Balance at 1 January 2020	1	605	89		81	(675	)	101		7	108
Net loss	-	-	-		-	(76	)	(76	)	1	(75	)
Other comprehensive income	-	-	(2	)	9	-		7		-	7
Total comprehensive income	-	-	(2	)	9	(76	)	(69	)	1	(68	)
Employee share schemes	-	-	9		-	-		9		-	9
Non-controlling interests on acquisition of subsidiary	-	-	(4	)	-	-		(4	)	4	-
Balance at 30 September 2020	1	605	92		90	(751	)	37		12	49

The accompanying notes which are an integral part of these Interim Condensed Consolidated Financial Statements.

6

Modulaire Investments 2 S.à r.l. 30 September 2021

Modulaire Investments 2 S.à r.l.

Condensed Consolidated Statements of Changes in Equity

(€ in millions)

			Accumulated comprehensive income
	Owner Share capital	Owner Share premium		Other reserves		Foreign currency translation		Accumulated deficit		Total shareholders’ equity		Non controlling interest (NCI)		Total Equity
Balance at 1 January 2021	1	605		105		97		(715	)	93		22		115
Net loss	-	-		-		-		(36	)	(36	)	1		(35	)
Other comprehensive loss	-	-		(1	)	(13	)	-		(14	)	-		(14	)
Total comprehensive (loss) / income	-	-		(1	)	(13	)	(36	)	(50	)	1		(49	)
Employee share schemes	-	-		25		-		-		25		-		25
Non-controlling interests on acquisition of subsidiary	-	-		2		-		-		2		(1	)	1
Balance at 30 September 2021	1	605		131		84		(751	)	70		22		92

The accompanying notes which are an integral part of these Interim Condensed Consolidated Financial Statements.

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Modulaire Investments 2 S.à r.l. 30 September 2021

Modulaire Investments 2 S.à r.l.

Condensed Consolidated Statements of Cash Flows

(Euro in millions)

	Nine months ended 30 September
	2021			2020
Operating activities
Net profit / (loss)		(35	)		(75	)
Adjustments:
Depreciation, amortisation and impairment		165			143
Gain on sale of property, plant and equipment		(8	)		(1	)
Currency losses / (gains), net		17			(18	)
Income tax expense		7			10
Finance expense, net		151			173
Equity settled share based payments		25			9
Provision for doubtful accounts		1			-
Changes in operating assets and liabilities:
Trade receivables and contract assets		(26	)		(39	)
Inventories		(17	)		(17	)
Prepaid expenses and other current assets		(4	)		(4	)
Trade payable and accrued liabilities		(5	)		48
Cash flows from operating activities		271			229
Income tax paid		(19	)		(11	)
Net cash flows from operating activities		252			218
Investing activities
Purchase of rental equipment		(194	)		(109	)
Proceeds from sale of rental equipment		19			13
Proceeds from the sale of property, plant and equipment		5			-
Purchase of property, plant and equipment		(15	)		(6	)
Purchase of businesses, net of cash acquired		(110	)		(114	)
Net cash flows from investing activities		(295	)		(216	)
Financing activities
Receipts from borrowings		116			205
Repayment of borrowings		(45	)		(45	)
Grant of related party loan		(4	)		-
Principal payments on capital lease obligations		(30	)		(37	)
Interest paid		(141	)		(136	)
Payment of financing costs		-			(1	)
Settlement of derivative financial instrument net of related expenses		-			74
Net cash flows from financing activities		(104	)		60
Effect of exchange rate changes on cash and cash equivalents		2			(2	)
Net change in cash and cash equivalents		(145	)		60
Cash and cash equivalents at beginning of the year		291			199
Cash and cash equivalents at the end of the period		146			259

The accompanying notes which are an integral part of these Interim Condensed Consolidated Financial Statements.

8

Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended

30 September 2021

Notes to the Interim Condensed Consolidated Financial Statements

1. Basis of preparation of the Interim Condensed Consolidated Financial Statements

1.1 General

Modulaire Investments 2 S.à r.l. is a limited liability Company (société à responsabilité limitée) incorporated under the laws of Luxembourg. Modulaire Investments 2 S.à r.l. together with its subsidiaries is referred to as the ‘Group’. The ultimate parent of the Modulaire Group is Modulaire Holding S.à r.l., a limited liability company principally owned by TDR Capital LLP (“TDR”). The Company, a wholly owned subsidiary of Modulaire Global S.à r.l., was incorporated on 8 December 2017. As part of a legal restructuring (the “Legal Restructuring”) completed in February 2018, the Company became the parent company of the Group.

The Group, through its operating subsidiaries, engages in the leasing and sale of mobile offices, modular buildings and storage products and their delivery and installation throughout Europe and Asia Pacific.

The Group carries out its business activities principally under the names Algeco in the majority of Europe, Elliott, Carter, Advanté and ProComm in the United Kingdom, Buko Huisvesting and BUKO Bouw & Winkels in The Netherlands, Altempo in France, Locabox and Tecnifor in Italy, Ausco and NET Modular in Australia, Portacom in New Zealand and Algeco Chengdong in China.

The interim condensed consolidated financial statements are presented in millions of euros and all values are rounded to the nearest million except where otherwise stated. Therefore, numbers may not sum precisely due to rounding.

1.2 Basis of preparation of the Interim Condensed Consolidated Financial Statements

The Interim Condensed Consolidated Financial Statements have been prepared on a going concern basis in accordance with Accounting Standard IAS 34 Interim Financial Reporting as issued by the IASB. The interim report does not include all the notes normally included in annual consolidated financial statements. Accordingly, this report is to be read in conjunction with the Group’s Consolidated Financial Statements for the year ended 31 December 2020.

The Group’s financial information as at 31 December 2020 was audited. The financial information for the nine-month periods ended 30 September 2021 and 2020 are unaudited.

The accounting policies adopted are consistent with those of the previous financial year.

1.3 New and amended standards adopted by the Group

The Group has applied the Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (issued on 27 August 2020) for the first time for the period ended 30 September 2021. The new and amended standards had no significant impact on the Group Consolidated Financial Statements.

Certain new accounting standards and interpretations that are not mandatory for 30 September 2021 reporting periods have been issued by the IASB. They have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

Minor changes may have been made on the presentation of the comparative information to maintain consistency with regards to the Q3 presentation. No new standard or amendment to existing standards and interpretations published by the IASB applicable in 2021 have any material impact on the Interim Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2021.

2. Significant transactions in the current reporting period and update on estimates

Modulaire Group announced on 27 June 2021 that its shareholders have entered into an agreement to sell the Group to investment funds managed by Brookfield Business Partners L.P. (“Brookfield”). Brookfield is acquiring Modulaire from its shareholders. The transaction, which is subject to customary regulatory and competition clearances, is expected to close in November 2021. Prior to and at completion a number of transactions and distributions will be completed with respect to balances due from and to holding companies of the Group and with respect to the Group’s share based payment schemes. The vast majority of our current financing is in place until 2023, however in the context the Brookfield acquisition, several entities owned by Brookfield have successfully raised new financing that is conditional on being used to acquire the Group, repay substantially all existing borrowings and provide future liquidity to the Group. These funds will be available to the Group upon, and subject to, the completion of the transaction. The new financing has a long maturity with the first repayments being due in 2028.)

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Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended

30 September 2021

An impairment test for goodwill and intangible assets was performed in October 2020 and no impairment was required. In Q3 2021, it was assessed that there are no events that trigger a further assessment to be required.

There have been no significant changes to the judgements and estimates made at the year-end other than with respect to:

· The vesting date of the share based payments schemes has been revised from January 2022 to November 2021 resulting in an increase of €3m in the share-based payments expense.

· All balances due from or to related parties, with the exception of any trading balances with TDR affiliates, are expected to be settled on completion of the sale to Brookfield and have been classified as current.

· The senior secured and unsecured notes are repayable under certain circumstances following a change of control. As the change of control has not yet happened, these notes are classified as non-current in line with their repayment date in 2023.

· The senior secured and unsecured notes together with the bank loans are expected to be repaid in November 2021 and not to be held until the initial maturity. This triggered the recognition of early-redemption penalties of €31m, due in case of a settlement of the debt before 14 February 2022. The change of assumption also triggered an additional charge totalling €18m related to deferred finance costs, at 30 September 2021. The remainder will be amortised over the period to November 2021.

Acquisitions

The Group completed three acquisitions in the nine-month period to 30 September 2021, and six acquisitions in 2020. The details are in note 4. The Group has also announced one further acquisition to be completed in 2022 as described in Note 13.

Impact of seasonality

The business is impacted by seasonality. Sales of new units tend to be delivered over the summer months and new leasing contracts are less likely to start in the winter months.

3. Segment information

Description of segments and principal activities

Following the acquisition of Malthus in January 2020, the Chief Operating Decision Maker examines the Group’s performance based on 6 reportable segments which are the Group’s operating segments:

· France Business Unit (“France”); which includes Altempo;

· The United Kingdom Business Unit (“UK”); which includes Advanté, Carter and ProComm;

· Germany Business Unit (“Germany”), which includes Germany, Switzerland, Austria and Slovenia;

· Eastern, Northern, and Southern Europe Business Unit (“ENSE”), which includes

o In Eastern Europe: Poland, Czech Republic, Romania, Slovakia, Russia, Hungary.

o In Northern Europe: Belgium, Netherlands, including BUKO;

o In Southern Europe: Spain, Portugal, Italy, including Fae, Tecnifor and Locabox.

These entities share similar economic characteristics and the businesses provide similar products and services.

· APAC Business Unit (“APAC”); which includes Australia, including NET, New Zealand and China

· Nordics Business Unit (“Nordics”); which includes Malthus, Wexus, TSN and the former Modulaire businesses in Finland and Sweden.

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Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended

30 September 2021

9 months ended 30 September 2021	France			APAC			UK			ENSE			Germany			Nordics			Eliminations			Corporate			Total
Revenue		219			212			192			238			121			104			(46	)		-			1,040
Depreciation and amortisation		(33	)		(20	)		(30	)		(31	)		(22	)		(29	)		-			-			(165	)
Fleet		(23	)		(13	)		(21	)		(21	)		(17	)		(20	)		-			-			(115	)
Other		(10	)		(7	)		(9	)		(10	)		(5	)		(9	)		-			-			(50	)
Underlying EBITDA		82			47			47			80			51			43			-			(17	)		333

9 months ended 30 September 2020	France			APAC			UK			ENSE			Germany			Nordics			Eliminations			Corporate			Total
Revenue		205			198			127			192			107			51			(14	)		-			866
Depreciation and amortisation		(32	)		(20	)		(20	)		(36	)		(21	)		(14	)		-			-			(143	)
Fleet		(22	)		(13	)		(14	)		(25	)		(17	)		(10	)		-			-			(101	)
Other		(10	)		(7	)		(6	)		(11	)		(4	)		(4	)		-			-			(42	)
Underlying EBITDA		78			39			24			65			44			18			-			(16	)		252

Underlying EBITDA

This is a non-GAAP measure which we have defined as earnings before interest, taxes, depreciation and amortisation (“EBITDA”), adjusted to exclude certain non-cash items and transactions or events that are considered separate from our normal ongoing business operations. The reconciliation of our consolidated operating profit to Underlying EBITDA for the nine-month period ended 30 September 2021 and 2020, is set out below:

	9 months ended 30 September 2021 €m			9 months ended 30 September 2020 €m
Net profit / (loss)		(35	)		(75	)
Income tax expense		7			10
Net finance expense		151			173
Currency (gains) / losses, net		17			(18	)
Depreciation and amortisation		165			143
EBITDA		305			233
Share-based payments		25			9
Acquisition related and other costs		3			7
Restructuring costs		-			3
Total separately disclosed items		28			19
Underlying EBITDA		333			252

Management believes that Underlying EBITDA provides useful information to investors because it is a measure used by our management team to evaluate our operating performance, to make day-to-day operating decisions, and is frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results across companies in our industry. The items adjusted are:

· Share based payments: These share-based payments expenses are non-cash. Two additional share-based payment schemes were put in place in 2021 to align the interests of the management of Advanté and Carter to those of the Group.

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Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended

30 September 2021

· Acquisition related and other costs: third party costs related to acquisitions related activities including professional and adviser fees and subsequent integration activities.

· Restructuring costs: The Group incurs costs associated with restructuring plans designed to streamline operations and reduce costs. The restructuring costs of the nine-month period ending on 30 September 2020 are related to the Australian, German, and UK restructuring.

4. Acquisitions and disposals

The Group made two acquisitions in July 2021, one acquisition in January 2021 and six in 2020. The following table summarises the fair value, as determined by the purchase accounting, of the assets acquired and liabilities assumed at the acquisition dates.

	Malthus   €m			Altempo  €m			NET  €m			Wexus  €m			TSN  €m			Advanté  €m			Carter  €m			Tecnifor  €m			Procomm  €m
Cash		3			4			1			-			11			3			1			20			4
Current assets		15			9			5			5			12			3			7			19			6
Property, plant and equipment		101			5			3			43			85			9			37			36			47
Other long-term assets		3			-			-			-			-			-			-			-			-
Intangible assets excluding goodwill		16			5			5			32			25			6			4			14			8
Total assets		138			23			14			80			133			21			49			89			65
Current liabilities		(14	)		(8	)		(1	)		(9	)		(10	)		(2	)		(4	)		(9	)		(7	)
Borrowings		(73	)		-			-			(45	)		(82	)		-			(33	)		(2	)		(16	)
Other Long-term liabilities		(22	)		(5	)		(4	)		(8	)		(12	)		(4	)		(5	)		(21	)		(8	)
Net assets acquired		29			10			9			18			29			15			7			57			34
Goodwill recognized		31			3			2			34			63			8			12			25			25

Acquisition of Carter

On 19 January 2021, the Group acquired 100% of the capital of Carter Accommodation Group Limited (together with its subsidiaries “Carter”) for a consideration of £17m (€19m) and a subsequent repayment of debt of £28m (€32m).

Carter is a leading player in the temporary accommodation hire business in the UK with a modern and well-invested fleet. The majority of its over 5,000 units have market-leading specifications, including fire and environmental ratings that make them particularly suitable for city locations. Carter has approximately 150 employees. The acquisition of Carter was accounted for as a business combination and the assets acquired and liabilities assumed were recorded at provisional fair value. The assessment over the fair valuation of the fleet and contingent liabilities is provisional, as at 30 September 2021, pending the receipt of further details to adjust our estimates over the valuation of these assets and liabilities.

The Group recorded the excess of the €19m paid to acquire Carter over the carrying amount of the net assets acquired as goodwill, amounting to €11m. In addition to goodwill, intangible assets identified in the acquisition accounting comprise customer relationships of €2m, which represent the aggregate value of the relationships from existing contracts on future operations. It is amortised on a straight-line basis over a period of 8 years. The Carter Accommodation brand, initially valued at €4m, has been written off in Q3 2021, as the Group gathered more details over its position on the market. This change in the valuation of the brand led to increases of €1m to the goodwill and €2m to the customer relationships asset.

Carter contributed revenue of €19m, underlying EBITDA of €6m and net profit of €5m to the Group in period from the acquisition date to 30 September 2021. The main performance indicators, if Carter had been acquired on 1 January 2021 are presented at the end of this note.

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Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended

30 September 2021

Acquisition of ProComm

On 7 July 2021, the Group purchased 100% of the share capital of ProComm Site Services (Holdings) Limited (together with its subsidiary “ProComm”) for a consideration of £50m (€59m).

ProComm is a leading provider of portable modular accommodation in the UK with a broad range of end markets including general construction, public sector and petro-chemical. With four strategically placed depots across the country, its c. 8,000 modules fleet is highly compatible with Modulaire Group’s existing UK businesses. ProComm has approximately 125 employees. The purchase price allocation is provisional, as at 30 September 2021, pending the receipt of further details to adjust our estimates over the valuation of these assets and liabilities.

The Group recorded the excess of the €59m consideration transferred and liability accrued to purchase ProComm over the carrying amount of the net assets acquired as goodwill, amounting to €25m. In addition to goodwill, intangible assets of €8m have been identified.

ProComm contributed revenue of €9m, underlying EBITDA of €3m and net profit of €7m to the Group in period from the acquisition date to September 2021. The main performance indicators, if ProComm had been acquired on 1 January 2021 are presented at the end of this note.

Acquisition of Tecnifor, Fae and Locabox

On 29 July 2021, the Group purchased 100% of the share capital of Tecnifor S.p.A. (“Tecnifor”) for an initial consideration of €77m and an estimated price adjustment of €5m. Tecnifor, following the provisions of the SPA had previously acquired 100% participations in Fae S.p.A. (“Fae”) and Locabox S.r.l (“Locabox”).

Headquartered in San Gemini, near Rome, Tecnifor and Locabox are together one of the leading provider of modular building leasing solutions in Italy. The company operates a fleet of over 12,000 modulare units primarily for clients within construction and public administration. Fae also operates a facility in San Gemini that manufactures units for the rental fleet market. Together, these entities have approximately 140 employees and an annual revenue of €35m. The fair-valuation of the fleet, intangible assets and contingent liabilities is provisional, as at 30 September 2021, pending the receipt of further details over the valuation of these assets and liabilities.

The Group recorded the excess of the €82m consideration paid and liability accrued to purchase Tecnifor, FAE and Locabox over the carrying amount of the net assets acquired as goodwill, amounting to €25m. In addition to Goodwill, intangible assets value at €14m were identified.

Tecnifor, Fae and Locabox contributed revenue of €5m, underlying EBITDA of €2m and net profit of €2m to the Group in the period from the acquisition date to 30 September 2021. The main performance indicators, if Tecnifor, Fae and Locabox had been acquired on 1 January 2021 are presented at the end of this note.

Acquisition of Malthus

On 31 January 2020, the Group purchased 100% of the share capital of Malthus Uniteam Holdings A.S. (“Malthus Holding”, and together with its subsidiaries, “Malthus”), for an aggregate estimated price of €60m (NOK 609m), of which €54m (NOK 544m) was paid on the completion date, a further €5m (NOK 51m) was paid based on the completion accounts in May 2020 and an additional consideration of €1m (NOK 14m) was payable after a set of contractually defined criteria was met. The main activity of Malthus is the leasing and sale of modular buildings and the provision of related services. The purchase of Malthus was accounted for as a business combination and the assets acquired and liabilities assumed were recorded at fair value.

The Group recorded the excess of the €60m consideration transferred and liability incurred to purchase Malthus over the carrying amount of the net assets acquired as goodwill, amounting to €31m. In addition to goodwill, intangible assets acquired also comprise customer relationships of €16m, which represent the aggregate value of the relationships from existing contracts on future operation. The customer relationship intangible assets will be amortized on a straight-line basis over the estimated useful life from the date of the business combination of 8 years. The useful life is based on a period of expected future cash flow used to measure the fair value of the intangible assets. The goodwill recognised is attributable to expected revenue increases due to the growing Nordic market.

Malthus contributed revenue of €51m, Underlying EBITDA of €19m and a net profit of €3m to the Group in the nine-month period to 30 September 2021.The comparative information for the nine-month period to 30 September 2020, if the acquisition had occurred on 1 January 2020, is disclosed at the end of the note.

13

Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended

30 September 2021

Acquisition of Wexus

On 29 June 2020, the Group purchased 100% of the share capital of Wexus Group AS (“Wexus Holding”, and together with its subsidiaries, “Wexus Group” or “Wexus”), for a purchase price of €52m (NOK 569m), of which €42m (NOK 460m) has been paid in cash, and €10m (NOK 108m) through the issuance of loan notes. €9m of these loan notes have been used to acquire awards in the Nordics share based payment plan.

The main activity of Wexus is the leasing and sale of modular buildings and the provision of related services. The purchase of Wexus was accounted for as a business combination and the assets acquired and liabilities assumed were recorded at fair value. The Group recorded the excess of the €52m paid to purchase Wexus over the carrying amount of the net assets acquired as goodwill, amounting to €33m. An additional €1m was allocated to goodwill, during the year 2021, following the identification of an additional liability of same value in the 12-months revision period from the accounting date. The valuation is complete.

In addition to goodwill, intangible assets acquired comprise customer relationships of €13m, which represent the aggregate value of the relationships from existing contracts on future operation, and the Module Tech brand, valued at €19m. The customer relationship intangible assets will be amortised on a straight-line basis over the estimated useful life from the date of the business combination of 8 years. The useful life is based on a period of expected future cash flow used to measure the fair value of the intangible assets.

