Scientific Games Corporation
Annual Report 2014

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-K ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the fiscal year ended: December 31, 2014Oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission file number: 0-13063SCIENTIFIC GAMES CORPORATION(Exact name of registrant as specified in its charter) Delaware(State or other jurisdiction ofincorporation or organization) 81-0422894(I.R.S. EmployerIdentification No.)6650 S. El Camino RoadLas Vegas, Nevada 89118(Address of principal executive offices) (Zip Code)Registrant's telephone number, including area code: (702) 897-7150Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredClass A Common Stock, $.01 par value Nasdaq Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ýIndicate 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 of1934 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 filingrequirements for the past 90 days. Yes ý No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes ý No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendmentto this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer ý Non-accelerated filer o (Do not check ifsmaller reporting company) Smaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ýAs of June 30, 2014, the market value of voting and non-voting common equity held by non-affiliates of the registrant was $545,664,205 (1).Common shares outstanding as of March 12, 2015 were 85,524,157. DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's proxy statement relating to the 2015 annual meeting of stockholders are incorporated by reference in Part III. The proxystatement will be filed with the Securities and Exchange Commission no later than 120 days after the conclusion of the registrant's fiscal year endedDecember 31, 2014.________________________________________________________________________________________________________________________________(1)For this purpose only, "non-affiliates" excludes directors and executive officers. EXHIBIT INDEX APPEARS ON PAGE 1712TABLE OF CONTENTSPART I 6Item 1.Business8Item 1A.Risk Factors24Item 1B.Unresolved Staff Comments41Item 2.Properties42Item 3.Legal Proceedings42Item 4.Mine Safety Disclosures46 PART II 47Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities47Item 6.Selected Financial Data50Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations52Item 7A.Quantitative and Qualitative Disclosures About Market Risk78Item 8.Financial Statements and Supplementary Data79Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure79Item 9A.Controls and Procedures79Item 9B.Other Information82 PART III 83Item 10.Directors, Executive Officers and Corporate Governance83Item 11.Executive Compensation83Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters83Item 13.Certain Relationships and Related Transactions, and Director Independence83Item 14.Principal Accounting Fees and Services83 PART IV 84Item 15.Exhibits, Financial Statement Schedules843Glossary of Terms The following terms or acronyms used in this Form 10-K are defined below: Term or AcronymDefinition2016 Notes7.875% senior subordinated notes due 2016 issued by SGI2018 Notes8.125% senior subordinated notes due 2018 issued by Scientific Games Corporation2019 Notes9.250% senior subordinated notes due 2019 issued by SGI2020 Notes6.250% senior subordinated notes due 2020 issued by SGI2021 Notes6.625% senior subordinated notes due 2021 issued by SGIADSTechnology and Gaming, Ltd.ASCAccounting Standards CodificationASUAccounting Standards UpdateBallyBally Technologies, Inc.BarcrestBarcrest Group LimitedChina Loan(s)RMB denominated loans due 2014coin-inthe amount wageredCSGBeijing CITIC Scientific Games Technology Co., Ltd.CSLChina Sports LotteryD&Adepreciation and amortizationFASBFinancial Accounting Standards BoardGlobal DrawThe Global Draw LimitedGLBBeijing Guard Libang Technology Co., Ltd.Hellenic LotteriesHellenic Lotteries S.A.ITLInternational Terminal LeasingLAPlocal-area progressiveLBOlicensed betting officeLNSLotterie Nazionali S.r.l.MGDmachine games dutynet wincoin-in less payoutsNorthstar IllinoisNorthstar Lottery Group, LLCNorthstar New JerseyNorthstar New Jersey Lottery Group, LLCNoterefers to a note to our Consolidated Financial Statements in this Annual Report on Form 10-K, unless otherwise notedParsproParspro.com ehfparticipationwith respect to our gaming business, refers to gaming machines provided to customers through service or leasingarrangements in which our revenues are calculated based on: (1) a percentage of net win; (2) fixed daily fees; (3) a percentageof the coin-in; or (4) a combination of a fixed daily fee and a percentage of the coin-in, and with respect to our lotterybusiness, refers to a contract or arrangement in which the Company is paid based on a percentage of retail salesPMAprivate management agreementProvolotoSG Provoloto, S. de R.L. de C.V.R&Dresearch and developmentRacing Businessracing and venue management businessesRCNRoberts Communications Network, LLCRFPrequest for proposalRGDremote gaming dutyRMBChinese Renminbi YuanRMGreal-money gamingRSUrestricted stock unitSECSecurities and Exchange CommissionSecured Notes7.00% senior secured notes due 2022 issued by SGI4Senior Notesthe Secured Notes and the Unsecured NotesSG&Aselling, general and administrativeSGIScientific Games International, Inc.SHFLSHFL entertainment, Inc.SportechSportech plcSubordinated Notesthe 2018 Notes, 2019 Notes, 2020 Notes and 2021 NotesUnsecured Notes10.00% senior unsecured notes due 2022 issued by SGIU.S.United States of AmericaU.S. GAAPaccounting principles generally accepted in the United States of AmericaVLTvideo lottery terminalWAPwide-area progressiveWMSWMS Industries, Inc.5PART IFORWARD-LOOKING STATEMENTSThroughout this Annual Report on Form 10-K, we make "forward-looking statements" within the meaning of the U.S. Private Securities LitigationReform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use ofterminology such as "may," "will," "estimate," "intend," "plan," "continue," "believe," "expect," "anticipate," "should," "could," "potential," "opportunity,""goal" or similar terminology. The forward-looking statements contained in this Annual Report on Form 10-K are generally located in the material set forthunder the headings "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" but may befound in other locations as well. These statements are based upon management's current expectations, assumptions and estimates and are not guarantees oftiming, future results or performance. Actual results may differ materially from those contemplated in these statements due to a variety of risks anduncertainties and other factors, including, among other things:•competition;•U.S. and international economic and industry conditions, including declines in or slow growth of lottery retail sales or gross gaming revenues, reductionsin or constraints on capital spending by gaming or lottery operators and bankruptcies of, or credit risk relating to, customers;•limited growth from new gaming jurisdictions, slow addition of casinos in existing jurisdictions and declines in the replacement cycle of existinggaming machines;•ownership changes and consolidation in the casino industry;•opposition to legalized gaming or the expansion thereof;•inability to adapt to, and offer products that keep pace with, evolving technology;•inability to develop successful gaming concepts and content;•laws and government regulations, including those relating to gaming licenses and environmental laws;•inability to identify and capitalize on trends and changes in the gaming and lottery industries, including the expansion of interactive gaming;•dependence upon key providers in our social gaming business;•inability to retain or renew, or unfavorable revisions of, existing contracts, and the inability to enter into new contracts;•level of our indebtedness, higher interest rates, availability or adequacy of cash flows and liquidity to satisfy obligations or future needs, and restrictionsand covenants in debt agreements;•protection of intellectual property, inability to license third party intellectual property and the intellectual property rights of others;•security and integrity of software and systems and reliance on or failures in information technology systems;•natural events that disrupt our operations or those of our customers, suppliers or regulators;•inability to benefit from, and risks associated with, strategic equity investments and relationships, including (1) the inability of our joint venture to meetthe net income targets or otherwise to realize the anticipated benefits under its private management agreement with the Illinois lottery (or in connectionwith any termination thereof), (2) the inability of our joint venture to meet the net income targets or other requirements under its agreement to providemarketing and sales services to the New Jersey Lottery or otherwise to realize the anticipated benefits under such agreement (including as a result of aprotest) and (3) the failure to realize the anticipated benefits related to the award to our consortium of an instant lottery game concession in Greece;6•failure to achieve the intended benefits of the Bally acquisition, the WMS acquisition or our other recent acquisitions, including due to the inability tosuccessfully integrate such acquisitions or realize synergies in the anticipated amounts or within the contemplated timeframes or cost expectations, or atall;•disruption of current plans and operations in connection with our recent acquisitions (including in connection with the integration of Bally and WMS),including departure of key personnel or inability to recruit additional qualified personnel or maintain relationships with customers, suppliers or otherthird parties;•costs, charges and expenses relating to the Bally acquisition and the WMS acquisition;•inability to complete or successfully integrate any future acquisitions; •incurrence of employee termination or restructuring costs, impairment charges and implementation of complex revenue recognition standards;•fluctuations in our results due to seasonality and other factors;•dependence on suppliers and manufacturers;•risks relating to foreign operations, including fluctuations in foreign currency exchange rates, restrictions on the payment of dividends from earnings andrestrictions on the import of products;•dependence on employees;•litigation and other liabilities relating to our business, including litigation and liabilities relating to our contracts and licenses, our products and systems,our employees, intellectual property and our strategic relationships;•influence of certain stockholders; and•stock price volatility.Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from thosecontemplated in forward-looking statements is included from time to time in our filings with the SEC, including under the heading "Risk Factors" in thisAnnual Report on Form 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 obligation to publicly update any forward-looking statements whether as a result of new information, future events orotherwise.You should also note that this Annual Report on Form 10-K may contain references to industry market data and certain industry forecasts. Industrymarket data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that theinformation contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is notguaranteed. While we believe industry information to be accurate, it is not independently verified by us and we do not make any representation as to theaccuracy of that information. In general, we believe there is less publicly available information concerning the international gaming and lottery industriesthan the gaming and lottery industries in the U.S.7ITEM 1. BUSINESSUnless otherwise specified or the context otherwise indicates, (1) all references to the words "Scientific Games," "we," "us," "our" and the "Company"refer to Scientific Games Corporation and its consolidated entities (2) "SGI" refers to Scientific Games International, Inc., a wholly owned subsidiary ofScientific Games Corporation and (3) "U.S. jurisdictions" refer to the 50 states in the U.S. plus the District of Columbia.Scientific Games Corporation was incorporated in the state of Delaware on July 2, 1984. We are a leading developer of technology‑based productsand services and associated content for the worldwide gaming and lottery industries. Our portfolio includes gaming machines and game content, instant anddraw‑based lottery games, server‑based gaming and lottery systems, casino management systems, table game products and services, sports bettingtechnology, loyalty and rewards programs and interactive gaming and lottery content and services. We also gain access to technologies and pursue globalexpansion through strategic acquisitions and equity investments. We report our operations in three business segments—Gaming, Lottery and Interactive. On November 21, 2014, the Company acquired Bally for $5.1 billion (including the refinancing of approximately $1.9 billion of existing Ballyindebtedness), creating one of the largest and most diversified global gaming suppliers.SegmentsIn connection with the Bally acquisition, we reviewed our operating and business segments in light of certain changes in the financial informationregularly reviewed by our chief executive officer and other factors. Based on this review, we combined our previous lottery-related Instant Products andLottery Systems business segments into one "Lottery" segment. We also determined that the interactive operating segment should be disclosed as a separatebusiness segment and not aggregated with the gaming operating segment, reflecting the growth of the interactive operating segment. These changes, whichwere effective prior to December 31, 2014, had no impact on our consolidated financial statements for any periods. Prior-period business segment informationfor the years ended December 31, 2013 and 2012 has been adjusted to reflect the changes in business segments. See Note 2 (Business and GeographicSegments) for additional information regarding our business segments.Gaming SegmentThe gaming industry is a large and dynamic worldwide marketplace characterized by the rapid development of new technologies, products andgame content. Gaming products and services are used by a diverse group of gaming operators, including commercial and tribal casinos, riverboat casinos,horse and greyhound racetracks, bars, Jai Alai facilities, truck stops, night clubs, bingo and arcade halls, LBOs and similar venues. In addition, U.S. andinternational lotteries may offer VLTs and other forms of gaming, such as bingo and sports wagering.Our products are installed in all of the major regulated gaming jurisdictions in the U.S., as well as in approximately 146 international gamingjurisdictions. We believe the total installed base of gaming machines in North America is approximately 940,000 units and has been relatively stable inrecent years. Growth of gaming in land-based venues is driven by the opening of new casinos in both new and existing jurisdictions and the expansion ofexisting casinos. In addition, the land-based gaming supply business is significantly impacted by the rate at which casinos and other gaming operatorsreplace their gaming machines, which is dependent upon a number of factors, including their capital budgets. Virtually all sectors of the gaming industry areimpacted by changes in economic conditions that impact players’ disposable incomes.We completed our acquisition of Bally on November 21, 2014. We believe that the acquisition complements our existing gaming business byexpanding our product offerings, extends our customer base, allows us to leverage the best technologies from both companies and provides operating scale.We believe that the acquisition enhances our leadership positions in our existing gaming machine and interactive gaming businesses, and elevates us toleadership positions in sectors of the gaming industry in which we have not historically had a presence, such as casino-management systems and a variety oftable game products.The following table summarizes the primary business activities and investments included in our Gaming business segment.8Segment Primary Business Activities Equity Investments Gaming Ÿ Supplying gaming machines, conversion kits, automaticcard shufflers, roulette chip sorters and spare parts for all ofour products to commercial, tribal and governmentalgaming operators Ÿ RCN—29.4% equity interest in a provider ofcommunications services to racing and non-racingcustomers Ÿ Leasing or otherwise providing gaming machines,automatic card shufflers, roulette chip sorters, server-basedgaming systems and content and licensing proprietarytable game content to commercial, tribal andgovernmental gaming operators Ÿ ITL—50% equity interest in an entity from which welease gaming machines and provide them to ourcustomers Ÿ Providing video lottery central monitoring and controlsystems and networks for gaming regulators Ÿ Sportech—20% equity interest in an operator andsupplier of sports pools and tote systems (sold onJanuary 9, 2014) Ÿ Selling casino-management technology solutions andsystems to commercial, tribal and governmental gamingoperators The types of products and services from which our Gaming segment derives its revenues are further discussed in Note 1 (Description of the Businessand Summary of Significant Accounting Policies). Certain financial information relating to our segments, including segment revenue, operating (loss)income and total assets for the last three fiscal years and revenue and assets in the U.S. and other geographic areas, is included in Note 2 (Business andGeographic Segments). Additional information regarding our equity investments in the Gaming segment is included in Note 11 (Equity Investments).Product salesOur product sales include the sale of gaming machines, table products and casino-management technology solutions and systems to commercial,tribal and government casino operators and wide-area gaming operators as well as sales of VLTs, conversion kits (including game, hardware or operatingsystem conversions), spare parts and game content.•Gaming machines: The majority of our product sales are derived from sales of gaming machines that include our WMS Bluebird® and Blade™branded series of gaming cabinets that combine advanced graphics, digital music and sound effects and secondary bonus games, our Bally ProSeries branded cabinets that are currently available in upright, slant, spinning-reel, curve and other models, including the recently released ProWave cabinet with a unique 40-inch curved touchscreen monitor, the Pro Series Jumbo V55 cabinet measuring over nine feet tall and featuringa 55-inch widescreen vertical monitor and our SHFL Equinox branded cabinets featuring dual 22-inch widescreen LCDs, illuminated buttonpanels and ear-level speakers. We also sell electronic table systems ("ETS") to either suit the needs of particular locations where live tables arenot allowed or as productivity-enhancing solutions for other jurisdictions. Our ETS suite of products provide numerous efficiencies and benefitsto casinos including reduced downtime, virtual elimination of errors, mispays and cheating and automated reporting such as wagering statisticsand player tracking. Some of our ETS products enable us to offer table game content where live table games are not permitted, such as racinos(establishments that offer casino gaming in addition to betting on racing) and locations that provide VLTs.•Casino-management technology solutions and systems: We offer core slot, casino and table-management systems (collectively, "casino-management systems") that help our customers improve communication with players, add excitement to the gaming floor and enhanceoperating efficiencies through greater automation, reporting and business intelligence. Our comprehensive suite of technology solutionsprovides gaming operations of every size with a wide range of marketing, data management and analysis, accounting, player tracking, securityand other applications and tools to more effectively manage their operations. We also provide technologies for deployment of networked,server-based gaming environments, with centralized management and control.•Table products: Our table products sales are generated primarily from the sale of products designed to enhance table game speed, productivity,profitability and security. Our product offerings include various models of automatic card shufflers to suit specific games, as well as deckcheckers and roulette chip sorters (referred to as “Utility” products). Our card-reading shoes gather data and enable casinos to track table-gameplay and our baccarat viewer displays current game results and trends. Our roulette chip sorters efficiently count and organize chips for roulettetable games. Our Utility products are intended to cost-effectively provide increased game speed and data on table-game play for security andmarketing purposes, which in turn allows our customers to increase9their profitability. Less frequently, we will sell a lifetime license to one of our proprietary table games for use on a casino floor.