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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-11693
SCIENTIFIC GAMES CORPORATION
(Exact name of registrant as specified in its charter)

Nevada |  | 81-0422894
(State or other jurisdiction of |  | (I.R.S. Employer Identification No.)
incorporation or organization) |  |

6601 Bermuda Road, Las Vegas, Nevada 89119
(Address of principal executive offices)
(Zip Code)
(702) 897-7150
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, $.001 par value | SGMS | The NASDAQ Stock Market
Preferred Stock Purchase Rights |  | The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐
Non-accelerated filer | ☐ | Smaller reporting company | ☐
Emerging growth company | ☐ |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
The registrant has the following number of shares outstanding of each of the registrant’s classes of common stock as of May 4, 2021:
Common Stock: 96,078,321

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL AND OTHER INFORMATION
THREE MONTHS ENDED MARCH 31, 2021

|  | Page
PART I. | FINANCIAL INFORMATION |
Item 1. | Condensed Consolidated Financial Statements (unaudited) | 6
| Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 | 6
| Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020 | 7
| Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 | 8
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 | 9
| Notes to Condensed Consolidated Financial Statements | 10
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 36
Item 4. | Controls and Procedures | 37
PART II. | OTHER INFORMATION |
Item 1. | Legal Proceedings | 37
Item 1A. | Risk Factors | 37
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 38
Item 3. | Defaults Upon Senior Securities | 38
Item 4. | Mine Safety Disclosures | 38
Item 5. | Other Information | 38
Item 6. | Exhibits | 39

2

Glossary of Terms |  |
The following terms or acronyms used in this Quarterly Report on Form 10-Q are defined below:
Term or Acronym |  | Definition
2020 10-K |  | 2020 Annual Report on Form 10-K filed with the SEC on March 1, 2021
2025 Secured Notes |  | 5.000% senior secured notes due 2025 issued by SGI
2026 Secured Euro Notes |  | 3.375% senior secured notes due 2026 issued by SGI
2026 Unsecured Euro Notes |  | 5.500% senior unsecured notes due 2026 issued by SGI
2025 Unsecured Notes |  | 8.625% senior unsecured notes due 2025 issued by SGI
2026 Unsecured Notes |  | 8.250% senior unsecured notes due 2026 issued by SGI
2028 Unsecured Notes |  | 7.000% senior unsecured notes due 2028 issued by SGI
2029 Unsecured Notes |  | 7.250% senior unsecured notes due 2029 issued by SGI
AEBITDA |  | Adjusted EBITDA, our performance measure of profit or loss for our business segments
ASC |  | Accounting Standards Codification
ASU |  | Accounting Standards Update
COVID-19 |  | Coronavirus disease first identified in 2019 (declared a pandemic by the World Health Organization on March 11, 2020)
D&A |  | depreciation, amortization and impairments (excluding goodwill)
Exchange Act |  | Securities Exchange Act of 1934, as amended
FASB |  | Financial Accounting Standards Board
KPIs |  | Key Performance Indicators
LBO |  | licensed betting office
LIBOR |  | London Interbank Offered Rate
Note |  | a note in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, unless otherwise indicated
POS |  | percentage of retail sales
Participation |  | with respect to our Gaming business, refers to gaming machines provided to customers through service or leasing arrangements in which we earn revenues and are paid based on: (1) a percentage of the amount wagered less payouts; (2) fixed daily-fees; (3) a percentage of the amount wagered; or (4) a combination of (2) and (3), and with respect to our Lottery business, refers to a contract or arrangement in which we earn revenues and are paid based on a percentage of retail sales
R&D |  | research and development
RMG |  | real-money gaming
RSU |  | restricted stock unit
SEC |  | Securities and Exchange Commission
Secured Notes |  | refers to the 2025 Secured Notes and 2026 Secured Euro Notes, collectively
Senior Notes |  | the Secured Notes and the Unsecured Notes
SciPlay Revolver |  | $150 million revolving credit facility agreement entered into by SciPlay Holding Company, LLC, a subsidiary of SciPlay Corporation, that matures in May 2024
SG&A |  | selling, general and administrative
SGC |  | Scientific Games Corporation
SGI |  | Scientific Games International, Inc., a wholly-owned subsidiary of SGC
Shufflers |  | various models of automatic card shufflers, deck checkers and roulette chip sorters
Unsecured Notes |  | refers to the 2026 Unsecured Euro Notes, 2026 Unsecured Notes, 2028 Unsecured Notes and 2029 Unsecured Notes, collectively
U.S. GAAP |  | accounting principles generally accepted in the U.S.
U.S. jurisdictions |  | the 50 states in the U.S. plus the District of Columbia, U.S. Virgin Islands and Puerto Rico
VGT |  | video gaming terminal
VLT |  | video lottery terminal

Intellectual Property Rights
All ® notices signify marks registered in the United States. © 2021 Scientific Games Corporation. All Rights Reserved.
3

FORWARD-LOOKING STATEMENTS
Throughout this Quarterly Report on Form 10-Q, we make “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “target,” “should,” “could,” “potential,” “opportunity,” “goal,” or similar terminology. The forward-looking statements contained in this Quarterly Report on Form 10-Q are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:
•the impact of the COVID-19 pandemic and any resulting unfavorable social, political, economic and financial conditions, including the temporary and potentially recurring closure of casinos and lottery operations on a jurisdiction-by-jurisdiction basis;
•slow growth of new gaming jurisdictions, slow addition of casinos in existing jurisdictions and declines in the replacement cycle of gaming machines;
•risks relating to foreign operations, including anti-corruption laws, fluctuations in currency rates, restrictions on the payment of dividends from earnings, restrictions on the import of products and financial instability, including the potential impact to our business resulting from the continuing uncertainty following the U.K.’s withdrawal from the European Union;
•difficulty predicting what impact, if any, new tariffs imposed by and other trade actions taken by the U.S. and foreign jurisdictions could have on our business;
•U.S. and international economic and industry conditions;
•level of our indebtedness, higher interest rates, availability or adequacy of cash flows and liquidity to satisfy indebtedness, other obligations or future cash needs;
•the discontinuation or replacement of LIBOR, which may adversely affect interest rates;
•inability to reduce or refinance our indebtedness;
•restrictions and covenants in debt agreements, including those that could result in acceleration of the maturity of our indebtedness;
•competition;
•inability to win, retain or renew, or unfavorable revisions of, existing contracts, and the inability to enter into new contracts;
•the impact of U.K. legislation approving the reduction of fixed-odds betting terminals maximum stakes limit on LBO operators, including the related closure of certain LBO shops;
•inability to adapt to, and offer products that keep pace with, evolving technology, including any failure of our investment of significant resources in our R&D efforts;
•changes in demand for our products and services;
•inability to benefit from, and risks associated with, strategic equity investments and relationships;
•inability to achieve some or all of the anticipated benefits of SciPlay being a standalone public company;
•dependence on suppliers and manufacturers;
•SciPlay’s dependence on certain key providers;
•ownership changes and consolidation in the gaming industry;
•fluctuations in our results due to seasonality and other factors;
•security and integrity of our products and systems, including the impact of any security breaches or cyber-attacks;
•protection of our intellectual property, inability to license third-party intellectual property and the intellectual property rights of others;
•reliance on or failures in information technology and other systems;
•litigation and other liabilities relating to our business, including litigation and liabilities relating to our contracts and licenses, our products and systems, our employees (including labor disputes), intellectual property, environmental laws and our strategic relationships;
•reliance on technological blocking systems;
•challenges or disruptions relating to the completion of the domestic migration to our enterprise resource planning system;
4

•laws and government regulations, both foreign and domestic, including those relating to gaming, data privacy and security, including with respect to the collection, storage, use, transmission and protection of personal information and other consumer data, and environmental laws, and those laws and regulations that affect companies conducting business on the internet, including online gambling;
•legislative interpretation and enforcement, regulatory perception and regulatory risks with respect to gaming, especially internet wagering, social gaming and sports wagering;
•changes in tax laws or tax rulings, or the examination of our tax positions;
•opposition to legalized gaming or the expansion thereof and potential restrictions on internet wagering;
•significant opposition in some jurisdictions to interactive social gaming, including social casino gaming and how such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming or social casino gaming specifically, and how this could result in a prohibition on interactive social gaming or social casino gaming altogether, restrict our ability to advertise our games, or substantially increase our costs to comply with these regulations;
•expectations of shift to regulated online gaming or sports wagering;
•inability to develop successful products and services and capitalize on trends and changes in our industries, including the expansion of internet and other forms of interactive gaming;
•the continuing evolution of the scope of data privacy and security regulations, and our belief that the adoption of increasingly restrictive regulations in this area is likely within the U.S. and other jurisdictions;
•incurrence of restructuring costs;
•goodwill impairment charges including changes in estimates or judgments related to our impairment analysis of goodwill or other intangible assets;
•stock price volatility;
•failure to maintain adequate internal control over financial reporting;
•dependence on key executives;
•natural events that disrupt our operations, or those of our customers, suppliers or regulators;
•possibility that the 2018 renewal of the Lotterie Nazionali S.r.l. concession to operate the Italian instant games lottery is not final (pending appeal against existing court rulings relating to third-party protest against the renewal of the concession); and
•expectations of growth in total consumer spending on social casino gaming.
Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in our filings with the SEC, including under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A in our 2020 10-K. Forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no and expressly disclaim any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.
You should also note that this Quarterly Report on Form 10-Q may contain references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us and we do not make any representation as to the accuracy of that information. In general, we believe there is less publicly available information concerning the international gaming, lottery, social and digital gaming industries than the same industries in the U.S.
Due to rounding, certain numbers presented herein may not precisely agree or add up on a cumulative basis to the totals previously reported.
5

PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share amounts)

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
Revenue: |  |  |  |  |  |  |
Services | $ | 463 |  |  | $ | 422 |  |  |  |  |
Product sales | 104 |  |  | 168 |  |  |  |  |
Instant products | 162 |  |  | 135 |  |  |  |  |
Total revenue | 729 |  |  | 725 |  |  |  |  |
Operating expenses: |  |  |  |  |  |  |
Cost of services(1) | 139 |  |  | 130 |  |  |  |  |
Cost of product sales(1) | 50 |  |  | 91 |  |  |  |  |
Cost of instant products(1) | 77 |  |  | 73 |  |  |  |  |
Selling, general and administrative | 186 |  |  | 198 |  |  |  |  |
Research and development | 52 |  |  | 51 |  |  |  |  |
Depreciation, amortization and impairments | 123 |  |  | 138 |  |  |  |  |
Goodwill impairment | — |  |  | 54 |  |  |  |  |
Restructuring and other | 21 |  |  | 22 |  |  |  |  |
Operating income (loss) | 81 |  |  | (32) |  |  |  |  |
Other (expense) income: |  |  |  |  |  |  |
Interest expense | (121) |  |  | (124) |  |  |  |  |
Earnings (loss) from equity investments | 9 |  |  | (2) |  |  |  |  |
Gain on remeasurement of debt | 25 |  |  | 10 |  |  |  |  |
Other expense, net | — |  |  | (3) |  |  |  |  |
Total other expense, net | (87) |  |  | (119) |  |  |  |  |
Net loss before income taxes | (6) |  |  | (151) |  |  |  |  |
Income tax expense | (3) |  |  | (4) |  |  |  |  |
Net loss | (9) |  |  | (155) |  |  |  |  |
Less: Net income attributable to noncontrolling interest | 6 |  |  | 4 |  |  |  |  |
Net loss attributable to SGC | $ | (15) |  |  | $ | (159) |  |  |  |  |
Basic and diluted net loss attributable to SGC per share: |  |  |  |  |  |  |
Basic | $ | (0.16) |  |  | $ | (1.69) |  |  |  |  |
Diluted | $ | (0.16) |  |  | $ | (1.69) |  |  |  |  |
Weighted average number of shares used in per share calculations: |  |  |  |  |  |  |
Basic shares | 95 |  |  | 94 |  |  |  |  |
Diluted shares | 95 |  |  | 94 |  |  |  |  |
(1) Excludes D&A.
See accompanying notes to condensed consolidated financial statements.

6

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in millions)

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
Net loss | $ | (9) |  |  | $ | (155) |  |  |  |  |
Other comprehensive loss: |  |  |  |  |  |  |
Foreign currency translation gain (loss), net of tax | 4 |  |  | (83) |  |  |  |  |
Pension and post-retirement (loss) gain, net of tax | (1) |  |  | 2 |  |  |  |  |
Derivative financial instruments unrealized gain (loss), net of tax | 5 |  |  | (16) |  |  |  |  |
Total other comprehensive gain (loss) | 8 |  |  | (97) |  |  |  |  |
Total comprehensive loss | (1) |  |  | (252) |  |  |  |  |
Less: comprehensive income attributable to noncontrolling interest | 6 |  |  | 4 |  |  |  |  |
Comprehensive loss attributable to SGC | $ | (7) |  |  | $ | (256) |  |  |  |  |
See accompanying notes to condensed consolidated financial statements.