The goodwill recognised is attributable to expected revenue increases due to the growing Nordic market. Wexus contributed revenue of €15m, Underlying EBITDA of €8m and a net profit of (€1m) to the Group, in the nine-month period to 30 September 2021. The comparative information for the nine-month period to 30 September 2020, if the Wexus Group had been acquired on 1 January 2020 is presented at the end of this note.

Acquisition of TSN

On 22 October 2020, the Group purchased 100% of the capital of TS Nordics Holding AB (together with its subsidiaries “TSN Group” or “TSN”), for a purchase price of €92m (SEK 954m), paid in cash.

TSN operates in all Nordic countries: Sweden, Denmark, Finland and Norway. The main activity is the leasing of modules. The purchase of TSN was accounted for as a business combination. The assets acquired and liabilities assumed were recorded at fair value. Their valuation is final.

The Group recorded the excess of the €92m (SEK 954m) paid to purchase TSN over the carrying amount of the net assets acquired as goodwill, accounting for €63m. Intangible assets also comprise customer relationships valued at €25m. It represents the valuation of the future operational excess earnings that can be attributed to existing customers, at the acquisition date as well as continuing contracts. The customer relationship assets will be amortized on a straight-line basis over a period of 9 years.

TSN contributed €34m to the revenue, Underlying EBITDA of €17m and nil to the net income of the Group, for the nine-month period ending on 30 September 2021. The comparative key financial indicators, if this acquisition had occurred on 1 January 2020 are presented at the end of this note.

Other Acquisitions

The acquisitions of Altempo in January 2020, NET in February 2020 and Advanté in December 2020 had estimated acquisition prices of €13m, €11m and £20m (€23m), respectively. The percentage of the share capital acquired was 85%, 100% and 100%, respectively. The assets acquired and liabilities assumed were recorded at fair value with goodwill recognised of €3m, €2m and €8m respectively. The valuation is complete for NET and Altempo. The assessment for the fair valuation of the fleet, intangible assets and liabilities is provisional, as at 30 September 2021, for Advanté, pending the receipt of further details to adjust our estimate over these assets and liabilities. The minority interests have been recognised at fair value based on the put redemption value. Both of the first two acquisitions have future payments related to future performance and an estimate of the likely earn-out has been included in the estimated acquisition price. The fair-value of the contingent considerations was estimated calculating the present value of the future expected cash-flows to settle these obligations. Our current estimate of the future payments to the previous shareholders of NET and Altempo amounts to a total of €7m. It decreased by €1m following the revaluation of the earn-out in NET acquisition, after the end of the period of possible revaluation of the goodwill.

14

Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months

ended 30 September 2021

Acquisitions key financial indicators

The key financial performance indicators of the businesses acquired in 2020 and 2021 as if the acquisitions had occurred on 1 January 2020 and 2021, as applicable, is presented below, together with comparative information.

9 months to September 2021	Carter €m		Procomm €m		Tecnifor €m		Malthus €m		Altempo €m		NET €m		Wexus €m			TSN €m		Advanté €m
Revenue		21		24		24		51		30		21		15			34		11
Underlying EBITDA		7		9		13		19		6		2		8			17		5
Net profit / (loss)		1		5		12		3		1		1		(1	)		-		2

9 months to September 2020	Malthus €m		Altempo €m		NET €m		Wexus €m		TSN €m		Advanté €m
Revenue		50		24		23		12		34		9
Underlying EBITDA		16		6		3		6		16		4
Net profit / (loss)		-		1		1		1		2		2

5. Revenue from contracts with customers

Disaggregation of Revenues

Our primary revenue streams are generated by:

· Modular space leasing and services which comprise:

o Delivering, installing and leasing our fleet of modular and portable storage units and leasing value-added products and services (“VAPS 360°”), such as steps, ramps, furniture, fire extinguishers, air conditioning, wireless internet access points, damage waivers and extended warranties;

o Remote accommodation services providing remote facility management solutions to customers working in remote environments through turnkey lodging, catering, transportation, security and logistical services; and

· New and used modular space and portable storage units sales, which can include construction-type contracts primarily located in the UK.

15

Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended

30 September 2021

The disaggregation of our revenues by categories we use to evaluate our financial performance within each of our reportable segments is provided below:

Nine months period ended 30 September 2021	Leasing and services €m			Sales €m			Total Revenue €m
France		178			41			219
APAC		105			107			212
UK		144			48			192
ENSE		162			76			238
Germany		104			17			121
Nordics		69			35			104
Eliminations		(3	)		(43	)		(46	)
Group		759			281			1,040
Nine months period ended 30 September 2020		Leasing and services €m			Sales €m			Total Revenue €m
France		159			46			205
APAC		93			105			198
UK		81			46			127
ENSE		137			55			192
Germany		90			17			107
Nordics		29			22			51
Eliminations		-			(14	)		(14	)
Group		589			277			866

For the nine months ended 30 September 2021 and 30 September 2020, total revenue from contracts with customers excluding lease contracts totalled €476m and €430m respectively.

6. Finance income and expenses

	Nine months ended 30 September
	2021 €m			2020 €m
Finance income		30			-
Finance expense
Interest and finance charges		(145	)		(106	)
Deferred financing costs amortisation		(36	)		(13	)
Other financial costs		-			(54	)
Net finance expense		(151	)		(173	)
Currency (losses) / gains, net		(17	)		18

Finance income and other financial costs both relate to the mark to market non-cash profit / loss on revaluation of the shares in Target Hospitality. The increase of interest and finance charges is mainly due to the early termination penalty of the debt for €31m.

16

Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended

30 September 2021 

7. Income Taxes

For interim reporting purposes, income tax expense is recognised based on the Group’s forecast effective tax rate (per territory) for the full financial year applied to the actual results of each territory. This results in a €7m tax charge for Q3 2021, (Q3 2020: €5m).

8. Rental equipment

The changes in the cost and depreciation for rental equipment were as follows:

Cost	€m
Balance at 1 January 2021		2,147
Additions		196
Disposals		(40	)
Effect of movements in foreign exchange rates		16
Business combination		104
Balance at 30 September 2021		2,423
Accumulated depreciation
Balance at 1 January 2021		(1,036	)
Depreciation		(115	)
Disposals		27
Effect of movements in foreign exchange rates		(6	)
Balance at 30 September 2021		(1,130	)
Carrying amounts
At 1 January 2021		1,111
At 30 September 2021		1,293

9. Other property, plant and equipment

The changes in cost and depreciation for other property, plant and equipment were as follows:

	Land and buildings €m			Plant, computer and other equipment €m			Total €m
Cost
Balance at 1 January 2021		290			125			415
Additions		27			16			43
Disposals		(15	)		(14	)		(29	)
Effect of movements in foreign exchange rates		3			2			5
Business combination		15			2			17
Balance at 30 September 2021		320			131			451
Depreciation
Balance at 1 January 2021		(151	)		(86	)		(237	)
Depreciation on continuing operations		(20	)		(14	)		(34	)
Disposals		13			13			26
Effect of movements in foreign exchange rates		(2	)		(1	)		(3	)
Balance at 30 September 2021		(160	)		(88	)		(248	)
Carrying amounts
At 1 January 2021		139			39			178
At 30 September 2021		160			43			203

17

Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended

30 September 2021

10. Financial and other assets and liabilities

The Group holds the following financial instruments:

	30 September 2021 €m		31 December 2020 €m
Financial assets
Trade receivables and contract assets		313		262
Loans and receivables		146		5
Cash and cash equivalents		146		291
At amortised cost		605		558
Shares in Target Hospitality		50		20
Current financial assets		655		578
Non-current loans & receivables at amortised cost		15		170
Non-current financial assets		15		170

The shares held in Target Hospitality are classified as current financial assets and are fair valued through the income statement at each balance sheet date. At 30 September 2021, the value based on the share price of $3.73 was €50m. The change in valuation, recorded within net finance expense, was a gain of €30m (nine-month period to 30 September 2020: loss of €53m).  

Related party loans and receivables

Loans to related parties which are expected to be repaid within the next 12 months totalling €140m have been reclassified from ‘Other non-current assets’ to ‘Other current financial assets’ as at 30 September 2021.

Financial liabilities
Trade payables and accrued liabilities	311	304
Third party loans and borrowing	255	120
Accrued interest	17	45
Customer deposits	16	14
At amortised cost	599	483
Current financial liabilities	599	483
Third party loans and borrowing	2,070	1,949
At amortised cost	2,070	1,949
Non-current financial liabilities	2,070	1,949

Borrowings

The carrying value of debt consisted of the following:

		30 September 2021
	Interest rates		Total €m	Current €m	Non-current €m
Senior secured fixed rate notes – EUR	6,50%		698	-	698
Senior secured fixed rate notes – USD	8%		458	-	458
Senior secured floating rate notes – EUR	Varies		190	-	190
Senior unsecured notes – USD	10%		270	-	270
Additional Senior secured fixed rate notes – EUR	6,50%		174	-	174
ABL facility – GBP	Varies		85	-	85
ABL facility – AUD	Varies		5	-	5
Related party debt			10	-	10
Lease liability			168	51	117
Bank loans			234	171	63
Other debt			33	33	-
Total borrowings			2,325	255	2,070

18

Modulaire Investments 2 S.à r.l.

Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended

30 September 2021

			31 December, 2020
	Interest rates		Total €m		Current €m		Non-current €m
Borrowings
Senior secured fixed rate notes - €		6,50%		675		-		675
Senior secured fixed rate notes - USD		8%		418		-		418
Senior secured floating rate notes - €		Varies		187		-		187
Senior unsecured notes  - USD		10%		245		-		245
Additional Senior secured fixed rates notes – EUR		6,5%		164		-		164
ABL facility – GBP		Varies		49		-		49
ABL facility – AUD		Varies		24		-		24
Related party debt				9		-		9
Lease liability				126		30		96
Bank loan				142		60		82
Other debt				30		30		-
Total borrowings				2,069		120		1,949

Borrowings are presented at their relative carrying values, net of deferred financing fees. Deferred financing fees are summarised below:

	30 September 2021 €m		31 December 2020 €m
Deferred fees – Notes		3		34
Deferred fees – ABL		-		2
Total		3		36

Senior Secured Notes, Senior Notes and Additional Senior secured fixed rates notes

On 15 February 2018, certain subsidiaries of the Group closed notes offerings (the “Initial Notes Offering”) and issued €600,000,000 6.5% Senior Secured Fixed Rate Notes due 2023, $520,000,000 8% Senior Secured Fixed Rate Notes due 2023, €150,000,000 Senior Secured Floating Rate Notes due 2023 (together, the “New Senior Secured Notes”), and $305,000,000 10% Senior Notes due 2023 (the “New Senior Notes” and, together with the New Senior Secured Notes, the “Notes”).

Additionally, a subsidiary of the Group obtained three-year cross currency swaps for the US dollar-denominated Notes into euro, which swapped into euro the coupon and principal amount of 100% of the New Senior Notes, the principal amount of $230m of the US dollar-denominated 8% New Senior Secured Notes and the coupon of $290m of the US dollar-denominated 8% New Senior Secured Notes. Giving effect to the swaps, the weighted average interest rates for the New Senior Secured Notes and New Senior Notes was 6.64% and 7.74% per annum respectively. These swaps were terminated in March 2020 resulting in a €74m cash inflow.

The Initial Notes Offering formed part of a comprehensive refinancing of the Group’s capital structure (the “Refinancing”). The Refinancing additionally included a new $400m syndicated senior secured asset-based credit facility (the “ABL Revolver” – see below). In December 2019, the Group issued €125m of additional New Senior Secured Notes. €85m is fungible with the 6.5% senior secured fixed rate notes due 2023 and €40m is fungible with the senior secured floating rate notes due 2023.

On 10 July 2020 we completed a successful fundraising through the issuance of €175m of additional 6.5% Senior Secured Notes due 2023, receiving net cash of €168m after original issue discount and advisor fees. The terms of these notes are identical to those of our existing 6.5% Senior Secured Notes due 2023, except that the new notes are traded separately under different ISINs and common codes.

19

Modulaire Investments 2 S.à r.l.
Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended
30 September 2021

In the event of a change of control, the Senior Secured Notes, Senior Notes and Additional Senior secured fixed rates notes may become repayable depending on the leverage of the group at the date of the change of control. If they become repayable prior to February 2022 an early termination payment would be due.

New ABL Revolver

Certain subsidiaries of the Group maintain the syndicated senior secured asset-based credit facility (the “ABL Revolver”). Certain of the Group’s subsidiaries in the UK, Australia and New Zealand are borrowers (the “Borrowers”). As part of the Initial Notes Offering and comprehensive refinancing, the prior ABL Revolver was refinanced to provide for a maximum availability of the equivalent of $400m and a maturity date of 15 February 2023.

The amount which the subsidiaries of the Group can borrow is based on a defined formula of available assets, principally certain receivables, inventory and rental equipment calculated monthly and is secured by a first lien on substantially all assets held by the Borrowers and any other obligors under the ABL Revolver located in the US, the UK, Australia and New Zealand. At 30 September 2021 and 31 December 2020, available capacity under the ABL Revolver was $89m (€77m) and $93m (€76m), respectively. Borrowings under the ABL Revolver bear interest payable on the first day of each quarter for the preceding quarter at a variable rate based on LIBOR or another applicable regional bank rate plus a margin.

Subsequent to the Refinancing, the margins vary based on the amount of average daily excess availability under the ABL Revolver with the margins increasing as the average daily excess availability decreases. The margin on base rate loans ranges from 1.5% to 2.0%. The margin on LIBOR, or similar, loans ranges from 2.5% to 3.0%. The ABL Revolver requires the payment of an annual commitment fee on the unused available borrowings of between 0.375% and 0.5% per annum.

The ABL Revolver includes certain financial covenants, requiring that the obligors under the ABL Revolver maintain a minimum fixed charge coverage ratio and a maximum total net leverage ratio, each calculated on a consolidated basis if, on the last day of the month immediately preceding fiscal quarter, excess availability was below a certain amount. None of the covenants were breached in the period or to the date of these interim condensed consolidated financial statements.

Subject to available borrowing capacity, the ABL Revolver includes an aggregate letter of credit sublimit of $40m. Letters of credit and bank guarantees carry fees equal to the applicable margin and reduce the amount of available borrowings. At 30 September 2021, subsidiaries of the Group had issued letters of credit under the ABL Revolver in the amount of €17m (Dec 2020: €14m).

In February 2021, the Group acceded both Advanté and Carter to the ABL Revolver and the notes indentures. Both Advanté and Carter will be able to draw on the ABL Revolver using a defined formula of available assets, principally certain receivables, inventory and rental equipment, calculated monthly and secured by substantially all of the assets of both Advanté and Carter.

On 13 November 2019, the ABL Revolver was amended to permit the sale of Target Lodging and consequently pay down and terminate the US facility. Subsequent to closing of the Target Lodging disposal, the ABL Revolver provides a maximum availability equivalent of $255m and is secured by a first lien on substantially all assets held by the borrowers and any other obligors under the ABL Revolver located in the UK, Australia and New Zealand. Subject to available borrowing capacity, the ABL Revolver letter of credit sublimit reduced to $40m. The maturity date, rates of interest, and financial covenants remain the same. The ABL Revolver is repayable in the event of a change of control.

Covenants

Under the terms of the major borrowing facilities, the Group is not required to test any financial covenants as long as the Group has $32m of headroom available on the ABL. The Group has not breached these limits throughout the reporting period. The springing covenants tests are a fixed charge coverage and a net leverage ratio.

20

Modulaire Investments 2 S.à r.l.
Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended
30 September 2021

Other debt

France Factoring agreement

The Group has two accounts receivable factoring agreements in France. The terms of the agreements provide that the Group can assign up to approximately €32m of accounts receivable in exchange for cash, less a reserve fund, which is controlled by the counterparty. The reserve fund is either 8 or 12 percent of the transferred accounts receivables and serves to cover accounts receivable transferred that are uncollectible due to claims, invoicing errors, and advance payments. The full right of payment for each of the receivables is transferred. The Group incurs an annual commission expense of 0.14 percent of the receivables exchanged, which can be adjusted annually based on the actual amounts assumed by the counterparty.

As the terms and conditions of the factoring agreements and the specific nature of the accounts receivables transferred preclude de-recognition from the Group’s Consolidated Balance Sheets, the agreement is treated as a secured financing.

Bank loans

Short term facility

On 28 June 2021, the Group entered into a new €100m financing facility. The revolving credit facility has a maturity of one year and is repayable upon a change of control. It carries a floating interest rate set on EURIBOR (floored to nil) plus a margin and LIBOR (floored to nil) plus a margin, respectively for drawings in euros and pound sterling.

French state guaranteed loan

In response to the COVID-19 pandemic and to facilitate the granting of new loans by banks to French companies affected by this crisis’ consequences, the French government has put in place loans guaranteed by the French State. Algeco France entered into several such French State guaranteed loans (Prêts garantis par l’Etat) in an aggregate principal amount of €30,000,000 (the “PGE Loans”) with a maturity of one year extendable at the Group option for a duration of one to five years. In 2021, the Initial Maturity has been extended until 30 June 2022. The French State Guaranteed Loans include customary events of default which may trigger mandatory repayment of the PGE Loans including in the event of a change of control. The PGE Loans are 90% guaranteed by the French State.

Nordics

The Nordics bank facilities comprise a NOK 425m revolving credit facility, a NOK 150m leasing facility and a NOK 45m amortising term loan repayable in December 2021 and a SEK 270M amortizing term loan, a DKK 164M amortizing term loan, a SEK 125M capex facility, and a SEK 65M revolving credit facility all repayable in February 2023.

Related party debt and financing obligations

At 30 September 2021 and 31 December 2020, related party debt included the loan from a holding company to one of the Group’s affiliates.

Capital lease and other financing obligations

The Group’s capital leases primarily relate to real estate, equipment and vehicles and have interest rates ranging from 1.0% to 20.7%.

Fair values

The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The Group has assessed that the fair value of cash and short-term deposits, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

The following table shows the carrying amounts and fair values of financial liabilities, including their levels in the fair value hierarchy. The only financial assets and liabilities measured by the Group at fair value are the currency derivatives, the put options on minority interest liabilities, and the contingent consideration due on business combinations. The Group's foreign currency forward contracts are measured on a recurring basis utilising foreign currency spot rates and forward rates quoted by banks or foreign currency dealers.

21

Modulaire Investments 2 S.à r.l.
Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended
30 September 2021

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

· Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

· Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

· Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data

	As at 30 September 2021
	Level 1 €m		Level 2 €m		Level 3 €m
Target Hospitality shares		50		-		-
Put option on minority interest liabilities		-		-		(15	)
Acquisition contingent consideration liabilities		-		-		(30	)

	As at 31 December 2020
	Level 1		Level 2		Level 3
Target Hospitality shares		20		-		-
Put option on minority interest liabilities		-		-		(15	)
Acquisition contingent consideration liabilities		-		-		(5	)

The investment in Target Hospitality is classified as current financial asset and is marked to market at the balance sheet date. At 30 September 2021 the value of the shares held was €50m (December 2020: €20m) with the change in valuation of €30m being recorded in net finance expenses in the 9-months period ending on 30 September 2021 2021 (nine-month period ending on the 30 September 2021: loss of €53m).

Put options on minority interest liabilities are booked at the present value of expected redemption amount based on the financial forecasts of earnings of the relevant subsidiary. 

Acquisition contingent consideration liabilities relate to earn-out mechanisms related to the Group’s acquisitions. The earn-outs are based on targets related to future trading performance. An estimate has been made of the expected achievement against these targets based on budgets for future periods.

11. Related parties

The only significant related party transactions that have occurred in the nine months to 30 September 2021 is a loan of €3m made to a holding company of the Group. In the nine months to 30 September 2020 the Group granted a €6m loan related to the issue of share options which increased the total loan outstanding to €11m, at the end of Q3 2020. The balance as at 30 September 2021 is still €11m (Dec 2020: €11m).

On 24 October 2017, the Group entered into an agreement with Ilke Homes, a legal entity controlled by TDR. Under this agreement, the Group has sold modular prototypes and provided transitional services on these assets to Ilke Homes. The consideration for these services and related interest totals €4m and is receivable on a change of control.