•Parts sales, conversion kits, used gaming machines and game content: We sell replacement parts, used gaming machines and hardware,operating systems and content conversion kits for our gaming machines. Sales of used gaming machines are an immaterial part of our revenueand profit and we expect to substantially limit the sales of used gaming machines starting in 2015.ServicesOur services revenue includes revenue earned from participation games, other gaming machine services and table product leasing and licensing.Participation games are gaming machines provided to customers through service or leasing arrangements in which our revenues are calculated based on: (1) apercentage of net win; (2) fixed daily fees; (3) a percentage of the coin-in; or (4) a combination of a fixed daily fee and a percentage of the coin-in. Wecategorize our participation gaming machines as (1) WAP, premium and daily fee participation games and (2) other leased and participation games.WAP, premium and daily fee participation games•WAP participation games: WAP participation games are electronically linked gaming machines that are located across multiple casinos withina single gaming jurisdiction or across Native American gaming jurisdictions. Players across linked gaming machines contribute to and competefor large, system-wide progressive jackpots that are designed to increase gaming machine play for participating casinos by giving the playersthe opportunity to win a larger jackpot than on a non-WAP gaming machine. We are responsible for funding WAP jackpots. We create WAPgames using our proprietary brands and also using licensed brands. Our licensed brands include, among others; MONOPOLY™, THE WIZARDOF OZ™, SPIDER-MAN™, THE LORD OF THE RINGS™ JAMES CAMERON’S TITANIC™, MICHAEL JACKSON KING OF POP™, MICHAELJACKSON WANNA BE STARTIN’ SOMETHIN’™, THE MAGIC OF DAVID COPPERFIELD™, BETTY BOOP™ FORTUNE TELLER, GREASE®,GREASE PINK LADIES™ and WILLY WONKA AND THE CHOCOLATE FACTORY™. We operate our WAP systems in Arizona, Colorado,Louisiana, Mississippi, Missouri, Nevada and New Jersey, as well as in certain Native American casinos.•Premium and daily fee participation games: We offer two types of non-WAP premium and daily fee participation games: LAP and standalone.LAP games are gaming machines that are located within a single casino and are electronically linked to a progressive jackpot for that specificcasino. Our LAP gaming machines feature games including those offered as WAP as well as our proprietary brands such as Jackpot PartyProgressive®, Life of Luxury® Progressive and ZZ TOP LIVE FROM TEXAS™. Our LAP products leverage both exclusive brand names and gameplay intellectual property, and typically offer players the chance to win multiple progressive jackpots, all of which tend to result in a higheraverage bet on these games. Net win per gaming machine for LAP games is generally similar to non-linked standalone gaming machines on acasino floor. We also provide certain standalone participation games that are not linked to other gaming machines. Our standalone gamesfeature titles, among others, under the licensed MONOPOLY brand and our proprietary brands, as well as other licensed brands in thosejurisdictions where we do not operate a WAP system. Our standalone participation gaming machines generally feature larger, more elaboratetop-boxes and provide game play experiences not possible on a single screen game or on gaming machines that we sell.Other leased and participation games•Server-based gaming: We provide wide-area gaming operators, such as LBOs, bingo halls and arcades, a comprehensive package of server-basedproducts and services under long term contracts that typically include gaming machines, remote management of game content and managementinformation, central computer systems, secure data communication and field support services. We are typically paid a fee based on the net wingenerated by these gaming machines (subject to certain adjustments as may be specified in a particular contract, including adjustments for taxesand other fees). Our business in this category is primarily based in the U.K.•VLTs: Certain customers lease our multi-game and single-game VLTs, which include video gaming machines, mechanical reel gaming machinesand video poker games. Our VLTs may be operated as standalone units or may interface with central monitoring systems operated bygovernment agencies. Our VLTs are typically located in places where casino-style gaming is not the only attraction, such as racetracks, bars andrestaurants.•Class II and centrally determined systems: We offer video and mechanical-reel gaming machines and VLTs for Class II and certain VLTjurisdictions where the game outcome is determined by a central server system that we provide. These Class II systems primarily operate inNative American casinos in Washington, Florida, Alabama10and Oklahoma, as well as casinos in Mexico. We receive either a fixed daily fee or a percentage of the net win generated by the gamingmachines or VLTs connected to the central determination system and a small daily fee for the central determination system.Other gaming machine services•Customer-owned daily fee games: This category consists of gaming machines for which the customer purchases the base gaming machine andleases the top-box and game theme from us at a lower fixed daily lease payment than if they were to lease the entire gaming machine. Customer-owned daily fee games typically feature a second LCD screen in the top-box that provides additional bonus experiences for the player.•Licensing: We derive revenue from licensing our games and intellectual property to third parties. Methods for determining our license or royaltyrevenue vary, but are generally based on a fixed amount for each licensed game or product using the intellectual property purchased, placed orshipped in a period, a fixed daily royalty amount or a percentage of the revenue generated by the placement of the licensed game or productusing the intellectual property.Table product leasing and licensing•Utility product leasing: We offer Utility products under month-to-month lease arrangements that contain participation rates or fixed monthlylease rates. These arrangements include service of the product with back-up and replacement products available at the customer’s request.•Proprietary table games ("PTG") licensing: We license our PTG content to commercial, tribal and governmental casino operators typicallyunder month to month lease arrangements based on fixed monthly rates. PTGs which are designed to enhance operators' table-game operations,include our internally developed and acquired PTGs, side bets, add-ons and progressive features. Our proprietary content and features are alsoadded to public domain games such as poker, baccarat, pai gow poker, craps and blackjack table games and to electronic platforms.Contract ProcurementOur gaming business product sales revenue is generated on an order-by-order basis. Certain of our gaming machines are sold with extendedfinancing payment terms that are typically for a one-year period and, in some cases, up to three years. Casino-management systems are sold under contractsthat generally include a combination of casino-management systems software licenses, systems-based hardware products, maintenance and product supportfees and professional services. Our WAP, premium and daily fee lease contracts, our lease contracts for other leased and participation products, our VLTcentral monitoring and control systems contracts, our table product lease contracts and our gaming services lease contracts can generally be terminated at anytime upon notification by either the customer or us subject to the applicable notice periods. The revenue from our VLT central monitoring and controlsystems business is derived from six U.S. and three international customers and no individual contract represents a significant portion of our gaming servicerevenues.Four large bookmakers operate approximately 87% of the LBOs in the U.K. For the year ended December 31, 2014, our contracts with two of thelarge U.K. bookmakers represented a significant portion of our U.K. LBO server-based gaming business. Our current contract with Ladbrokes plc commencedon October 22, 2013 and is scheduled to expire on March 31, 2019. Our current contract with Gala Coral Group Ltd. commenced on January 1, 2010 and isset to expire on December 31, 2017.CompetitionThe gaming machine sector is highly competitive and is characterized by the continuous introduction of new games, gaming machines and relatedtechnologies. We estimate that about 25 companies in the world manufacture gaming machines and VLTs. We compete primarily with International GameTechnology ("IGT"), as well as Ainsworth Game Technology, Aristocrat Leisure Ltd ("Aristocrat"), Aruze Gaming America, Inc., Atronic Casino Technologyand SPIELO International (both of which are subsidiaries of Gtech S.p.A.), Franco Gaming Ltd., Inspired Gaming Group Limited, Konami DigitalEntertainment, Inc. ("Konami"), Multimedia Games, Inc. (which is a subsidiary of Global Cash Access Inc.) and the Novomatic Group of Companies. In theVLT category, we compete primarily with IGT, Gtech Holdings Corporation and SPIELO International. Our principal direct competitor in our U.K. LBObusiness is Inspired Gaming Group Limited.The casino-management systems business is also highly competitive. Product features and functionality, accuracy, reliability, service level andpricing are among the factors that determine how successful systems providers are in selling their systems. Our principal competitors in casino-managementsystems include Aristocrat, IGT, Konami and several smaller11providers in international jurisdictions. Competition for these products is intense due to the number of providers and the limited number of casinos andjurisdictions in which they operate.With respect to our table products, we compete on the basis of the breadth of our Utility products and services and PTGs, product reliability, service,the strength of our intellectual property and the breadth of our sales, regulatory and distribution channels. Our automated shufflers also compete against handshuffling, which remains the most competitive shuffling option for casino card games around the world. Finally, since the need for our Utility products isdependent upon the casino's use of live table games, our shufflers also compete against any products that live table games compete against.Competition for PTG content is based on player appeal, brand recognition, price and the strength of the underlying intellectual property. Wecompete on this basis, as well as on the strength of our extensive sales, service, marketing and distribution channels. We also compete with non-proprietarytable games such as blackjack and baccarat, as well as several companies that primarily develop and license PTGs such as Galaxy Gaming, Inc., MasquePublishing, Inc. and DEQ Systems Corp. It is easier for smaller companies to participate in developing and marketing PTG content as compared to othergaming products due to the lower cost and complexity associated with the development of these products. Finally, some of our product lines may competeagainst each other for space on the casino floor.Lottery SegmentLotteries are operated by