7

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions, except par value)

| As of
| March 31, 2021 |  | December 31, 2020
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 967 |  |  | $ | 1,016 |
Restricted cash | 88 |  |  | 117 |
Receivables, net of allowance for credit losses $79 and $81, respectively | 621 |  |  | 616 |
Inventories | 191 |  |  | 191 |
Prepaid expenses, deposits and other current assets | 241 |  |  | 241 |
Total current assets | 2,108 |  |  | 2,181 |
Non-current assets: |  |  |
Restricted cash | 10 |  |  | 10 |
Receivables, net of allowance for credit losses $5 and $5, respectively | 20 |  |  | 20 |
Property and equipment, net | 406 |  |  | 415 |
Operating lease right-of-use assets | 95 |  |  | 94 |
Goodwill | 3,287 |  |  | 3,292 |
Intangible assets, net | 1,243 |  |  | 1,299 |
Software, net | 220 |  |  | 227 |
Equity investments | 265 |  |  | 262 |
Other assets | 202 |  |  | 184 |
Total assets | $ | 7,856 |  |  | $ | 7,984 |
LIABILITIES AND STOCKHOLDERS’ DEFICIT |  |  |
Current liabilities: |  |  |
Current portion of long-term debt | $ | 44 |  |  | $ | 44 |
Accounts payable | 280 |  |  | 203 |
Accrued liabilities | 544 |  |  | 586 |
Total current liabilities | 868 |  |  | 833 |
Deferred income taxes | 80 |  |  | 79 |
Operating lease liabilities | 78 |  |  | 77 |
Other long-term liabilities | 229 |  |  | 260 |
Long-term debt, excluding current portion | 9,122 |  |  | 9,259 |
Total liabilities | 10,377 |  |  | 10,508 |
Commitments and contingencies (Note 16) |  |  |
Stockholders’ deficit: |  |  |
Common stock, par value $0.001 per share: 199 shares authorized; 113 shares issued and 96 and 95 shares outstanding, respectively | 1 |  |  | 1 |
Additional paid-in capital | 1,272 |  |  | 1,268 |
Accumulated loss | (3,544) |  |  | (3,529) |
Treasury stock, at cost, 17 shares | (175) |  |  | (175) |
Accumulated other comprehensive loss | (210) |  |  | (218) |
Total SGC stockholders’ deficit | (2,656) |  |  | (2,653) |
Noncontrolling interest | 135 |  |  | 129 |
Total stockholders’ deficit | (2,521) |  |  | (2,524) |
Total liabilities and stockholders’ deficit | $ | 7,856 |  |  | $ | 7,984 |
See accompanying notes to condensed consolidated financial statements.

8

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)

| Three Months Ended March 31,
| 2021 |  | 2020
Cash flows from operating activities: |  |  |
Net loss | $ | (9) |  |  | $ | (155) |
Adjustments to reconcile net loss to cash provided by operating activities | 122 |  |  | 243 |
Changes in working capital accounts | 9 |  |  | 25 |
Changes in deferred income taxes and other | 1 |  |  | 7 |
Net cash provided by operating activities | 123 |  |  | 120 |
Cash flows from investing activities: |  |  |
Capital expenditures | (50) |  |  | (53) |
Acquisitions of businesses | (2) |  |  | — |
Additions to equity method investments, net of distributions | (9) |  |  | — |
Proceeds from sale of assets and other | — |  |  | 22 |
Net cash used in investing activities | (61) |  |  | (31) |
Cash flows from financing activities: |  |  |
Borrowings under SGI revolving credit facility | — |  |  | 50 |
Repayments under SGI revolving credit facility | (100) |  |  | (90) |
Payments on long-term debt | (10) |  |  | (10) |
Payments on license obligations | (13) |  |  | (8) |
Taxes paid related to net share settlement of equity awards and other | (16) |  |  | (1) |
Net cash used in financing activities | (139) |  |  | (59) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1) |  |  | (5) |
(Decrease) increase in cash, cash equivalents and restricted cash | (78) |  |  | 25 |
Cash, cash equivalents and restricted cash, beginning of period | 1,143 |  |  | 375 |
Cash, cash equivalents and restricted cash, end of period | $ | 1,065 |  |  | $ | 400 |
Supplemental cash flow information: |  |  |
Cash paid for interest | $ | 123 |  |  | $ | 110 |
Income taxes paid | 7 |  |  | 6 |
Distributed earnings from equity investments | 4 |  |  | 4 |
Supplemental non-cash transactions: |  |  |
Non-cash interest expense | $ | 6 |  |  | $ | 5 |
See accompanying notes to condensed consolidated financial statements.

9

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in USD, table amounts in millions, except per share amounts)
(1) Description of the Business and Summary of Significant Accounting Policies
Description of the Business
We are a leading developer of technology-based products and services and associated content for the worldwide gaming, lottery, social and digital gaming industries. Our portfolio of revenue-generating activities primarily includes supplying gaming machines and game content, casino-management systems and table game products and services to licensed gaming entities; providing instant and draw-based lottery products, lottery systems and lottery content and services to lottery operators; providing social casino and other mobile games to retail customers; and providing a comprehensive suite of digital RMG and sports wagering solutions, distribution platforms, content, products and services. We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments. We report our results of operations in four business segments—Gaming, Lottery, SciPlay and Digital—representing our different products and services.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The accompanying condensed consolidated financial statements include the accounts of SGC, its wholly owned subsidiaries, and those subsidiaries in which we have a controlling financial interest. Investments in other entities in which we do not have a controlling financial interest but we exert significant influence are accounted for in our consolidated financial statements using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.
In the opinion of SGC and its management, we have made all adjustments necessary to present fairly our consolidated financial position, results of operations, comprehensive loss and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2020 10-K. Interim results of operations are not necessarily indicative of results of operations to be expected for a full year.
Impact of COVID-19
As more fully described in the “Description of the Business and Summary of Significant Accounting Policies - Impact of COVID-19” in Note 1 of our 2020 10-K, COVID-19 disruptions continue to impact our results of operations and particularly our Gaming business segment operations. Even though the majority of gaming establishments reopened globally, gaming operations have yet to return to pre-COVID levels, as limited international travel, social distancing measures and reduced operating capacity restrictions remain in effect in many jurisdictions, and overall uncertainty regarding the magnitude and length of time that these disruptions will continue to impact our business remains unknown and may change in the future and such changes could be material. We continue to assess the situation jurisdiction by jurisdiction and actively manage our daily cash flows and continue to evaluate additional measures that will reduce operating costs and conserve cash to preserve liquidity as we execute on our strategic initiatives.
As of March 31, 2021, our total available liquidity (excluding our SciPlay business segment) was $898 million, which included $203 million of undrawn availability under SGI’s revolving credit facility. In April of 2021, we made a voluntary payment of $150 million on SGI’s revolving credit facility.
Significant Accounting Policies
There have been no changes to our significant accounting policies described within the Notes of our 2020 10-K.
Computation of Basic and Diluted Net Loss Per Share
Basic and diluted net loss attributable to SGC per share were the same for all periods presented as all common stock equivalents during those periods would be anti-dilutive. We excluded 2 million and 1 million of stock options from the diluted weighted-average common shares outstanding for the three months ended March 31, 2021 and 2020, respectively. We excluded 3 million and 2 million of RSUs from the calculation of diluted weighted-average common shares outstanding for the three months ended March 31, 2021 and 2020, respectively.
New Accounting Guidance - Not Yet Adopted
The FASB issued ASU No. 2020-04 and subsequently ASU No. 2021-01, Reference Rate Reform (Topic 848) in March 2020 and January 2021, respectively. The new guidance provides optional expedients and exceptions for applying U.S.
10

GAAP to contract modifications and hedging relationships, including derivative instruments impacted by changes in the interest rates used for discounting cash flows for computing variable margin settlements, subject to meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued, in 2022 or potentially 2023 (pending possible extension). The ASUs establish certain contract modification principles that entities can apply in other areas that may be affected by reference rate reform and certain elective hedge accounting expedients and exceptions. The ASUs may be applied prospectively. We are currently assessing the impact of these standards on our consolidated financial statements.
We do not expect that any other recently issued accounting guidance will have a significant effect on our consolidated financial statements.
(2) Revenue Recognition
The following table disaggregates revenues by type within each of our business segments:

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
Gaming |  |  |  |  |  |  |
Gaming operations | $ | 113 |  |  | $ | 119 |  |  |  |  |
Gaming machine sales | 55 |  |  | 92 |  |  |  |  |
Gaming systems | 42 |  |  | 55 |  |  |  |  |
Table products | 34 |  |  | 52 |  |  |  |  |
Total | $ | 244 |  |  | $ | 318 |  |  |  |  |
Lottery |  |  |  |  |  |  |
Instant products | $ | 162 |  |  | $ | 136 |  |  |  |  |
Lottery systems | 86 |  |  | 76 |  |  |  |  |
Total | $ | 248 |  |  | $ | 212 |  |  |  |  |
SciPlay |  |  |  |  |  |  |
Mobile | $ | 133 |  |  | $ | 101 |  |  |  |  |
Web and other | 18 |  |  | 17 |  |  |  |  |
Total | $ | 151 |  |  | $ | 118 |  |  |  |  |
Digital |  |  |  |  |  |  |
Sports and platform | $ | 33 |  |  | $ | 38 |  |  |  |  |
Gaming and other | 53 |  |  | 39 |  |  |  |  |
Total | $ | 86 |  |  | $ | 77 |  |  |  |  |

The amount of rental income revenue that is outside the scope of ASC 606 was $63 million and $74 million for the three months ended March 31, 2021, and 2020, respectively.
Contract Liabilities and Other Disclosures
The following table summarizes the activity in our contract liabilities for the reporting period:

| Three Months Ended March 31, 2021
Contract liability balance, beginning of period(1) | $ | 89 |
Liabilities recognized during the period | 30 |
Amounts recognized in revenue from beginning balance | (20) |
Contract liability balance, end of period(1) | $ | 99 |
(1) Contract liabilities are included within Accrued liabilities and Other long-term liabilities in our consolidated balance sheets.

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on our consolidated balance sheets. Other than contracts with customers with financing arrangements exceeding 12 months, revenue recognition is generally proximal to conversion to cash, except for Lottery instant products sold under percentage of retail sales contracts. Revenue is recognized for
11

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. Total revenue recognized under such contracts was $19 million in the three months ended March 31, 2021 and 2020. The following table summarizes our balances in these accounts for the periods indicated (other than contract liabilities disclosed above):

| Receivables |  | Contract Assets(1)
Beginning of period balance | $ | 636 |  |  | $ | 127 |
End of period balance, March 31, 2021 | 641 |  |  | 117 |
(1) Contract assets are included primarily within Prepaid expenses, deposits and other current assets in our consolidated balance sheets.

As of March 31, 2021, we did not have material unsatisfied performance obligations for contracts expected to be long-term or contracts for which we recognize revenue at an amount other than for which we have the right to invoice for goods or services delivered or performed.
(3) Business Segments
We report our operations in four business segments—Gaming, Lottery, SciPlay and Digital—representing our different products and services. A detailed discussion regarding the products and services from which each reportable business segment derives its revenue is included in Notes 2 and 3 in our 2020 10-K.
In evaluating financial performance, our Chief Operating Decision Maker focuses on AEBITDA as management’s segment measure of profit or loss, which is described in Note 2 in our 2020 10-K. The accounting policies of our business segments are the same as those described within the Notes in our 2020 10-K. The following tables present our segment information:

| Three Months Ended March 31, 2021
| Gaming |  | Lottery |  | SciPlay |  | Digital |  | Unallocated and Reconciling Items(1) |  | Total
Total revenue | $ | 244 |  |  | $ | 248 |  |  | $ | 151 |  |  | $ | 86 |  |  | $ | — |  |  | $ | 729 |
AEBITDA | 108 |  |  | 119 |  |  | 46 |  |  | 29 |  |  | (32) |  |  | $ | 270 |
Reconciling items to consolidated net loss before income taxes:
D&A | (75) |  |  | (14) |  |  | (3) |  |  | (24) |  |  | (7) |  |  | (123) |
Restructuring and other | (3) |  |  | — |  |  | — |  |  | (1) |  |  | (17) |  |  | (21) |
EBITDA from equity investments |  |  |  |  |  |  |  |  | (20) |  |  | (20) |
Earnings from equity investments |  |  |  |  |  |  |  |  | 9 |  |  | 9 |
Interest expense |  |  |  |  |  |  |  |  | (121) |  |  | (121) |
Gain on remeasurement of debt |  |  |  |  |  |  |  |  | 25 |  |  | 25 |
Other expense, net |  |  |  |  |  |  |  |  | (2) |  |  | (2) |
Stock-based compensation |  |  |  |  |  |  |  |  | (23) |  |  | (23) |
Net loss before income taxes |  |  |  |  |  |  |  |  |  |  | $ | (6) |
(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.