The Group received revenue totalling €2m from Keepmoat Homes Plc and David Lloyd Leisure Plc, entities controlled by TDR, in the nine-month period to 30 September 2021 (nine-month to 30 September 2020: €1m). These transactions were at arm’s length.

12. COVID-19

The COVID-19 pandemic is continuing at the date of this report. We have become accustomed to working under the restrictions placed on the business and its customers during the pandemic. Our results throughout the pandemic have been strong and we consider that the net impact of the pandemic on our results is small. We have not noted any significant COVID-19 related impacts in Q3 2021. The trend in improving quotes and order activity within the business has resulted in the Group’s units on rent increasing organically by over 26,000 since 1 January 2020.

22

Modulaire Investments 2 S.à r.l.
Notes to the Interim Condensed Consolidated Financial Statements for the nine months ended
30 September 2021

The Group’s business has remained resilient. Management believes this is due to:

· the long-term nature of the Group’s contracts and, at any given time, the residual contracted terms of lease revenues;

· the Group’s diverse geographic and customer footprint, which enabled it to maintain normal trading levels in Germany, the Nordics, Eastern, Northern, and Southern Europe (ENSE) and APAC, which remained largely operational including by providing solutions to assist with the crisis while the Group experienced a partial suspension of activities in France and the UK;

· the nature of the Group’s fleet which has a wide application across industries and end uses;

· the lead time in the leasing and sales contracting cycle, which allows the Group to take timely action to mitigate the impact on trading of any prospective downturn in leasing activity;

· the Group’s flexible cost base, which has enabled it to reduce costs when necessary; and

· the Group’s ability to match maintenance and growth capital expenditure to contractual leasing commitments from customers and to reduce such expenditure in the face of reduced short-term demand.

The Group only undertakes growth capital expenditure when there is demand and the Group has maintained central control of all capital expenditure. Similarly, the Group controls its maintenance capital expenditure and limits it to cases where a unit is required for an order, with no significant detrimental effect on the unit.

13. Events occurring after the balance sheet date

On 19 November, the Group announced that it has agreed to acquire Alquibalat, S.L. (“Balat”) in Spain. Based in Pamplona, Balat is a leader in the Spanish market for the rent and sale of modular buildings, with a strong presence in the construction sector. It operates over 15,000 units from 15 sites in Spain and Portugal. Balat had revenues of €32 million in 2020 and has approximately 165 employees. The transaction, which remains subject to review by the CNMC, the Spanish competition authority, is expected to close in H1 2022.

23

EX-99.2

Exhibit 99.2

INDEX TO FINANCIAL INFORMATION
		Page
1. Financial Statements:
	Independent Auditors’ Report	2
	Combined Statements of Operations for the years ended December 31, 2020, 2019, and 2018	4
	Combined Statements of Comprehensive Income for the years ended December 31, 2020, 2019, and 2018	5
	Combined Balance Sheets as of December 31, 2020, 2019, and 2018	6
	Combined Statements of Changes in Parent’s Equity for the years ended December 31, 2020, 2019, and 2018	7
	Combined Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018	8
	Notes to Combined Financial Statements	9

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of Scientific Games Corporation

We have audited the accompanying combined financial statements of the Lottery Business (a carve-out of certain operations of Scientific Games Corporation) (the “Company”), which comprise the combined balance sheets as of December 31, 2020, 2019 and 2018, and the related combined statements of operations, comprehensive income, changes in parent’s equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes to the combined financial statements.

Management’s Responsibility for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, 2019 and 2018, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2020, in accordance with accounting principles generally accepted in the United States of America.

2 

Other Matter

As described in Note 1, the accompanying combined financial statements have been prepared from the separate records of the Company maintained by Scientific Games Corporation and may not necessarily be indicative of the conditions that would have existed or the results of operations if the Company had been operated as an unaffiliated entity. Portions of certain income and expenses represent allocations made from parent and related affiliates applicable to Scientific Games Corporation as a whole.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

September 15, 2021

3 

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)

COMBINED STATEMENTS OF OPERATIONS
(in millions)

	Years Ended December 31,
	2020			2019			2018
Revenue:
Instant products	$	579		$	585		$	592
Lottery systems		340			324			254
Total revenue		919			909			846
Operating expenses:
Cost of instant products (1)		282			288			285
Cost of lottery systems (1)		232			215			164
Selling, general and administrative		79			88			93
Research and development		3			7			8
Depreciation and amortization		62			67			59
Restructuring and other		13			1			1
Operating income		248			243			236
Other (expense) income:
(Loss) earnings from equity investments		(8	)		18			19
Other income (expense), net		1			(5	)		4
Total other (expense) income, net		(7	)		13			23
Net income before income taxes		241			256			259
Income tax expense		(68	)		(60	)		(73	)
Net income	$	173		$	196		$	186

(1) Excludes depreciation and amortization.

See accompanying notes to financial statements.

4 

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)

	Years Ended December 31,
	2020			2019			2018
Net income	$	173		$	196		$	186
Other comprehensive income (loss):
Foreign currency translation gain (loss), net of tax		32			(9	)		(14	)
Pension and post-retirement loss and other, net of tax		(4	)		(6	)		(2	)
Total other comprehensive income (loss)		28			(15	)		(16	)
Total comprehensive income	$	201		$	181		$	170

See accompanying notes to financial statements.

5 

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)

COMBINED BALANCE SHEETS
(in millions)

	As of December 31,
	2020			2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	61		$	35		$	32
Restricted cash		1			1			1
Receivables, net of allowance for credit losses of $4 each year		153			141			122
Inventories		72			84			68
Contract assets		86			88			93
Prepaid expenses, deposits and other current assets		38			32			13
Total current assets		411			381			329
Non-current assets:
Property and equipment, net		169			173			181
Operating lease right-of-use assets		27			31			—
Goodwill		353			348			351
Intangible assets, net		65			77			91
Software, net		63			59			61
Equity investments		259			269			293
Other assets		9			8			8
Total assets	$	1,356		$	1,346		$	1,314
LIABILITIES AND PARENT'S EQUITY
Current liabilities:
Accounts payable	$	51		$	59		$	57
Contract liabilities		47			53			41
Accrued liabilities		109			83			70
Total current liabilities		207			195			168
Deferred income taxes		34			36			50
Operating lease liabilities		21			24			—
Long-term license liabilities		29			30			39
Pension liabilities		31			25			19
Other long-term liabilities		17			19			20
Total liabilities		339			329			296
Parent's equity:
Accumulated net parent investment		1,037			1,065			1,051
Accumulated other comprehensive loss		(20	)		(48	)		(33	)
Total Parent's equity		1,017			1,017			1,018
Total liabilities and Parent's equity	$	1,356		$	1,346		$	1,314

See accompanying notes to financial statements.

6 

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)
COMBINED STATEMENTS OF CHANGES IN PARENT’S EQUITY
(in millions)

	Retained Earnings			Accumulated Net Parent Investment			Accumulated Other Comprehensive Loss			Total
January 1, 2018	$	—		$	861		$	(17	)	$	844
Net income		186			—			—			186
Transactions with parent and affiliates, net		(173	)		190			—			17
Adoption impact of ASC 606		(13	)		—			—			(13	)
Other comprehensive loss		—			—			(16	)		(16	)
December 31, 2018	$	—		$	1,051		$	(33	)	$	1,018
Net income		196			—			—			196
Transactions with parent and affiliates, net		(196	)		14			—			(182	)
Other comprehensive loss		—			—			(15	)		(15	)
December 31, 2019	$	—		$	1,065		$	(48	)	$	1,017
Net income		173			—			—			173
Transactions with parent and affiliates, net		(173	)		(28	)		—			(201	)
Other comprehensive income		—			—			28			28
December 31, 2020	$	—		$	1,037		$	(20	)	$	1,017

See accompanying notes to financial statements.

7 

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)

COMBINED STATEMENTS OF CASH FLOWS
(in millions)

	Years Ended December 31,
	2020			2019			2018
Cash flows from operating activities:
Net income	$	173		$	196		$	186
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		62			67			59
Change in deferred income taxes		(1	)		(13	)		22
Stock-based compensation		5			5			5
Loss (earnings) from equity investments		8			(18	)		(19	)
Distributed earnings from equity investments		19			21			29
Provision for bad debts and inventory charges		11			3			4
Changes in assets and liabilities:
Receivables		(13	)		(19	)		13
Inventories		2			(11	)		5
Contract assets and contract liabilities, net		(8	)		17			(21	)
Accounts payable and accrued liabilities		25			3			(20	)
Other assets and liabilities		(9	)		(28	)		1
Net cash provided by operating activities		274			223			264
Cash flows from investing activities:
Capital expenditures		(43	)		(49	)		(75	)
Contributions to equity method investments		(6	)		(1	)		(180	)
Distributions of capital from equity investments		12			19			25
Net cash used in investing activities		(37	)		(31	)		(230	)
Cash flows from financing activities:
Payments on license obligations		(6	)		(1	)		—
Transfers to Parent and affiliates, net		(207	)		(188	)		(21	)
Net cash used in financing activities		(213	)		(189	)		(21	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		2			-			(1	)
Increase in cash, cash equivalents and restricted cash		26			3			12
Cash, cash equivalents and restricted cash, beginning of period		36			33			21
Cash, cash equivalents and restricted cash, end of period	$	62		$	36		$	33
Supplemental cash flow information
Cash paid for income taxes	$	2		$	11		$	9
Non-cash financing activities:
Non-cash additions to intangible assets related to license agreements	$	-		$	-		$	30

See accompanying notes to financial statements.

8 

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)

NOTES TO COMBINED FINANCIAL STATEMENTS 

(amounts in USD and in millions)

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

Background and nature of operations

The accompanying combined carve-out financial statements include the historical accounts of the Scientific Games Corporation (the Parent) 100%-owned direct and indirect subsidiaries that hold substantially all of the assets of, and operate, the lottery business, herein collectively referred to as “the Lottery Business”, “we”, "us", and “our.”

The Lottery Business provides instant and draw lottery products and related value-added services including licensed brands used in instant lottery products, loyalty and reward services, and lottery systems products and comprehensive services generally comprised of point-of-sale terminals, a central system, customized computer software, data communication services, support and/or related equipment.

Basis of presentation

The accompanying combined carve out financial statements of the Lottery Business have been derived from the consolidated financial statements and accounting records of Scientific Games Corporation using the historical results of operations and historical cost basis of the assets and liabilities as if the Lottery Business operated on a stand-alone basis during the periods presented, and were prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). For ease of reference the accompanying combined carve out financial statements are herein referred to as "financial statements" unless otherwise stated or the context requires otherwise. All intercompany balances and transactions within the Lottery Business have been eliminated. Transactions between the Lottery Business and the Parent and its other subsidiaries are reflected as affiliate transactions within these financial statements.

The accompanying financial statements include the assets, liabilities, revenues, and expenses that are specifically identifiable to the Lottery Business. In addition, the accompanying financial statements include certain costs that have been allocated from the Parent, which relate to certain corporate functions and shared services performed by the Parent, including but not limited to, finance, human resources, legal, information technology and other. These expenses have been allocated to the Lottery Business on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenues, operating expenses, headcount or other relevant measures.

We believe the assumptions underlying the financial statements, including assumptions regarding the allocations from the Parent, are reasonable. Nevertheless, the financial statements may not include all of the expenses that would have been incurred had the Lottery Business been a stand-alone company during the periods presented and may not reflect the Lottery Business’s financial position, results of operations and cash flows had the Lottery Business been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Lottery Business had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology, infrastructure and acquisition of intellectual property. For additional information related to costs allocated to the Lottery Business by the Parent, see Note 13.

We have two business segments – Instant Products and Lottery Systems – representing our instant and draw-based lottery products and related services and comprehensive lottery system solutions to lottery operators worldwide. We had $54 million, $45 million, and $38 million in Property and equipment, net outside the U.S. as of December 31, 2020, 2019, and 2018, respectively. For additional information related to our business segments, see Note 2.

9 

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and these differences could be material.

Impact of COVID-19

In March 2020, the World Health Organization declared the rapidly spreading COVID 19 outbreak a pandemic. In response to the COVID 19 pandemic, governments across the world implemented a number of measures to prevent its spread, including but not limited to, the temporary closure of a substantial number of lottery operations, which had an adverse effect on our 2020 results of operations and cash flows, including the impact on operations and results of our equity method investments. Operations began to recover during the latter half of 2020 as a result of lifting of restrictions and reopening.

During the first half of 2020, we implemented a number of measures to reduce operating costs, conserve liquidity and navigate through this unprecedented situation including permanent reductions in workforce and temporary measures such as: reductions in salaries and workforce (salary reduction measures ceased as of July 31, 2020), unpaid employee furloughs, reductions in hours, temporary elimination of 401(k) matching among other compensation and benefits reductions, and deferral of certain operating and capital expenditures. We continue to assess the situation and actively manage our cash flows and continue to evaluate additional measures that will reduce operating costs and conserve cash as deemed necessary.

Significant Accounting Policies

Additional accounting policy disclosures are provided within the applicable Notes.

Cash and cash equivalents and Restricted cash

Cash and cash equivalents include all cash balances and highly liquid investments with an original maturity of three months or less. We place our temporary cash investments with high credit quality financial institutions. At times, such investments in U.S. accounts may be in excess of the Federal Deposit Insurance Corporation insurance limit. Restricted cash balances are primarily related to funds contractually held or designated for lottery customers and related reimbursements.

Advertising Costs

Advertising costs are expensed as incurred and included in Selling, general and administrative expenses and were not material to the financial statements for the periods presented.

Research and development (R&D)

R&D relates primarily to software product development costs and is expensed as incurred until technological feasibility has been established. Employee related costs associated with product development are included in R&D.

Restructuring and other

Restructuring and other includes charges or expenses attributable to: (i) employee severance; (ii) management restructuring and related costs; (iii) restructuring and integration; (iv) cost savings initiatives; (v) major litigation; and (vi) acquisition related and other unusual items. Restructuring and other charges totaled $13 million, $1 million, and $1 million in 2020, 2019, and 2018, respectively and primarily related to item (i) noted above.

10 

Accounts receivable

Accounts receivable are recorded at the invoiced amount less allowance for credit losses (or doubtful accounts for periods prior to 2020 and adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (ASC 326)), collectively referred to as allowance for credit losses. On January 1, 2020, we adopted ASC 326, which did not have a material impact on our financial statements. We review accounts receivable regularly and make our best estimate of the amount of expected credit losses in our existing receivables over the contractual term. We evaluate our exposure to credit loss on both a collective and individual basis.

Our allowance for credit losses expense recorded for the years ended December 31, 2020, 2019, and 2018 was $1 million, $0 million, and $2 million, respectively, and is included in Selling, general and administrative expenses. We had no significant write-offs or recoveries during these periods.

Equity incentive awards

The Parent maintains an equity incentive awards plan under which the Parent may issue time-based and performance-based stock options and restricted stock units to Lottery Business employees. Although awards under the plan result in the issuance of shares of the Parent, the amounts are a component of the total compensation for Lottery Business employees and are included in our stock-based compensation expense, which is accounted for as a component of Parent’s equity.

Total stock-based compensation expense recorded for the years ended December 31, 2020, 2019, and 2018 was $5 million for each period and is included in Selling, general and administrative expenses.

Fair value measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We estimate the fair value of our assets and liabilities, when necessary, utilizing an established three-level hierarchy in accordance with ASC 820.

The fair value of our financial assets and liabilities is determined by reference to market data and other valuation techniques as appropriate. We believe the fair value of our financial instruments, which are principally cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximates their recorded values due to the short-term nature of these instruments.

As of December 31, 2020, 2019, and 2018, we did not have other assets and liabilities recorded at fair value on a recurring or nonrecurring basis, other than defined benefit pension plans described in Note 11.

Foreign currency translation

We have significant operations where the local currency is the functional currency, including our operations in the U.K., Europe and Canada. Assets and liabilities of foreign operations are translated at period-end rates of exchange and results of operations are translated at the average rates of exchange for the period. Gains or losses resulting from translating the foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive loss in Total Parent’s equity. Gains or losses resulting from foreign currency transactions are included in Other (expense) income, net.

Legal Contingencies

From time to time, we (or our Parent) are subject to various claims, complaints and legal actions in the normal course of business. In addition, we may receive notifications alleging infringement of patent or other IP rights. We do not believe that we (or our Parent) are party to any currently pending litigation, the outcome of which is reasonably likely to have a material adverse effect on our operations, financial position or liquidity.

11 

Recently issued accounting standards

The FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) in 2016. The new guidance replaces the incurred loss impairment approach in legacy U.S. GAAP with a methodology that reflects future credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, we are required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. We adopted ASC 326 as of January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost, which did not materially impact our financial statements.

The FASB issued ASU No. 2018-13, Fair Value Measurement, and several subsequent amendments (collectively, Topic 820) in 2018. The standard amends the required quantitative and qualitative disclosure requirements for recurring and nonrecurring fair value measurements. We adopted this standard effective January 1, 2020. The adoption of this standard did not materially impact our financial statement disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes, to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes, enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step- up in the tax basis of goodwill. The standard is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted. We adopted this standard effective January 1, 2020 on a prospective basis for all relevant adjustments. The adoption of this guidance did not materially impact our financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 combined with all subsequent amendments (collectively, ASC 606) provides guidance outlining a single comprehensive revenue model in accounting for revenue from contracts with customers. ASC 606 supersedes existing revenue recognition guidance, including industry-specific guidance, and replaces it with a five-step revenue model with a core principle that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” We adopted this guidance effective January 1, 2018 using a modified retrospective application approach. See Note 3 for our revenue recognition policy.

The FASB issued ASU No. 2016-02, Leases (Topic 842) in 2016. ASU 2016-02 combined with all subsequent amendments (collectively, ASC 842) requires balance sheet recognition for all leases with a lease term greater than one year to be recorded as a lease liability (on a discounted basis) with a corresponding right-of-use asset. This guidance also expands the required quantitative and qualitative disclosures for lease arrangements and gives rise to other changes impacting certain aspects of lessee and lessor accounting. We adopted ASC 842 as of January 1, 2019 using the optional transition method provided by ASU 2018-11, and applied both the lessee package of practical expedients and the available lessor practical expedients. See Note 10 for additional information.

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

Subsequent events

We evaluated subsequent events through September 15, 2021, which is the date the financial statements were available to be issued.

On September 3, 2021, we completed the acquisition of Sideplay Entertainment (“Sideplay”), a digital “e-instant” content studio for $10 million cash consideration and contingent acquisition consideration of up to $23 million. The acquisition allows us to expand our iLottery content portfolio and accelerate our iLottery business. We are in the process of completing the preliminary purchase price accounting and expect that a substantial portion of the purchase price will be allocated to acquired intellectual property and goodwill.

12 

(2) Business Segments

Operating segments are components of the Lottery Business for which separate discrete financial information is available to and evaluated regularly by the chief operating decision maker (CODM) in making decisions regarding resource allocation and assessing performance. We report our operations in two business segments – Instant Products and Lottery Systems – representing our different products and services.

Our Instant Products segment generates revenue from the manufacture and sale of instant products, and the provision of value-added services such as game design, sales and marketing support, specialty games and promotions, inventory management, warehousing, fulfillment services, and full instant product category management administered through our Scientific Games Enhanced Partnership (SGEP) program. Instant products are sold on either a price per unit (PPK) or a percentage of sales (POS) basis and generally have a single performance obligation – a promise to supply the instant products. Under our SGEP contracts we perform substantially all of the comprehensive services necessary to operate the associated lottery’s integrated instant product operations, other than executing on retail sales, and to a lesser extent, we also provide certain services to retailers.

Our Lottery Systems segment provides lottery terminals in retail outlets that are continuously connected to a central computer system for the sale and validation of lottery games and related functions. Our U.S. arrangements ordinarily include the following: (i) provision of the necessary equipment (including point-of-sale terminals) and (ii) software and maintenance services pursuant to contracts typically with an initial term of five years or more. Internationally, we primarily: (i) sell point-of-sale terminals and/or computer software and hardware to lottery authorities; and (ii) provide ongoing fee-based systems and software support services. Our Lottery Systems use proprietary technology that facilitates high-speed processing of draw lottery game wagers and validation of winning draw and instant lottery products. We also supply our proprietary transaction-processing software, draw lottery games, keno, point-of-sale terminals, central site computers and communication platforms and ongoing operational support and maintenance services. See Note 3 for the products and services from which each reportable segment derives its revenues.

