Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

6 Months Ended

Jun. 30, 2011

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

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

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

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

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

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

As of June 30, 2011

	Parent Company		SGI		Guarantor  Subsidiaries		Non-Guarantor  Subsidiaries		Eliminating  Entries			Consolidated
Assets
Cash and cash equivalents	$	30,903	$	137	$	—	$	103,394	$	(7,178	)	$	127,256
Accounts receivable, net	—		51,295		41,924		73,552		—			166,771
Inventories	—		26,375		14,388		28,466		—			69,229
Other current assets	14,382		3,337		6,466		28,438		—			52,623
Property and equipment, net	2,617		167,434		37,003		229,630		—			436,684
Investment in subsidiaries	606,561		706,241		—		856,910		(2,169,712		)	—
Goodwill	—		273,656		78,618		428,653		—			780,927
Intangible assets	—		41,655		28,838		8,166		—			78,659
Intercompany balances	136,895		—		202,139		—		(339,034		)	—
Other assets	17,836		77,161		10,892		402,754		(6,101		)	502,542
Total assets	$	809,194	$	1,347,291	$	420,268	$	2,159,963	$	(2,522,025	)	$	2,214,691
Liabilities and stockholders’ equity
Current installments of long-term debt	$	—	$	6,280	$	—	$	3,199	$	—		$	9,479
Other current liabilities	39,800		46,479		29,428		81,604		(7,179		)	190,132
Long-term debt, excluding current installments	250,000		1,105,494		—		25,841		—			1,381,335
Other non-current liabilities	10,369		40,287		15,751		58,313		—			124,720
Intercompany balances	—		37,668		—		301,367		(339,035		)	—
Stockholders’ equity	509,025		111,083		375,089		1,689,639		(2,175,811		)	509,025
Total liabilities and stockholders’ equity	$	809,194	$	1,347,291	$	420,268	$	2,159,963	$	(2,522,025	)	$	2,214,691

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2010

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

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended June 30, 2011

	Parent  Company			SGI			Guarantor  Subsidiaries			Non-Guarantor  Subsidiaries			Eliminating  Entries			Consolidated
Revenue	$	—		$	99,042		$	16,278		$	105,357		$	(429	)	$	220,248
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			29,506			36,854			53,988			(1,394		)	118,954
Selling, general and administrative expenses	14,891			12,199			2,517			15,247			(1,428		)	43,426
Depreciation and amortization	128			7,548			4,664			16,664			—			29,004
Operating income (loss)	(15,019		)	49,789			(27,757		)	19,458			2,393			28,864
Interest expense	5,357			20,624			—			427			1			26,409
Other (income) expense	(998		)	48,420			(50,615		)	(9,299		)	2,392			(10,100		)
Income (loss) before equity in income of subsidiaries, and income taxes	(19,378		)	(19,255		)	22,858			28,330			—			12,555
Equity in income (loss) of subsidiaries	30,019			22,752			—			—			(52,771		)	—
Income tax expense	3,622			(4		)	8			1,910			—			5,536
Net income	$	7,019		$	3,501		$	22,850		$	26,420		$	(52,771	)	$	7,019

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended June 30, 2010

	Parent  Company			SGI			Guarantor  Subsidiaries			Non-Guarantor  Subsidiaries			Eliminating  Entries			Consolidated
Revenue	$	—		$	99,750		$	10,919		$	122,733		$	(369	)	$	233,033
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			31,160			34,800			67,414			(376		)	132,998
Selling, general and administrative expenses	11,917			15,352			2,078			11,196			9			40,552
Write-down of assets held for sale	—			—						5,874			—			5,874
Depreciation and amortization	124			8,270			4,573			14,111			—			27,078
Operating income (loss)	(12,041		)	44,968			(30,532		)	24,138			(2		)	26,531
Interest expense	3,270			20,449			—			1,126			—			24,845
Other (income) expense	9,700			41,269			(54,020		)	(3,994		)	(2		)	(7,047		)
Income (loss) before equity in income of subsidiaries, and income taxes	(25,011		)	(16,750		)	23,488			27,006			—			8,733
Equity in income (loss) of subsidiaries	30,662			19,835			—			—			(50,497		)	—
Income tax expense	9,994			21			10			3,051			—			13,076
Net income	$	(4,343	)	$	3,064		$	23,478		$	23,955		$	(50,497	)	$	(4,343	)

(1) Exclusive of depreciation and amortization.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Six Months Ended June 30, 2011

	Parent  Company			SGI			Guarantor  Subsidiaries			Non-Guarantor Subsidiaries			Eliminating  Entries			Consolidated
Revenue	$	—		$	197,099		$	25,798		$	194,730		$	(723	)	$	416,904
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			61,799			69,025			101,657			(1,682		)	230,799
Selling, general and administrative expenses	30,456			24,655			5,153			24,502			(1,786		)	82,980
Depreciation and amortization	256			15,112			9,610			34,930			—			59,908
Operating income (loss)	(30,712		)	95,533			(57,990		)	33,641			2,745			43,217
Interest expense	10,747			41,282			—			834			1			52,864
Other (income) expense	(2,219		)	89,195			(93,255		)	(16,909		)	2,744			(20,444		)
Income (loss) before equity in income of subsidiaries, and income taxes	(39,240		)	(34,944		)	35,265			49,716			—			10,797
Equity in income (loss) of subsidiaries	46,705			36,179			—			—			(82,884		)	—
Income tax expense	7,378			(295		)	8			3,619			—			10,710
Net income	$	87		$	1,530		$	35,257		$	46,097		$	(82,884	)	$	87