12

| Three Months Ended March 31, 2020
| Gaming |  | Lottery |  | SciPlay |  | Digital |  | Unallocated and Reconciling Items(1) |  | Total
Total revenue | $ | 318 |  |  | $ | 212 |  |  | $ | 118 |  |  | $ | 77 |  |  | $ | — |  |  | $ | 725 |
AEBITDA | 96 |  |  | 78 |  |  | 35 |  |  | 23 |  |  | (32) |  |  | $ | 200 |
Reconciling items to consolidated net loss before income taxes:
D&A | (89) |  |  | (14) |  |  | (2) |  |  | (21) |  |  | (12) |  |  | (138) |
Goodwill impairment | (54) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (54) |
Restructuring and other | (12) |  |  | (5) |  |  | (1) |  |  | (1) |  |  | (3) |  |  | (22) |
EBITDA from equity investments |  |  |  |  |  |  |  |  | (7) |  |  | (7) |
Loss from equity investments |  |  |  |  |  |  |  |  | (2) |  |  | (2) |
Interest expense |  |  |  |  |  |  |  |  | (124) |  |  | (124) |
Gain on remeasurement of debt |  |  |  |  |  |  |  |  | 10 |  |  | 10 |
Other expense, net |  |  |  |  |  |  |  |  | (4) |  |  | (4) |
Stock-based compensation |  |  |  |  |  |  |  |  | (10) |  |  | (10) |
Net loss before income taxes |  |  |  |  |  |  |  |  |  |  | $ | (151) |
(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.

(4) 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 costs and other unusual items. The following table summarizes pre-tax restructuring and other costs for the periods presented:

|  | Three Months Ended March 31, |  |
|  | 2021 |  | 2020 |  |  |  |
Employee severance and related(1) |  | $ | 1 |  |  | $ | 18 |  |  |  |  |
Restructuring, integration and other(2) |  | 20 |  |  | 4 |  |  |  |  |
Total |  | $ | 21 |  |  | $ | 22 |  |  |  |  |
(1) The three months ended March 31, 2020 includes $14 million in severance and other benefits granted to employees as a result of COVID-19 related austerity measures.
(2) The three months ended March 31, 2021 includes cost associated with strategic and business optimization initiatives.

(5) Receivables, Allowance for Credit Losses and Credit Quality of Receivables
Receivables
The following table summarizes the components of current and long-term receivables, net:

| As of
| March 31, 2021 |  | December 31, 2020
Current: |  |  |
Receivables | $ | 700 |  |  | $ | 697 |
Allowance for credit losses | (79) |  |  | (81) |
Current receivables, net | 621 |  |  | 616 |
Long-term: |  |  |
Receivables | 25 |  |  | 25 |
Allowance for credit losses | (5) |  |  | (5) |
Long-term receivables, net | 20 |  |  | 20 |
Total receivables, net | $ | 641 |  |  | $ | 636 |

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Allowance for Credit Losses
We manage our receivable portfolios using both geography and delinquency as key credit quality indicators. The following summarizes geographical delinquencies of total receivables, net:

| As of
| March 31, 2021 |  | Balances over 90 days past due |  | December 31, 2020 |  | Balances over 90 days past due
Receivables: |  |  |  |  |  |  |
U.S. and Canada | $ | 478 |  |  | $ | 96 |  |  | $ | 443 |  |  | $ | 88 |
International | 247 |  |  | 50 |  |  | 279 |  |  | 52 |
Total receivables | 725 |  |  | 146 |  |  | 722 |  |  | 140 |
Receivables allowance: |  |  |  |  |  |  |
U.S. and Canada | (42) |  |  | (25) |  |  | (43) |  |  | (26) |
International | (42) |  |  | (23) |  |  | (43) |  |  | (24) |
Total receivables allowance | (84) |  |  | (48) |  |  | (86) |  |  | (50) |
Receivables, net | $ | 641 |  |  | $ | 98 |  |  | $ | 636 |  |  | $ | 90 |

Account balances are charged against the allowances after all internal and external collection efforts have been exhausted and the potential for recovery is considered remote.
The activity in our allowance for receivable credit losses for each of the three months ended March 31, 2021 and 2020 is as follows:

| 2021 |  | 2020
| Total |  | U.S. and Canada |  | International |  | Total
Beginning allowance for credit losses | $ | (86) |  |  | $ | (43) |  |  | $ | (43) |  |  | $ | (42) |
Provision | — |  |  | — |  |  | — |  |  | (28) |
Charge-offs and recoveries | 2 |  |  | 1 |  |  | 1 |  |  | — |
Ending allowance for credit losses | $ | (84) |  |  | $ | (42) |  |  | $ | (42) |  |  | $ | (70) |

At March 31, 2021, 15% of our total receivables, net, were past due by over 90 days compared to 14% at December 31, 2020.
Credit Quality of Receivables
We have certain concentrations of outstanding receivables in international locations that impact our assessment of the credit quality of our receivables. We monitor the macroeconomic and political environment in each of these locations in our assessment of the credit quality of our receivables. The international customers with significant concentrations (generally deemed to be exceeding 10%) of our receivables with terms longer than one year are in the Latin America region (“LATAM”) and are primarily comprised of Mexico, Peru and Argentina. The following table summarizes our LATAM receivables:

| As of March 31, 2021 |  |
| Total |  |  |  | Current or Not Yet Due |  | Balances Over 90 days Past Due |  |  |  |  |  |
Receivables | $ | 110 |  |  |  |  | $ | 49 |  |  | $ | 61 |  |  |  |  |  |  |
Allowance for credit losses | (53) |  |  |  |  | (14) |  |  | (39) |  |  |  |  |  |  |
Receivables, net | $ | 57 |  |  |  |  | $ | 35 |  |  | $ | 22 |  |  |  |  |  |  |

We increased our allowance for credit losses by $28 million in the first quarter of 2020. This increase was primarily related to Gaming customers in LATAM (which transact with both domestic and international subsidiaries) as those customers were particularly affected by COVID-19 closures of gaming operations establishments with COVID-related closures lasting longer than in other geographic regions. We did not have material credit losses during the first quarter of 2021. We
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continuously review receivables and as information concerning credit quality arise, reassess our expectations of future losses and record an incremental reserve if warranted at that time. Our current allowance for credit losses represents our current expectation of credit losses; however future expectations could change as the ultimate impact of the COVID-19 disruption remains uncertain, particularly as to the financial stability of our customers during and after the COVID-19 disruption period.
The fair value of receivables is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of March 31, 2021 and December 31, 2020, the fair value of receivables, net, approximated the carrying value due to contractual terms of receivables generally being less than 24 months.
(6) Inventories
Inventories consisted of the following:

|  | As of
|  | March 31, 2021 |  | December 31, 2020
Parts and work-in-process |  | $ | 115 |  |  | $ | 122 |
Finished goods |  | 76 |  |  | 69 |
Total inventories |  | $ | 191 |  |  | $ | 191 |

Parts and work-in-process include parts for gaming machines, lottery terminals and instant lottery ticket materials, as well as labor and overhead costs for work-in-process associated with the manufacturing of instant lottery games and lottery terminals. Our finished goods inventory primarily consists of gaming machines for sale, instant products primarily for our Participation arrangements and our licensed branded merchandise.
(7) Property and Equipment, net
Property and equipment, net consisted of the following:

| As of
| March 31, 2021 |  | December 31, 2020
Land | $ | 15 |  |  | $ | 15 |
Buildings and leasehold improvements | 133 |  |  | 132 |
Gaming and lottery machinery and equipment | 1,035 |  |  | 1,026 |
Furniture and fixtures | 32 |  |  | 32 |
Construction in progress | 53 |  |  | 43 |
Other property and equipment | 277 |  |  | 277 |
Less: accumulated depreciation | (1,139) |  |  | (1,110) |
Total property and equipment, net | $ | 406 |  |  | $ | 415 |

Depreciation expense is excluded from Cost of services, Cost of product sales, Cost of instant products and Other operating expenses and is separately presented within D&A.

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
Depreciation expense | $ | 40 |  |  | $ | 44 |  |  |  |  |

(8) Intangible Assets, net and Goodwill
Intangible Assets, net
The following tables present certain information regarding our intangible assets as of March 31, 2021 and December 31, 2020:
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| As of
| March 31, 2021 |  | December 31, 2020
| Gross Carrying Value |  | Accumulated Amortization |  |  |  | Net Balance |  | Gross Carrying Value |  | Accumulated Amortization |  | Net Balance
Amortizable intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships | $ | 1,110 |  |  | $ | (501) |  |  |  |  | $ | 609 |  |  | $ | 1,108 |  |  | $ | (478) |  |  | $ | 630 |
Intellectual property | 953 |  |  | (661) |  |  |  |  | 292 |  |  | 958 |  |  | (648) |  |  | 310 |
Licenses | 558 |  |  | (415) |  |  |  |  | 143 |  |  | 558 |  |  | (405) |  |  | 153 |
Brand names | 127 |  |  | (89) |  |  |  |  | 38 |  |  | 128 |  |  | (86) |  |  | 42 |
Trade names | 117 |  |  | (45) |  |  |  |  | 72 |  |  | 117 |  |  | (42) |  |  | 75 |
Patents and other | 24 |  |  | (16) |  |  |  |  | 8 |  |  | 24 |  |  | (16) |  |  | 8 |
| 2,889 |  |  | (1,727) |  |  |  |  | 1,162 |  |  | 2,893 |  |  | (1,675) |  |  | 1,218 |
Non-amortizable intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Trade names | 83 |  |  | (2) |  |  |  |  | 81 |  |  | 83 |  |  | (2) |  |  | 81 |
Total intangible assets | $ | 2,972 |  |  | $ | (1,729) |  |  |  |  | $ | 1,243 |  |  | $ | 2,976 |  |  | $ | (1,677) |  |  | $ | 1,299 |

The following reflects intangible amortization expense included within D&A:

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
Amortization expense | $ | 56 |  |  | $ | 65 |  |  |  |  |

The table below reconciles the change in the carrying value of goodwill by business segment for the period from December 31, 2020 to March 31, 2021.

|  | Gaming |  | Lottery |  | SciPlay |  | Digital |  | Totals
Balance as of December 31, 2020 |  | $ | 2,425 |  |  | $ | 353 |  |  | $ | 124 |  |  | $ | 390 |  |  | $ | 3,292 |
Foreign currency adjustments |  | (3) |  |  | (1) |  |  | (2) |  |  | 1 |  |  | (5) |
Balance as of March 31, 2021 |  | $ | 2,422 |  |  | $ | 352 |  |  | $ | 122 |  |  | $ | 391 |  |  | $ | 3,287 |
(1) Accumulated goodwill impairment charges for the Gaming segment as of March 31, 2021 were $989 million.
(1) Accumulated goodwill impairment charges for the Lottery segment as of March 31, 2021 were $137 million.

(9) Software, net
Software, net consisted of the following:

| As of
| March 31, 2021 |  | December 31, 2020
Software | $ | 1,198 |  |  | $ | 1,197 |
Accumulated amortization | (978) |  |  | (970) |
Software, net | $ | 220 |  |  | $ | 227 |

The following reflects amortization of software included within D&A:

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
Amortization expense | $ | 27 |  |  | $ | 29 |  |  |  |  |

(10) Equity Investments
Equity investments totaled $265 million and $262 million as of March 31, 2021 and December 31, 2020, respectively. We received distributions and dividends totaling $4 million during the three months ended March 31, 2021 and 2020.
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(11) Long-Term and Other
Outstanding Debt and Finance Leases
The following table reflects our outstanding debt:

| As of
| March 31, 2021 |  | December 31, 2020
| Final Maturity |  | Rate(s) |  | Face value |  | Unamortized debt discount/premium and deferred financing costs, net |  | Book value |  | Book value
Senior Secured Credit Facilities: |  |  |  |  |  |  |  |  |  |  |
SGI Revolver | 2024 |  | variable |  | $ | 435 |  |  | $ | — |  |  | $ | 435 |  |  | $ | 535 |
SGI Term Loan B-5 | 2024 |  | variable |  | 4,050 |  |  | (46) |  |  | 4,004 |  |  | 4,012 |
SciPlay Revolver | 2024 |  | variable |  | — |  |  | — |  |  | — |  |  | — |
SGI Senior Notes: |  |  |  |  |  |  |  |  |  |  |
2025 Secured Notes(1) | 2025 |  | 5.000% |  | 1,250 |  |  | (12) |  |  | 1,238 |  |  | 1,237 |
2026 Secured Euro Notes(2) | 2026 |  | 3.375% |  | 381 |  |  | (4) |  |  | 377 |  |  | 395 |
2025 Unsecured Notes | 2025 |  | 8.625% |  | 550 |  |  | (7) |  |  | 543 |  |  | 542 |
2026 Unsecured Euro Notes(2) | 2026 |  | 5.500% |  | 293 |  |  | (3) |  |  | 290 |  |  | 303 |
2026 Unsecured Notes | 2026 |  | 8.250% |  | 1,100 |  |  | (12) |  |  | 1,088 |  |  | 1,088 |
2028 Unsecured Notes | 2028 |  | 7.000% |  | 700 |  |  | (9) |  |  | 691 |  |  | 691 |
2029 Unsecured Notes | 2029 |  | 7.250% |  | 500 |  |  | (6) |  |  | 494 |  |  | 493 |
Finance lease obligations as of March 31, 2021 payable monthly through 2023 and other(3) | 2023 |  | 4.217% |  | 6 |  |  | — |  |  | 6 |  |  | 7 |
Total long-term debt outstanding |  |  |  |  | $ | 9,265 |  |  | $ | (99) |  |  | $ | 9,166 |  |  | $ | 9,303 |
Less: current portion of long-term debt |  |  |  |  |  |  |  |  | (44) |  |  | (44) |
Long-term debt, excluding current portion |  |  |  |  |  |  |  |  | $ | 9,122 |  |  | $ | 9,259 |
Fair value of debt(4) |  |  |  |  | $ | 9,454 |  |  |  |  |  |  |
(1) In connection with the February 2018 Refinancing (see Note 15 in our 2020 10-K), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting $460 million of the fixed-rate, U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to a fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. These cross-currency swaps have been designated as a hedge of our net investment in certain subsidiaries.
(2) We designated a portion of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the change in foreign currency exchange rates of the Euro relative to the U.S. Dollar (see Note 12 for additional information). The total change in the face value of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes due to changes in foreign currency exchange rates since the issuance was a reduction of $38 million, of which a $25 million gain was recognized on remeasurement of debt in the Consolidated Statements of Operations for the three months ended March 31, 2021.
(3) Includes $6 million related to certain revenue transactions presented as debt in accordance with ASC 470.
(4) Fair value of our fixed rate and variable interest rate debt is classified within Level 2 in the fair value hierarchy and has been calculated based on the quoted market prices of our securities.