13 

In evaluating financial performance, our CODM focuses on Adjusted EBITDA (AEBITDA) as management’s segment measure of profit or loss, which is described below. The accounting policies for our business segments are the same as those described in these Notes. The following tables present our segment information:

	Year Ended December 31, 2020
								Unallocated and
								Reconciling
		Instant Products			Lottery Systems			Items (1)			Total
Total revenue	$	579		$	340		$	—		$	919
AEBITDA(2)		298			108			(45	)	$	361
Reconciling items to net income before income taxes:
Depreciation and amortization		(26	)		(36	)		—			(62	)
Restructuring and other		(5	)		(6	)		(2	)		(13	)
EBITDA from equity investments (2)								(33	)		(33	)
Loss from equity investments								(8	)		(8	)
Other income, net								1			1
Stock based compensation								(5	)		(5	)
Net income before income taxes										$	241
Assets as of December 31, 2020	$	764		$	588		$	4		$	1,356
Capital expenditures for the year ended December 31, 2020	$	22		$	21		$	—		$	43

(1) Includes amounts not allocated to the business segments (including shared costs) and reconciling items to reconcile the total business segments AEBITDA to our net income before income taxes.

(2) AEBITDA is reconciled to net income before income taxes and includes the following adjustments: (1) restructuring and other, which includes charges or expenses attributable to: (i) employee severance; (ii) management restructuring and related costs; (iii) restructuring and integration; (iv) cost savings initiatives; (v) major litigation; and (vi) acquisition costs and other unusual items; (2) depreciation and amortization expense and impairment charges (including goodwill impairments); (3) interest expense; (4) income tax expense; (5) stock-based compensation; and (6) other expense (income), net, including foreign currency (gains) and losses. In addition to the preceding adjustments, we exclude earnings (loss) from equity method investments and add (without duplication) our pro rata share of EBITDA of our equity investments, which represents our share of earnings (whether or not distributed to us) before income tax expense, depreciation and amortization expense, and interest (income) expense, net of our joint ventures and minority investees. AEBITDA is presented exclusively as our segment measure of profit or loss.

	Year Ended December 31, 2019
							Unallocated and
							Reconciling
	Instant Products			Lottery Systems			Items (1)			Total
Total revenue	$	585		$	324		$	—		$	909
AEBITDA(2)		298			108			(34	)	$	372
Reconciling items to net income before income taxes:
Depreciation and amortization		(27	)		(39	)		(1	)		(67	)
Restructuring and other		(1	)		—			—			(1	)
EBITDA from equity investments (2)								(56	)		(56	)
Earnings from equity investments								18			18
Other expense, net								(5	)		(5	)
Stock based compensation								(5	)		(5	)
Net income before income taxes											256
Assets as of December 31, 2019	$	767		$	568		$	11		$	1,346
Capital expenditures for the year ended December 31, 2019	$	22		$	27		$	—		$	49

(1) Includes amounts not allocated to the business segments (including shared costs) and reconciling items to reconcile the total business segments AEBITDA to our net income before income taxes.

(2) AEBITDA and EBITDA from equity investments are described in footnote (2) to the first table in this Note 2.

14 

	Year Ended December 31, 2018
							Unallocated and
							Reconciling
	Instant Products			Lottery Systems			Items (1)			Total
Total revenue	$	592		$	254		$	—		$	846
AEBITDA(2)		308			90			(36	)	$	362
Reconciling items to net income before income taxes:
Depreciation and amortization		(25	)		(32	)		(2	)		(59	)
Restructuring and other		2			(2	)		(1	)		(1	)
EBITDA from equity investments (2)								(61	)		(61	)
Earnings from equity investments								19			19
Other income, net								4			4
Stock based compensation								(5	)		(5	)
Net income before income taxes										$	259
Assets as of December 31, 2018	$	750		$	554		$	10		$	1,314
Capital expenditures for the year ended December 31, 2018	$	10		$	65		$	—		$	75

(1) Includes amounts not allocated to the business segments (including shared costs) and reconciling items to reconcile the total business segments AEBITDA to our net income before income taxes.

(2) AEBITDA and EBITDA from equity investments are described in footnote (2) to the first table in this Note 2.

(3) Revenue Recognition

The following table disaggregates our revenues by segment, line of business, and geographical location:

	Revenue recognized for Year Ended December 31,
Revenue by segment and line of business	2020		2019		2018
Instant products:
SGEP	$	274	$	242	$	235
POS		104		108		122
PPK		201		235		235
Total instant products	$	579	$	585	$	592
Lottery systems:
Systems and solutions(1)	$	325	$	317	$	247
iLottery		15		7		7
Total lottery systems	$	340	$	324	$	254
Total	$	919	$	909	$	846
Revenue by geography
U.S.	$	614	$	602	$	578
International		305		307		268
Total	$	919	$	909	$	846

(1) Product sales included in lottery systems were $112 million, $110 million, and $49 million for the years ended December 31, 2020, 2019, and 2018 respectively.

General

We evaluate the recognition of revenue primarily based on the criteria set forth in ASC 606. Revenue is recognized net of incentive rebates and discounts when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales taxes and all other items of a similar nature are excluded from the measurement of the transaction price and shipping and handling activities are treated as a fulfillment of our promise to transfer the goods, hence, included in cost of sales.

15 

Lottery Instant Products

Our instant products revenue is primarily generated under long-term contracts to supply instant products and provide related services to our lottery customers. For instant products that are sold on a price per unit (PPK) and percentage of sales basis (POS), we generally have a single performance obligation of a promise to supply the instant products. Control transfers and we recognize revenue from the sale of such instant products when the lotteries have taken delivery of shipments of instant products pursuant to the terms of the contract. For instant products that are sold on a percentage of sales basis, we are compensated based on retail sales, therefore the timing difference between the recognition of revenue, the billing of our customers and the receipt of payments depends on retail sales. Contract assets resulting from these contracts primarily remain until we have the contractual ability to invoice and collect from customers (which occurs upon retail sales). For our SGEP contracts, revenue is recognized when a lottery retailer activates associated instant tickets, which timing corresponds with how we satisfy our performance obligation. We believe that products and services provided under these arrangements are delivered contemporaneously and are not separate units of account; therefore, as the services offered are a comprehensive solution in exchange for participation-based or price-per-unit based compensation, this revenue is recognized under the general revenue recognition policy above.

The guidance in ASC 606 requires that we apply judgment to determine the timing of control transfer of performance obligations in our instant products contracts. For instant products that are sold under percentage of sales contracts, we generally have a single performance obligation of a promise to supply the instant products. The determination of when control transfers requires significant judgment because lotteries take delivery of shipments of instant products, but we retain the risk of such inventory until retail sales of such tickets take place. We have determined control transfers upon delivery to a lottery-controlled warehouse, because we do not have the ability to direct the use of such instant products subsequent to delivery.

Lottery Systems

We also offer our customers a number of related, value-added services as part of an integrated product offering. These services include lottery systems, including point-of-sale terminals and other equipment, software, data communication services and support and instant game validation systems, and software, hardware and related services for sports wagering and keno systems.

For our integrated lottery systems service contracts, our single performance obligation is a promise to perform a series of stand-ready services to operate a fully-functional draw lottery and/or iLottery. Revenue is recognized over time in an amount generally based on a percentage of sales of the related games, which represents our measure of progress toward satisfying our performance obligation.

For our perpetual licensing of customized lottery software contracts, we generally recognize revenue over time using costs incurred to date relative to total estimated completion costs to measure progress toward satisfying our performance obligations, which we believe best depicts the transfer of control to the customer.

Maintenance on lottery software and lottery terminals is considered a stand-ready obligation, with control transferring and revenue being recognized ratably over the maintenance and support period.

Lottery systems also includes revenue related to the sale of point-of-sale terminals, hardware, and other equipment associated with the lottery systems segment. We transfer control and recognize revenue from the sale of lottery systems solutions at a point in time upon delivery of the related equipment to our customers pursuant to the terms of the contract.

16 

Contract Liabilities and Other Disclosures

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

		Contract Liabilities
Contract liability balance as of December 31, 2018(1)	$	48
Liabilities recognized during the period		40
Amounts recognized in revenue from beginning balance		(30	)
Contract liability balance as of December 31, 2019(1)	$	58
Liabilities recognized during the period		28
Amounts recognized in revenue from beginning balance		(36	)
Contract liability balance as of December 31, 2020(1)	$	50

(1) Long-term contract liabilities are included within Other long-term liabilities.

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities). Revenue recognition is generally proximal to conversion to cash, except for the POS instant product revenue. Revenue is recognized for such contracts upon delivery to our customers, while conversion to cash is based on the retail sale of the underlying tickets to end consumers. As a result, revenue recognition under ASC 606 does not approximate conversion to cash for such contracts in any periods presented. The following table summarizes our opening and closing balances in these accounts (other than contract liabilities disclosed above):

	Receivables		Contract Assets
End of period balance, December 31, 2018	$	122	$	93
End of period balance, December 31, 2019		141		88
End of period balance, December 31, 2020		153		86

(4) Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on the first-in, first-out or weighted moving average method. Our inventory primarily consists of instant products and our licensed brand merchandise. We determine the lower of cost or net realizable value of our inventory based on estimates of potentially excess and obsolete inventories after considering historical and forecasted demand and average selling prices.

Inventories consisted of the following:

	As of December 31,
	2020		2019		2018
Parts and work-in-process	$	35	$	42	$	35
Finished goods		37		42		33
Total inventories	$	72	$	84	$	68

Parts and work-in-process include parts for terminals and instant ticket materials, as well as labor and overhead costs for work-in-process associated with the manufacturing of instant tickets and lottery terminals. Our finished goods inventory primarily consists of instant products.

17 

(5) Property and Equipment, net

Property and equipment are stated at cost, and when placed into service, are depreciated using the straight-line method over the estimated useful lives of the assets as follows:

Item	Estimated Life in Years
Lottery and other machinery and equipment	3-15
Furniture and fixtures	5-10
Buildings and improvements	15-40

Costs incurred for equipment associated with specific lottery contracts not yet placed into service are classified as construction in progress and are not depreciated until placed into service. Leasehold improvements are amortized over the lesser of the term of the corresponding lease or their useful life.

We periodically review the estimated useful lives of our fixed assets and assess the recoverability of long-lived assets (or asset groups) whenever events or changes in circumstances indicate that the carrying value of such an asset (or asset groups) may not be recoverable.

Property and equipment, net consisted of the following:

	As of December 31,
	2020			2019			2018
Land	$	9		$	9		$	9
Buildings and leasehold improvements		70			69			69
Lottery machinery and equipment		511			494			480
Furniture and fixtures		6			6			6
Construction in progress		37			22			12
Less: accumulated depreciation		(464	)		(427	)		(395	)
Total property and equipment, net	$	169		$	173		$	181

Depreciation expense is excluded from Cost of instant products, Cost of lottery systems, and Other operating expenses and is separately presented within depreciation and amortization.

	Year Ended December 31,
	2020		2019		2018
Depreciation expense	$	33	$	37	$	35

Capitalized installation costs

Certain participation contracts require us to perform installation activities. Direct installation activities, which include costs for installing terminals, facilities wiring, computers, internal labor and travel, are performed at the inception of the contract to enable us to perform under the terms of the contract. Such activities do not represent a separate earnings process and, therefore, the installation costs are capitalized and amortized over the estimated contract term. We had $14 million, and $21 million, and $27 million of capitalized installation costs, net of accumulated depreciation, included within lottery machinery and equipment as of December 31, 2020, and 2019, and 2018, respectively.

18 

(6) Intangible Assets, net and Goodwill

Intangible assets, net

The following tables present certain information regarding our intangible assets as of December 31, 2020, 2019, and 2018 that originated in connection with the Parent’s historical acquisitions of lottery businesses and licenses, at which time they were allocated to the Lottery Business. Amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives with no estimated residual values, which materially approximates the expected pattern of use.

	December 31, 2020							December 31, 2019							December 31, 2018
	Gross Carrying Value		Accumulated Amortization			Net Balance		Gross Carrying Value		Accumulated Amortization			Net Balance		Gross  Carrying Value		Accumulated Amortization			Net Balance
Amortizable intangible assets:
Customer relationships	$	14	$	(14	)	$	—	$	14	$	(13	)	$	1	$	14	$	(13	)	$	1
Intellectual property		11		(6	)		5		11		(4	)		7		11		(3	)		8
Licenses		87		(61	)		26		83		(48	)		35		86		(39	)		47
Patents and other		12		(9	)		3		12		(9	)		3		12		(8	)		4
		124		(90	)		34		120		(74	)		46		123		(63	)		60
Non-amortizable intangible assets:
Trade names		33		(2	)		31		33		(2	)		31		33		(2	)		31
Total intangible assets	$	157	$	(92	)	$	65	$	153	$	(76	)	$	77	$	156	$	(65	)	$	91

The following reflects intangible amortization expense included within depreciation and amortization:

	Year Ended December 31,
	2020		2019		2018
Amortization expense	$	15	$	15	$	12

Estimated intangible asset amortization expense for the year ending December 31, 2021 and each of the subsequent four years:

	Year Ended December 31,
	2021		2022		2023		2024		2025		Thereafter
Amortization expense	$	8	$	7	$	7	$	5	$	5	$	2

Goodwill

Goodwill reflected in these financial statements was recorded to the respective reporting units based on an estimate of the relative fair value that existed at the time of origination of goodwill in connection with the Parent’s acquisitions of various lottery businesses. We account for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other ("ASC 350"). We test goodwill for impairment annually as of October 1 of each fiscal year, or whenever events or circumstances make it more likely than not that the fair value of the reporting unit is less than its carrying value. Impairment testing for goodwill is performed at the reporting unit level. We have identified three reporting units based on our management structure. The fair value of goodwill for all of our reporting units is in excess of its carrying value.

Under the qualitative assessment option, we first assess qualitative factors to determine whether the fair value of a reporting unit is not “more than likely” less than its carrying value, which is commonly referred to as “Step 0”. If the fair value of the reporting unit is greater or if it is more likely than not that the fair value of the reporting unit is greater than its carrying value, goodwill is not considered impaired. For reporting units where we perform the quantitative process, we are required to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows and a market approach, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit is less than its carrying value, an impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value determined based on a quantitative test, not to exceed the total amount of goodwill allocated to that reporting unit.

Our annual goodwill impairment tests as of October 1, 2020 indicated estimated fair values were in excess of their carrying values for each of our reporting units that have goodwill balances. We conduct impairment tests of our indefinite-lived assets annually in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of an indefinite-lived asset is less than its carrying value or when circumstances no longer continue to support an indefinite useful life.

19 

Our annual impairment tests as of October 1, 2020 indicated estimated fair values were more likely than not in excess of the carrying values for all of our remaining indefinite-lived intangible assets.

The table below reconciles the change in the carrying value of goodwill, for the period from December 1, 2018 to December 31, 2020.

	Instant Products			Lottery Systems(1)			Total
Balance as of December 1, 2018	$	333		$	22		$	355
Foreign currency adjustments		(3	)		(1	)		(4	)
Balance as of December 31, 2018	$	330		$	21		$	351
Foreign currency adjustments		(3	)		—			(3	)
Balance as of December 31, 2019	$	327		$	21			348
Foreign currency adjustments		3			2			5
Balance as of December 31, 2020	$	330		$	23		$	353

(1) Accumulated goodwill impairment charges as of December 31, 2020 were $137 million.

Long-lived assets and intangible assets with finite useful lives

Intangible assets with finite useful lives are amortized over two to fifteen years using the straight-line method, which materially approximates the pattern of the assets’ use. Factors considered when assigning useful lives include legal, regulatory and contractual provisions, product obsolescence, demand, competition, and other economic factors.

We assess the recoverability of long-lived assets and intangible assets with finite useful lives whenever events arise or circumstances change that indicate the carrying value of an asset may not be recoverable. Recoverability of long-lived assets (or asset groups) to be held and used is measured by a comparison of the carrying value of the asset (or asset group) to the expected net future undiscounted cash flows to be generated by that asset (or asset group). The amount of impairment of long-lived assets and intangible assets with finite lives is measured by the amount by which the carrying value of the asset exceeds the fair market value of the asset.

(7) Software, net

We capitalize direct costs used in the development of internal-use software. Amounts capitalized are amortized over a period of two to ten years on a straight-line basis.

We purchase, license, and incur costs to develop external use software to be used in the products we sell, lease, or market to customers. Costs incurred in creating software are expensed when incurred as R&D until technological feasibility has been established, after which costs are capitalized up to the date the software is available for general release to customers. Generally, the software we develop reaches technological feasibility when a working model of the software is available. We capitalize the payments made for software that we purchase or license for use in our products that have previously met the technological feasibility criteria prior to our purchase or license. Amortization of capitalized software costs is recorded over the estimated economic life, which is typically eight to ten years.

Software, net consisted of the following:

	As of December 31,
	2020			2019			2018
Software	$	172		$	159		$	154
Accumulated amortization		(109	)		(100	)		(93	)
Software, net	$	63		$	59		$	61

20 

In the years ended December 31, 2020, 2019, and 2018, we capitalized $16 million, $14 million, and $25 million, respectively, of development expenditures.

The following reflects amortization of software included within depreciation and amortization:

	Year Ended December 31,
	2020		2019		2018
Amortization expense	$	14	$	15	$	12

(8) Equity Investments

We account for our equity investments where we own a non-controlling interest, but exercise significant influence, under the equity method of accounting. Under the equity method of accounting, our original cost of the investment is adjusted for our share of equity in the earnings of the equity investee and reduced by dividends and distributions of capital received.

We evaluate our investments in unconsolidated affiliates, for impairment whenever events or changes in circumstances indicate that the carrying value of the investment may have experienced an “other-than-temporary” decline in value. If such conditions exist, we compare the estimated fair value of the investment to its carrying value to determine if an impairment is indicated and determine whether the impairment is “other-than-temporary” based on an assessment of all relevant factors, including consideration of our intent and ability to retain our investment until the recovery of the unrealized loss. We estimate fair value using a discounted cash flow analysis based on estimated future results of, or cash distributions from, the investee. Impairment charges, if any, are recorded in Earnings (loss) from equity investments.

See the tables below for details of our more significant equity investments:

Equity Investment	Purpose	Concession and/ or Supplier Agreement Term	Ownership Interest
Lotterie Nazionali S.r.l. ("LNS")	Exclusive operator of Italian instant game lottery	Initial term of nine years beginning October 2010, which was subsequently extended for up to nine years (September 2028)	20	%
Northstar New Jersey Lottery Group, LLC ("Northstar NJ")	Provision of marketing and sales services to New Jersey Lottery	October 1, 2013 through 2029	18	%
Northstar SupplyCo New Jersey LLC ("NJ SupplyCo")	Separate agreement under which we provide instant games to Northstar NJ	October 1, 2013 through 2029	30	%
Hellenic Lotteries (“Greece”)	The operator of the Greek state lotteries	Initial term of nine years beginning May 2014	17	%
Beijing Guard Libang Technology Co., Ltd. ("GLB")	Provider of instant lottery game validation and inventory management systems to all of the China Welfare Lottery provincial jurisdictions	N/A	50	%
Beijing CITIC Scientific Games Technology Co., Ltd. ("CSG")	Instant game manufacturing facility that produces instant lottery games for sale to the China Sports Lottery	Initial term of fifteen years beginning 2009	49	%

21 

	Equity investment Balance as of December 31,						Equity (loss) earnings recognized for the Year Ended December 31,								Cash distributions and dividends received for the Year Ended December 31,
Equity Investment	2020		2019		2018		2020			2019			2018		2020		2019		2018
LNS	$	201	$	201	$	222	$	8		$	15		$	15	$	27	$	33	$	37
GLB(1) and CSG		26		26		23		(2	)		3			1		—		—		11
Greece		17		20		22		(4	)		1			1		—		2		6
Northstar NJ and NJ Supply Co		14		21		25		(11	)		—			2		3		5		—
Other		1		1		1		1			(1	)		—		1		—		—
Total under equity method	$	259	$	269	$	293	$	(8	)	$	18		$	19	$	31	$	40	$	54

(1)   GLB equity loss for 2020 includes $5 million impairment charge.                                              

	Revenue recognized from sales to investee for the Year Ended December 31,
Equity Investment	2020		2019		2018
LNS	$	39	$	46	$	40
Northstar NJ and NJ Supply Co		24		24		23
Other		3		6		7
Total	$	66	$	76	$	70

LNS

On December 4, 2017, we announced that LNS had accepted a contract extension of up to nine years for the Italian Scratch and Win concession. As a part of the contract extension, LNS was required to pay an upfront fee of €800 million in three installments. The first installment of €50 million was paid as of December 31, 2017; payments of the second installment of €300 million and third installment of €450 million were made in April 2018 and October 2018, respectively. Our pro-rata concession funding payments to LNS were €10 million ($12 million), €60 million ($74 million) and €90 million ($104 million), respectively, and were treated as contributions to our equity method investment as contributions were made.