U.S. and international governmental authorities and their licensees in approximately 180 jurisdictions throughout theworld. Governments typically authorize lotteries as a means of generating revenues without imposing additional taxes. Net lottery proceeds are generally setaside for public purposes, such as education, aid to the elderly, conservation, transportation and economic development. Many jurisdictions have come torely on the proceeds from lottery game sales as a significant source of funding for these programs. Although there are many types of lottery games worldwide,the two principal categories of products offered are draw lottery games and instant lottery games. Currently, 44 U.S. jurisdictions (including Puerto Rico)offer instant game lotteries and 46 U. S. jurisdictions (including Puerto Rico) offer draw lotteries.An instant lottery game is typically played by removing a scratch-off protective coating from a preprinted ticket to reveal if it is a winner. Drawlottery games, such as POWERBALL® and MEGA MILLIONS®, are based on a random selection of a series of numbers, and prizes are generally based on thenumber of winners who share the prize pool, although set prizes are also offered. Draw lottery games are generally provided through a lottery system in whichlottery terminals in retail outlets are continuously connected to a central computer system for the activation, sale and validation of lottery games and relatedfunctions. A lottery system may also be used to validate instant lottery games to confirm that a ticket is a winner and prevent duplicate payments. In somejurisdictions, separate instant game validation systems may be installed.Lotteries may offer a range of other games. In the U.S., some lotteries offer high frequency games such as keno, which is typically played every fourto five minutes in restricted social settings, such as bars, and is usually offered as an extension of the lottery system.Based on third party data, U.S. instant lottery game retail sales and draw lottery retail sales (which we define as retail sales of draw games, keno andinstant games validated by the relevant system) totaled approximately $39 billion and approximately $49 billion, respectively, for the year ended December31, 2014. We define U.S. lottery retail sales of draw games to primarily include retail sales of draw games, keno and instant games validated by the relevantsystem. Based on available published industry information, we estimate that worldwide instant lottery game retail sales and worldwide draw lottery retailsales totaled approximately $76 billion and approximately $199 billion, respectively, during fiscal year 2012.The following table summarizes the primary business activities and equity investments included in the Lottery business segment.12Segment Primary Business Activities Equity Investments Lottery Ÿ Designing, printing and selling instant lottery games Ÿ LNS—20% equity interest in the operator of the Gratta eVinci instant ticket lottery in Italy Ÿ Providing instant game-related services, such as gamedesign, sales and marketing support and inventorymanagement Ÿ Northstar Illinois—20% equity interest in the privatemanager of the Illinois Lottery Ÿ Sublicensing brands for lottery products and providinglottery-related promotional products Ÿ Northstar New Jersey—17.69% equity interest in theoperating entity that provides marketing and sales servicesto the New Jersey Lottery Ÿ Supplying player loyalty programs, merchandisingservices and interactive marketing campaigns Ÿ Hellenic Lotteries—16.5% equity interest in the operatorof the Greek state lotteries Ÿ Providing lottery systems, including equipment,software, data communication services and support Ÿ CSG—49% equity interest in the instant game supplier tothe China Sports Lottery Ÿ Providing instant game validation systems Ÿ GLB—50% equity interest in a provider of lottery systemsand services for the China Welfare Lottery Ÿ Providing software, hardware and related services forsports wagering and keno systems Ÿ Printing and selling phone cards The types of products and services from which our Lottery segment derives its revenues are further discussed in Note 1 (Description of the Businessand Summary of Significant Accounting Policies). Certain financial information relating to our segments, including segment revenue, operating (loss)income and total assets for the last three fiscal years and revenue and assets in the U.S. and other geographic areas, and revenue and assets in the U.S. andother geographic areas is included in Note 2 (Business and Geographic Segments).In 1974, we introduced the first secure instant lottery game ticket. We generate revenue from the manufacturing and sale of instant lottery games, aswell as the provision of value-added services such as game design, sales and marketing support, specialty games and promotions, inventory management,warehousing, fulfillment services, as well as full instant game category management. We believe these services help lotteries effectively manage and supporttheir operations, achieve higher retail sales and lower operating costs. We also provide licensed games and promotional and interactive marketing services tothe lottery industry.We believe we are the leading designer, manufacturer and distributor of instant lottery games in the world. We market instant lottery games andrelated services to U.S. and international lotteries and commercial customers. We supply instant lottery games to 39 of the 44 U.S. jurisdictions (includingPuerto Rico) that sell instant lottery games and have sold instant lottery games to customers in approximately 50 countries. Our U.S. instant lottery gamecontracts typically have an initial term of three to five years and frequently include multiple renewal options for additional periods ranging from one to fiveyears, which our customers have generally exercised in the past. We typically sell our instant lottery games on a price-per-unit or participation basis. Certainof our international customers purchase instant lottery games as needed rather than under multi-game supply contracts.Some of our contracts bundle the design and manufacturing of instant lottery games, instant game management systems and marketing and otherservices, such as the design and installation of game management software, inventory and distribution, sales, accounting, training and advisory services,market research and retailer training and recruitment. We are typically paid on a participation basis under these contracts.We operate five instant lottery game printing facilities across four continents (including a facility owned by CSG) with an aggregate capacity toprint in excess of 46 billion 2" by 4" equivalent standard instant lottery tickets annually. Our instant lottery tickets are typically printed on recyclable ticketstock by a series of computer-controlled presses and ink-jet imagers, which we believe incorporate the most advanced technology and security in theindustry. Instant lottery tickets generally range in size from 2" by 3" to as large as 8" by 12".The technology and security capabilities necessary to manufacture and service instant lottery games continue to separate our business fromconventional forms of printing. We believe we are generally recognized within the lottery industry13as the leader in applying computer-based technologies to the manufacturing and sale of instant lottery games. In order to maintain our position as a leadinginnovator within the lottery industry, we intend to continue to invest in the development of new technologies for instant lottery games and systems.We provide lotteries with access to some of the world's most popular entertainment brands on lottery products, which we believe helps increase ourcustomers' instant game sales. Our licensed entertainment brands include AMC®-THE WALKING DEAD®, HARLEY-DAVIDSON®, LOTERIA®, MAJORLEAGUE BASEBALL®, MARGARITAVILLE®, MONOPOLY, NATIONAL BASKETBALL ASSOCIATION®, THE PRICE IS RIGHT® and SLINGO®. We alsoprovide branded merchandise, advertising, promotional support, drawing management services and prize fulfillment programs. In addition, we offer lotteriesinteractive marketing services through our Properties Plus® program which features players clubs, reward programs, second chance promotional websites,interactive games and subscription systems that enable players to purchase lottery games securely over the internet.We are a leading provider of lottery systems, including customized computer software, software support, equipment and data communicationservices, to lotteries. In the U.S., we typically provide the necessary equipment (including point-of-sale terminals), software and maintenance servicespursuant to long-term contracts that typically have an initial term of at least five years under which we are generally paid a fee equal to a percentage of thelottery's total retail sales. Our U.S. contracts typically contain multiple renewal options that generally have been exercised by our customers in the past.Internationally, we typically sell point-of-sale terminals and/or computer software to lottery authorities and may provide ongoing fee-based systems andsoftware support services.Our lottery systems use proprietary technology that facilitates high-speed processing of draw lottery game wagers as well as validation of winningdraw and instant lottery games. This business includes the supply of proprietary transaction-processing software, draw lottery games, keno, point-of-saleterminals, central site computers and communication platforms as well as ongoing operational support and maintenance services. We believe we are a leadingprovider of lottery systems to lotteries in the U.S. and internationally. We have contracts to operate lottery systems for nine of the 46 U.S. jurisdictions(including Puerto Rico) that operate draw lotteries. In addition, we have a contract with the manager of the Indiana lottery to operate the lottery system in thestate of Indiana. Internationally, we have lottery systems operating in Canada, China, France, Germany, Hungary, Iceland, Israel, Italy, Latvia, Mexico,Norway, the Philippines, Spain and Switzerland.The fees we earn under our lottery systems contracts are generally included in our services revenue. Revenue from the sale of our point-of-saleterminals and/or computer software is included in our product sales revenue, while the fees we generate from ongoing systems and software support aregenerally included in our services revenue.We have strategic equity investments in LNS, Northstar Illinois, Northstar New Jersey, Hellenic Lotteries, CSG and GLB, which entities operate orassist in the operation of lotteries. We are also the primary provider of instant lottery games to LNS and Northstar New Jersey and the exclusive provider ofinstant lottery games to Northstar Illinois and Hellenic Lotteries. We