We were in compliance with the financial covenants under all debt agreements as of March 31, 2021 (for information regarding our financial covenants of all debt agreements, see Notes 1 and 15 in our 2020 10-K).
For additional information regarding the terms of our credit facilities, Secured Notes and Unsecured Notes, see Note 15 in our 2020 10-K.
(12) Fair Value Measurements
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
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equivalents, restricted cash, receivables, other current assets, accounts payable and accrued liabilities, approximates their recorded values. Our assets and liabilities measured at fair value on a recurring basis are described below.
Derivative Financial Instruments
As of March 31, 2021, we held the following derivative instruments that were accounted for pursuant to ASC 815:
Interest Rate Swap Contracts
We currently use interest rate swap contracts as described below to mitigate gains or losses associated with the change in expected cash flows due to fluctuations in interest rates on our variable rate debt.
In February 2018, we entered into interest rate swap contracts to hedge a portion of our interest expense associated with our variable rate debt to effectively fix the interest rate that we pay. These interest rate swap contracts are designated as cash flow hedges under ASC 815. We pay interest at a weighted-average fixed rate of 2.4418% and receive interest at a variable rate equal to one-month LIBOR. The total notional amount of interest rate swaps outstanding was $800 million as of March 31, 2021. These hedges mature in February 2022.
These hedges are highly effective in offsetting changes in our future expected cash flows due to the fluctuation in the one-month LIBOR rate associated with our variable rate debt. We qualitatively monitor the effectiveness of these hedges on a quarterly basis. As a result of the effective matching of the critical terms on our variable rate interest expense being hedged to the hedging instruments being used, we expect these hedges to remain highly effective.
All gains and losses from these hedges are recorded in Other comprehensive loss until the future underlying payment transactions occur. Any realized gains or losses resulting from the hedges are recognized (together with the hedged transaction) as Interest expense. We estimate the fair value of our interest rate swap contracts by discounting the future cash flows of both the fixed rate and variable rate interest payments based on market yield curves. The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820.
The following table shows the Gain (loss) and Interest expense recognized on our interest rate swap contracts:

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
Gain (loss) recorded in accumulated other comprehensive loss, net of tax | $ | 5 |  |  | $ | (16) |  |  |  |  |
Interest expense recorded related to interest rate swap contracts | 5 |  |  | 2 |  |  |  |  |

We do not expect to reclassify material amounts from Accumulated other comprehensive loss to interest expense in the next twelve months.
The following table shows the effect of interest rate swap contracts designated as cash flow hedges on the consolidated statements of operations:

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
| Interest expense |  |
Total interest expense which reflects the effects of cash flow hedges | $ | (121) |  |  | $ | (124) |  |  |  |  |
Hedged item | (5) |  |  | (5) |  |  |  |  |
Derivative designated as hedging instrument | — |  |  | 3 |  |  |  |  |

Cross-Currency Interest Rate Swaps
In connection with the February 2018 Refinancing described in Note 15 of our 2020 10-K, we entered into certain cross-currency interest rate swap agreements to achieve more beneficial interest rates by effectively converting $460 million of our fixed-rate U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. We have designated these cross-currency interest rate swap agreements as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.
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We use the spot method to measure the effectiveness of our net investment hedge. Under this method, for each reporting period, the change in the fair value of the $460 million cross-currency interest rate swaps is reported in Foreign currency translation gain (loss) in Accumulated other comprehensive loss. The cross-currency basis spread (along with other components of the cross-currency swap’s fair value excluded from the spot method effectiveness assessment) are amortized and recorded to Interest expense. We evaluate the effectiveness of our net investment hedge at the beginning of each quarter.
The following table shows the fair value of our hedges:

|  |  | As of
| Balance Sheet Line Item |  | March 31, 2021 |  | December 31, 2020
Interest rate swaps (1)(3) | Accrued liabilities/Other liabilities |  | $ | 17 |  |  | $ | 22 |
Cross-currency interest rate swaps (2)(3) | Other assets |  | 35 |  |  | 14 |
(1) A gain of $5 million and loss of $16 million for the three months ended March 31, 2021 and 2020, respectively, are reflected in Derivative financial instrument unrealized gain (loss) in Other comprehensive loss.
(2) Gains of $21 million and $30 million for the three months ended March 31, 2021 and 2020, respectively, are reflected in Foreign currency translation gain (loss) in Other comprehensive loss.
(3) The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy.

Net Investment Non-derivative Hedge — 2026 Secured Euro Notes
For the first quarter of 2021, we designated $129 million of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.
We use the spot method to measure the effectiveness of our net investment non-derivative hedge. Under this method, for each reporting period, the change in the hedged portion of the carrying value of the 2026 Secured Euro Notes due to remeasurement is reported in Foreign currency translation gain (loss) in Other comprehensive loss, and the remaining remeasurement change is recognized in (Loss) gain on remeasurement of debt in our consolidated statements of operations. We evaluate the effectiveness of our net investment non-derivative hedge at the beginning of each quarter, and the inputs used to measure the fair value of this non-derivative hedge are categorized as Level 2 in the fair value hierarchy.
Contingent Acquisition Consideration Liabilities
In connection with our acquisitions, we have recorded certain contingent consideration liabilities, of which the values are primarily based on reaching certain earnings-based metrics. The related liabilities were recorded at fair value on the acquisition date as part of the consideration transferred and are remeasured each reporting period. The inputs used to measure the fair value of our liabilities are categorized as Level 3 in the fair value hierarchy.
Contingent acquisition consideration liabilities as of March 31, 2021 are $8 million, of which $6 million is included in Accrued liabilities with the remainder included in Other long-term liabilities. Contingent acquisition consideration liabilities as of December 31, 2020 were $13 million, of which $11 million was included in Accrued liabilities with the remaining balance included in Other long-term liabilities.
(13) Stockholders’ Deficit
Changes in Stockholders’ Deficit
The following tables present certain information regarding our stockholders’ deficit as of March 31, 2021 and March 31, 2020:
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| Three Months Ended March 31, 2021
| Common Stock |  | Additional Paid in Capital |  | Accumulated Loss |  | Treasury Stock |  | Accumulated Other Comprehensive Loss |  | Noncontrolling Interest |  | Total
January 1, 2021 | $ | 1 |  |  | $ | 1,268 |  |  | $ | (3,529) |  |  | $ | (175) |  |  | $ | (218) |  |  | $ | 129 |  |  | $ | (2,524) |
Vesting of RSUs, net of tax withholdings and other | — |  |  | (13) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (13) |
Stock-based compensation | — |  |  | 17 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 17 |
Net loss | — |  |  | — |  |  | (15) |  |  | — |  |  | — |  |  | 6 |  |  | (9) |
Other comprehensive gain | — |  |  | — |  |  | — |  |  | — |  |  | 8 |  |  | — |  |  | 8 |
March 31, 2021 | $ | 1 |  |  | $ | 1,272 |  |  | $ | (3,544) |  |  | $ | (175) |  |  | $ | (210) |  |  | $ | 135 |  |  | $ | (2,521) |

| Three Months Ended March 31, 2020
| Common Stock |  | Additional Paid in Capital |  | Accumulated Loss |  | Treasury Stock |  | Accumulated Other Comprehensive Loss |  | Noncontrolling Interest |  | Total
January 1, 2020 | $ | 1 |  |  | $ | 1,208 |  |  | $ | (2,954) |  |  | $ | (175) |  |  | $ | (292) |  |  | $ | 104 |  |  | $ | (2,108) |
Vesting of RSUs, net of tax withholdings and other | — |  |  | (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1) |
Stock-based compensation | — |  |  | 9 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 9 |
Net loss | — |  |  | — |  |  | (159) |  |  | — |  |  | — |  |  | 4 |  |  | (155) |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (97) |  |  | — |  |  | (97) |
Impact of ASC 326 adoption | — |  |  | — |  |  | (6) |  |  | — |  |  | — |  |  | — |  |  | (6) |
March 31, 2020 | $ | 1 |  |  | $ | 1,216 |  |  | $ | (3,119) |  |  | $ | (175) |  |  | $ | (389) |  |  | $ | 108 |  |  | $ | (2,358) |

Stock Based Compensation
The following reflects total stock-based compensation expense recognized under all programs:

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
Related to SGC stock options | $ | 6 |  |  | $ | 1 |  |  |  |  |
Related to SGC RSUs(1) | 15 |  |  | 9 |  |  |  |  |
Related to SciPlay RSUs | 2 |  |  | — |  |  |  |  |
Total | $ | 23 |  |  | $ | 10 |  |  |  |  |
(1) As of March 31, 2021 we had $58 million of unrecognized stock-based compensation expense related to unvested RSUs that will be amortized over a weighted-average period of approximately two years. |  |  |  |

(14) Income Taxes
We consider new evidence (both positive and negative) at each reporting date that could affect our view of the future realization of deferred tax assets. Based upon the evaluation of all available evidence, and considering the projected U.S. pre-tax losses for 2021, we maintain a valuation allowance for certain of our U.S. operations as of March 31, 2021. We also maintain other valuation allowances for certain non-U.S. jurisdictions with cumulative losses.
Our effective income tax rate for the three months ended March 31, 2021 and 2020 were (50)%, and (3)%, respectively, and were determined using an estimated annual effective tax rate after considering any discrete items for such periods. Due to the aforementioned valuation allowance against certain of our U.S. net deferred tax assets, the effective tax rates for the three months ended March 31, 2021 and 2020 generally do not include the benefits of the U.S. tax losses. We recorded an overall tax expense in both periods due to pre-tax earnings in jurisdictions without valuation allowances. The change in effective tax rates relates primarily to the overall mix of income (loss) in our jurisdictions without valuation allowances and an unfavorable adjustment for the legacy U.K. Gaming reporting unit goodwill impairment of $54 million recorded in the first quarter of 2020, which was not deductible for tax purposes.
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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.
(15) Leases
Our total operating lease expense for the three months ended March 31, 2021 and 2020 were $8 million. The total amount of variable and short-term lease payments was immaterial for all periods presented.
Supplemental balance sheet and cash flow information related to operating leases is as follows:

| As of |  |
| March 31, 2021 |  | December 31, 2020 |  |
Operating lease right-of-use assets(1) | $ | 95 |  |  | $ | 94 |  |  |
Accrued liabilities | 25 |  |  | 26 |  |  |
Operating lease liabilities | 78 |  |  | 77 |  |  |
Total operating lease liabilities | $ | 103 |  |  | $ | 103 |  |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |
Operating cash flows for operating leases for the three month period ended March 31, 2021 and 2020, respectively | $ | 8 |  |  | $ | 8 |  |  |
Weighted average remaining lease term, units in 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:

| Remainder of 2021 |  | 2022 |  | 2023 |  | 2024 |  | 2025 |  | Thereafter |  | Less Imputed Interest |  | Total
Operating leases | $ | 23 |  |  | $ | 26 |  |  | $ | 21 |  |  | $ | 18 |  |  | $ | 12 |  |  | $ | 16 |  |  | $ | (13) |  |  | $ | 103 |