As of December 31, 2020 we had accounts receivable of $14 million from LNS.

Northstar New Jersey

Northstar New Jersey is entitled to receive annual incentive compensation payments from the State of New Jersey to the extent the lottery’s net income for the applicable year exceeds specified target levels, subject to a cap of 3% of the applicable year’s net income. Northstar New Jersey is responsible for payments to the State of New Jersey to the extent certain net income targets are not achieved by the New Jersey Lottery, subject to a cap of 2% of the applicable year’s net income.

Combined summary financial information

The combined summary financial information for the years ended December 31, 2020, 2019, and 2018 is presented for all equity method investments owned during the respective periods.

	Years Ended December 31,
	2020			2019		2018
Revenue	$	487		$	621	$	669
Revenue less cost of revenue		86			267		279
Net (loss) income		(15	)		91		102

22 

	As of December 31,
	2020		2019		2018
Current assets	$	908	$	823	$	682
Non-current assets		1,125		1,131		1,302
Current liabilities		742		606		492
Non-current liabilities		79		60		59

(9) Accrued Liabilities

Accrued liabilities consisted of the following:

		As of December 31,
		2020		2019		2018
Compensation and benefits	$	24	$	21	$	27
Taxes, other than income		21		15		4
Accrued licenses		—		6		—
Operating lease liabilities		7		7		—
Accrued state contract requirement		13		9		10
Other		44		25		29
Total	$	109	$	83	$	70

(10) Leases

On January 1, 2019, we adopted ASC 842 using the optional transition method provided by ASU 2018-11. Our operating leases primarily consist of real estate leases such as offices, warehouses, and research and development facilities. Our leases have remaining lease terms ranging from 1 year to 10 years, some of which include options to extend the leases for up to 5 years or to terminate the leases within 1 year. Our finance leases are immaterial.

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

	As of December 31,
	2020			2019
Operating lease right-of-use assets(1)	$	27		$	31
Accrued liabilities		7			7
Operating lease liabilities		21			24
Total operating lease liabilities	$	28		$	31
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases for the twelve month period	$	9		$	9
Weighted average remaining lease term, years		5			5
Weighted average discount rate		5	%		5	%

(1) Operating lease right-of-use assets obtained in exchange for lease obligations were immaterial.

Lease liability maturities:

	2021		2022		2023		2024		2025		Thereafter		Less Imputed Interest			Total
Operating leases	$	8	$	6	$	6	$	4	$	4	$	4	$	(4	)	$	28

Our total operating lease expenses were $9 million, $10 million, and $10 million for the years ended December 31, 2020, 2019, and 2018, respectively. The total amount of variable and short-term lease payments was immaterial for all periods presented.

As of December 31, 2020, we did not have material additional operating leases that have not yet commenced.

23 

(11) Pension and Other Post-Retirement benefits

We have defined benefit pension plans for our U.K.-based union employees (the “U.K. Plan”) and certain Canadian-based employees (the “Canadian Plan”). Collectively these two plans are referred to as the “Pension Plans”. Retirement benefits under the U.K. Plan are generally 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 contributions permissible by the applicable authorities. We estimate that $9 million will be contributed to the Pension Plans in fiscal year 2021.

Our pension benefit costs are calculated using various actuarial assumptions and methodologies. These assumptions include discount rates, inflation, compensation increase rates, expected returns on plan assets, mortality rates and other factors. The assumptions used in recording the obligations under our plans represent our best estimates, and we believe that they are reasonable, based on information as to historical experience and performance and other factors that might cause future expectations to differ from past trends. Differences in actual experience or changes in assumptions may affect our pension obligations and future expense. The primary factors contributing to actuarial gains and losses each year are (1) changes in the discount rate used to value pension benefit obligations as of the measurement date and (2) differences between the expected and the actual return on plan assets.

The following table sets forth the funded status of the Pension Plans and their reconciliation to the related amounts recognized in our financial statements at our December 31, 2020, 2019, and 2018 measurement dates:

	December 31,
	2020									2019									2018
Change in benefit obligation:	U.K. Plan			Canadian Plan			Total			U.K. Plan			Canadian Plan			Total			U.K. Plan			Canadian Plan			Total
Benefit obligation at beginning of year	$	92		$	62		$	154		$	74		$	51		$	125		$	80		$	54		$	134
Service cost		1			2			3			1			1			2			2			1			3
Interest cost		2			2			4			2			2			4			2			2			4
Participant contributions		1			—			1			1			—			1			1			—			1
Actuarial gain (loss)		13			4			17			13			8			21			(5	)		(2	)		(7	)
Benefits paid		(2	)		(2	)		(4	)		(1	)		(2	)		(3	)		(2	)		(2	)		(4	)
Other, principally foreign exchange		3			1			4			2			2			4			(4	)		(2	)		(6	)
Benefit obligation at end of year	$	110		$	69		$	179		$	92		$	62		$	154		$	74		$	51		$	125
Change in plan assets:
Fair value of plan assets at beginning of year	$	75		$	54		$	129		$	62		$	44		$	106		$	66		$	49			115
Actual gain (loss) on plan assets		9			6			15			10			8			18			(3	)		(1	)		(4	)
Employer contributions		3			1			4			3			1			4			2			1			3
Participant contributions		1			—			1			1			—			1			1			—			1
Benefits paid		(2	)		(2	)		(4	)		(2	)		(1	)		(3	)		(2	)		(2	)		(4	)
Other, principally foreign exchange		3			—			3			1			2			3			(2	)		(3	)		(5	)
Fair value of assets at end of year	$	89		$	59		$	148		$	75		$	54		$	129		$	62		$	44		$	106
Amounts recognized on balance sheet:
Funded status (current)	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Funded status (non-current)		(21	)		(10	)		(31	)		(17	)		(8	)		(25	)		(12	)		(7	)		(19	)
Accumulated other comprehensive income:
Unrecognized actuarial loss		29			11			40			24			10			34			16			9			25
Unrecognized prior service cost		(2	)		—			(2	)		—			—			—			1			—			1
Deferred taxes		—			2			2			—			1			1			—			(5	)		(5	)
Net amount recognized	$	6		$	3		$	9		$	7		$	3		$	10		$	5		$	(3	)	$	2

24 

The following table presents the components of our net periodic pension benefit cost:

	Year Ended December 31,
	2020									2019												2018
Components of net periodic pension benefit cost:	U.K. Plan			Canadian Plan			Total			U.K. Plan			Canadian Plan			Total			U.K. Plan			Canadian Plan			Total
Service cost	$	1		$	2		$	3		$	1		$	1		$	2		$	2		$	1		$	3
Interest cost		2			2			4			2			2			4			2			2			4
Expected return on plan assets		(3	)		(3	)		(6	)		(3	)		(2	)		(5	)		(3	)		(3	)		(6	)
Amortization of actuarial losses		2			—			2			1			—			1			1			—			1
Net periodic cost	$	2		$	1		$	3		$	1		$	1		$	2		$	2		$	—		$	2

The accumulated benefit obligation for the Pension Plans was $179 million, $154 million, and $125 million as of December 31, 2020, 2019, and 2018, respectively. The underfunded status of the Pension Plans recorded as a long-term liability as of December 31, 2020, 2019, and 2018 was $31 million, $25 million, and $19 million, respectively.

The amounts included in accumulated other comprehensive loss as of December 31, 2020 are expected to be recognized as components of net periodic pension benefit cost during the fiscal year ending December 31, 2021 are presented below:

Unrecognized loss	$	2
Unrecognized prior service cost		(2	)
Net amount expected to be recognized	$	—

The U.K. Plan is closed to new participants and pensionable earnings used to calculate retirement benefits are limited to a 2% annual increase while the plan is less than 100% funded.

The investment policy is to maximize long-term financial return commensurate with security and minimizing risk. This is achieved by holding a portfolio of marketable investments that avoids over-concentration of investment and spreads assets both over industries and geographies. In setting investment strategy, we considered the lowest risk strategy that it could adopt in relation to the plan’s liabilities and designed the asset allocation to achieve a higher return while maintaining a cautious approach to meeting the plan’s liabilities. We considered a full range of asset classes, the risks and rewards of a range of alternative asset allocation strategies, the suitability of each asset class and the need for appropriate diversification.

The current strategy in the U.K. Plan is to hold approximately 37% in a global return fund, approximately 4% in U.K. equities, approximately 10% in real estate, approximately 15% in non-U.K. equities, approximately 19% in Liability Driven Investments (LDI), and approximately 15% in corporate bonds and other. The current strategy in the Canadian Plan is to hold approximately 23% in Canadian equities, approximately 44% in non-Canadian equities and approximately 33% in bonds and other.

25 

The fair value of the plan assets for the U.K. Plan at December 31, 2020 by asset category is presented below:

Asset Category	Market Value at 12/31/2020		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Equity securities(a)	$	17	$	—	$	17	$	—
Global return fund(a)		33		—		33		—
Corporate bonds(a)		11		—		11		—
Real estate		9		—		—		9
LDI		17		—		17		—
Cash and cash equivalents(b)		2		2		—		—
Total pension assets	$	89	$	2	$	78	$	9

(a) The assets are invested through managed funds that are valued using inputs derived principally from quoted prices in active markets for the underlying assets in the fund.

(b) The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments.

The fair value of the plan assets for the Canadian Plan at December 31, 2020 by asset category is presented below:

Asset Category	Market Value at 12/31/2020		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Equity securities(a)	$	40	$	40	$	—	$	—
Corporate bonds(a)		14		—		14		—
Government bonds		5		—		5		—
Total pension assets	$	59	$	40	$	19	$	—

(a) The assets are invested through managed funds that are valued using inputs derived principally from quoted prices in active markets for the underlying assets in the fund.

The fair value of the plan assets for the U.K. Plan at December 31, 2019 by asset category is presented below:

Asset Category	Market Value at 12/31/2019		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Equity securities(a)	$	28	$	—	$	28	$	—
Global return fund(a)		19		—		19		—
Corporate bonds(a)		9		—		9		—
Real estate		5		—		—		5
LDI		14		—		14		—
Total pension assets	$	75	$	—	$	70	$	5

(a) The assets are invested through managed funds that are valued using inputs derived principally from quoted prices in active markets for the underlying assets in the fund.

26 

The fair value of the plan assets for the Canadian Plan at December 31, 2019 by asset category is presented below:

	Market		Quoted Prices in Active Markets for		Significant		Significant
	Value at		Identical		Observable Inputs		Unobservable Inputs
Asset Category	12/31/2019		Assets (Level 1)		(Level 2)		(Level 3)
Equity securities(a)	$	34	$	34	$	—	$	—
Corporate bonds(a)		4		—		4		—
Government bonds		12		—		12		—
Cash and cash equivalents(b)		4		4		—		—
Total pension assets	$	54	$	38	$	16	$	—

(a) The assets are invested through managed funds that are valued using inputs derived principally from quoted prices in active markets for the underlying assets in the fund.

(b) The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments.

The fair value of the plan assets for the U.K. Plan at December 31, 2018 by asset category is presented below:

			Quoted
			Prices in
			Active
	Market		Markets for		Significant		Significant
	Value at		Identical		Observable Inputs		Unobservable Inputs
Asset Category	12/31/2018		Assets (Level 1)		(Level 2)		(Level 3)
Equity securities(a)	$	23	$	—	$	23	$	—
Global return fund(a)		15		—		15		—
Corporate bonds(a)		9		—		9		—
Real estate		4		—		—		4
LDI (Liability Driven Investment)		11		—		11		—
Total pension assets	$	62	$	—	$	58	$	4

(a) The assets are invested through managed funds that are valued using inputs derived principally from quoted prices in active markets for the underlying assets in the fund.

The fair value of the plan assets for the Canadian Plan at December 31, 2018 by asset category is presented below:

			Quoted
			Prices in
			Active
	Market		Markets for		Significant		Significant
	Value at		Identical		Observable Inputs		Unobservable Inputs
Asset Category	12/31/2018		Assets (Level 1)		(Level 2)		(Level 3)
Equity securities(a)	$	28	$	28	$	—	$	—
Corporate bonds(a)		5		—		5		—
Government bonds		10		—		10		—
Cash and cash equivalents(b)		1		1		—		—
Total pension assets	$	44	$	29	$	15	$	—

(a) The assets are invested through managed funds that are valued using inputs derived principally from quoted prices in active markets for the underlying assets in the fund.

(b) The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments.

27 

The change in fair value of the Pension Plan assets valued using significant unobservable inputs (Level 3) is presented below:

		2020		2019	2018
Significant unobservable inputs (Level 3), beginning of period	$	5	$	4	$	4
Unrealized gain on asset still held		4		1		—
Significant unobservable inputs (Level 3), end of period	$	9	$	5	$	4

The table below presents the weighted-average actuarial assumptions used to determine the benefit obligation and net periodic benefit cost for the Pension Plans.

	U.K. Plan									Canadian Plan
	2020			2019			2018			2020			2019			2018
Discount rates:
Benefit obligation		1.4	%		2.0	%		2.9	%		3.1	%		3.1	%		3.9	%
Net periodic pension cost		1.4	%		2.0	%		2.6	%		3.1	%		3.9	%		3.6	%
Rate of compensation increase		1.0	%		1.0	%		1.0	%		3.0	%		3.0	%		1.0	%
Expected return on assets		3.6	%		5.1	%		5.0	%		5.2	%		5.5	%		5.7	%

The overall expected long-term rate of return on assets assumption for the U.K. Plan has been determined as a weighted-average of the expected returns on the above asset classes for the U.K. Plan. The expected return on bonds is taken as the current redemption yield on the appropriate index. The expected return on equities and property is determined by assuming a measure of our performance over the gilt-yield. The expected return on cash is related to the Bank of England base rate. Returns so determined are reduced to allow for investment manager expenses.

The overall expected long-term rate of return on assets assumption for the Canadian Plan has been determined by consideration of the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class based on our active management of certain portfolio classes.

We expect benefit payments between $2 million and $3 million annually, for each the U.K. Plan and Canadian Plan, which reflect expected future service for each of the next five years. Additionally, we expect benefit payments of $15 million for the U.K. Plan and $17 million for the Canadian Plan for benefit payments during the five years from 2026 to 2030.

U.S. plan

The Parent has a 401(k) plan for U.S.-based employees. Those employees who participate in our 401(k) plan are eligible to receive matching contributions from us for the first 6% of participant contributions (as defined in the plan document). During 2020, as part of austerity measures implemented as a result of COVID-19, we temporarily eliminated 401(k) matching contributions, which were reinstated in 2021. Contribution expense for the years ended December 31, 2020, 2019, and 2018 amounted to $1 million, $3 million, and $3 million, respectively.

(12) Income Taxes

Income taxes are determined using the liability method of accounting for income taxes, under which deferred tax assets ("DTAs") and deferred tax liabilities ("DTLs") are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. If, based upon all available evidence, both positive and negative, it is more likely than not that such deferred tax assets will not be realized, a valuation allowance is recorded.

Management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of existing deferred tax assets in each taxpaying jurisdiction. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2020 in certain jurisdictions. Such strong objective evidence puts less emphasis on other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2020, a valuation allowance of $11 million has been recorded to recognize only the portion of the deferred tax assets that are more likely than not to be realized; however, the amount of the deferred tax assets considered realizable could be adjusted if estimates of future taxable income during the carryforward period change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for future growth.

28 

Income taxes are presented using historical results of operations and cost basis of the assets and liabilities as if we operated on a standalone basis during those periods, and the tax provision is calculated as if we completed separate tax returns apart from our Parent ("Separate-return Method"). Certain legal entities that are included in these financial statements under the Separate-Return Method were included in tax filings of affiliated entities that are not part of these financial statements.

As discussed in Note 1, the COVID-19 disruptions significantly impacted our business during the first half of 2020 but began to recover during the latter half of 2020. We considered the COVID-19 disruptions in our ability to realize deferred tax assets in the future and determined that such conditions did not change our overall valuation allowance positions. The U.S. signed into law on March 27, 2020 the CARES Act, which includes various income tax provisions to help stabilize U.S. businesses; however, it did not have a material impact on our provision for income taxes. We continue to monitor and evaluate the tax implications resulting from the CARES Act and any new legislation passed in response to COVID-19 in the federal, state, and foreign jurisdictions where we have an income tax presence.

We apply a recognition threshold and measurement attribute related to uncertain tax positions taken or expected to be taken on our tax returns. We recognize a tax benefit for financial reporting of an uncertain income tax position when it has a greater than 50% likelihood of being sustained upon examination by the taxing authorities. We measure the tax benefit of an uncertain tax position based on the largest benefit that has a greater than 50% likelihood of being ultimately realized including evaluation of settlements.

The components of net income before income taxes are as follows:

	Year Ended December 31,
	2020		2019		2018
United States	$	183	$	183	$	206
Foreign		58		73		53
Net income before income tax expense	$	241	$	256	$	259

The components of income tax expense are as follows:  

	Year Ended December 31,
	2020			2019			2018
Current
U.S. Federal	$	41		$	46		$	33
U.S. State		14			14			11
Foreign		14			12			9
Total		69			72			53
Deferred
U.S. Federal		(2	)		(9	)		16
U.S. State		(1	)		(2	)		3
Foreign		2			(1	)		1
Total		(1	)		(12	)		20
Total income tax expense	$	68		$	60		$	73

The reconciliation of the U.S. federal statutory tax rate to the actual tax rate is as follows:

	Year Ended December 31,
	2020			2019			2018
Statutory U.S. federal income tax rate		21.0	%		21.0	%		21.0	%
State Taxes		4.7	%		3.9	%		4.3	%
Foreign earnings at rates different than U.S. federal rate		1.1	%		0.9	%		1.2	%
Permanent items		0.1	%		(2.0	)%		(0.2	)%
Increase of UTBs(1)		—	%		—	%		2.7	%
Other		1.0	%		(0.5	)%		(0.8	)%
Effective income tax rate		27.9	%		23.3	%		28.2	%

(1) UTB = Unrecognized tax benefit

29 

Our effective tax rates for 2020, 2019, and 2018 were impacted by state income tax expense of $11 million, $10 million and $11 million, respectively. In 2018, we recorded a $7 million UTB liability after completion of our accounting for the Deemed Repatriation Transition Tax under IRC Section 965, which resulted in a rate impact of 2.7% in 2018.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying values of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred income tax balances are established using the enacted statutory tax rates and are adjusted for changes in such rates in the period of change.

	As of December 31,
	2020			2019			2018
Deferred tax assets:
Reserves and other accrued expenses	$	16		$	17		$	2
Compensation not currently deductible		2			2			4
Net operating loss carry forwards		12			8			8
Inventory valuation		7			4			4
Pension		8			6			5
Differences in financial reporting and tax basis for:
Other		4			3			3
Valuation allowance		(11	)		(6	)		(6	)
Realizable deferred tax assets		38			34			20
Deferred tax liabilities:
Differences in financial reporting and tax basis for:
Identifiable intangible assets		(30	)		(29	)		(29	)
Property and equipment		(20	)		(16	)		(19	)
Deferred costs and prepaid expenses		(11	)		(14	)		(10	)
Other		(5	)		(5	)		(5	)
Total deferred tax liabilities		(66	)		(64	)		(63	)
Net deferred tax liability	$	(28	)	$	(30	)	$	(43	)

At December 31, 2020, we had the following NOL carry forwards:

	December 31, 2020
	Federal		State		Foreign
NOL carry forwards	$	—	$	—	$	50

The foreign NOL carryforwards can be carried forward for periods that vary from five years to indefinitely. Because these financial statements are prepared on a separate-return basis, the ending deferred tax asset balances reflected within the carve-out may not ultimately reflect the actual tax attributes available for use after the carve-out. Depending on the ultimate structure of the transaction, legal entities that comprise the carve-out group may have NOLs or interest expense limitation carryforward attributes available.