are also the exclusive provider of instant game validation services to the CSL under anagreement that expires in January 2016 (and is not expected to be renewed). For additional information regarding our agreement with the CSL, see"Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" in Item 7 of this Annual Report on Form10-K. Additional information regarding these equity investments is included in Note 11 (Equity Investments).Contract ProcurementLotteries in the U.S. typically operate under state-mandated public procurement regulations. See further discussion in "Government Regulation" inthis Item 1 of this Annual Report on Form 10-K. Lotteries typically select an instant game or lottery system by issuing a RFP, which outlines the products andservices to be delivered and related contractual obligations. An evaluation committee frequently comprised of key lottery staff typically evaluates RFPresponses based on various criteria, including the quality of product and/or technical solutions, security plan and features, experience in the industry, qualityof personnel and services to be delivered and price. We believe that our product functionality and game content, the quality of our personnel, our technicalexpertise and our demonstrated ability to help lotteries increase their revenues may give us an advantage relative to our competitors when responding tolottery RFPs in the U.S. However, many lotteries award contracts to the qualified vendor strictly based on their offering the lowest price, regardless of theseother factors. Contract awards by lottery authorities are sometimes challenged by vendors that were not selected, which can result in protracted legalproceedings.Internationally, lottery authorities do not always utilize a formal bidding process, but rather may engage in negotiations with one or more potentialvendors. Our international lottery service contracts typically include automatic renewal provisions and may not have specified expiration dates. Theseservice contracts can generally be terminated at any time upon notification by either the customer or us subject to the applicable notice periods.14The table below lists our more significant lottery contracts representing approximately 32% of our Lottery revenue. The U.S. lottery industry's 2014fiscal year generally ended on June 30, 2014. We are the exclusive provider of systems in the lottery systems contracts listed below and we are the primarysupplier of instant lottery games where indicated below. The commencement date of the contract is the date we began generating revenue under suchcontract, which for our lottery contracts is typically the start-up date. The table below also includes instant or draw lottery game retail sales, (as applicable), ifpublicly available, for each jurisdiction.Lottery/Operator Fiscal 2014State Instant Gameor Lottery SystemsRetail Sales(in millions) Type ofContract CommencementDate ofCurrent Contract Expiration Date ofCurrent Contract(before any exerciseof remainingrenewal options) Current RenewalOptionsRemainingFlorida * $3,417 Instant Games -Participation October 2008 September 2018 NoneGeorgia * $2,728 Instant Games -Participation September 2003 September 2018 NonePennsylvania * $2,544 Instant Games -Participation August 2007 August 2017 NonePennsylvania $3,793 Lottery systems January 2009 December 2018 NoneNorthstar Illinois * $1,757 Instant Games -Participation July 2011 January 2018 NoneChina Sports Lottery (1) RMB 15,727 Lottery systems January 2008 January 2016 NoneCamelot Group plc (U.K.) (2) £2,141 Instant Games -Participation November 2013 January 2023 NoneLNS (Italy) €9,442 Instant Games - Price-per-unit October 2010 September 2019 1 nine-year____________________________________________________________________________________________________________________________________* Primary supplier (or, in the case of Northstar Illinois, exclusive supplier)(1)We currently expect that this contract will not be renewed or extended.(2)Camelot Group plc is the lottery operator of the U.K. National Lottery.CompetitionThe instant lottery game sector is highly competitive and continues to be subject to intense price-based competition. Our principal instant lotterygame competitors in the U.S. are Pollard Banknote Limited and Gtech S.p.A. Except as permitted by the North American Free Trade Agreement with respectto Canada, it is currently illegal to import lottery games into the U.S. from a foreign country. Our business could be adversely affected should additionalinternational competitors in Canada export lottery products to the U.S. or should other international competitors establish instant game printing facilities inthe U.S. or Canada to supply the U.S. Internationally, a number of instant lottery game vendors compete with us including the competitors noted above aswell as diversified printers in India, China and Latin America. Our principal competitors in the supply of lottery-related licensed games, promotionalentertainment and loyalty or rewards programs are Alchemy3 LLC, ePrize LLC, Gtech S.p.A., Pollard Banknote Limited and Intralot S.A.The lottery systems business is also highly competitive and continues to be subject to intense price-based competition. Our principal competitors inthis business are Gtech S.p.A., Intralot S.A. and Tattersalls Group. We also compete with various suppliers of lottery system components, such as terminalsand computer systems, as well as lottery operators that internally develop their own systems.As countries liberalize gaming regulations, lotteries may expand their scope by offering sports wagering, gaming machines, interactive gaming orother forms of gaming, which may introduce new suppliers that compete with us for lottery customers. In some jurisdictions, the liberalization of gamingregulations has included the privatization or outsourcing of all or a portion of the lottery operations via a competitive bidding process. We believe CamelotGroup plc, the Tattersalls Group, Gtech S.p.A. and Intralot, S.A. to be among those who may bid on such opportunities.Interactive BusinessThe rapidly evolving interactive gaming sector includes social (non-wagering) gaming and interactive RMG. Through the Interactive segment, wemake available WMS, Bally and third-party branded content directly to players of social gaming, or—in the case of RMG—directly to online casinooperators. Similar to traditional land-based gaming, the appeal and performance of our game content is an important contributor to our success in theinteractive gaming business. Our interactive gaming business is increasingly focused on products and services that operate on both mobile and desktopproducts and platforms.SegmentThe following table summarizes the primary business activities included in the Interactive business segment.15Segment Primary Business Activities Equity Investments Interactive Ÿ Operating social casino-style, slot-based games throughFacebook® and various desktop and mobile platforms. None Ÿ Provision of play-for-fun and play-for-free white-labelgaming for traditional land-based casinos. Ÿ Provision of content, via remote game server technology, tolicensed online casino operators on both desktop andmobile platforms. Ÿ Provision of content and technology for on-premises mobileinteractive gaming to traditional land-based casinos. The types of products and services from which our Interactive segment derives its revenues are further discussed in Note 1 (Description of theBusiness and Summary of Significant Accounting Policies). Certain financial information relating to our segments, including segment revenue, operating(loss) income and total assets for the last three fiscal years and revenue and assets in the U.S. and other geographic areas, is included in Note 2 (Business andGeographic Segments).We provide interactive gaming products and services for both social gaming and RMG, available via desktop and mobile devices.•Social Gaming: We host Jackpot Party® Social Casino ("JPSC") and Gold Fish® Casino Slots ("GFC") on various platforms. With the recentacquisition of Bally, we also host Dragonplay Slots, Dragonplay Poker, Live Hold’em Pro Poker and Wild Bingo. Our products are available inthe following formats: FacebookApple® platform(aka iOS)Android® platformKindle® platformMicrosoftWindows 8JPSCXXXXXGFCXXXX Dragonplay SlotsXXX XDragonplay PokerXXX Live Hold’em Pro PokerXXX Wild BingoX X In our social gaming business, we earn revenue from the sale of virtual coins or chips, which players can use to play (i.e., spin in the case of slots,bet in the case of poker) our WMS® branded (slots), Dragonplay branded (slots, poker) or third-party branded (slots) games. Revenue is recordedwhen the purchased coins or chips are used by the customer. We also host play-for-fun and play-for-free services for traditional land-basedcasinos and earn revenue based on fixed fees, a share of the proceeds from the sale of virtual coins, or a mix of fixed fees and a share of suchproceeds.•For RMG we serve online casino operators, primarily in Europe, by offering our games on a participation basis. We host our game content onour centrally-located servers (often referred to as remote game servers) that are integrated into the online casino operators’ websites. Wetypically earn a percentage of the operator’s net gaming revenue generated by their players playing the games we host. We also host on-premises interactive gaming for certain customers and earn revenue based on fixed fees, a revenue share with our online casino-customer, or amix of fixed fees and revenue share.We believe that growth in our interactive gaming business is driven largely through new channels of distribution, such as the various types ofmobile gaming platforms, the expansion of legal interactive RMG jurisdictions, the addition of social gaming products, such as our newest social game, GoldFish Casino Slots, which we launched in early 2014, the number and quality of our proprietary and third-party branded games released and available toplayers, the addition of traditional land-based casino operators and RMG operators that are not currently customers, the effectiveness of our marketing effortsdesigned to engage new players and re-engage existing players, and the prominence of our offerings on operators’ websites, which is not controlled by us.16Virtually all sectors of the interactive gaming industry are impacted by changes in economic conditions that impact players’ disposable income.Our revenue from the Interactive segment is included in services revenue.Contract ProcurementOur interactive social gaming revenue is typically generated from a high volume of players' one-time purchase transactions of virtual coins whichare used to play the games, whereas our RMG revenue is generated under license agreements with online casino operators that typically have a duration ofapproximately three years.CompetitionIn our social gaming business, since games are free to play, we compete for the leisure time and discretionary spending of consumers with otherinteractive entertainment companies, and where our primary competitors include DoubleDown Interactive, a subsidiary of IGT, Caesars EntertainmentCorporation, Big Fish Games Inc., Blue Shell Games LLC., High 5 Games and Zynga Inc. In our RMG business, our primary competitors are PlaytechLimited, Net Entertainment, Microgaming Software Systems Ltd., IGT, NYX Gaming Group, High 5 Games and SPIELO International.StrategyOur vision is to become the most successful gaming company in the world and the partner of choice for gaming and lottery operators by creatingimaginative, entertaining and engaging experiences across a variety of distribution channels. To this end, we are focused on the following strategies:•Develop innovative content, products and services—We place great emphasis on producing innovative and high-performing gaming and lotterycontent, products and services. We seek to develop innovative and differentiated content, products and services with unique features andfunctionality by capitalizing on the creativity of our workforce, accessing our expansive content library and portfolio of proprietary and licensedintellectual property, and utilizing extensive player and customer research. In addition, we intend to take advantage of state-of-the-art operatingsystem development and game tools to improve our development processes and generate game production efficiencies.