Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

12 Months Ended

Dec. 31, 2011

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

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

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

        Presented below is condensed consolidating financial information for (i) the Parent Company, (ii) SGI, (iii) the 100%-owned Guarantor Subsidiaries other than SGI and (iv) the 100%-owned international subsidiaries and the non-100%-owned domestic and international subsidiaries (the "Non-Guarantor Subsidiaries") as of December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011, 2010 and 2009. The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, SGI, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries assuming the guarantee structures of the Credit Agreement, the 2019 Notes, the 2018 Notes, the 2016 Notes, the Convertible Debentures and the 2012 Notes were in effect at the beginning of the periods presented. The condensed consolidating financial information has also been recast for all periods presented to reflect entities included in the sale of the Racing Business as non-guarantors.

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

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2011
(in thousands)

	Parent Company		SGI		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Cash and cash equivalents	$	24,042	$	56	$	—	$	81,482	$	(1,178	)	$	104,402
Accounts receivable, net		—		53,531		41,238		87,698		—			182,467
Inventories		—		23,714		16,884		41,113		—			81,711
Other current assets		8,699		3,409		5,117		23,277		—			40,502
Property and equipment, net		3,522		166,637		36,028		220,301		—			426,488
Investment in subsidiaries		551,256		721,909		—		909,379		(2,182,544	)		—
Goodwill, net		—		273,656		78,618		414,075		—			766,349
Intangible assets, net		—		41,520		25,849		19,490		—			86,859
Intercompany balances		125,440		—		231,357		—		(356,797	)		—
Other assets		17,002		82,748		12,265		367,209		(6,101	)		473,123
Total assets	$	729,961	$	1,367,180	$	447,356	$	2,164,024	$	(2,546,620	)	$	2,161,901
Liabilities and stockholders' equity
Debt payments due within one year	$	—	$	6,280	$	—	$	19,911	$	—		$	26,191
Other current liabilities		31,231		56,050		30,140		94,682		(1,211	)		210,892
Long-term debt, excluding current installments		250,000		1,104,884		—		9,592		—			1,364,476
Other non-current liabilities		5,016		38,772		13,427		59,413		—			116,628
Intercompany balances		—		71,603		—		285,162		(356,765	)		—
Stockholders' equity		443,714		89,591		403,789		1,695,264		(2,188,644	)		443,714
Total liabilities and stockholders' equity	$	729,961	$	1,367,180	$	447,356	$	2,164,024	$	(2,546,620	)	$	2,161,901

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2010
(in thousands)

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

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 2011
(in thousands)

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	395,007		$	59,426		$	425,729		$	(1,440	)	$	878,722
Cost of instant ticket revenue, cost of services and cost of sales (1)		—			130,166			140,230			225,400			(4,517	)		491,279
Selling, general and administrative expenses		61,537			52,655			10,235			58,623			(28	)		183,022
Employee termination and restructuring costs		—			—			—			1,997			—			1,997
Depreciation and amortization		531			29,854			19,000			69,218			—			118,603
Operating (loss) income		(62,068	)		182,332			(110,039	)		70,491			3,105			83,821
Interest expense		21,487			81,536			—			1,680			—			104,703
Other (income) expense		(17,200	)		184,604			(173,990	)		(20,814	)		3,105			(24,295	)
Net (loss) income before equity in income of subsidiaries, and income taxes		(66,355	)		(83,808	)		63,951			89,625			—			3,413
Equity in income (loss) of subsidiaries		55,352			64,691			—			—			(120,043	)		—
Income tax expense		1,567			(522	)		11			14,927			—			15,983
Net (loss) income	$	(12,570	)	$	(18,595	)	$	63,940		$	74,698		$	(120,043	)	$	(12,570	)

(1)

Exclusive of depreciation and amortization.

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 2010
(in thousands)

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	378,523		$	52,344		$	453,118		$	(1,486	)	$	882,499
Cost of instant ticket revenue, cost of services and cost of sales (1)		—			120,771			140,467			255,254			(1,626	)		514,866
Selling, general and administrative expenses		46,922			53,711			10,831			46,860			176			158,500
Write-down of assets held for sale		—			—			—			8,029			—			8,029
Employee termination and restructuring costs		—			—			—			602			—			602
Depreciation and amortization		501			53,696			18,337			69,232			—			141,766
Operating (loss) income		(47,423	)		150,345			(117,291	)		73,141			(36	)		58,736
Interest expense		16,817			82,005			—			2,791			—			101,613
Other (income) expense		12,198			164,573			(202,489	)		(11,810	)		(36	)		(37,564	)
Net (loss) income before equity in income of subsidiaries, and income taxes		(76,438	)		(96,233	)		85,198			82,160			—			(5,313	)
Equity in income (loss) of subsidiaries		19,167			81,454			—			—			(100,621	)		—
Income tax expense		91,930			15,849			12			36,097			—			143,888
Net (loss) income	$	(149,201	)	$	(30,628	)	$	85,186		$	46,063		$	(100,621	)	$	(149,201	)

(1)

Exclusive of depreciation and amortization.