At December 31, 2020 and 2019, and 2018, we had the following valuation allowances:

	December 31,
	2020		2019		2018
Foreign	$	11	$	6	$	6

30 

Undistributed earnings of subsidiaries are accounted for as a temporary difference, except that DTLs are not recorded for undistributed earnings of foreign subsidiaries that are deemed to be indefinitely reinvested in foreign jurisdictions. The Tax Act required the Company to compute a tax on previously undistributed earnings and profits of its foreign subsidiaries upon transition from a worldwide tax system to a territorial tax system during the year ended December 31, 2017. The repatriation of such amounts in the future should generally be exempt from income taxes in the U.S. (as a result of the Tax Act) and in those jurisdictions that have a similar territorial system of taxation. Substantially all of our current year foreign earnings are not intended to be indefinitely reinvested offshore, and therefore the tax effects of repatriation (including applicable withholding taxes) of such cash flows are provided for in our financial reporting.

Unrecognized Tax Benefits

The total amount of unrecognized tax benefits as of December 31, 2020 was $7 million. Of this amount, $7 million, if recognized, would be included in our Combined Statements of Operations and Comprehensive Income and have an impact on our effective tax rate. We do not expect any material changes in unrecognized tax benefits before December 31, 2021.

We recognize interest and penalties for unrecognized tax benefits in income tax expense. The amounts recognized for interest and penalties during the years ended December 31, 2020, 2019 and 2018 were not material.

We file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. We are generally not subject to examination for periods prior to December 31, 2016; however as we utilize available net operating losses, prior periods can be subject to examination. There are no ongoing material U.S. federal, state, local or non-U.S. examinations by tax authorities.

The Company had the following activity for unrecognized tax benefits:

	Year Ended December 31,
		2020	2019		2018
Balance at beginning of period	$	7	$	7	$	—
Tax positions related to current year additions		—		—		7
Balance at end of period(1)	$	7	$	7	$	7

(1) Unrecognized tax benefits are included within Other long-term liabilities.

(13) Related Party Transactions

Parent Services

Parent services represent allocations of corporate level general and administrative expenses, including but not limited to, finance, corporate development, human resources, legal, information technology, as well as rental fees for shared assets. These expenses have been allocated to the Lottery Business on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenues, operating expenses, headcount or other relevant measures, which we believe to be the most meaningful allocation methodologies.

Total parent services expense recorded for the years ended December 31, 2020, 2019, and 2018 was $30 million, $31 million, and $28 million respectively, and is included in Selling, general and administrative expenses. These charges are not cash settled but allocated for purposes of these financial statements and as such are accounted for as a component of Parent's equity.

31 

IP Licensing

The Parent frequently licenses intellectual property (IP) from third parties, which is utilized by the Lottery Business in developing the instant games. These IP licenses are generally pushed down to the Lottery Business at the origination of these agreements based upon agreed usage commitment. We account for these minimum guaranteed obligations within accrued and other long-term liabilities at the onset of the license arrangement and record a corresponding license asset within intangible assets, net. The total liability associated with these agreements as of December 31, 2020, 2019, and 2018 was $31 million, $37 million, and $46 million respectively.

Amortization expense related to these licenses and recorded in depreciation and amortization for the years ended December 31, 2020, 2019, and 2018 was $12 million, $12 million, and $8 million, respectively.

We market many of our products under trademarks and copyrights that provide product differentiation and recognition and promote our portfolio of product offerings. All of our games feature elements that are subject to copyrights and protection. In addition, we generally obtain trademark protection and often seek to register trademarks for the names and designs under which we market and license our products and games. Protections for trademarks exist in many countries, including the U.S., for as long as the trademark is registered and/or used. Registrations are generally issued for fixed, but renewable terms, although trademark rights may exist whether or not a mark is registered, and the duration of the registrations varies by country.

(14) Accumulated Other Comprehensive Loss

The accumulated balances for each classification of other comprehensive (loss) income are presented below:

	Foreign			Unrecognized			Accumulated Other
	Currency			pension benefit and other			Comprehensive
	Items			costs, net of taxes(1)			Loss
January 1, 2018	$	—		$	(17	)		(17	)
Change during period		(14	)		(3	)		(17	)
Reclassifed to operations		—			1			1
December 31, 2018	$	(14	)	$	(19	)		(33	)
Change during period		(9	)		(7	)		(16	)
Reclassifed to operations		—			1			1
December 31, 2019	$	(23	)	$	(25	)		(48	)
Change during period		32			(4	)		28
Reclassifed to operations		—			—			—
December 31, 2020	$	9		$	(29	)		(20	)

(1) The change during the period is net of income taxes of $0 million, $1 million and $1 million in 2020, 2019 and 2018, respectively.

32 

EX-99.3

Exhibit 99.3

INDEX TO UNAUDITED INTERIM FINANCIAL INFORMATION

	Page
1.  Unaudited Interim Financial Statements:
Combined Statements of Operations for the Nine Months Ended September 30, 2021 and 2020	2
Combined Statements of Comprehensive Income for the Nine Months Ended September 30, 2021 and 2020	3
Combined Balance Sheets as of September 30, 2021 and December 31, 2020	4
Condensed Combined Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	5
Notes to Condensed Combined Financial Statements	6

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)

COMBINED STATEMENTS OF OPERATIONS

(Unaudited, in millions)

	Nine Months Ended September 30,
	2021			2020
Revenue:
Instant products	$	504		$	426
Lottery systems		265			237
Total revenue		769			663
Operating expenses:
Cost of instant products(1)		239			207
Cost of lottery systems(1)		167			159
Selling, general and administrative		78			58
Research and development		4			1
Depreciation and amortization		42			47
Restructuring and other		1			11
Operating income		238			180
Other income:
Earnings (loss) from equity investments		35			(5	)
Other (expense) income, net		(5	)		8
Total other income, net		30			3
Net income before income taxes		268			183
Income tax expense		(66	)		(52	)
Net income	$	202		$	131

(1) Excludes depreciation and amortization.

See accompanying notes to condensed combined financial statements.

2

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)

COMBINED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in millions)

	Nine Months Ended September 30,
	2021			2020
Net income	$	202		$	131
Other comprehensive (loss) income:
Foreign currency translation (loss) income, net of tax		(15	)		15
Pension and post-retirement (loss) gain and other, net of tax		(1	)		1
Total other comprehensive (loss) income		(16	)		16
Total comprehensive income	$	186		$	147

See accompanying notes to condensed combined financial statements.

3

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)

COMBINED BALANCE SHEETS

(Unaudited, in millions)

	As of
	September 30, 2021			December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	30		$	61
Restricted cash		2			1
Receivables, net of allowance for credit losses of $6 and $4, respectively		182			153
Inventories		79			72
Contract assets		75			86
Prepaid expenses, deposits and other current assets		18			38
Total current assets		386			411
Non-current assets:
Property and equipment, net		171			169
Operating lease right-of-use assets		31			27
Goodwill		365			353
Intangible assets, net		70			65
Software, net		64			63
Equity investments		258			259
Other assets		10			9
Total assets	$	1,355		$	1,356
LIABILITIES AND PARENT'S EQUITY
Current liabilities:
Accounts payable	$	62		$	51
Contract liabilities		47			47
Accrued liabilities		114			109
Total current liabilities		223			207
Deferred income taxes		34			34
Operating lease liabilities		24			21
Long-term license liabilities		24			29
Pension liabilities		27			31
Other long-term liabilities		26			17
Total liabilities		358			339
Parent's equity:
Accumulated net parent investment		1,033			1,037
Accumulated other comprehensive loss		(36	)		(20	)
Total Parent's equity		997			1,017
Total liabilities and Parent's equity	$	1,355		$	1,356

See accompanying notes to condensed combined financial statements.

4

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)

CONDENSED COMBINED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)

	Nine Months Ended September 30,
	2021			2020
Net cash provided by operating activities	$	228		$	203
Cash flows from investing activities:
Capital expenditures		(39	)		(32	)
Additions to equity method investments		(12	)		(1	)
Distributions of capital from equity investments		21			—
Acquisition of business, net of cash acquired		(9	)		—
Net cash used in investing activities		(39	)		(33	)
Cash flows from financing activities:
Payments on license obligations		(5	)		(4	)
Transfers to Parent and affiliates, net		(213	)		(172	)
Net cash used in financing activities		(218	)		(176	)
Effect of exchange rate changes on cash and cash equivalents		(1	)		—
Decrease in cash, cash equivalents, and restricted cash		(30	)		(6	)
Cash, cash equivalents, and restricted cash, beginning of period		62			36
Cash, cash equivalents, and restricted cash, end of period	$	32		$	30
Supplemental cash flow information:
Cash paid for income taxes	$	4		$	2

See accompanying notes to condensed combined financial statements.

5

LOTTERY BUSINESS

(Carve-Out of Certain Operations of Scientific Games Corporation)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(amounts in USD and in millions)

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

Background and nature of operations

The accompanying condensed combined interim carve-out financial statements include the historical accounts of the Scientific Games Corporation (“the Parent”), 100%-owned direct and indirect subsidiaries that hold substantially all of the assets of, and operate, the lottery business, herein collectively referred to as “the Lottery Business”, “we”, "us", and “our.”

The Lottery Business provides instant and draw lottery products and related value-added services including licensed brands used in instant lottery products, and loyalty, reward services, and lottery systems products and comprehensive services generally comprised of point-of-sale terminals, a central system, customized computer software, data communication services, support and/or related equipment.

Basis of presentation

The accompanying combined carve out financial statements of the Lottery Business have been derived from the unaudited condensed consolidated financial statements and accounting records of Scientific Games Corporation using the historical results of operations and historical cost basis of the assets and liabilities as if the Lottery Business operated on a stand-alone basis during the periods presented.

The accompanying condensed combined financial statements of the Lottery Business have been prepared in accordance with the accounting rules applicable for interim periods and therefore, do not include all information and footnotes necessary for complete financial statements in conformity with accounting principles generally accepted in the United States ("GAAP"). For ease of reference the accompanying condensed combined carve out financial statements are herein referred to as "financial statements" unless otherwise stated or the context requires otherwise. All intercompany balances and transactions within the Lottery Business have been eliminated. Transactions between the Lottery Business and the Parent and its other subsidiaries are reflected as affiliate transactions within these financial statements.

The accompanying financial statements include the assets, liabilities, revenues, and expenses that are specifically identifiable to the Lottery Business. In addition, the accompanying financial statements include certain costs that have been allocated from the Parent, which relate to certain corporate functions and shared services performed by the Parent, including but not limited to, finance, human resources, legal, information technology and other. These expenses have been allocated to the Lottery Business on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenues, operating expenses, headcount, or other relevant measures.

We believe the assumptions underlying the financial statements, including assumptions regarding the allocations from the Parent, are reasonable. Nevertheless, the financial statements may not include all of the expenses that would have been incurred had the Lottery Business been a stand-alone company during the periods presented and may not reflect the Lottery Business’s financial position, results of operations, and cash flows had the Lottery Business been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Lottery Business had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology, infrastructure and acquisition of intellectual property. For additional information related to costs allocated to the Lottery Business by the Parent, see Note 12.

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

6

We have two business segments – Instant Products and Lottery Systems – representing our instant and draw-based lottery products and related services and comprehensive lottery system solutions to lottery operators worldwide. We had $52 million and $54 million in Property and equipment, net outside the U.S. as of September 30, 2021 and December 31, 2020, respectively. For additional information related to our business segments, see Note 2.

Impact of COVID-19

In March 2020, the World Health Organization declared the rapidly spreading COVID-19 outbreak a pandemic. In response to the COVID-19 pandemic, governments across the world implemented a number of measures to prevent its spread, including but not limited to, the temporary closure of a substantial number of gaming operations establishments and disruptions to lottery operations, and travel restrictions, which are affecting the Lottery Business in a number of ways. During the latter part of the second quarter and throughout the remainder of 2020, lifting of restrictions began. During the fourth quarter of 2020 and in the response to the second wave of the COVID-19 pandemic, certain jurisdictions implemented additional temporary closures.

The Lottery Business has experienced relative growth and recovery as the shelter in place orders and lockdowns have been eased back resulting in increased foot traffic and more spending by end players, coupled with international retail establishments that have now substantially re-opened. Lottery sales were down meaningfully initially as a result of the pandemic, but have since largely recovered in the U.S. and international markets. The disruptions to lottery operations and travel restrictions had an adverse effect on the results of operations, cash flows and financial condition during the nine months ended September 30, 2020.

The current state reflects continued fluctuations in infection rates and regulations for various regions along with ongoing domestic and international travel restrictions or warnings, social distancing measures, reduced operating capacity and an overall economic and general uncertainty regarding the magnitude and length of time that these disruptions will continue. These circumstances may change in the future and such changes could be material.

Significant Accounting Policies

There have been no changes to our significant accounting policies described within the notes to our 2020 financial statements.

New Accounting Guidance - Recently Adopted

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

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

Acquisition of Sideplay Entertainment and Preliminary Purchase Accounting

On September 3, 2021, we acquired Sideplay Entertainment (“Sideplay”), a digital “e-instant” content studio. The acquisition allows us to expand our iLottery content portfolio and accelerate growth of this line of business. Sideplay has been included in our Lottery Systems business segment.

7

We accounted for this acquisition using the acquisition method of accounting allocating the total consideration transferred to acquired tangible and intangible assets and assumed liabilities based on estimated fair values. The fair value determination of the acquired assets and assumed liabilities requires significant judgments and estimates. The estimated fair values of the acquired assets, assumed liabilities, and resulting goodwill are subject to adjustment as we finalize our purchase price accounting, and such adjustments could be material.

The total consideration transferred was $25 million consisting of $10 million in cash and $15 million total contingent acquisition consideration. The fair value of the contingent acquisition consideration has been preliminarily determined using a real options valuation technique and level 3 inputs in the hierarchy as established by ASC 820 The maximum payout for the contingent acquisition consideration is $23 million and is primarily based on reaching certain performance based targets. The discount rates used in the valuation analysis were 7% to 29%.

The preliminary allocation of the purchase price resulted in $9 million allocated to intangible assets primarily consisting of technology and customer relationship and $16 million allocated to goodwill. The fair value of intangible assets that have been preliminarily identified was determined using a combination of the relief from royalty method, cost approach and the excess earnings method using level 3 inputs in the hierarchy as established by ASC 820.

The factors contributing to the recognition of acquisition goodwill are based on customer offering diversification, expected synergies, assembled workforce and other strategic benefits. None of the resultant goodwill is expected to be deductible for income tax purposes.

The amount of revenue and earnings associated with the above acquisition and since the acquisition date included in the condensed combined financial statements was not significant to our financial statements.

Subsequent events

We evaluated subsequent events through November 19, 2021, which is the date the financial statements were available to be issued.

On October 28, 2021, the Parent announced that it had entered into a definitive agreement to sell the Lottery Business to Brookfield Business Partners L.P. together with its institutional partners (collectively “Brookfield”) for total consideration of $6.05 billion consisting of $5.825 billion in cash and an earn-out of up to $225 million based on the achievement of certain EBITDA targets in 2022 and 2023. The Parent expects to complete this transaction in the first half of 2022, subject to applicable regulatory approvals and customary closing conditions.

8

(2) Business Segments

Operating segments are components of the Lottery Business for which separate discrete financial information is available to and evaluated regularly by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance. We report our operations in two business segments – Instant Products and Lottery Systems – representing our different products and services. In evaluating financial performance, our CODM focuses on Adjusted EBITDA (“AEBITDA”) as management’s segment measure of profit or loss, which is described below. The following tables present our segment information:

	Nine Months Ended September 30, 2021
							Unallocated and
	Instant			Lottery			Reconciling
	Products			Systems			Items (1)			Total
Total revenue	$	504		$	265		$	—		$	769
AEBITDA(2)		265			99			(11	)		353
Reconciling items to net income before income taxes:
Depreciation and amortization		(16	)		(26	)		—			(42	)
Restructuring and other		(1	)		—			—			(1	)
EBITDA from equity investments (2)								(61	)		(61	)
Earnings from equity investments								35			35
Other expense, net								(5	)		(5	)
Stock-based compensation								(11	)		(11	)
Net income before income taxes										$	268

(1) Includes amounts not allocated to the business segments (including shared costs) and reconciling items to reconcile the total business segments AEBITDA to our net income before income taxes.

(2) AEBITDA is reconciled to net income before income taxes and includes the following adjustments: (1) restructuring and other, which includes charges or expenses attributable to: (i) employee severance; (ii) management restructuring and related costs; (iii) restructuring and integration; (iv) cost savings initiatives; (v) major litigation; and (vi) acquisition costs and other unusual items; (2) depreciation and amortization expense and impairment charges (including goodwill impairments); (3) interest expense; (4) income tax expense; (5) stock-based compensation; and (6) other (expense) income, net, including foreign currency gains and (losses). In addition to the preceding adjustments, we exclude earnings (loss) from equity method investments and add (without duplication) our pro rata share of EBITDA of our equity investments, which represents our share of earnings (whether or not distributed to us) before income tax expense, depreciation and amortization expense, and interest income (expense), net of our joint ventures and minority investees. AEBITDA is presented exclusively as our segment measure of profit or loss.

	Nine Months Ended September 30, 2020
							Unallocated and
	Instant			Lottery			Reconciling
	Products			Systems			Items (1)			Total
Total revenue	$	426		$	237		$	—		$	663
AEBITDA(2)		219			78			(35	)		262
Reconciling items to net income before income taxes:
Depreciation and amortization		(19	)		(28	)		—			(47	)
Restructuring and other		(5	)		(6	)		—			(11	)
EBITDA from equity investments (2)								(21	)		(21	)
Loss from equity investments								(5	)		(5	)
Other income, net								8			8
Stock-based compensation								(3	)		(3	)
Net income before income taxes										$	183

(1) Includes amounts not allocated to the business segments (including shared costs) and reconciling items to reconcile the total business segments AEBITDA to our net income before income taxes.

(2) AEBITDA and EBITDA from equity investments are described in footnote (2) to the first table in this Note 2.

9

(3) Revenue Recognition

The following table disaggregates our revenues by segment, line of business, and by geographical location:

	Revenue recognized for
	Nine Months Ended
	September 30,
Revenue by segment and line of business		2021		2020
Instant products:
SGEP	$	236	$	207
PPK		175		145
POS		93		74
Total instant products	$	504	$	426
Lottery systems:
Systems and solutions(1)	$	247	$	228
iLottery		18		9
Total lottery systems	$	265	$	237
Total	$	769	$	663
Revenue by geography
U.S.	$	548	$	462
International		221		201
Total	$	769	$	663

(1) Product sales included in lottery systems were $51 million, and $75 million for the nine months ended September 30, 2021, and 2020, respectively.

Contract Liabilities and Other Disclosures

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

	Nine Months Ended
	September 30, 2021
Contract liability balance, beginning of period(1)	$	50
Liabilities recognized during the period		24
Amounts recognized in revenue from beginning balance		(25	)
Contract liability balance, end of period(1)	$	49

(1) Long-term contract liabilities are included within Other long-term liabilities.

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities). Revenue recognition is generally proximal to conversion to cash, except for the POS instant products revenue. Revenue is recognized for such contracts upon delivery to our customers, while conversion to cash is based on the retail sale of the underlying tickets to end consumers. As a result, revenue recognition under ASC 606 does not approximate conversion to cash for such contracts in any periods presented. The following table summarizes our opening and closing balances in these accounts (other than contract liabilities disclosed above):

	Receivables		Contract Assets
End of period balance, December 31, 2020	$	153	$	86
End of period balance, September 30, 2021		182		75

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(4) Inventories

Inventories consisted of the following:

	As of
	September 30, 2021		December 31, 2020
Parts and work-in-process	$	36	$	35
Finished goods		43		37
Total inventories	$	79	$	72

Parts and work-in-process include parts for terminals and instant ticket materials, as well as labor and overhead costs for work-in-process associated with the manufacturing of instant tickets and lottery terminals. Our finished goods inventory primarily consists of instant products.

(5) Property and Equipment, net

Property and equipment, net consisted of the following:

	As of
	September 30, 2021			December 31, 2020
Land	$	9		$	9
Buildings and leasehold improvements		74			70
Lottery machinery and equipment		540			511
Furniture and fixtures		6			6
Construction in progress		30			37
Less: accumulated depreciation		(488	)		(464	)
Total property and equipment, net	$	171		$	169

Depreciation expense is excluded from Cost of instant products, Cost of lottery systems, and Other operating expenses and is separately presented within depreciation and amortization.