•Deepen customer-centric focus—We seek to take advantage of our ability to fulfill a broad range of needs of our customers by virtue of the widearray of gaming, lottery and interactive products and services that we offer, including gaming machines, gaming and lottery systems, casinomanagement systems, table game products and instant lottery products. We aim to utilize this expansive portfolio of gaming, lottery and interactiveproducts and services and our extensive industry experience to provide the optimal solutions to our customers and become their partner of choice.We look to align our extensive research and development activities to effectively address our customers’ needs. As we operate a significant portionof our business on a participation basis, we will continue to focus on helping our customers grow their revenue, and thereby grow our revenue.•Leverage our scale and scope to drive synergies and other benefits—In connection with our recent acquisitions, we plan to leverage our larger scaleand scope and best practices in areas such as research and development, global sourcing, manufacturing and logistics in order to lower our cost,accelerate our speed to market and enhance customer satisfaction. We expect to achieve significant cost synergies from the Bally acquisition, with alarge portion of the savings targeted for 2015 and the full amount targeted to be realized within two years of closing the Bally acquisition. We lookto realize these savings through reductions in headcount, elimination of duplicative costs, increased purchasing power, improved processes resultingfrom integrating existing game development studios, consolidation of manufacturing facilities and other initiatives.•Capitalize on growth opportunities—We seek to leverage our diversified portfolio of gaming and lottery solutions, our broad international presenceand our extensive business development and government relations capabilities to extend our gaming and lottery businesses to new jurisdictions andexpand our penetration in existing jurisdictions, including in the Asia-Pacific region. Following our recent acquisitions, we also plan to pursueopportunities to cross-sell or cross-utilize the combined company’s expansive portfolio of game content, intellectual property and licensed brandsacross multiple distribution channels in order to grow our revenue.Research and Product DevelopmentWe believe our ability to attract new gaming, lottery and interactive customers and retain existing customers depends in part on our ability to evolveour product line by continually developing world-class games, hardware, systems technology and functionality to enhance player entertainment andcustomer profitability. We are also focused on expanding utilization of17the internet and other interactive technologies to increase play. Our gaming machines are usually designed and programmed by our internal engineering staffand game development studios with the input and cooperation of our customers. We believe that many of our innovations have become industry standards.We have Gaming R&D personnel located in our Las Vegas, Nevada R&D facility and our state-of-the-art technology campus in Chicago, Illinois. Alarge portion of our Lottery R&D team is based in our Alpharetta, Georgia facilities. We also have game development studios in Las Vegas, Nevada, Sydney,Australia, Manchester, England and India (including Bangalore, Chennai and Pune), with additional R&D staff for our gaming, lottery and interactivebusinesses in other locations, including Reno, Nevada and Vienna, Austria. Each of our game development studios works concurrently on multiple gamesand is staffed with producers, software developers, graphic artists, mathematicians, composers and game designers. We believe that we are able to more easilyrecruit and retain top talent to develop games and systems specific to each market as a result of our global presence. During the years ended December 31,2014, 2013 and 2012, our R&D expense totaled $117.0 million, $26.0 million and $6.6 million, respectively.Intellectual PropertyMany of our products utilize intellectual property rights, including trademarks, copyrights, patents and trade secrets. We consider our intellectualproperty rights to be, in the aggregate, material to our business. We protect our investment in research and development by seeking intellectual propertyprotection as appropriate for our technologies and content. We also acquire and license intellectual property from third parties.The terms of our patents vary based on the date and jurisdiction of filing. The term of U.S. patents generally expires 20 years from the date of filingof the first non-provisional patent application in a family of patents. The actual protection afforded by a patent depends upon the type of patent, the scope ofits coverage and the availability of legal remedies in the applicable country. Certain technology, which is material to our gaming, lottery and interactivebusinesses, is the subject of patents issued and patent applications currently pending in the U.S. and certain other countries. Our lottery business utilizes ourpatented and patent-pending technology in the production, secure printing, validation and distribution of instant lottery games. Our gaming and interactivebusinesses utilize our patented and patent-pending technology in games and associated platforms and systems. In addition, we patent and license gamecontent as part of our licensed properties and gaming businesses.We market many of our products under trademarks and copyrights that provide product differentiation and recognition and promote our portfolio ofproduct offerings. Many of our games are the subject of registered copyrights. In addition, we generally seek to register our trademarks for the names anddesigns under which we market and license our significant products and game concepts. Protections for trademarks exist in many countries, including theU.S., for as long as the trademark is registered or used. Registrations are generally issued for fixed, but renewable terms, although trademark rights may existwhether or not a mark is registered and the duration of the registrations vary by country.We believe that our use of licensed brand names and related intellectual property contributes to the appeal and success of our products, and that ourfuture ability to license, acquire or develop new brand names is important to our continued success. Therefore, we continue to invest in the recognition of ourbrands and brands that we license. Certain of our games are based on popular brands licensed from third parties, such as Hasbro International, Inc., FremantleMedia North America, CBS Studios Inc., Turner Entertainment Co., Warner Bros. Consumer Products Inc., Harley-Davidson, Playboy EnterprisesInternational, Inc., Paramount Pictures Corporation, Hearst Holdings Inc., King Features Syndicate Division, Twentieth Century Fox Licensing andMerchandising, Major League Baseball and National Basketball Association. Brand license terms typically obligate us to make minimum guaranteed royaltypayments over the duration of the license period and to make advance payments against those commitments. Licensors also typically have the right toinspect and approve the use of licensed property.IGT administers a pool of patents relating to "ticket-in ticket-out" technology that enables casino patrons to cash out from a gaming machine andreceive a printed ticket instead of coins. This technology is utilized in substantially all of our gaming machines. We have a license for certain patents relatedto this technology through the expiration date of the relevant patents.From time to time we become aware of potential infringement of our intellectual property by competitors and other third parties and consider whataction, if any, to take in that regard, including litigation where appropriate. We are also subject to threatened or actual intellectual property-related claims bythird parties from time to time.Production Processes, Sources and Availability of ComponentsWe currently produce substantially all of our gaming machines at our facilities in Las Vegas, Nevada, Sydney, Australia and Waukegan, Illinois. Wealso have finishing lines in our Barcelona, Spain facility, as well as in Midrand, South Africa and Buenos Aires, Argentina. These finishing lines allow for thecompletion and testing of our gaming machine18assemblies from our facilities in Waukegan and Las Vegas. We also refurbish used gaming machines at our Las Vegas facility. In connection with theintegration of the Bally acquisition, in 2015, we plan to move manufacturing operations from Waukegan to Las Vegas and close and sell the Waukeganfacility.Manufacturing commitments are generally based on expected quarterly sales orders from customers. Due to uneven order flow from customers,component parts common to all gaming machines are purchased and assembled into partial products that are inventoried to be able to quickly fill finalcustomer orders. Our gaming machine manufacturing processes generally consist of assembling component parts and sub-assemblies into a complete gamingmachine.Utility products including automatic card shufflers and roulette chip sorters are assembled in one of our Las Vegas facilities and by a third