As of March 31, 2021, we did not have material additional operating leases that have not yet commenced.
(16) Litigation
We are involved in various legal proceedings, which are described in Note 21 within our 2020 10-K. There have been no material changes to these matters since the 2020 10-K was filed with the SEC on March 1, 2021, except as described below.
We record an accrual for legal contingencies when it is both probable that a liability has been incurred and the amount or range of the loss can be reasonably estimated (although, as discussed below, there may be an exposure to loss in excess of the accrued liability). We evaluate our accruals for legal contingencies at least quarterly and, as appropriate, establish new accruals or adjust existing accruals to reflect (1) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments, (2) the advice and analyses of counsel and (3) the assumptions and judgment of management. Legal costs associated with our legal proceedings are expensed as incurred. We had accrued liabilities of $11 million and $3 million for all of our legal matters that were contingencies as of March 31, 2021 and December 31, 2020, respectively.
Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies could result in losses in excess of amounts we have accrued. We may be unable to estimate a range of possible losses for some matters pending against us or our subsidiaries, even when the amount of damages claimed against us or our subsidiaries is stated because, among other things: (1) the claimed amount may be exaggerated or unsupported; (2) the claim may be based on a novel legal theory or involve a large number of parties; (3) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (4) there may be uncertainty as to the outcome of pending appeals or motions; (5) the matter may not have progressed sufficiently through discovery or there may be significant factual or legal issues to be resolved or developed; and/or (6) there may be uncertainty as to the enforceability of legal judgments and outcomes in certain jurisdictions. Other matters have progressed sufficiently that we are
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able to estimate a range of possible loss. For those legal contingencies disclosed in Note 21 in our 2020 10-K and this Note 16 as well as those related to the previously disclosed settlement agreement entered into in February 2015 with SNAI S.p.a., as to which a loss is reasonably possible, whether in excess of a related accrued liability or where there is no accrued liability, and for which we are able to estimate a range of possible loss, the current estimated range is up to approximately $14 million in excess of the accrued liabilities (if any) related to those legal contingencies. This aggregate range represents management’s estimate of additional possible loss in excess of the accrued liabilities (if any) with respect to these matters based on currently available information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherent uncertainties. For example, at the time of making an estimate, management may have only preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co-defendants, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that management had not accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which we are not able to estimate a range of possible loss. Accordingly, the estimated aggregate range of possible loss does not represent our maximum loss exposure. Any such losses could have a material adverse impact on our results of operations, cash flows or financial condition. The legal proceedings underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.
Washington State Matter
On April 17, 2018, a plaintiff, Sheryl Fife, filed a putative class action complaint, Fife v. Scientific Games Corporation, against SGC in the United States District Court for the Western District of Washington. The plaintiff seeks to represent a putative class of all persons in the State of Washington who purchased and allegedly lost virtual coins playing SGC’s online social casino games, including but not limited to Jackpot Party® Casino and Gold Fish® Casino. The complaint asserts claims for alleged violations of Washington’s Recovery of Money Lost at Gambling Act, Washington’s consumer protection statute, and for unjust enrichment, and seeks unspecified money damages (including treble damages as appropriate), the award of reasonable attorneys’ fees and costs, pre- and post-judgment interest, and injunctive and/or declaratory relief. On July 2, 2018, SGC filed a motion to dismiss the plaintiff’s complaint with prejudice, which the trial court denied on December 18, 2018. SGC filed its answer to the putative class action complaint on January 18, 2019. On August 24, 2020, the trial court granted plaintiff’s motion for leave to amend her complaint and to substitute a new plaintiff, Donna Reed, for the initial plaintiff, and re-captioned the matter Reed v. Scientific Games Corporation. On August 25, 2020, the plaintiff filed a first amended complaint against SGC, asserting the same claims, and seeking the same relief, as the complaint filed by Sheryl Fife. On September 8, 2020, SGC filed a motion to compel arbitration of plaintiff’s claims and to dismiss the action, or, in the alternative, to transfer the action to the United States District Court for the District of Nevada, and that motion is fully-briefed and pending before the trial court. On April 9, 2021, the plaintiff filed a motion to certify the putative class and for a preliminary injunction. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible loss.
Casino Queen Matter
On April 2, 2021, Casino Queen, Inc. and Casino Queen Marquette, Inc. filed a putative class action complaint in the United States District Court for the Northern District of Illinois against SGC, Bally Technologies, Inc. and SG Gaming, f/k/a Bally Gaming, Inc. In the complaint, the plaintiffs assert federal antitrust claims arising from the defendants’ procurement of particular U.S. patents. The plaintiffs allege that the defendants used those patents to create an allegedly illegal monopoly in the market for automatic card shufflers sold or leased in the United States. The plaintiffs seek to represent a putative class of all persons and entities that directly purchased or leased automatic card shufflers within the United States from the defendants, or any predecessor, subsidiary, or affiliate thereof, at any time between April 1, 2009, and the present. The complaint seeks unspecified money damages, which the complaint asks the court to treble, the award of plaintiffs’ costs of suit, including attorneys’ fees, and the award of pre-judgment and post-judgment interest. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit, and intend to vigorously defend against them.
Colombia litigation
Our subsidiary, SGI, owned a minority interest in Wintech de Colombia S.A., or Wintech (now liquidated), which formerly operated the Colombian national lottery under a contract with Empresa Colombiana de Recursos para la Salud, S.A. (together with its successors, “Ecosalud”), an agency of the Colombian government. The contract provided for a penalty against Wintech, SGI and the other shareholders of Wintech of up to $5.0 million if certain levels of lottery sales were not achieved. In addition, SGI delivered to Ecosalud a $4.0 million surety bond as a further guarantee of performance under the contract. Wintech started the instant lottery in Colombia but, due to difficulties beyond its control, including, among other factors, social
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and political unrest in Colombia, frequently interrupted telephone service and power outages, and competition from another lottery being operated in a province of Colombia that we believe was in violation of Wintech’s exclusive license from Ecosalud, the projected sales level was not met for the year ended June 30, 1993.
In 1993, Ecosalud issued a resolution declaring that the contract was in default. In 1994, Ecosalud issued a liquidation resolution asserting claims for compensation and damages against Wintech, SGI and other shareholders of Wintech for, among other things, realization of the full amount of the penalty, plus interest, and the amount of the bond. SGI filed separate actions opposing each resolution with the Tribunal Contencioso of Cundinamarca in Colombia (the “Tribunal”), which upheld both resolutions. SGI appealed each decision to the Council of State. In May 2012, the Council of State upheld the contract default resolution, which decision was notified to us in August 2012. In October 2013, the Council of State upheld the liquidation resolution, which decision was notified to us in December 2013.
In July 1996, Ecosalud filed a lawsuit against SGI in the U.S. District Court for the Northern District of Georgia asserting many of the same claims asserted in the Colombia proceedings, including breach of contract, and seeking damages. In March 1997, the District Court dismissed Ecosalud’s claims. Ecosalud appealed the decision to the U.S. Court of Appeals for the Eleventh Circuit. The Court of Appeals affirmed the District Court’s decision in 1998.
In June 1999, Ecosalud filed a collection proceeding against SGI to enforce the liquidation resolution and recover the claimed damages. In May 2013, the Tribunal denied SGI’s merit defenses to the collection proceeding and issued an order of payment of approximately 90 billion Colombian pesos, or approximately $30.2 million, plus default interest (potentially accrued since 1994 at a 12% statutory interest rate). SGI filed an appeal to the Council of State, and on December 10, 2020, the Council of State issued a ruling affirming the Tribunal’s decision. On December 16, 2020, SGI filed a motion for clarification of the Council of State’s ruling, which the Council of State denied on April 15, 2021. On April 22, 2021, SGI filed a motion for reconsideration of that decision by the Council of State.
SGI believes it has various defenses, including on the merits, against Ecosalud’s claims. Although we believe these claims will not result in a material adverse effect on our consolidated results of operations, cash flows or financial position, it is not feasible to predict the final outcome, and we cannot assure that these claims will not ultimately be resolved adversely to us or result in material liability.
SciPlay IPO Matter (New York)
On or about October 14, 2019, the Police Retirement System of St. Louis filed a putative class action complaint in New York state court against SciPlay, certain of its executives and directors, and SciPlay’s underwriters with respect to its IPO (the “PRS Action”). The complaint was amended on November 18, 2019. The plaintiff seeks to represent a class of all persons or entities who acquired Class A common stock of SciPlay pursuant and/or traceable to the Registration Statement filed and issued in connection with the SciPlay IPO, which commenced on or about May 3, 2019. The complaint asserts claims for alleged violations of Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77, and seeks certification of the putative class; compensatory damages of at least $146 million, and the award of the plaintiff’s and the class’s reasonable costs and expenses incurred in the action.
On or about December 9, 2019, Hongwei Li filed a putative class action complaint in New York state court asserting substantively similar causes of action under the Securities Act of 1933 and substantially similar factual allegations as those alleged in the PRS Action (the “Li Action”). On December 18, 2019, the New York state court entered a stipulated order consolidating the PRS Action and the Li Action into a single lawsuit. On December 23, 2019, the defendants moved to dismiss the consolidated action. On August 28, 2020, the court issued an oral ruling granting in part and denying in part the defendants’ motion to dismiss. On December 14, 2020, plaintiffs in the consolidated action filed a motion to certify the putative class.
SciPlay IPO Matter (Nevada)
On or about November 4, 2019, plaintiff John Good filed a putative class action complaint in Nevada state court against SciPlay, certain of its executives and directors, SGC, and SciPlay’s underwriters with respect to the SciPlay IPO. The plaintiff seeks to represent a class of all persons who purchased Class A common stock of SciPlay in or traceable to the SciPlay IPO that it completed on or about May 7, 2019. The complaint asserts claims for alleged violations of Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77, and seeks certification of the putative class; compensatory damages, and the award of the plaintiff’s and the class’s reasonable costs and expenses incurred in the action. On February 27, 2020, the trial court entered a stipulated order that, among other things, stayed the lawsuit pending entry of an order resolving the motion to dismiss that was pending in the SciPlay IPO matter in New York state court. On September 29, 2020, the trial court entered a stipulated order that extended the stay pending a ruling on class certification in the SciPlay IPO matter in New York state court.
Based on our assessment under ASC 410 and ASC 450 and consideration of the SciPlay IPO matters pending in New York and Nevada described above, we determined that both loss and insurance proceeds loss recovery, which we believe is
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recoverable under our insurance policy, are deemed probable and reasonably estimable. As a result, we recorded approximately $8 million in Accrued liabilities and Prepaid expenses and other current assets as of March 31, 2021, with no material impact on our statement of operations income for the three month period ended March 31, 2021.
For additional information regarding our pending litigation matters, see Note 21 in our 2020 10-K.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to enhance the reader’s understanding of our operations and current business environment from management’s perspective and should be read in conjunction with the description of our business included under Part I, Item 1 “Condensed Consolidated Financial Statements” and Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and under Part I, Item 1 “Business,” Item 1A “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 10-K.
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the disclosures and information contained and referenced under “Forward-Looking Statements” and “Risk Factors” included in this Quarterly Report on Form 10-Q and “Risk Factors” included in our 2020 10-K. As used in this MD&A, the terms “we,” “us,” “our” and the “Company” mean SGC together with its consolidated subsidiaries.
BUSINESS OVERVIEW
We are a leading developer of technology-based products and services and associated content for the worldwide gaming, lottery, social and digital gaming industries. Our portfolio of revenue-generating activities primarily includes supplying gaming machines and game content, casino-management systems and table game products and services to licensed gaming entities; providing instant and draw-based lottery products, lottery systems and lottery content and services to lottery operators; providing social casino and other mobile games to retail customers; and providing a comprehensive suite of digital RMG and sports wagering solutions, distribution platforms, content, products and services. We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments. We report our results of operations in four business segments—Gaming, Lottery, SciPlay and Digital—representing our different products and services.
Recent Events
Impacts of COVID-19
As more fully described in the “Description of the Business and Summary of Significant Accounting Policies - Impact of COVID-19” in Note 1 of our 2020 10-K, COVID-19 disruptions continue to impact our results of operations and particularly our Gaming business segment operations. Even though the majority of gaming establishments reopened globally, gaming operations have yet to return to pre-COVID levels, as limited international travel, social distancing measures and reduced operating capacity restrictions remain in effect in many jurisdictions, and overall uncertainty regarding the magnitude and length of time that these disruptions will continue to impact our business remains unknown and may change in the future and such changes could be material. We continue to assess the situation jurisdiction by jurisdiction, actively manage our daily cash flows and continue to evaluate additional measures that will reduce operating costs and conserve cash to preserve liquidity as we execute on our strategic initiatives.
Impact on Business Operations and Financial Results
Throughout 2020 and the first quarter of 2021, the Gaming business segment was especially impacted by the COVID-19 disruptions due to the widespread closures and restricted reopening of a substantial number of gaming operations establishments coupled with global economic uncertainty. Many of these closures and restrictions have since been lifted and businesses have begun to see more activity given the recent expansion of capacity limits, increased travel, and distribution of vaccines, however, the impact of the COVID-19 pandemic remains uncertain and ongoing.
For more information on the effects of COVID-19 on each of our business segments, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Impact on Business Operations and Financial Results” and Note 1 of our 2020 10-K.
Impact on Liquidity
Our only financial maintenance covenant (excluding SciPlay’s Revolver) is contained in SGI’s credit agreement. For information regarding the impact on liquidity and other requirements, please refer to the “Description of the Business and Summary of Significant Accounting Policies” in Note 1 and “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the “Business Overview” along with the “Liquidity, Capital Resources and Working Capital” sections of our 2020 10-K. In April 2021, we made a voluntary payment of $150 million on SGI’s revolving credit facility.
Segments
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We report our operations in four business segments - Gaming, Lottery, SciPlay and Digital - representing our different products and services. See “- Business Segments Results” below and Note 3 for additional business segment information.
Foreign Exchange
Our results are impacted by changes in foreign currency exchange rates used in the translation of foreign functional currencies into USD and the remeasurement of foreign currency transactions or balances. The impact of foreign currency exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity. Our exposure to foreign currency volatility on revenue is as follows:

| Three Months Ended March 31, |  |  |  |  |  |  |  |
| 2021 |  | 2020 |  |  |  |
($ in millions) | Revenue |  | % Consolidated Revenue |  | Revenue |  | % Consolidated Revenue |  |  |  |  |  |  |  |
Foreign Currency: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
British Pound Sterling | $ | 71 |  |  | 10 | % |  | $ | 85 |  |  | 12 | % |  |  |  |  |  |  |  |
Euro | 52 |  |  | 7 | % |  | 63 |  |  | 9 | % |  |  |  |  |  |  |  |