	Nine Months Ended September 30,
	2021		2020
Depreciation expense	$	24	$	25

(6) Intangible Assets, net and Goodwill

Intangible assets, net

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

	September 30, 2021							December 31, 2020
	Gross		Accumulated			Net		Gross		Accumulated			Net
	Carrying Value		Amortization			Balance		Carrying Value		Amortization			Balance
Amortizable intangible assets:
Customer relationships	$	16	$	(14	)	$	2	$	14	$	(14	)	$	—
Intellectual property		17		(7	)		10		11		(6	)		5
Licenses		86		(63	)		23		87		(61	)		26
Patents and other		11		(7	)		4		12		(9	)		3
		130		(91	)		39		124		(90	)		34
Non-amortizable intangible assets:
Trade names		33		(2	)		31		33		(2	)		31
Total intangible assets	$	163	$	(93	)	$	70	$	157	$	(92	)	$	65

11

The following reflects intangible amortization expense included within depreciation and amortization:

	Nine Months Ended September 30,
	2021		2020
Amortization expense	$	6	$	12

Goodwill

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

	Instant Products			Lottery Systems (1)			Total
Balance as of December 31, 2020	$	330		$	23		$	353
Acquired goodwill		—			16			16
Foreign currency adjustments		(3	)		(1	)		(4	)
Balance as of September 30, 2021	$	327		$	38		$	365

(1) Accumulated goodwill impairment charges as of September 30, 2021 were $137 million.

(7) Software, net

Software, net consisted of the following:

	As of
	September 30, 2021		December 31, 2020
Software	$	184	$	172
Accumulated amortization		(120)		(109)
Software, net	$	64	$	63

The following reflects amortization of software included within depreciation and amortization:

	Nine Months Ended September 30,
	2021		2020
Amortization expense	$	12	$	10

(8) Equity Investments

Equity investment consisted of the following:

					Equity earnings						Cash distributions and
					(loss) recognized						dividends received
	Equity investment				for the Nine Months Ended						for the Nine Months Ended
	balance as of				September 30,						September 30,
Equity Investment	September 30, 2021		December 31, 2020		2021			2020			2021		2020
LNS	$	194	$	202	$	31		$	5		$	32	$	16
GLB and CSG		25		26		3			2			4		—
Greece		11		16		(3	)		(3	)		—		—
Northstar NJ and NJ Supply Co		27		14		4			(8	)		—		3
Other		1		1		—			(1	)		—		—
Total under equity method	$	258	$	259	$	35		$	(5	)	$	36	$	19

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(9) Leases

Our operating leases primarily consist of real estate leases such as offices, warehouses, and research and development facilities. Our leases have remaining lease terms ranging from 1 year to 10 years, some of which include options to extend the leases for up to 5 years or to terminate the leases within 1 year. Our finance leases are immaterial.

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

	As of
	September 30, 2021			December 31, 2020
Operating lease right-of-use assets(1)	$	31		$	27
Accrued liabilities		8			7
Operating lease liabilities		24			21
Total operating lease liabilities	$	32		$	28
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases for the nine-month periods ended September 30, 2021 and 2020, respectively	$	7		$	7
Weighted average remaining lease term, years		5			5
Weighted average discount rate		5	%		5	%

(1) Operating lease right-of-use assets obtained in exchange for lease obligations were immaterial.

Lease liability maturities:

	Operating Leases
Remainder of 2021	$	2
2022		9
2023		8
2024		6
2025		5
Thereafter		6
Less: imputed interest		(4	)
Total	$	32

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

(10) Parent’s Equity

The following table presents certain information regarding Parent’s equity as of September 30, 2021 and September 30, 2020:

							Accumulated
				Accumulated			Other
	Retained			Net Parent			Comprehensive
	Earnings			Investment			Loss			Total
January 1, 2021	$	—		$	1,037		$	(20	)	$	1,017
Net income		202			—			—			202
Transactions with parent and affiliates, net		(202	)		(4	)		—			(206	)
Other comprehensive loss		—			—			(16	)		(16	)
September 30, 2021	$	—		$	1,033		$	(36	)	$	997

13

							Accumulated
				Accumulated			Other
	Retained			Net Parent			Comprehensive
	Earnings			Investment			Loss			Total
January 1, 2020	$	—		$	1,065		$	(48	)	$	1,017
Net income		131			—			—			131
Transactions with parent and affiliates, net		(131	)		(44	)		—			(175	)
Other comprehensive income		—			—			16			16
September 30, 2020	$	—		$	1,021		$	(32	)	$	989

(11) Income Taxes

We consider new evidence (both positive and negative) at each reporting period that could affect our view of the future realization of deferred tax assets. Based upon the evaluation of all available evidence, we maintain a valuation allowance for certain of our foreign operations as of September 30, 2021.

Our effective income tax rate for the nine months ended September 30, 2021 and 2020 was 24.6% and 28.4%, respectively. The rate was determined using an estimated annual effective tax rate after considering any discrete items for such periods. The tax rates in both periods differ from the U.S. statutory rate primarily due to state income taxes and foreign earnings at rates other than the U.S. statutory rate.

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

(12) Related Party Transactions

Parent Services

Parent services represent allocations of corporate level general and administrative expenses, including but not limited to, finance, corporate development, human resources, legal, information technology, as well as rental fees for shared assets. These expenses have been allocated to the Lottery Business on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenues, operating expenses, headcount or other relevant measures, which we believe to be the most meaningful allocation methodologies.

14

Total parent services expense recorded for the nine months ended September 30, 2021 and 2020 was $25 million and $22 million, respectively, and is included in Selling, general and administrative expenses. These charges are not cash settled but allocated for purposes of these financial statements and as such are accounted for as a component of Parent’s equity.

IP Licensing

The Parent frequently licenses intellectual property (“IP”) from third parties, which is utilized by the Lottery Business in developing the instant games. These IP licenses are generally pushed down to the Lottery Business at the origination of these agreements based upon agreed usage commitment. We account for these minimum guaranteed obligations within accrued and other long-term liabilities at the onset of the license arrangement and record a corresponding license asset within intangible assets, net. The total liability associated with these agreements as of September 30, 2021 and December 31, 2020 was $26 million and $31 million, respectively.

Amortization expense related to these licenses and recorded in depreciation and amortization for the nine months ended September 30, 2021 and 2020 was $4 million and $9 million, respectively.

We market many of our products under trademarks and copyrights that provide product differentiation and recognition and promote our portfolio of product offerings. All of our games feature elements that are subject to copyrights and protection. In addition, we generally obtain trademark protection and often seek to register trademarks for the names and designs under which we market and license our products and games. Protections for trademarks exist in many countries, including the U.S., for as long as the trademark is registered and/or used. Registrations are generally issued for fixed, but renewable terms, although trademark rights may exist whether or not a mark is registered and the duration of the registrations varies by country.

15

EX-99.4

Exhibit 99.4

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

These Unaudited Pro Forma Financial Statements are based on the consolidated financial statements of Brookfield Business Partners L.P. (the “partnership”), Modulaire Investments 2 S.à r.l. (“Modulaire”) and the combined financial statements of the Lottery Business of Scientific Games Corporation (Carve-Out of Certain Operations of Scientific Games Corporation) (“Scientific Games Lottery”) as adjusted to give effect to the probable acquisitions of Modulaire (the “Modulaire acquisition”) and Scientific Games Lottery (the “Scientific Games Lottery acquisition”). These Unaudited Pro Forma Financial Statements have been prepared to illustrate the effects of the following transaction accounting adjustments that are expected to occur upon completion of the Modulaire acquisition and the Scientific Games Lottery acquisition (collectively, the “Transactions”):

• The partnership, together with institutional partners, is expected to acquire a 100% interest in Modulaire for total expected consideration of $5,009 million. Modulaire is a leading provider of modular leasing services in Europe and Asia-Pacific meeting the needs of a diversified customer base across the industrial, infrastructure and public sectors. The partnership is expected to hold a 100% voting interest and a 31% economic interest in Modulaire, with the balance held by institutional partners. It is expected that prior to the completion of the Modulaire acquisition, $2,537 million of debt within Modulaire will be extinguished. The partnership, together with institutional partners, plans to fund a portion of the Modulaire acquisition with approximately $3,085 million of non-recourse borrowings, net of debt issuance costs.

• The partnership, together with institutional partners, is expected to acquire a 100% interest in Scientific Games Lottery for total expected consideration of $5,711 million. Scientific Games Lottery is an essential service provider to government sponsored lottery programs through its capabilities in game design, distribution, systems and terminals, and turnkey technology solutions.The partnership is expected to hold a 100% voting interest and a 30% economic interest in Scientific Games Lottery, with the balance held by institutional partners. The partnership, together with institutional partners, plans to fund a portion of the Scientific Games Lottery acquisition with approximately $3,195 million of non-recourse borrowings, net of debt issuance costs.

The information in the Unaudited Condensed Pro Forma Statements of Operating Results gives effect to the pro forma adjustments as if they had been consummated on January 1, 2020. The information in the Unaudited Condensed Pro Forma Statement of Financial Position gives effect to the pro forma adjustments as if they had been consummated on September 30, 2021. All financial data in the Unaudited Pro Forma Financial Statements is presented in U.S. dollars, unless otherwise noted, and has been prepared using accounting policies that are consistent with IFRS as issued by the IASB.

The Unaudited Pro Forma Financial Statements are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The notes to the Unaudited Pro Forma Financial Statements provide a detailed discussion of how such adjustments were derived and presented in the Unaudited Pro Forma Financial Statements. The Unaudited Pro Forma Financial Statements should be read in conjunction with the audited financial statements of the partnership as at December 31, 2020 and 2019 and for each of the years in the three years ended December 31, 2020, the unaudited interim financial statements of the partnership as at September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020, the audited financial statements of Modulaire as at December 31, 2020 and for the year ended December 31, 2020, the unaudited interim financial statements of Modulaire as at September 30, 2021 and December 31, 2020 and for the nine months ended September 30, 2021 and 2020, the audited combined financial statements of Scientific Games Lottery as at December 31, 2020, 2019 and 2018 and for each of the years in the three years ended December 31, 2020 and the unaudited combined financial statements of Scientific Games Lottery as at September 30, 2021 and December 31, 2020 and for the nine months ended September 30, 2021 and 2020. The Unaudited Pro Forma Financial Statements have been prepared for illustrative purposes only and are not necessarily indicative of our financial position or results of operations had the items for which we are giving pro forma effect occurred on the dates or for the periods indicated, nor is such pro forma financial information necessarily indicative of the results to be expected for any future period. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION

US$ MILLIONS (except as noted) As at September 30, 2021	Brookfield Business Partners L.P.		Modulaire		Scientific Games Lottery		Pro forma combined
			(1)		(2)
Assets
Current Assets
Cash and cash equivalents	$	2,371	$	169	$	30	$	2,570
Financial assets		2,070		—		—		2,070
Accounts and other receivable, net		4,534		362		182		5,078
Inventory, net		3,971		90		79		4,140
Other assets		1,273		59		95		1,427
		14,219		680		386		15,285
Financial assets		6,575		—		—		6,575
Accounts and other receivable, net		699		—		—		699
Other assets		429		17		10		456
Property, plant and equipment		12,901		1,968		244		15,113
Deferred income tax assets		910		5		—		915
Intangible assets		10,859		1,724		3,957		16,540
Equity accounted investments		1,569		—		411		1,980
Goodwill		5,599		1,980		1,329		8,908
	$	53,760	$	6,374	$	6,337	$	66,471
Liabilities and Equity
Current Liabilities
Accounts payable and other	$	11,301	$	607	$	256	$	12,164
Non-recourse borrowings in subsidiaries of the partnership		2,035		—		—		2,035
		13,336		607		256		14,199
Accounts payable and other		7,755		236		101		8,092
Corporate borrowings		751		—		—		751
Non-recourse borrowings in subsidiaries of the partnership		19,303		3,085		3,195		25,583
Deferred income tax liabilities		1,517		530		302		2,349
	$	42,662	$	4,458		3,854		50,974
Equity
Limited partners	$	2,186	$	312	$	393	$	2,891
Non-controlling interests attributable to:
Redemption-Exchange Units, Preferred Shares and Special Limited Partnership Units held by Brookfield Asset Management Inc.		1,972		280		351		2,603
Interest of others in operating subsidiaries		6,940		1,324		1,739		10,003
	$	11,098	$	1,916	$	2,483	$	15,497
	$	53,760	$	6,374	$	6,337	$	66,471

See the accompanying notes to the Unaudited Pro Forma Financial Statements.

UNAUDITED PRO FORMA STATEMENTS OF OPERATING RESULTS

US$ MILLIONS (except as noted) For the nine months ended September 30, 2021	Brookfield Business Partners L.P.			Modulaire			Scientific Games Lottery			Pro forma combined
				(1)			(2)
Revenues	$	33,107		$	1,244			769		$	35,120
Direct operating costs		(30,682	)		(878	)		(543	)		(32,103	)
General and administrative expenses		(751	)		(268	)		(78	)		(1,097	)
Interest income (expense), net		(1,057	)		(142	)		(119	)		(1,318	)
Equity accounted income (loss), net		61			—			35			96
Impairment expense, net		(201	)		—			—			(201	)
Gain (loss) on acquisitions/dispositions, net		1,823			—			—			1,823
Other income (expense), net		(78	)		16			(6	)		(68	)
Income (loss) before income tax		2,222			(28	)		58			2,252
Income tax (expense) recovery
Current		(430	)		(21	)		—			(451	)
Deferred		246			50			(80	)		216
Net income (loss)	$	2,038		$	1			(22	)	$	2,017
Attributable to:
Limited partners	$	277		$	—		$	(4	)	$	273
Non-controlling interests attributable to:
Redemption-Exchange Units held by Brookfield Asset Management Inc.		246			—			(4	)		242
Special Limited Partners		79			—			—			79
Interest of others in operating subsidiaries		1,436			1			(14	)		1,423
	$	2,038		$	1			(22	)	$	2,017
Basic and diluted earnings per LP unit	$	3.53								$	3.47
Weighted-average LP Units (millions)		78.6									78.6

US$ MILLIONS (except as noted) For the year ended December 31, 2020	Brookfield Business Partners L.P.			Modulaire			Scientific Games Lottery			Pro forma combined
				(1)			(2)
Revenues	$	37,635		$	1,386			919		$	39,940
Direct operating costs		(32,465	)		(729	)		(517	)		(33,711	)
General and administrative expenses		(968	)		(303	)		(79	)		(1,350	)
Depreciation and amortization expense		(2,165	)		(313	)		(184	)		(2,662	)
Interest income (expense), net		(1,482	)		(178	)		(158	)		(1,818	)
Equity accounted income (loss), net		57			—			(8	)		49
Impairment expense, net		(263	)		(2	)		—			(265	)
Gain (loss) on acquisitions/dispositions, net		274			—			—			274
Other income (expense), net		111			(6	)		(45	)		60
Income (loss) before income tax		734			(145	)		(72	)		517
Income tax (expense) recovery
Current		(284	)		(24	)		(69	)		(377	)
Deferred		130			66			(17	)		179
Net income (loss)	$	580		$	(103	)		(158	)	$	319
Attributable to:
Limited partners		(91	)		(18	)		(25	)		(134	)
Non-controlling interests attributable to:
Redemption-Exchange Units held by Brookfield Asset Management Inc.		(78	)		(16	)		(22	)		(116	)
Interest of others in operating subsidiaries		749			(69	)		(111	)		569
	$	580		$	(103	)		(158	)	$	319
Basic and diluted earnings per LP Unit	$	(1.13	)							$	(1.67	)
Weighted-average LP Units (millions)		80.2									80.2

See the accompanying notes to the Unaudited Pro Forma Financial Statements

1. Acquisition of Modulaire

The following tables and explanatory notes present the statement of financial position as at September 30, 2021 and the statements of operating results for the nine months ended September 30, 2021 and year ended December 31, 2020 of Modulaire, as adjusted to give effect to the Modulaire acquisition.

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION

								Transaction accounting adjustments
US$ MILLIONS (except as noted) As at September 30, 2021	Modulaire historical (in €)		Modulaire historical (in $)		Reclassification to conform presentation			IFRS 3 adjustments		Notes	Other			Notes	Modulaire pro forma
		(1a)		(1a)		(1a)			(1b)
Assets
Current Assets
Cash and cash equivalents	€	146	$	169	$	—		$	—		$	—			$	169
Trade receivables and contract assets		313		362		(362	)		—			—				—
Financial assets		—		—		227			—			(227	)	(1h)		—
Accounts and other receivable, net		—		—		362			—			—				362
Inventory, net		—		—		90			—			—				90
Inventories		78		90		(90	)		—			—				—
Other assets		—		—		59			—			—				59
Prepaid expenses and other current assets		51		59		(59	)		—			—				—
Other current financial assets		196		227		(227	)		—			—				—
	€	784	$	907	$	—		$	—		$	(227	)		$	680
Accounts and other receivable, net		—		—		—			—			—				—
Other intangible assets		238		276		(276	)		—			—				—
Other assets		—		—		17			—			—				17
Rental equipment		1,293		1,497		(1,497	)		—			—				—
Other property, plant and equipment		203		235		(235	)		—			—				—
Property, plant and equipment		—		—		1,732			236	(1c)		—				1,968
Deferred income tax assets		—		—		5			—			—				5
Deferred tax assets		4		5		(5	)		—			—				—
Intangible assets		—		—		276			1,448	(1c)		—				1,724
Goodwill		508		588		—			1,392	(1b)		—				1,980
Other non-current assets		15		17		(17	)		—			—				—
	€	3,045	$	3,525	$	—		$	3,076		$	(227	)		$	6,374
Liabilities and Equity		(1a)		(1a)		(1a)			(1b)
Current Liabilities
Accounts payable and other	€	—	$	—	$	539		$	68	(1d)(1f)	$	—			$	607
Trade payables and accrued liabilities		311		360		(360	)		—			—				—
Current tax payable		20		23		(23	)		—			—				—
Deferred revenue and customer deposits		88		102		(102	)		—			—				—
Current provisions		12		14		(14	)		—			—				—
Current portion of long-term debt and interest		272		315		(315	)		—			—				—
Non-recourse borrowings in subsidiaries of the partnership		—		—		275			—			(275	)	(1g)		—
	€	703	$	814	$	—		$	68		$	(275	)		$	607
Accounts payable and other		—		—		236			—			—				236
Non-recourse borrowings in subsidiaries of the partnership		—		—		2,262			—			823		(1g)		3,085
Deferred income tax liabilities		92		107		—			423	(1e)		—				530
Long-term debt		2,070		2,397		(2,397	)		—			—				—
Non-current provisions		15		17		(17	)		—			—				—
Other non-current liabilities		73		84		(84	)		—			—				—
	€	2,953	$	3,419	$	—		$	491		$	548			$	4,458
Equity
Limited partners	€	—	$	—	$	13		$	427		$	(128	)		$	312
Non-controlling interests attributable to:
Redemption-Exchange Units, Preferred Shares and Special Limited Partnership Units held by Brookfield Asset Management Inc.		—		—		12			382			(114	)			280
Interest of others in operating subsidiaries		—		—		81			1,776			(533	)			1,324
Equity attributable to the owners of the Company		70		81		(81	)		—			—				—
Non-controlling interests		22		25		(25	)		—			—				—
	€	92	$	106	$	—		$	2,585		$	(775	)		$	1,916
	€	3,045	$	3,525	$	—		$	3,076		$	(227	)		$	6,374