party nearSalzburg, Austria.Hardware and component parts associated with our casino-management systems are housed primarily in our Las Vegas facilities. These parts do notrequire a significant amount of assembly and are used primarily in systems implementations, which take place at customer locations.Our dedicated computer-controlled printing process is specifically designed to produce secure instant lottery games for government-sanctionedlotteries. Our facilities support high-speed variable image printing, packaging and distribution of instant lottery games and capability to track instant gamesfrom the point of production through delivery to retailers. Instant lottery games are delivered finished and ready for distribution by the lottery authority (orby us under certain contracts). An instant lottery game that has been removed at any point in the distribution chain in an unauthorized manner can be flaggedand invalidated in the event that it is used to claim winnings. Paper and ink are the principal raw materials consumed in our instant lottery manufacturingoperations.Production of our lottery terminals (and related component products) primarily involves the assembly of electronic and mechanical components intomore complex systems and products. Third-party vendors generally manufacture and assemble our lottery terminals. We normally have sufficient lead timebetween reaching an agreement and the commencement of operations so that we are able to provide our lottery customers with a fully functioning system thatis customized to meet their requirements. The lead time for obtaining most of the electronic components that we use is approximately 90 days. We believethat this is consistent with our competitors' lead times and is also consistent with the needs of our customers. We place advance orders for those componentsthat have long lead times in anticipation of firm purchase orders from our customers, provided that the investment in inventory and the risk of the customerorder not materializing are deemed acceptable.The raw materials used in manufacturing our lottery terminals and gaming machines include various metals, plastics, wood, glass and numerouscomponent parts, including electronic subassemblies, computer boards and LCD screens. We believe that our sources of supply of component parts and rawmaterials are generally adequate.SeasonalityOur results of operations can fluctuate due to seasonal trends and other factors. Sales of our gaming machines to casinos are generally strongest inthe spring and slowest in the summer, while revenue from our participation gaming machines is generally highest in the spring and summer. See the riskfactor captioned "-Our results of operations fluctuate due to seasonality and other factors, and therefore, our periodic operating results are not guarantees offuture performance" under the heading "Risk Factors" in Item 1A of this Annual Report on Form 10-K for additional information.EmployeesAs of December 31, 2014, we employed approximately 9,000 persons worldwide, with 5,300 employed domestically and 3,700 employedinternationally.Government RegulationGeneralThe gaming and lottery industries are generally subject to extensive and evolving regulation that customarily includes some form of licensing orregulatory screening of operators, suppliers, manufacturers and distributors and their applicable affiliates, as well as their major shareholders, officers,directors and key employees. In addition, certain of our gaming products and technologies must be certified or approved in certain jurisdictions in which weoperate. Regulators review many facets of an applicant or holder of a license, including its financial stability, integrity and business experience. Any failureto receive a license or the loss of a license that we currently hold could have a material adverse effect on us or on our results of operations, cash flow orfinancial condition.19While we believe that we are in substantial compliance with all material gaming and lottery laws and regulatory requirements applicable to us, therecan be no assurance that our activities or the activities of our customers will not become the subject of any regulatory or law enforcement proceeding or thatany such proceeding would not have a material adverse impact on us or our results of operations, cash flow or financial condition.We have developed and implemented a rigorous internal compliance program in an effort to ensure that we comply with legal requirements imposedin connection with our gaming and lottery activities, as well as legal requirements generally applicable to all publicly traded companies. The complianceprogram is run on a day-to-day basis by our chief compliance officer with legal advice provided by attorneys in our legal and compliance departments as wellas outside experts. The compliance program is overseen by the compliance committee of our board of directors, which is comprised of non-employeedirectors and a non-employee gaming law expert. While we are firmly committed to full compliance with all applicable laws, there can be no assurance thatour compliance program will prevent the violation of one or more laws or regulations, or that a violation by us or an employee will not result in theimposition of a monetary fine or suspension or revocation of one or more of our licenses.In the European Union, various judgments by the Court of Justice of the European Union ("CJEU") have addressed the approaches adopted bycertain member states to restrict and/or regulate gaming. Topics addressed in those judgments include the ability of member states to grant, or to maintain,monopolies for gaming and lottery activities and the power of member states to limit access by gaming and/or lottery providers established elsewhere in theEuropean Union. Several cases on these subjects are currently pending in the CJEU.While we believe that we have developed appropriate procedures and policies to comply with the requirements of these evolving laws and legalpronouncements, there can be no assurance that our activities or the activities of our customers will not become the subject of law enforcement proceedingsor that any such proceedings would not have a material adverse impact on us or our business plans. Furthermore, laws and regulations applicable to lotteriesand gaming in U.S. and international jurisdictions are subject to change and the effect of such changes on our ongoing and potential operations cannot bepredicted with certainty.From time to time, we retain government affairs representatives in various U.S. and international jurisdictions to advise elected and appointedofficials and the public concerning our views on gaming and lottery-related legislation, as well as to monitor such legislation and to advise us in our relationswith gaming and lottery authorities.GamingWe provide our games, gaming machines, gaming systems, table products and related products and services in legal gaming jurisdictions worldwide.The manufacture, distribution, provision and/or operation of our gaming products and services is subject to regulation and approval by various city, county,state, provincial, federal, tribal and foreign agencies. The primary purposes of these rules are to (1) ensure the responsibility, financial stability and characterof the parties involved in these activities through licensing requirements, (2) ensure the integrity and compliance of our gaming products and services and (3)prohibit the use of gaming products and services at unauthorized locations or for the benefit of undesirable parties.Typically, gaming regulations in the jurisdictions in which we operate are established by statute and are administered by a regulatory agency withbroad authority to interpret gaming regulations and to regulate gaming activities. Among other things, gaming authorities in the various jurisdictions inwhich we are licensed:•adopt additional rules and regulations under the implementing statutes;•investigate violations of gaming regulations;•enforce gaming regulations and impose disciplinary sanctions for violations of such laws, including fines, penalties and revocation of gaminglicenses;•review the character and fitness of manufacturers, distributors and operators of gaming products and services and make determinations regardingtheir suitability or qualification for licensure;•grant licenses for the manufacture, distribution and operation of gaming products and services;•review and approve transactions (such as acquisitions, material commercial transactions, securities offerings and debt transactions); and•establish and collect related fees and/or taxes.20We believe we hold all of the licenses and permits necessary to conduct our business. In all, we are authorized to sell, lease or operate our gamingproducts and services in more than 400 jurisdictions worldwide (including jurisdictions that do not require licensing), including nearly 150 internationalgaming jurisdictions.In addition, 16 U.S. states authorize wagering on VLTs at state regulated and licensed facilities. Although some states restrict VLTs to alreadyexisting wagering facilities (e.g., racetracks), others permit these machines to be placed at venues such as bars, restaurants, truck stops and other specificallylicensed gaming facilities. In addition, all of the Canadian provinces and various other international jurisdictions have authorized VLTs.Regulatory requirements vary among jurisdictions, but the majority of jurisdictions require licenses, permits or findings of suitability for ourcompany, individual officers, directors, major stockholders and key employees. Our gaming hardware and software also must be approved either by a gamingauthority laboratory or a private laboratory authorized by the gaming authority.LotteryForty-four U.S. states, the District of Columbia, Puerto Rico, all the Canadian provinces, China and many other countries outside the U.S., includingcountries in Europe, currently authorize lotteries. The operation of lotteries in the U.S. and internationally is subject to extensive regulation. Althoughcertain features of a lottery, such as the percentage of gross revenues that must be paid back to players in prize money, are usually set by legislation, lotteryregulatory authorities generally exercise significant discretion, including with respect to the determination of the types of games played, the price of eachwager, the manner in which the lottery is marketed and the selection of suppliers of equipment, technology and services and retailers of lottery products.To ensure the integrity of contract awards and lottery operations, most jurisdictions require detailed background disclosure on a continuous basisfrom, and conduct background investigations of, vendors and their officers, directors, subsidiaries, affiliates and principal stockholders. Backgroundinvestigations