We also have foreign currency exposure related to certain of our equity investments, cross-currency interest rate swaps, and Euro-denominated debt. See Part I, Item 1A in our 2020 10-K, “Consolidated Results — Other Factors Affecting 2020 and 2019 Net Loss Attributable to SGC Comparability” under Item 7 in our 2020 10-K and Item 3 “Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q.
CONSOLIDATED RESULTS

| Three Months Ended March 31, |  | Variance |  |  |  |
($ in millions) | 2021 |  | 2020 |  | 2021 vs. 2020 |  |  |  |  |  |
Total revenue | $ | 729 |  |  | $ | 725 |  |  | $ | 4 |  |  | 1 | % |  |  |  |  |  |  |  |
Total operating expenses | 648 |  |  | 757 |  |  | (109) |  |  | (14) | % |  |  |  |  |  |  |  |
Operating income (loss) | 81 |  |  | (32) |  |  | 113 |  |  | (353) | % |  |  |  |  |  |  |  |
Net loss before income taxes | (6) |  |  | (151) |  |  | 145 |  |  | 96 | % |  |  |  |  |  |  |  |
Net loss | (9) |  |  | (155) |  |  | 146 |  |  | 94 | % |  |  |  |  |  |  |  |
Net loss attributable to SGC | $ | (15) |  |  | $ | (159) |  |  | $ | 144 |  |  | 91 | % |  |  |  |  |  |  |  |

Revenue

Consolidated Revenue by Business Segment
(in millions)
Three Months Ended March 31, 2021 and 2020 |  |

As described in the “Recent Events – Impact of COVID-19” section above, our total revenue, primarily revenues for the Gaming business segment, continue to reflect the unfavorable economic conditions caused by the COVID-19 disruptions despite the scaling back of certain COVID-19 restrictions and measures. SciPlay revenue increased by $33 million primarily
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due to increased Mobile platform revenue, which reflects a continued trend of players migrating from web to mobile platforms to play our games and the popularity of our games. Lottery instant ticket sales revenue increased primarily due to the impact of COVID-19 on the prior year and the return to normal operations in 2021, coupled with the large lottery jackpots in the first quarter of 2021, driving both instant product sales and system increases.
Given the impact of the beginning of the COVID-19 pandemic on the prior year period, we also present below certain sequential comparisons to the quarter ended December 31, 2020, in order to provide additional context for our results of operations. During the three months ended March 31, 2021, total revenue, compared to the three months ended December 31, 2020, decreased from $762 million to $729 million, representing a 4% percent decrease, primarily driven by lower Gaming business segment revenue and particularly lower Gaming machine sales due to completion of orders during 2020 that were delayed as a result of COVID-19 business disruptions, which resulted in 5,737 more units sold in the three months ended December 31, 2020, primarily related to international shipments.
Operating Expenses

| Three Months Ended March 31, |  | Variance |  |  |  |
($ in millions) | 2021 |  | 2020 |  | 2021 vs. 2020 |  |  |  |  |  |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of services | $ | 139 |  |  | $ | 130 |  |  | $ | 9 |  |  | 7 | % |  |  |  |  |  |  |  |
Cost of product sales | 50 |  |  | 91 |  |  | (41) |  |  | (45) | % |  |  |  |  |  |  |  |
Cost of instant products | 77 |  |  | 73 |  |  | 4 |  |  | 5 | % |  |  |  |  |  |  |  |
SG&A | 186 |  |  | 198 |  |  | (12) |  |  | (6) | % |  |  |  |  |  |  |  |
R&D | 52 |  |  | 51 |  |  | 1 |  |  | 2 | % |  |  |  |  |  |  |  |
D&A | 123 |  |  | 138 |  |  | (15) |  |  | (11) | % |  |  |  |  |  |  |  |
Goodwill impairment | — |  |  | 54 |  |  | (54) |  |  | (100) | % |  |  |  |  |  |  |  |
Restructuring and other | 21 |  |  | 22 |  |  | (1) |  |  | (5) | % |  |  |  |  |  |  |  |
Total operating expenses | $ | 648 |  |  | $ | 757 |  |  | $ | (109) |  |  | (14) | % |  |  |  |  |  |  |  |

Cost of Revenue
Total cost of revenue decreased as a direct result of lower revenue due to the continued COVID-19 impact on our Gaming business segment coupled with the prior year period’s $9 million Gaming products inventory charge for excess and obsolete inventory. The total decrease is partially offset by the increased cost of revenue related to our SciPlay segment correlated with revenue growth.
SG&A
SG&A decreased primarily due to the prior year period’s $28 million charge in Gaming business segment allowance for credit losses that reflected credit deterioration due to the COVID-19 disruptions generally and credit weakness specifically in our Latin America receivables portfolio, which was partially offset by increased stock based compensation expenses of $9 million and SciPlay player acquisition cost of $5 million.
D&A
The decrease in D&A is primarily due to certain gaming equipment, intangible assets and software primarily associated with historical acquisitions becoming fully depreciated and amortized in the prior year period.
Goodwill Impairment
Goodwill impairment recorded during the prior year quarter was related to our legacy U.K. Gaming reporting unit.
Restructuring and Other
The decrease in restructuring and other is primarily due to higher COVID-19 business disruption charges in the prior year period, partially offset by charges related to strategic and business optimization initiatives in the current year period.
Other Factor Affecting Net Loss Attributable to SGC
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| Three Months Ended March 31, |  |  |  | Factor Affecting Net Loss Attributable to SGC
(in millions) | 2021 |  | 2020 |  |  |  |  |  | 2021 vs. 2020
Gain on remeasurement of debt | 25 |  |  | 10 |  |  |  |  |  |  | Gains are attributable to remeasurement of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes and reflect changes in the Euro vs. the U.S. Dollar foreign exchange rates between the comparable periods. 81% of our Euro Notes were not treated as a net investment hedge in the first quarter of 2021 compared to 70% in the first quarter of 2020.

See “Business Segments Results” below for a more detailed explanation of the significant changes in our components of revenue within the individual segment results of operations.
BUSINESS SEGMENTS RESULTS (for the three months ended March 31, 2021 compared to the three months ended March 31, 2020)
GAMING
Our Gaming business segment designs, develops, manufactures, markets and distributes a comprehensive portfolio of gaming products and services. We provide our Gaming portfolio of products and services to commercial casinos, Native American casinos, wide-area gaming operators such as LBOs, arcade and bingo operators in the U.K. and continental Europe, and government agencies and their affiliated operators. Our equity investment in Roberts Communications Network, LLC is included in our Gaming business segment.
We generate Gaming revenue from both services and product sales. Our services revenue includes revenue earned from Participation gaming machines, other leased gaming machines (including VLTs and electronic table games), supplied table products and services (including Shufflers), casino management technology solutions and systems, and other services revenues. Our product sales revenue includes the sale of new and used gaming machines, electronic table games, VLTs and VGTs, casino-management technology solutions and systems, table products, proprietary table game licensing, conversion kits (including game, hardware or operating system conversions) and spare parts.
For additional information, refer to the Gaming primary business activities summary included within “Business Segment Results” under Item 7 of our 2020 10-K.
Current Year Update
See the “Business Overview – Recent Events – Impact of COVID-19” section above for a description of the COVID-19 impact on our Gaming business segment, which continued to have an adverse effect on our results of operations and cash flows in the first quarter of 2021 and is expected to continue into the second quarter of 2021 and potentially beyond as social distancing mitigation measures, which are slowly being rolled back, continue to be enforced. In the near term, we also expect to see a decrease in the demand for our Gaming products as gaming operators continue to operate at limited capacity. We continue to monitor consumer behaviors for any increase in traffic to gaming establishments as a result of easing restrictions. See also “Description of the Business and Summary of Significant Accounting Policies - Impact of COVID-19” in Note 1 of our 2020 10-K.
Results of Operations and KPIs

Three Months Ended March 31, 2021 and 2020 |  |

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Revenue

| Three Months Ended March 31, |  | Variance |  |  |  |
($ in millions) | 2021 |  | 2020 |  | 2021 vs. 2020 |  |  |  |  |  |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gaming operations | $ | 113 |  |  | $ | 119 |  |  | $ | (6) |  |  | (5) | % |  |  |  |  |  |  |  |
Machine sales | 55 |  |  | 92 |  |  | (37) |  |  | (40) | % |  |  |  |  |  |  |  |
Systems | 42 |  |  | 55 |  |  | (13) |  |  | (24) | % |  |  |  |  |  |  |  |
Table products | 34 |  |  | 52 |  |  | (18) |  |  | (35) | % |  |  |  |  |  |  |  |
Total revenue | $ | 244 |  |  | $ | 318 |  |  | $ | (74) |  |  | (23) | % |  |  |  |  |  |  |  |
F/X impact on revenue | $ | 2 |  |  | $ | (1) |  |  | $ | 3 |  |  | (300) | % |  |  |  |  |  |  |  |
Gaming KPIs: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. and Canada units: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Installed base at period end | 29,809 |  |  | 30,469 |  |  | (660) |  |  | (2) | % |  |  |  |  |  |  |  |
Average daily revenue per unit | $ | 35.45 |  |  | $ | 31.28 |  |  | $ | 4.17 |  |  | 13 | % |  |  |  |  |  |  |  |
International units(1): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Installed base at period end | 31,703 |  |  | 34,372 |  |  | (2,669) |  |  | (8) | % |  |  |  |  |  |  |  |
Average daily revenue per unit | $ | 3.03 |  |  | $ | 8.23 |  |  | $ | (5.20) |  |  | (63) | % |  |  |  |  |  |  |  |
Gaming machine unit sales: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. and Canada new unit shipments | 1,943 |  |  | 2,890 |  |  | (947) |  |  | (33) | % |  |  |  |  |  |  |  |
International new unit shipments | 656 |  |  | 2,003 |  |  | (1,347) |  |  | (67) | % |  |  |  |  |  |  |  |
Total new unit shipments | 2,599 |  |  | 4,893 |  |  | (2,294) |  |  | (47) | % |  |  |  |  |  |  |  |
Average sales price per new unit | $ | 16,622 |  |  | $ | 15,872 |  |  | $ | 750 |  |  | 5 | % |  |  |  |  |  |  |  |
(1) Excludes the impact of game content licensing revenue.