UNAUDITED PRO FORMA STATEMENTS OF OPERATING RESULTS

										Transaction accounting adjustments
US$ MILLIONS (except as noted) For the nine months ended September 30, 2021	Modulaire historical (in €)			Modulaire historical (in $)			Reclassification to conform presentation			IFRS 3 adjustments			Notes	Other		Notes	Modulaire pro forma
	(1a)			(1a)			(1a)			(1b)
Revenues	€	—		$	—		$	1,244		$	—			$	—		$	1,244
Leasing and services		759			908			(908	)		—				—			—
Sales of modular units and buildings		281			336			(336	)		—				—			—
Direct operating costs		—			—			(809	)		(69	)	(1c)		—			(878	)
Costs of sales of goods and providing services		(511	)		(611	)		611			—				—			—
Depreciation of rental equipment		(115	)		(138	)		138			—				—			—
General and administrative expenses		—			—			(268	)		—				—			(268	)
Administrative expenses		(274	)		(328	)		328			—				—			—
Finance expense, net		(151	)		(181	)		181			—				—			—
Interest income (expense), net		—			—			(217	)		—				75	(1g)		(142	)
Currency (losses) / gains, net		(17	)		(20	)		20			—				—			—
Other income (expense), net		—			—			16			—				—			16
Income tax (expense) recovery
Current		—			—			(21	)		—				—			(21	)
Deferred		—			—			13			37		(1e)		—			50
Income tax expense		(7	)		(8	)		8			—				—			—
Net income (loss)	€	(35	)	$	(42	)	$	—		$	(32	)		$	75		$	1
Attributable to:
Owners of the company	€	(36	)	$	(43	)	$	43		$	—			$	—		$	—
Limited partners		—			—			(7	)		(5	)			12			—
Non-controlling interests attributable to:
Redemption-Exchange Units held by Brookfield Asset Management Inc.		—			—			(6	)		(5	)			11			—
Interest of others in operating subsidiaries		—			—			(29	)		(22	)			52			1
Non-controlling interests		1			1			(1	)		—				—			—
	€	(35	)	$	(42	)	$	—		$	(32	)		$	75		$	1

										Transaction accounting adjustments
US$ MILLIONS (except as noted) For the year ended December 31, 2020	Modulaire historical (in €)			Modulaire historical (in $)			Reclassification to conform presentation			IFRS 3 adjustments			Notes		Other		Notes		Modulaire pro forma
		(1a)			(1a)			(1a)			(1b)
Revenues	€	—		$	—		$	1,386		$	—				$	—			$	1,386
Leasing and services		816			932			(932	)		—					—				—
Sales of modular units and buildings		398			454			(454	)		—					—				—
Direct operating costs		—			—			(729	)		—					—				(729	)
Costs of sales of goods and providing services		(638	)		(729	)		729			—					—				—
Depreciation of rental equipment		(136	)		(155	)		155			—					—				—
General and administrative expenses		—			—			(303	)		—					—				(303	)
Administrative expenses		(323	)		(369	)		369			—					—				—
Depreciation and amortization expense		—			—			(221	)		(92	)		(1c)		—				(313	)
Finance expense, net		(219	)		(250	)		250			—					—				—
Interest income (expense), net		—			—			(193	)		—					15		(1g)		(178	)
Net impairment (losses) / gains on financial and contract assets		(2	)		(2	)		2			—					—				—
Impairment expense, net		—			—			(2	)		—					—				(2	)
Currency (losses) / gains, net		70			80			(80	)		—					—				—
Other income (expense), net		—			—			23			(29	)		(1f)		—				(6	)
Income tax (expense) recovery
Current		—			—			(24	)		—					—				(24	)
Deferred		—			—			18			48			(1e)		—				66
Income tax expense		(5	)		(6	)		6			—					—				—
Net income (loss)	€	(39	)	$	(45	)	$	—		$	(73	)			$	15			$	(103	)
Attributable to:
Owners of the company	€	(40	)	$	(46	)	$	46		$	—				$	—			$	—
Limited partners		—			—			(8	)		(12	)				2				(18	)
Non-controlling interests attributable to:
Redemption-Exchange Units held by Brookfield Asset Management Inc.		—			—			(7	)		(11	)				2				(16	)
Interest of others in operating subsidiaries		—			—			(30	)		(50	)				11				(69	)
Non-controlling interests		1			1			(1	)		—					—				—
	€	(39	)	$	(45	)	$	—		$	(73	)			$	15			$	(103	)

See the accompanying notes to the Unaudited Pro Forma Financial Statements

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS

(1a) The historical financial information of Modulaire was prepared in accordance with IFRS as issued by the IASB and presented in euros (€). The partnership has reviewed and determined there are no significant differences in accounting policies applied by Modulaire and the partnership. Certain pro forma adjustments have been made to conform the presentation of the historical financial information of Modulaire to the presentation of financial information in the partnership's financial statements. The historical financial information was translated from euros to U.S. dollars using the following historical exchange rates:

	€ / $
Average exchange rate for the year ended December 31, 2020 (statement of operating results)		1.14
Average exchange rate for the nine months ended September 30, 2021 (statement of operating results)		1.20
Period end exchange rate as at September 30, 2021 (statement of financial position)		1.16

(1b) The Modulaire acquisition will be accounted for using the acquisition method under IFRS 3, Business combinations with the partnership being identified as the accounting acquirer. The following table summarizes, on a preliminary basis, the expected cash consideration transferred, assets acquired and liabilities assumed at the acquisition date:

(US$ MILLIONS)
Cash and cash equivalents	$	169
Accounts and other receivable, net		362
Inventory, net		90
Other assets		76
Property, plant and equipment		1,968
Deferred income tax assets		5
Intangible assets		1,724
Accounts payable and other		(814	)
Deferred income tax liabilities		(530	)
Net identifiable assets acquired	$	3,050
Non-controlling interests		(21	)
Goodwill		1,980
Consideration transferred	$	5,009

The preliminary purchase price allocation used to prepare the transaction accounting adjustments in the Unaudited Pro Forma Statement of Financial Position and the Unaudited Pro Forma Statements of Operating Results is based on various assumptions to determine management’s best estimates of fair value. The partnership does not expect the goodwill to be deductible for tax purposes. The final purchase price allocation will be determined when the partnership has completed the detailed valuations and necessary calculations to the adjustments referred to in the explanatory notes below. The final allocation may include (1) changes in fair values of property, plant & equipment; (2) changes in allocations to intangible assets, such as customer relationships and brand, as well as goodwill; and (3) other changes to assets and liabilities. Accordingly, the unaudited pro forma adjustments are preliminary and have been made solely for illustrative purposes.

(1c) As a part of the Modulaire acquisition, the fair value adjustment applied to property, plant and equipment is expected to result in an increase to carrying value of $236 million, with an average useful life of 7 years. In addition, the fair value adjustment applied to intangible assets is expected to result in an increase to carrying value of $1,448 million, where total intangible assets, after the fair value adjustment is applied, comprises $1,023 million relating to customer relationship intangibles with an average useful life of 13 years, $17 million relating to software with an average useful life of 5 years and $684 million relating to brand intangibles with an indefinite useful life. If the acquisition had occurred on January 1, 2020, depreciation and amortization expense for the nine months ended September 30, 2021 and for the year ended December 31, 2020 would have increased by $69 million and $92 million, respectively.

(1d) Reflects an increase of $39 million to accounts payable and other associated with the estimated fair value of provisions.

(1e) This adjustment reflects the purchase accounting adjustments to the Modulaire historical deferred income tax liabilities of $423 million. The Unaudited Pro Forma Statements of Operating Results have been adjusted to reflect the deferred tax impact of the transaction accounting adjustments based on an effective tax rate of 26%.

(1f) Represents the accrual of $29 million of estimated transaction costs incurred by the partnership subsequent to September 30, 2021. There were no transaction costs included in the historical statement of operating results of the partnership for the nine months ended September 30, 2021. These costs will not affect the partnership’s statement of operating results beyond 12 months after the acquisition date.

(1g) Prior to the closing of the Modulaire acquisition, Modulaire will extinguish $2,537 million of its fixed and variable-rate borrowings (the “Extinguished Modulaire Borrowings”) with a weighted-average interest rate of 6.7%. Prior to closing the Modulaire acquisition, the partnership raised proceeds of $3,162 million of fixed and variable-rate non-recourse borrowings (“New Modulaire Non-Recourse Borrowings”) at a weighted-average cost of borrowing of 5.1% and incurred debt issuance costs of approximately $77 million, which will be used to partially fund the Modulaire acquisition.

The table below presents the net increase to non-recourse borrowings in subsidiaries of the partnership reflects the New Modulaire Non-Recourse Borrowings of $3,162 million incurred to partially fund the Modulaire acquisition, less $77 million of debt issuance costs.

(US$ MILLIONS)
Decrease for Extinguished Borrowings of Modulaire	$	(2,537	)
Increase for issuance of New Modulaire Non-Recourse Borrowings		3,085
Other Transaction accounting adjustment to non-recourse borrowings in subsidiaries of the partnership	$	548

The table below presents the net decrease to borrowing costs presented within interest income (expense), net reflects the interest savings on the Extinguished Borrowings, less the borrowing costs on the New Modulaire Non-Recourse Borrowings and the amortization of related debt issuance costs.

(US$ MILLIONS)	Nine months ended September 30, 2021			Year ended December 31, 2020
Elimination of interest expense and amortization of debt issuance costs – Extinguished Borrowings	$	208		$	185
Interest expense on New Modulaire Non-Recourse Borrowings		(125	)		(159	)
Amortization of debt issuance costs on New Modulaire Non-Recourse Borrowings		(8	)		(11	)
Other transaction accounting adjustments to interest income (expense), net	$	75		$	15

A 1/8 of a percentage point increase or decrease in the benchmark rate would result in a change in interest expense of approximately $2 million for the nine months ended September 30, 2021 and $2 million for the year ended December 31, 2020.

(1h) Prior to the closing of the Modulaire acquisition, it is expected that $227 million of financial assets will be distributed in-kind to the former shareholder of the company. The Unaudited Pro Forma Financial Statement of Financial Position is adjusted to represent the other transaction accounting adjustment as a reduction to equity.

2. Acquisition of Scientific Games Lottery

The following tables and explanatory notes present the statement of financial position as at September 30, 2021 and the statements of operating results for the nine months ended September 30, 2021 and year ended December 31, 2020 of Scientific Games Lottery, as adjusted to give effect to the Scientific Games Lottery acquisition.

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION

						Transaction accounting adjustments
US$ MILLIONS (except as noted) As at September 30, 2021	Scientific Games Lottery historical		Reclassification to conform presentation			IFRS 3 adjustments		Notes	Other			Notes	Scientific Games Lottery pro forma
			(2a)			(2a)
Assets
Current Assets
Cash and cash equivalents	$	30	$	—		$	—		$	—			$	30
Accounts and other receivable, net	—		182			—			—				182
Receivables, net of allowance for credit losses	182		(182		)	—			—				—
Inventory, net	—		79			—			—				79
Inventories	79		(79		)	—			—				—
Restricted cash	2		(2		)	—			—				—
Contract assets	75		(75		)	—			—				—
Prepaid expenses, deposits and other current assets	18		(18		)	—			—				—
Other assets	—		95			—			—				95
	$	386	$	—		$	—		$	—			$	386
Other assets	—		10			—			—				10
Property, plant and equipment	171		31			42		(2b)	—				244
Operating lease right-of-use assets	31		(31		)	—			—				—
Intangible assets	70		64			3,823		(2b)	—				3,957
Software, net	64		(64		)	—			—				—
Equity accounted investments	—		258			153		(2f)	—				411
Equity investments	258		(258		)	—			—				—
Goodwill	365		—			964		(2a)	—				1,329
Other non-current assets	10		(10		)	—			—				—
Total Assets	$	1,355	$	—		$	4,982		$	—			$	6,337
Liabilities and Equity			(2a)			(2a)
Current Liabilities
Accounts payable and other	$	62	$	161		$	33	(2d)	$	—			$	256
Contract liabilities	47		(47		)	—			—				—
Accrued liabilities	114		(114		)	—			—				—
	$	223	$	—		$	33		$	—			$	256
Accounts payable and other	—		101			—			—				101
Non-recourse borrowings in subsidiaries of the partnership	—		—			—			3,195			(2e)	3,195
Deferred income tax liabilities	34		—			268		(2c)	—				302
Operating lease liabilities	24		(24		)	—			—				—
Long-term license liabilities	24		(24		)	—			—				—
Pension liabilities	27		(27		)	—			—				—
Other long-term liabilities	26		(26		)	—			—				—
	$	358	$	—		$	301		$	3,195			$	3,854
Equity
Limited partners	$	—	$	158		$	741		$	(506	)		$	393
Non-controlling interests attributable to:
Redemption-Exchange Units, Preferred Shares and Special Limited Partnership Units held by Brookfield Asset Management Inc.	—		141			663			(453		)		351
Interest of others in operating subsidiaries	—		698			3,277			(2,236		)		1,739
Total Parent’s equity	997		(997		)	—			—				—
	$	997	$	—		$	4,681		$	(3,195	)		$	2,483
	$	1,355	$	—		$	4,982		$	—			$	6,337

UNAUDITED PRO FORMA STATEMENTS OF OPERATING RESULTS

							Transaction accounting adjustments
US$ MILLIONS (except as noted) For the nine months ended September 30, 2021	Scientific Games Lottery historical			Reclassification to conform presentation			IFRS 3 adjustments			Notes	Other			Notes	Scientific Games Lottery pro forma
				(2a)			(2a)
Revenues	$	—		$	769		$	—			$	—			$	769
Instant products		504			(504	)		—				—				—
Lottery systems		265			(265	)		—				—				—
Direct operating costs		—			(452	)		(91	)	(2b)		—				(543	)
Cost of instant products		(239	)		239			—				—				—
Cost of lottery systems		(167	)		167			—				—				—
General and administrative expenses		—			(78	)		—				—				(78	)
Selling, general and administrative		(78	)		78			—				—				—
Research and development		(4	)		4			—				—				—
Restructuring and other		(1	)		1			—				—				—
Depreciation and amortization expense		(42	)		42			—				—				—
Interest income (expense), net		—			—			—				(119	)	(2e)		(119	)
Equity accounted income (loss), net		—			35			—				—				35
Earnings (loss) from equity investments		35			(35	)		—				—				—
Other income (expense), net		(5	)		(1	)		—				—				(6	)
Income tax (expense) recovery
Deferred		—			(66	)		(14	)	(2c)		—				(80	)
Income tax expense		(66	)		66			—				—				—
Net income (loss)	$	202		$	—		$	(105	)		$	(119	)		$	(22	)
Attributable to:
Parent	$	202		$	(202	)	$	—			$	—			$	—
Limited partners		—			32			(17	)			(19	)			(4	)
Non-controlling interests attributable to:
Redemption-Exchange Units held by Brookfield Asset Management Inc.		—			28			(15	)			(17	)			(4	)
Interest of others in operating subsidiaries		—			142			(73	)			(83	)			(14	)
	$	202		$	—		$	(105	)		$	(119	)		$	(22	)

							Transaction accounting adjustments
US$ MILLIONS (except as noted) For the year ended December 31, 2020	Scientific Games Lottery historical			Reclassification to conform presentation			IFRS 3 adjustments			Notes	Other			Notes	Scientific Games Lottery pro forma
				(2a)			(2a)
Revenues	$	—		$	919		$	—			$	—			$	919
Instant products		579			(579	)		—				—				—
Lottery systems		340			(340	)		—				—				—
Direct operating costs		—			(517	)		—				—				(517	)
Cost of instant products		(282	)		282			—				—				—
Cost of lottery systems		(232	)		232			—				—				—
General and administrative expenses		—			(79	)		—				—				(79	)
Selling, general and administrative		(79	)		79			—				—				—
Research and development		(3	)		3			—				—				—
Restructuring and other		(13	)		13			—				—				—
Depreciation and amortization expense		(62	)		—			(122	)	(2b)		—				(184	)
Interest income (expense), net		—			—			—				(158	)	(2e)		(158	)
Equity accounted income (loss), net		—			(8	)		—				—				(8	)
(Loss) earnings from equity investments		(8	)		8			—				—				—
Other income (expense), net		1			(13	)		(33	)	(2d)		—				(45	)
Income tax (expense) recovery
Current		—			(69	)		—				—				(69	)
Deferred		—			1			(18	)	(2c)		—				(17	)
Income tax expense		(68	)		68			—				—				—
Net income (loss)	$	173		$	—		$	(173	)		$	(158	)		$	(158	)
Attributable to:
Parent	$	173		$	(173	)	$	—			$	—			$	—
Limited partners		—			28			(28	)			(25	)			(25	)
Non-controlling interests attributable to:
Redemption-Exchange Units held by Brookfield Asset Management Inc.		—			24			(24	)			(22	)			(22	)
Interest of others in operating subsidiaries		—			121			(121	)			(111	)			(111	)
	$	173		$	—		$	(173	)		$	(158	)		$	(158	)

See the accompanying notes to the Unaudited Pro Forma Financial Statements

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS

(2a) The Scientific Games Lottery acquisition will be accounted for using the acquisition method under IFRS 3, Business combinations with the partnership being identified as the accounting acquirer. The partnership determined there to be no material adjustments to reconcile the combined financial statements of Scientific Games Lottery, prepared under accounting standards generally accepted in the United States (U.S. GAAP), to IFRS as issued by the IASB, with the exception of certain pro forma adjustments that have been made to conform the presentation of the combined financial statements of Scientific Games Lottery prepared under U.S. GAAP to the presentation of financial information in the partnership's financial statements prepared under IFRS. The following table summarizes, on a preliminary basis, the expected cash consideration transferred, assets acquired and liabilities assumed at the acquisition date:

(US$ MILLIONS)
Cash and cash equivalents	$	30
Accounts and other receivable, net		182
Inventory, net		79
Other assets		105
Property, plant and equipment		244
Equity accounted investments		411
Intangible assets		3,957
Accounts payable and other		(324	)
Deferred income tax liabilities		(302	)
Net identifiable assets acquired	$	4,382
Goodwill		1,329
Consideration transferred	$	5,711

The preliminary purchase price allocation used to prepare the transaction accounting adjustments in the Unaudited Pro Forma Statement of Financial Position and the Unaudited Pro Forma Statements of Operating Results is based on various assumptions to determine management’s best estimates of fair value. The partnership expects approximately 75% of goodwill will be deductible for tax purposes. The final purchase price allocation will be determined when the partnership has completed the detailed valuations and necessary calculations to the adjustments referred to in the explanatory notes below. The final allocation may include (1) changes in fair values of property, plant & equipment; (2) changes in allocations to intangible assets, such as customer relationships and brand, as well as goodwill; and (3) other changes to assets and liabilities. Accordingly, the unaudited pro forma adjustments are preliminary and have been made solely for illustrative purposes.

(2b) The fair value adjustment applied to property, plant and equipment is expected to result in an increase to carrying value of $42 million, with an average useful life of 35 years. In addition, the fair value adjustment applied to intangible assets is expected to result in an increase to carrying value of $3,823 million, where total intangible assets, after the fair value adjustment is applied, comprises $2,771 million relating to customer relationship intangibles with an average useful life of 23 years, $1,097 million relating to brand intangibles with an indefinite useful life, and $89 million relating to other intangible assets with an average useful life of 5 years. If the acquisition had occurred on January 1, 2020, depreciation and amortization expense for the nine months ended September 30, 2021 and for the year ended December 31, 2020 would have increased by $91 million and $122 million, respectively.

(2c) This adjustment reflects the purchase accounting adjustments to the Scientific Games historical deferred income tax liabilities of $268 million. The Unaudited Pro Forma Statements of Operating Results have been adjusted to reflect the deferred tax impact of the transaction accounting adjustments based on an effective tax rate of 26%.

(2d) Represents the accrual of $33 million of estimated transaction costs incurred by the partnership subsequent to September 30, 2021. There were no transaction costs included in the historical statement of operating results of the partnership for the nine months ended September 30, 2021. These costs will not affect the partnership’s statement of operating results beyond 12 months after the acquisition date.

(2e) Prior to closing the Scientific Games Lottery acquisition, the partnership expects to raise proceeds of $3,300 million of fixed and variable-rate non-recourse borrowings (“New Scientific Games Lottery Non-Recourse Borrowings”) at a weighted-average cost of borrowing of 4.4% and incur debt issuance costs of approximately $105 million, which will be used to partially fund the Scientific Games Lottery acquisition.

The borrowing costs presented within interest income (expense), net reflects the borrowing costs on the New Scientific Games Lottery Non-Recourse Borrowings and the amortization of related debt issuance costs of $119 million for the nine months ended September 30, 2021 and $158 million for the year ended December 31, 2020. A 1/8 of a percentage point increase or decrease in the benchmark rate would result in a change in interest expense of approximately $2 million for the nine months ended September 30, 2021 and $3 million for the year ended December 31, 2020.

(2f) Reflects an increase of $153 million to equity accounted investments associated with the estimated fair value of investments in associates and joint ventures.