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 2009
(in thousands)

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	392,463		$	47,987		$	491,066		$	(3,767	)	$	927,749
Cost of instant ticket revenue, cost of services and cost of sales (1)		—			121,274			151,888			280,103			(3,797	)		549,468
Selling, general and administrative expenses		63,330			49,143			7,356			48,381			38			168,248
Write-down of assets held for sale		—			—			—			54,356			—			54,356
Employee termination and restructuring costs		1,346			1,546			—			1,028			—			3,920
Depreciation and amortization		676			60,669			18,153			72,286			—			151,784
Operating (loss) income		(65,352	)		159,831			(129,410	)		34,912			(8	)		(27	)
Interest expense		24,144			58,429			2			4,923			—			87,498
Other (income) expense		(50,665	)		149,734			(198,513	)		38,259			(8	)		(61,193	)
Net (loss) income before equity in income of subsidiaries, and income taxes		(38,831	)		(48,332	)		69,101			(8,270	)		—			(26,332	)
Equity in (loss) income of subsidiaries		(795	)		1,654			—			—			(859	)		—
Income tax expense		253			167			126			13,001			—			13,547
Net (loss) income	$	(39,879	)	$	(46,845	)	$	68,975		$	(21,271	)	$	(859	)	$	(39,879	)

(1)

Exclusive of depreciation and amortization.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2011
(in thousands)

	Parent Company			SGI			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net (loss) income	$	(12,570	)	$	(18,595	)	$	63,940		$	74,698		$	(120,043	)	$	(12,570	)
Depreciation and amortization		531			29,854			19,000			69,218			—			118,603
Change in deferred income taxes		3,960			4,301			(9,320	)		978			—			(81	)
Equity in income of subsidiaries		(55,351	)		(64,692	)		—			—			120,043			—
Non-cash interest expense		720			7,387			—			—			—			8,107
Undistributed earnings from equity investments		—			22,918			1,581			(21,828	)		3,105			5,776
Stock-based compensation		21,538			—			—			—			—			21,538
Early extinguishment of debt		—			4,185			—			—			—			4,185
Changes in working capital and other		10,125			27,240			(7,895	)		(785	)		(3,165	)		25,520
Net cash provided by (used in) operating activities		(31,047	)		12,598			67,306			122,281			(60	)		171,078
Cash flows from investing activities:
Capital and wagering systems expenditures		(2,110	)		(37,044	)		(13,660	)		(39,070	)		—			(91,884	)
Investments in subsidiaries		—			13,552			—			(473,220	)		459,668			—
Equity method investments		—			(11,092	)		(1,072	)		(7,229	)		—			(19,393	)
Proceeds from sale of Racing Business		—			—			—			—			—			—
Business acquisitions, net of cash acquired		—			—			—			(52,953	)		—			(52,953	)
Other assets and investments		2,683			(75	)		217			266			—			3,091
Net cash provided by (used in) investing activities		573			(34,659	)		(14,515	)		(572,206	)		459,668			(161,139	)
Cash flows from financing activities:
Net proceeds/payments on long-term debt		—			(6,280	)		—			(1,526	)		—			(7,806	)
Excess tax benefit from equity-based compensation plans		—			—			—			139			—			139
Payments of financing fees		(122	)		(14,498	)		—			—			—			(14,620	)
Net proceeds from stock issue		(2,354	)		—			28			459,393			(459,421	)		(2,354	)
Purchase of teasury stock		—			—			—			—			—			—
Other, principally intercompany balances		(4,925	)		44,298			(52,719	)		13,147			199			—
Net cash provided by (used in) financing activities		(7,401	)		23,520			(52,691	)		471,153			(459,222	)		(24,641	)
Effect of exchange rate changes on cash		(721	)		(1,555	)		—			(2,515	)		(386	)		(5,177	)
Increase (decrease) in cash and cash equivalents		(38,596	)		(95	)		100			18,712			—			(19,879	)
Cash and cash equivalents, beginning of period		62,637			152			2,278			59,214			—			124,281
Cash and cash equivalents, end of year	$	24,041		$	57		$	2,378		$	77,926		$	—		$	104,402

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2010
(in thousands)