While we continue to see increased demand, Gaming revenue continues to be impacted by the COVID-19 disruptions, as described above, and as the continuation of social distancing requirements (including reduced floor capacities, table play customer limitations and reduction of slot machines available for play), implemented in the first half of 2020, are still being enforced in certain jurisdictions. Even as the restrictions are being eased, the mitigation measures are expected to continue for an indeterminate amount of time, these will continue to affect consumer behavior and thus we expect to continue to see the impact on our gaming segment through 2021 and potentially beyond.
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During the three months ended March 31, 2021, Gaming revenues, compared to the three months ended December 31, 2020, decreased from $286 million to $244 million driven by lower Gaming machine sales (see Consolidated Results – Revenue above).
Gaming Operations
Gaming operations revenue decreased primarily due to the COVID-19 disruptions described above causing a 660-unit decrease in the U.S. and Canada ending installed base and a 2,669-unit decrease in the International ending installed base coupled with a decrease in International average daily revenues per unit.
Gaming Machine Sales
Gaming machine sales revenue decreased primarily due to the impact of COVID-19 as described above, driving lower unit shipments primarily in replacement unit sales, which was partially offset by an increase in average sales price per unit. The following table summarizes Gaming machine sales changes:

| Three Months Ended March 31, |  | Variance |  |  |  |
| 2021 |  | 2020 |  | 2021 vs. 2020 |  |  |  |  |  |
U.S. and Canada unit shipments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Replacement units | 1,623 |  |  | 1,744 |  |  | (121) |  |  | (7) | % |  |  |  |  |  |  |  |
Casino opening and expansion units | 320 |  |  | 1,146 |  |  | (826) |  |  | (72) | % |  |  |  |  |  |  |  |
Total unit shipments | 1,943 |  |  | 2,890 |  |  | (947) |  |  | (33) | % |  |  |  |  |  |  |  |
International unit shipments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Replacement units | 656 |  |  | 1,827 |  |  | (1,171) |  |  | (64) | % |  |  |  |  |  |  |  |
Casino opening and expansion units | — |  |  | 176 |  |  | (176) |  |  | (100) | % |  |  |  |  |  |  |  |
Total unit shipments | 656 |  |  | 2,003 |  |  | (1,347) |  |  | (67) | % |  |  |  |  |  |  |  |

Operating Expenses and AEBITDA
Operating expenses decreased by $162 million primarily due to the first quarter of 2020 including a number of charges which did not recur in 2021. Notably, the three months ended March 31, 2020 included: (1) a $54 million goodwill impairment charge related to our U.K. Gaming unit; (2) a $28 million increase in allowance for credit losses; and (3) a $9 million charge for excess and obsolete inventory. Combined, these three items in 2020 represent $91 million or 56% of the decrease from the prior year period, with the latter two charges decreasing the prior year period’s AEBITDA by $37 million. The remaining $71 million year over year decrease in operating expenses is due to $36 million in lower cost of revenue driven by the decrease in revenue as described above along with $14 million in lower D&A due to certain gaming equipment, intangible assets and software primarily associated with historical acquisitions becoming fully depreciated and amortized in the prior year period, $9 million in lower restructuring charges and $12 million in other operating expenses.
AEBITDA as a percentage of revenue (“AEBITDA margin”) increased by 14 percentage points, to 44% which is primarily due to $37 million related to allowance for credit loss and inventory charges in the prior year period.
AEBITDA for the three months ended March 31, 2021 compared to the three months ended December 31, 2020, increased from $105 million to $108 million primarily due to allowance for credit losses recognized in the prior year period partially offset by increased SG&A compensation and benefit expenses.
LOTTERY
Our Lottery segment is primarily comprised of our instant products business, systems-based services and product sales business. Our systems-based services and product sales business provide customized enterprise systems computer software, software support, equipment and data communication services, game content, and related products for retail and digital lottery draw and instant games, sports and virtual sports, and keno to lotteries. In the U.S., we typically provide the necessary POS terminals and equipment, internet and mobile solutions, software and maintenance services on a Participation basis under contracts that typically have an initial term of up to ten years. Internationally, we typically sell POS terminals and mobile lottery wagering platforms, related computer software and products, and technical operations services to lottery authorities and may provide ongoing fee-based systems maintenance and software support services.
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Our instant products business 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 SGEP program. In addition, we provide licensed games, promotional entertainment and internet-based marketing services to the lottery industry. These revenues are presented as Instant products revenue. For further details on our Lottery segment’s primary business activities refer to the “Business Segment Results” under Item 7 of our 2020 10-K.
Current Year Update
See “Business Overview – Recent Events – Impacts of COVID-19” section above for a description of the COVID-19 impact on our Lottery business segment, which has shown overall growth as our current period results reflect both higher Instant products and Systems revenues. We believe we will continue to face intense price-based competition in our Lottery business through the remainder of 2021 and potentially beyond. In the near term, we also expect to see an increase in the number of jurisdictions that seek to privatize or outsource lottery operations and to face strong competition from both traditional and new competitors with respect to these opportunities. We anticipate that lottery requests for proposals, specifically those for private management agreements and certain of our international customers, could increasingly include terms that expose us to increased risk, such as requiring the guarantee of specific income thresholds or significant upfront payments.
Results of Operations and KPIs

Three Months Ended March 31, 2021 and 2020 |  |

Revenue

| Three Months Ended March 31, |  | Variance |  |  |  |
($ in millions) | 2021 |  | 2020 |  | 2021 vs. 2020 |  |  |  |  |  |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Instant products | $ | 162 |  |  | $ | 136 |  |  | $ | 26 |  |  | 19 | % |  |  |  |  |  |  |  |
Lottery systems | 86 |  |  | 76 |  |  | 10 |  |  | 13 | % |  |  |  |  |  |  |  |
Total revenue | $ | 248 |  |  | $ | 212 |  |  | $ | 36 |  |  | 17 | % |  |  |  |  |  |  |  |
F/X impact on revenue | $ | 3 |  |  | $ | (1) |  |  | $ | 4 |  |  | 400 | % |  |  |  |  |  |  |  |

The increase in Instant products revenue is primarily due to the impact of COVID-19 on the prior year results along with the large lottery jackpots in the first quarter of 2021 driving both instant products sales and system increases.
Operating Expenses and AEBITDA
The increase in operating expenses is primarily due to increased cost of sales and SG&A, partially offset by lower restructuring and other costs. The increase in AEBITDA is directly correlated with increased revenues (as described above) coupled with higher EBITDA from equity investments.
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AEBITDA margin increased by 11 percentage points, to 48%, which is primarily driven by the higher revenue as described above, coupled with higher EBITDA from equity investments reflective of continuing recovery from COVID-19 disruptions.
SCIPLAY
Our SciPlay business segment is a leading developer and publisher of social games on mobile and web platforms. SciPlay currently offers seven core games, including social casino games Jackpot Party Casino, Gold Fish Casino, Hot Shot Casino® and Quick Hit® Slots, and casual games MONOPOLY Slots, Bingo Showdown® and 88 Fortunes® Slots and recently added a solitaire social game as a part of the Come2Play acquisition. SciPlay’s social casino games typically include slots-style game play and occasionally include table games-style game play, while SciPlay’s casual games blend slots-style or bingo game play with adventure game features. All of SciPlay’s games are offered and played on multiple platforms, including Apple, Google, Facebook, Amazon, and the Microsoft platform. In addition to SciPlay’s internally created games, SciPlay’s content library includes recognizable, real-world slot and table games content from SGC. This content allows players who like playing land-based slot machines to enjoy some of those same titles in SciPlay’s free-to-play games. SciPlay has access to SGC’s library of more than 1,500 iconic casino titles, including titles and content from third-party licensed brands such as MONOPOLY, JAMES BOND™, THE FLINTSTONES™, MICHAEL JACKSON™, and PLAYBOY™.
We generate substantially all of our revenue from the sale of coins, chips and cards which players can use to play our games. Players who install our games receive free coins, chips and cards upon the initial launch of the game and additional free coins, chips and cards at specific time intervals. Players may exhaust the coins, chips and cards that they receive for free and may choose to purchase additional coins, chips and cards in order to extend their time of game play. Once obtained, coins, chips and cards (either free or purchased) cannot be redeemed for cash nor exchanged for anything other than game play within our apps. We distribute our games through various global social web and mobile platforms such as Facebook, Apple, Google, Amazon, Microsoft, and other web and mobile platforms. The games are primarily our WMS®, Bally®, Barcrest®, and SHFL® branded games. We offer both third-party branded games and original content.
Current Year Update
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 have implemented measures to prevent its spread, including the temporary closure of all non-essential businesses and travel restrictions. As a result of the COVID-19 pandemic and resulting stay at home measures, many of our current and potential players may have significantly more free time to play our games, however they may also experience sustained consumer unease and have lower discretionary income. While the increased player engagement we experienced during the first half of 2020 as a result of the stay at home measures across the U.S. has begun to recede, we are still seeing a higher number of paying players compared to the three months ended March 31, 2020. We are not able to predict and quantify the ultimate impact of further COVID-19 developments on our results of operations in future periods.
Results of Operations and KPIs

Three Months Ended March 31, 2021 and 2020 |  |

Revenue
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| Three Months Ended March 31, |  | Variance |  |  |  |
($ in millions) | 2021 |  | 2020 |  | 2021 vs. 2020 |  |  |  |  |  |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mobile | $ | 133 |  | $ | 101 |  | $ | 32 |  |  | 32 | % |  |  |  |  |  |  |  |
Web and other | 18 |  | 17 |  | 1 |  |  | 6 | % |  |  |  |  |  |  |  |
Total revenue | $ | 151 |  | $ | 118 |  | $ | 33 |  |  | 28 | % |  |  |  |  |  |  |  |
SciPlay KPIs: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mobile Penetration(1) | 88 | % |  | 85 | % |  | 3pp |  | nm |  |  |  |  |  |  |  |
Average MAU(2) | 6.7 |  | 7.5 |  | (0.8) |  | (11) | % |  |  |  |  |  |  |  |
Average DAU(3) | 2.5 |  | 2.6 |  | (0.1) |  | (4) | % |  |  |  |  |  |  |  |
ARPDAU(4) | $ | 0.67 |  | $ | 0.49 |  | $ | 0.18 |  |  | 37 | % |  |  |  |  |  |  |  |
nm = not meaningful. pp = percentage points. (1) Mobile penetration is defined as the percentage of business to consumer SciPlay revenue generated from mobile platforms. (2) MAU = Monthly Active Users is a count of visitors to our sites during a month. An individual who plays multiple games or from multiple devices may, in certain circumstances, be counted more than once. However, we use third-party data to limit the occurrence of multiple counting. (3) DAU = Daily Active Users is a count of visitors to our sites during a day. An individual who plays multiple games or from multiple devices may, in certain circumstances, be counted more than once. However, we use third-party data to limit the occurrence of multiple counting. (4) ARPDAU = Average revenue per DAU is calculated by dividing revenue for a period by the DAU for the period by the number of days for the period.

The increase in mobile penetration percentage primarily reflects a continued trend of players migrating from web to mobile platforms to play our games.
Average MAU and average DAU decreased due to the turnover in users. ARPDAU increased due to introduction of new content and features, and ongoing popularity of our games.
Operating Expenses and AEBITDA
The increase in operating expenses is primarily correlated with the increase in revenues (as described above) coupled with an increase in salaries and benefits as a result of increased headcount.
AEBITDA increased primarily due to an increase in revenue, partially offset by the increases in operating expenses, as described above. AEBITDA margin increased by 1 percentage point for the three months ended March 31, 2021 as a result of the above stated drivers.
DIGITAL
Our Digital segment provides a comprehensive suite of digital iGaming, iLottery and sports betting solutions and services, including digital RMG and sports wagering solutions, distribution platforms, content, products and services. A portion of our Digital revenue consists of professional services related to highly customized software design, development, licensing, maintenance and support services, which are derived from a comprehensive suite of technology solutions. These technology solutions allow our customers to operate sports books, which can offer sport (or non-sport) events and betting markets across both fixed-odds and pari-mutuel betting styles. We also provide the Open Platform System which offers a wide range of reporting and administrative functions and tools providing operators full control over all areas of digital gaming operations. Additionally, we derive revenue from our content aggregation platforms, including Open Gaming System (OGS), remote gaming servers, and various other platforms, which can deliver a wide spectrum of internally developed and branded casino-style games and popular third-party provider casino-style games to gaming operators. Generally, we host the play of our game content on our centrally-located servers that are integrated with the online casino operators’ websites.
Current Year Update
Gaming and other revenue increased, which was partially offset by a decrease in Sports and platform revenue primarily due to a cancellation fee of $7 million associated with certain legacy agreements that were modified in the prior year period. We continue to expand our customer base and capitalize on both iGaming and sports opportunities in the U.S. by leveraging our industry leading platforms, content and solutions. While we believe that we are well positioned and continue to successfully expand our customer base and capitalize on U.S. sports-betting markets, we expect to see increased levels of intense competition.
Results of Operations and KPIs

Three Months Ended March 31, 2021 and 2020 |  |

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Revenue

| Three Months Ended March 31, |  | Variance |  |  |  |
($ in millions) | 2021 |  | 2020 |  | 2021 vs. 2020 |  |  |  |  |  |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sports and platform | $ | 33 |  |  | $ | 38 |  |  | $ | (5) |  |  | (13) | % |  |  |  |  |  |  |  |
Gaming and other | 53 |  |  | 39 |  |  | 14 |  |  | 36 | % |  |  |  |  |  |  |  |
Total revenue | $ | 86 |  |  | $ | 77 |  |  | $ | 9 |  |  | 12 | % |  |  |  |  |  |  |  |
F/X impact on revenue | $ | 4 |  |  | $ | — |  |  | $ | 4 |  |  | nm |  |  |  |  |  |  |  |
Gaming KPI: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Wagers processed through OGS (in billions) | $ | 16.9 |  |  | $ | 9.9 |  |  | $ | 7.0 |  |  | 71 | % |  |  |  |  |  |  |  |