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

Six Months Ended June 30, 2010

	Parent  Company			SGI			Guarantor  Subsidiaries			Non-Guarantor  Subsidiaries			Eliminating  Entries			Consolidated
Revenue	$	—		$	193,048		$	19,800		$	237,334		$	(810	)	$	449,372
Cost of instant ticket revenue, cost of services and cost of sales (1)	—			60,199			68,079			134,163			(818		)	261,623
Selling, general and administrative expenses	23,574			28,126			4,010			23,366			32			79,108
Write-down of assets held for sale	—			—			—			5,874			—			5,874
Depreciation and amortization	247			16,647			9,147			28,692			—			54,733
Operating income (loss)	(23,821		)	88,076			(61,436		)	45,239			(24		)	48,034
Interest expense	6,587			40,609			—			2,363			—			49,559
Other (income) expense	15,676			78,681			(105,993		)	(5,217		)	(24		)	(16,877		)
Income (loss) before equity in income of subsidiaries, and income taxes	(46,084		)	(31,214		)	44,557			48,093			—			15,352
Equity in income (loss) of subsidiaries	56,912			42,286			—			—			(99,198		)	—
Income tax expense	10,284			21			10			4,493			—			14,808
Net income	$	544		$	11,051		$	44,547		$	43,600		$	(99,198	)	$	544

(1) Exclusive of depreciation and amortization.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2011

	Parent  Company			SGI			Guarantor  Subsidiaries			Non- Guarantor  Subsidiaries			Eliminating  Entries			Consolidated
Net cash provided by operating activities	$	(13,976	)	$	28,257		$	24,844		$	58,466		$	(8	)	$	97,583
Cash flows from investing activities:
Capital and lottery and gaming systems expenditures	(1,037		)	(20,932		)	(6,524		)	(15,683		)	—			(44,176		)
Business acquisitions, net of cash acquired	—			—			—			—			—			—
Other assets and investments	(352		)	(9,858		)	(730		)	(502,429		)	470,247			(43,122		)
Net cash provided by (used in) investing activities	(1,389		)	(30,790		)	(7,254		)	(518,112		)	470,247			(87,298		)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	—			(3,140		)	—			(1,521		)	—			(4,661		)
Net proceeds from issuance of stock	(1,353		)	—			11			470,236			(470,247		)	(1,353		)
Purchase of treasury stock	—			—			—			—			—			—
Payment of financing fees	(8		)	(2,615		)	—			—			—			(2,623		)
Other, principally intercompany balances	(14,290		)	7,364			(23,501		)	30,419			8			—
Net cash provided by (used in) financing activities	(15,651		)	1,609			(23,490		)	499,134			(470,239		)	(8,637		)
Effect of exchange rate changes on cash	(720		)	911			—			1,136			—			1,327
Increase (decrease) in cash and cash equivalents	(31,736		)	(13		)	(5,900		)	40,624			—			2,975
Cash and cash equivalents, beginning of period	62,639			150			2,279			59,213			—			124,281
Cash and cash equivalents of held for sale operations	—			—			—			—			—			—
Cash and cash equivalents, end of period	$	30,903		$	137		$	(3,621	)	$	99,837		$	—		$	127,256

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2010

	Parent  Company			SGI			Guarantor  Subsidiaries			Non- Guarantor  Subsidiaries			Eliminating  Entries			Consolidated
Net cash provided by operating activities	$	(17,324	)	$	13,701		$	34,666		$	72,149		$	(56	)	$	103,136
Cash flows from investing activities:
Capital and lottery and gaming systems expenditures	(43		)	(17,201		)	(2,278		)	(15,309		)	—			(34,831		)
Business acquisitions, net of cash acquired	—			—			—			(5,906		)	—			(5,906		)
Other assets and investments	(130,986		)	(127,735		)	(5,213		)	(194,538		)	312,886			(145,586		)
Net cash provided by (used in) investing activities	(131,029		)	(144,936		)	(7,491		)	(215,753		)	312,886			(186,323		)
Cash flows from financing activities:
Net proceeds (payments) on long-term debt	(9,943		)	74,275			—			(50,298		)	—			14,034
Net proceeds from issuance of stock	(395		)	131,002			14			181,877			(312,892		)	(394		)
Purchase of treasury stock	(18,227		)	—			—			—			—			(18,227		)
Payment of financing fees	—			(6,778		)	—			—			—			(6,778		)
Other, principally intercompany balances	127,795			(65,807		)	(34,131		)	(28,086		)	229			—
Net cash provided by (used in) financing activities	99,230			132,692			(34,117		)	103,493			(312,663		)	(11,365		)
Effect of exchange rate changes on cash	—			(971		)	—			(13,615		)	(167		)	(14,753		)
Increase (decrease) in cash and cash equivalents	(49,123		)	486			(6,942		)	(53,726		)	—			(109,305		)
Cash and cash equivalents, beginning of period	147,220			137			(279		)	113,053			—			260,131
Cash and cash equivalents of held for sale operations	—			—			617			10			—			627
Cash and cash equivalents, end of period	$	98,097		$	623		$	(6,604	)	$	59,337		$	—		$	151,453