	Parent Company			SGI			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net (loss) income	$	(149,201	)	$	(30,628	)	$	85,186		$	46,063		$	(100,621	)	$	(149,201	)
Depreciation and amortization		501			53,696			18,337			69,232			—			141,766
Change in deferred income taxes		58,650			17,963			(730	)		48,260			—			124,143
Equity in income of subsidiaries		(19,167	)		(81,454	)		—			—			100,621			—
Non-cash interest expense		886			6,277			—			—			—			7,163
Undistributed earnings from equity investments		—			(7,576	)		(764	)		(6,339	)		—			(14,679	)
Stock-based compensation		22,807			—			—			—			—			22,807
Early extinguishment of debt		2,260			672			—			—			—			2,932
Restructuring and write-down of assets		3,532			985			—			5,922			(2,049	)		8,390
Changes in working capital and other		6,223			22,256			(2,783	)		1,527			29			27,252
Net cash provided by (used in) operating activities		(73,509	)		(17,809	)		99,246			164,665			(2,020	)		170,573
Cash flows from investing activities:
Capital and wagering systems expenditures		(101	)		(25,325	)		(4,357	)		(42,495	)		—			(72,278	)
Investments in subsidiaries		(57,163	)		(59,609	)		—			(160,938	)		277,710			—
Equity method investments		—			(3,817	)		(343	)		(199,635	)		—			(203,795	)
Proceeds from sale of Racing Business		35,942			—			—			—			—			35,942
Business acquisitions, net of cash acquired		—			—			(6,556	)		(5,937	)		—			(12,493	)
Other assets and investments		28,936			(14,813	)		(13,338	)		(35,741	)		(5	)		(34,961	)
Net cash provided by (used in) investing activities		7,614			(103,564	)		(24,594	)		(444,746	)		277,705			(287,585	)
Cash flows from financing activities:
Net proceeds/payments on long-term debt		52,982			31,135			—			(52,429	)		—			31,688
Excess tax benefit from equity-based compensation plans		435			—			—			67			—			502
Payments of financing fees		(6,686	)		(6,969	)		—			—			—			(13,655	)
Net proceeds from stock issue		(1,995	)		103,940			4,879			166,844			(275,663	)		(1,995	)
Purchase of teasury stock		(26,335	)		—			—			—			—			(26,335	)
Other, principally intercompany balances		(40,019	)		(6,465	)		(80,531	)		126,860			155			—
Net cash provided by (used in) financing activities		(21,618	)		121,641			(75,652	)		241,342			(275,508	)		(9,795	)
Effect of exchange rate changes on cash		2,930			(253	)		—			(11,543	)		(177	)		(9,043	)
Increase (decrease) in cash and cash equivalents		(84,583	)		15			(1,000	)		(50,282	)		—			(135,850	)
Cash and cash equivalents, beginning of period		147,220			137			3,278			109,496			—			260,131
Cash and cash equivalents, end of year	$	62,637		$	152		$	2,278		$	59,214		$	—		$	124,281

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2009
(in thousands)

	Parent Company			SGI			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net (loss) income	$	(39,879	)	$	(46,845	)	$	68,975		$	(21,271	)	$	(859	)	$	(39,879	)
Depreciation and amortization		676			60,669			18,153			72,286			—			151,784
Change in deferred income taxes		21,324			3,645			(9,320	)		(453	)		—			15,196
Equity in income of subsidiaries		795			(1,654	)		—			—			859			—
Non-cash interest expense		10,200			3,835			—			—			—			14,035
Gain or loss from asset disposal		—			—			—			175			—			175
Undistributed earnings from equity investments		—			(21,712	)		—			(5,588	)		—			(27,300	)
Stock-based compensation		34,589			—			—			—			—			34,589
Early extinguishment of debt		(4,829	)		—			—			—			—			(4,829	)
Restructuring and write-down of assets		—			—			—			54,075			—			54,075
Changes in working capital and other		(1,901	)		10,145			(3,359	)		17,367			(21	)		22,231
Net cash provided by (used in) operating activities		20,975			8,083			74,449			116,591			(21	)		220,077
Cash flows from investing activities:
Capital and wagering systems expenditures		(18	)		(25,452	)		(5,609	)		(46,463	)		—			(77,542	)
Investments in subsidiaries		(407	)		(137,066	)		—			(245,101	)		382,574			—
Business acquisitions, net of cash acquired		—			—			(96	)		(86,464	)		—			(86,560	)
Other assets and investments		10,375			(8,645	)		(7,431	)		(18,399	)		—			(24,100	)
Net cash used in investing activities		9,950			(171,163	)		(13,136	)		(396,427	)		382,574			(188,202	)
Cash flows from financing activities:
Net proceeds/payments on long-term debt		(267,598	)		339,227			—			41,028			—			112,657
Excess tax benefit from equity-based compensation plans		(1,305	)		—			—			69			—			(1,236	)
Payments of financing fees		(926	)		(14,721	)		—			—			—			(15,647	)
Net proceeds from stock issue		1,912			(3,075	)		35,873			349,777			(382,575	)		1,912
Purchase of teasury stock		(5,539	)		—			—			—			—			(5,539	)
Other, principally intercompany balances		326,803			(158,418	)		(94,879	)		(74,458	)		952			—
Net cash provided by (used in) financing activities		53,347			163,013			(59,006	)		316,416			(381,623	)		92,147
Effect of exchange rate changes on cash		—			—			—			1,362			(930	)		432
Increase (decrease) in cash and cash equivalents		84,272			(67	)		2,307			37,942			—			124,454
Cash and cash equivalents, beginning of period		62,949			204			(2,587	)		80,073			—			140,639
Cash and cash equivalents of held for sale operations at Decemer 31, 2009		—			—			—			(4,962	)		—			(4,962	)
Cash and cash equivalents, end of year	$	147,221		$	137		$	(280	)	$	113,053		$	—		$	260,131