The increase in Gaming and other revenue and AEBITDA is primarily due to increased free time and stay at home measures as a result of COVID-19 disruptions. The decrease in Sports and platform revenue was primarily due to cancellation fees associated with certain legacy agreements that were modified and recognized in the prior year period.
AEBITDA margin increased by 4 percentage points to 34%.
RECENTLY ISSUED ACCOUNTING GUIDANCE
We do not expect that any recently issued accounting guidance will have a significant effect on our consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
For a description of our policies regarding our critical accounting estimates, see “Critical Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 10-K.
There have been no significant changes in our critical accounting estimate policies or the application of those policies to our condensed consolidated financial statements from those presented in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 10-K.
LIQUIDITY, CAPITAL RESOURCES AND WORKING CAPITAL
Cash and Available Liquidity
As of March 31, 2021, our principal sources of liquidity, other than cash flows provided by operating activities, were cash and cash equivalents, including SciPlay cash and cash equivalents (for our SciPlay business segment), and amounts available under the SciPlay Revolver (for our SciPlay business segment).
Cash and Available Revolver Capacity
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(in millions) |  | Cash and cash equivalents |  | Revolver capacity |  | Revolver capacity drawn or committed to letters of credit |  | Total
SGC (excluding SciPlay) |  | $ | 695 |  |  | $ | 650 |  |  | $ | (447) |  |  | $ | 898 |
SciPlay |  | 272 |  |  | 150 |  |  | — |  |  | 422 |
Total as of March 31, 2021 |  | $ | 967 |  |  | $ | 800 |  |  | $ | (447) |  |  | $ | 1,320 |
SGC (excluding SciPlay) |  | $ | 747 |  |  | $ | 650 |  |  | $ | (547) |  |  | $ | 850 |
SciPlay |  | 269 |  |  | 150 |  |  | — |  |  | 419 |
Total as of December 31, 2020 |  | $ | 1,016 |  |  | $ | 800 |  |  | $ | (547) |  |  | $ | 1,269 |

Total cash held by our foreign subsidiaries was $180 million and $173 million as of March 31, 2021 and December 31, 2020, respectively. We believe that substantially all cash held outside the U.S. is free from legal encumbrances or similar restrictions that would prevent it from being available to meet our global liquidity needs.
Our Gaming operations and Lottery systems businesses generally require significant upfront capital expenditures, and we may need to incur additional capital expenditures in order to retain or win new contracts. Our ability to make payments on and to refinance our indebtedness and other obligations depends on our ability to generate cash in the future. We may also, from time to time, repurchase or otherwise retire or refinance our debt, through our subsidiaries or otherwise. In the event we pursue significant acquisitions or other expansion opportunities, we may need to raise additional capital. If we do not have adequate liquidity to support these activities, we may be unable to obtain financing for these cash needs on favorable terms or at all. For additional information regarding our cash needs and related risks, see “Risk Factors” under Part I, Item 1A in our 2020 10-K.
In addition, Lottery customers in the U.S. generally require service providers to provide performance bonds in connection with the relevant contract. As of March 31, 2021 our outstanding performance bonds totaled $253 million. Our ability to obtain performance bonds on commercially reasonable terms is subject to our financial condition and to prevailing market conditions, which may be impacted by economic and political events. Although we have not experienced difficulty in obtaining such bonds to date, we cannot assure that we will continue to be able to obtain performance bonds on commercially reasonable terms, or at all. For additional information regarding our surety or performance bonds in connection with our contracts, see “Risk Factors” under Part I, Item 1A in our 2020 10-K.
In April 2021, we made a voluntary payment of $150 million on SGI’s revolving credit facility.
Cash Flow Summary

| Three Months Ended March 31, |  | Variance
($ in millions) | 2021 |  | 2020 |  | 2021 vs. 2020
Net cash provided by operating activities | $ | 123 |  |  | $ | 120 |  |  | $ | 3 |
Net cash used in investing activities | (61) |  |  | (31) |  |  | (30) |
Net cash used in financing activities | (139) |  |  | (59) |  |  | (80) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1) |  |  | (5) |  |  | 4 |
(Decrease) increase in cash, cash equivalents and restricted cash | $ | (78) |  |  | $ | 25 |  |  | $ | (103) |

Cash Flows from Operating Activities

| Three Months Ended March 31, |  | Variance
($ in millions) | 2021 |  | 2020 |  | 2021 vs. 2020
Net loss | $ | (9) |  |  | (155) |  |  | $ | 146 |
Adjustments to reconcile net loss to cash provided by operating activities | 122 |  |  | 243 |  |  | (121) |
Changes in working capital accounts | 9 |  |  | 25 |  |  | (16) |
Changes in deferred income taxes and other | 1 |  |  | 7 |  |  | (6) |

Net cash provided by operating activities increased primarily due to a $25 million increase in earnings (after adjustments to reconcile net loss to cash flows from operations) as certain restrictions due to COVID-19 have been lifted, which was partially offset by a $22 million unfavorable change in working capital accounts and other. Changes in working capital
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accounts for the three months ended March 31, 2021 were primarily driven by higher billings as recovery from the COVID-19 pandemic continues to gain momentum, coupled with cash management and timing of expenditures.
Cash Flows from Investing Activities
Net cash used in investing activities increased as the prior year period included $22 million in proceeds from sale of assets, which was partially offset by higher contributions to equity method investments and lower capital expenditures. Capital expenditures are composed of investments in systems, equipment and other assets related to contracts, property and equipment, intangible assets and software.
Cash Flows from Financing Activities
Net cash used in financing activities increased primarily due to the repayment of $100 million under SGI’s revolving credit facility made on February 18, 2021.
Credit Agreement and Other Debt
For additional information regarding our credit agreement and other debt, interest rate risk and interest rate hedging instruments, see Notes 15 and 16 and Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our 2020 10-K and Item 3 below.
Off-Balance Sheet Arrangements
As of March 31, 2021, we did not have any significant off-balance sheet arrangements.
Contractual Obligations
There have been no material changes to our contractual obligations disclosed under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity, Capital Resources and Working Capital — Contractual Obligations” in our 2020 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign exchange rates and commodity prices. The following are our primary exposures to market risks:
Interest Rate Risk
As of March 31, 2021, the face value of long-term debt was $9,265 million, including $4,485 million of variable-rate obligations. Assuming a constant outstanding balance for our variable-rate long term debt, a hypothetical 1% change in interest rates would decrease/increase interest expense by approximately $45 million. All of our interest rate sensitive financial instruments are held for other than trading purposes.
We currently use interest rate swap contracts to mitigate interest rate risk associated with a portion of our variable rate debt instruments. The objective of our interest rate swap contracts, which are designated as cash flow hedges of the future interest payments, is to eliminate the variability of cash flows attributable to the LIBOR component of interest expense to be paid on a portion of our variable rate debt.
Cross-Currency Interest Rate Swaps
In connection with the February 2018 Refinancing (see Note 15 in our 2020 10-K), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting $460 million of our fixed-rate U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to a fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. We have designated these cross-currency interest rate swap agreements as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar.
As of March 31, 2021, if these cross-currency interest rate swap agreements were ineffective, the fluctuations in the exchange rates between the Euro and the U.S. Dollar would impact the amount of U.S. Dollars that we would require to settle the Euro-denominated debt at maturity of these agreements. A hypothetical 10% change in the U.S. Dollar in comparison to the Euro exchange rate upon inception of the cross-currency interest rate swap would have increased/decreased our obligation to cash settle the exchanged principal portion in U.S. Dollars by approximately $46 million.
Net Investment Non-derivative Hedge - 2026 Secured Euro Notes
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In February 2018, we designated a portion of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar.
Fluctuations in the exchange rates between the Euro and the U.S. Dollar will impact the amount of U.S. Dollars that we will require to settle the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes at maturity. A hypothetical 10% change in U.S. Dollar in comparison to the Euro as of March 31, 2021, would have increased/decreased our obligation to cash settle the principal portion of the 2026 Secured and Unsecured Euro Notes in U.S. Dollars by approximately $67 million.
For additional information regarding interest rate swap contracts, cross-currency interest rate swaps and net investment non-derivative hedges, see Note 12.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 3a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of March 31, 2021.
There were no changes in our internal control over financial reporting during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of our legal proceedings, see Note 16 in this Quarterly Report on Form 10-Q and Note 21 in our 2020 10-K.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed under Item 1A “Risk Factors” included in our 2020 10-K, except as noted below.
The provisions of our bylaws requiring exclusive forum in the Eighth Judicial District Court of Clark County, Nevada for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.
Our bylaws provide that, to the fullest extent permitted by law, and unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada, will be the sole and exclusive forum for any actions, suits or proceedings, whether civil, administrative or investigative or that assert any claim or counterclaim (i) brought in our name or right or on our behalf, (ii) asserting a claim for breach of any fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) arising or asserting a claim arising pursuant to any provision of Nevada Revised Statutes (“NRS”), Chapters 78 or 92A or any provision of our articles of incorporation or our bylaws or (iv) asserting a claim governed by the internal affairs doctrine. Our bylaws further provide that, in the event that the Eighth Judicial District Court of Clark County, Nevada does not have jurisdiction over any such action, suit or proceeding, then any other state district court located in the State of Nevada will be the sole and exclusive forum therefor and in the event that no state district court in the State of Nevada has jurisdiction over any such action, suit or proceeding, then a federal court located within the State of Nevada will be the sole and exclusive forum therefor. Application of the choice of forum provisions may be limited in some instances by law. Section 27 of the Exchange Act establishes exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. In addition, Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over lawsuits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. To the extent our bylaws restrict the courts in which claims arising under the federal securities laws may be brought, there is uncertainty as to whether a court would enforce such a provision and we note that our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
Although we believe these provisions benefit us by providing increased consistency in the application of Nevada law in the types of lawsuits to which they apply, these provisions may have the effect of increasing the costs to bring a claim and limiting a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors and officers, which may discourage lawsuits against us or our directors and officers. The enforceability of similar choice of forum provisions in other companies’ articles of incorporation and bylaws has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions
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contained in our bylaws to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provisions contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There was no stock repurchase activity during the three months ended March 31, 2021.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits

Exhibit Number |  | Description
3.1(a) |  | Articles of Merger filed with the Secretary of State of the State of Nevada on January 10, 2018 (incorporated by reference to Exhibit 3.3 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).
3.1(b) |  | Certificate of Merger filed with the Secretary of State of the State of Delaware on January 10, 2018 (incorporated by reference to Exhibit 3.4 to Scientific Games Corporation's Current Report on Form 8-K filed on January 10, 2018).
3.1(c) |  | Amended and Restated Articles of Incorporation of Scientific Games Corporation, filed with the Secretary of State of the State of Nevada on January 10, 2018 (incorporated by reference to Exhibit 3.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).
3.2 |  | Amended and Restated Bylaws of Scientific Games Corporation, effective as of January 10, 2018 (incorporated by reference to Exhibit 3.2 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).
4.1 |  | Supplemental Indenture, dated as of January 5, 2021, by and among Scientific Games International, Inc., as issuer, SGI Lottery LLC and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of July 1, 2020, as amended and supplemented, relating to the 8.625% Senior Unsecured Notes due 2025 (incorporated by reference to Exhibit 4.48 to Scientific Games Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020).
10.1 |  | Amended and Restated Employment Agreement, dated as of February 5, 2021 (effective as of June 1, 2021), by and between Scientific Games Corporation and Barry Cottle (incorporated by reference to Exhibit 10.52 to Scientific Games Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020).*
10.2 |  | Amendment to Employment Agreement, dated as of February 23, 2021, by and between Scientific Games Corporation and Michael Winterscheidt.*(†)
31.1 |  | Certification of the Chief Executive Officer of Scientific Games Corporation pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (†)
31.2 |  | Certification of the Chief Financial Officer of Scientific Games Corporation pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (†)
32.1 |  | Certification of the Chief Executive Officer of Scientific Games Corporation pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2 |  | Certification of the Chief Financial Officer of Scientific Games Corporation pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
99.1 |  | Terms and Conditions of Equity Awards to Key Employees under the Scientific Games Corporation 2003 Incentive Compensation Plan (Amended and Restated June 12, 2019) (for awards granted on or after March 2021).*(†)
101.INS |  | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | Inline XBRL Taxonomy Extension Definition Label Linkbase Document
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

(†) Filed herewith.
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** Furnished herewith.
*Management contracts and compensation plans and arrangements.
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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.

|  | SCIENTIFIC GAMES CORPORATION
|  | (Registrant)
|  | By: | /s/ Michael C. Eklund
|  | Name: | Michael C. Eklund
|  | Title: | Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary
|  | By: | /s/ Michael F. Winterscheidt
|  | Name: | Michael F. Winterscheidt
|  | Title: | Senior Vice President and Chief Accounting Officer
Dated: | May 10, 2021 |  |

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