of the vendors' employees who will be directly responsible for the operation of lottery systems are also generally conducted and most statesreserve the right to require the removal of employees who they deem to be unsuitable or whose presence they believe may adversely affect the operationalsecurity or integrity of the lottery. Certain jurisdictions also require extensive personal and financial disclosure and background checks from persons andentities beneficially owning a specified percentage (typically five percent or more) of a vendor's securities. The failure of such beneficial owners of oursecurities to submit to background checks and provide such disclosure could result in the imposition of penalties upon these beneficial owners and couldjeopardize the award of a lottery contract to us or provide grounds for termination of an existing lottery contract.The award of lottery contracts and ongoing operations of lotteries in international jurisdictions are also extensively regulated, althoughinternational regulations typically vary from those prevailing in the U.S. Restrictions are frequently imposed on foreign companies seeking to do business insuch jurisdictions and, as a consequence, we have in a number of instances allied ourselves with local companies when seeking international lotterycontracts.InteractiveIn the United States, the Unlawful Internet Gambling Enforcement Act of 2006 ("UIGEA") prohibits among other things, the acceptance by agambling business of a wager by means of the internet where such wager is prohibited by any applicable law where initiated, received or otherwise made.UIGEA imposes potentially severe criminal and civil sanctions on the owners and operators of such systems and on financial institutions that processwagering transactions. The law contains a safe harbor for wagers placed within a single state (disregarding intermediate routing of the transmission) where themethod of placing the bet and receiving the bet is authorized by that state's law, provided the underlying regulations establish appropriate age and locationverification.Within the past two years, state-authorized internet casino gaming has been launched in Delaware and New Jersey and state authorized online pokerhas been launched in Nevada. A number of other states are also considering adopting legislation to specifically authorize interactive gaming or online poker.Additionally, several state lotteries have recently commenced offering (and other lotteries are considering offering) internet instant game sales to in-statelottery customers.However, there have been various bills proposed recently in the U.S. to restrict or prohibit interactive gaming and lottery sales. Very significantresources are being devoted to supporting these efforts. Although these efforts have generally not been successful, there can be no assurance that lawsrestricting interactive gaming or lottery sales will not be passed at either the federal or state level.21To varying degrees, a number of European governments have taken steps to change the regulation of internet wagering through the implementationof new or revised licensing and taxation regimes, some of which include the imposition of sanctions on unlicensed providers. Countries outside Europe andthe U.S. have also begun evaluating interactive gaming regulation and an increase in regulated markets outside of the U.S. and Europe is likely to continue.We continue to devote significant attention to monitoring these developments. However, we cannot predict the timing, scope or terms of any state,federal or foreign regulations relating to interactive gaming and lottery sales.Additional Information Regarding Government RegulationsAs the gaming regulations of many jurisdictions are similar and we operate in a large number of jurisdictions, we are not including descriptions ofthe specific gaming requirements in the different jurisdictions in which we operate. For additional information, we have filed a summary of the gamingregulations that govern our businesses as an exhibit to Scientific Games Corporation’s Annual Report on Form 10-K. See Exhibit 99.12 (GamingRegulations). In addition, see "Risk Factors " in Item 1A of this Annual Report on Form 10-K for a discussion of risk factors related to gaming and lotteryregulations to which we may be subject.Executive Officers of the CompanyCertain information regarding each of our executive officers is set forth below.Name Age PositionM. Gavin Isaacs 50 President and Chief Executive OfficerScott D. Schweinfurth 61 Executive Vice President and Chief Financial OfficerDerik Mooberry 42 Executive Vice President and Group Chief Executive, GamingJames C. Kennedy 58 Executive Vice President and Group Chief Executive, LotteryKathryn S. Lever 46 Executive Vice President and General CounselLarry A. Potts 67 Senior Vice President, Chief Compliance Officer and Director ofSecuritySteve W. Beason 53 Enterprise Chief Technology OfficerJeffrey B. Johnson 50 Vice President, Finance and Chief Accounting OfficerM. Gavin Isaacs has served as President and Chief Executive Officer as well as a member of the Board of Directors since June 2014. Mr. Isaacs waspreviously the Chief Executive Officer of SHFL from April 2011 to November 2013, and the Executive Vice President and Chief Operating Officer of Ballyfrom 2006 to 2011. Mr. Isaacs is a 15‑year industry veteran, including prior executive leadership positions at Aristocrat. Mr. Isaacs is a Trustee and formerPresident of the International Association of Gaming Advisors ("IAGA") and a member of the Board of Directors of the American Gaming Association.Scott D. Schweinfurth has served as Executive Vice President and Chief Financial Officer since April 2014 and as the Corporate Secretary sinceMarch 2015. Mr. Schweinfurth served as Senior Vice President, Chief Financial Officer of Gaming and Chief Integration Officer from October 2013 untilApril 2014. From 2000 to October 2013, Mr. Schweinfurth served as Executive Vice President, Chief Financial Officer and Treasurer of WMS, which wasacquired by the Company in October 2013. Prior to joining WMS, Mr. Schweinfurth served as Senior Vice President, Chief Financial Officer and Treasurer ofBally and, prior to that, Mr. Schweinfurth worked at Ernst & Young LLP. Mr. Schweinfurth is a registered certified public accountant and is Co-Chairman ofthe Audit Committee of IAGA.Derik Mooberry serves as Executive Vice President and Group Chief Executive of Gaming. Mr. Mooberry joined the Company from Bally inNovember 2014. Previously, he served as Senior Vice President of Games, Table Game Products and Interactive Research & Development for Bally. He hasalso held roles as Bally’s Vice President of Systems Operations, Vice President of Strategic Planning, Vice President of System Sales-Western North America,Vice President of North America Game Sales, as well as Vice President of Sales-Americas since joining Bally in 2001.James C. Kennedy has served as Executive Vice President and Group Chief Executive of Lottery since September 2013. Prior to this role, Mr.Kennedy served as President of Printed Products and Chief Marketing Officer. From 2005 to 2011, Mr. Kennedy served as Senior Vice President of SGI, andprior to that, Mr. Kennedy served as Vice President of U.S. Sales for SGI. Prior to joining the Company in 1985, Mr. Kennedy was a Systems Engineer forComputer Task Group.Kathryn S. Lever serves as Executive Vice President and General Counsel. Ms. Lever joined the Company from Bally in November 2014. Ms. Leverjoined Bally from SHFL in November 2013. Prior to joining SHFL in 2011, Ms. Lever was22General Counsel and Executive Vice President of Global Cash Access and prior to that was a partner with the Las Vegas law firm Schreck Brignone (nowBrownstein Hyatt Farber Schreck). Before joining Schreck Brignone, Ms. Lever practiced law in Canada representing high-tech and bio-tech companies inprivate and public equity transactions. She is the President of IAGA.Larry A. Potts has served as Senior Vice President, Chief Compliance Officer and Director of Corporate Security since March 2015. Previously heserved as Vice President, Chief Compliance Officer and Director of Security since February 2006. Mr. Potts joined the Company in September 2004 as VicePresident, Security and Compliance. Previously, he was the Chief Operating Officer of an international consulting and investigative company in Washington,D.C. Prior to that, he served as a Special Agent of the Federal Bureau of Investigation for over 23 years, where he served in a number of managementpositions, including Deputy Director.Steve W. Beason serves as Enterprise Chief Technology Officer. Mr. Beason served as Chief Technology Officer from August 2005 to January 2011and President, Lottery Systems Group, from November 2006 to November 2010. Prior to joining the Company, Mr. Beason was Executive Director,Information Technology, of The Hong Kong Jockey Club managing a staff of nearly 400 information technology professionals.Jeffrey B. Johnson joined the Company in September 2011 and serves as Vice President, Finance, and Chief Accounting Officer. Previously,Mr. Johnson was the Executive Vice President and Chief Financial Officer for Tensar Corporation, a global engineering services and construction productsmanufacturing company. Prior to that, he served as Vice President, Corporate Controller and Chief Accounting Officer for Tempur-Pedic International Inc., apublicly traded consumer products company. Prior to 1999, Mr. Johnson was a Manager of Audit and Business Advisory Services at Andersen LLP.Mr. Johnson is a certified public accountant and a certified management accountant.Access to Public FilingsWe file annual reports, quarterly reports, current reports, proxy statements and other documents with the SEC under the Securities Exchange Act of1934, as amended. Copies of any materials we file with the SEC are also available at the SEC’s Public Reference Room at 100 F Street, N.E. Washington, D.C.20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintainsan Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC atwww.sec.gov.We make the following information available free of charge through the Investors link on our website at www.scientificgames.com:•our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon asreasonably practicable after they are filed electronically with the SEC;•Section 16 ownership reports filed by our executive officers, directors and 10% stockholders on Forms 3, 4 and 5 and amendments to those reports assoon as reasonably practicable after they are filed electronically with the SEC; and•our code of business conduct, which applies to all of our officers, directors and employees.23ITEM 1A. RISK FACTORSThe risks described below are not the only risks facing us. Please be aware that additional risks and uncertainties not currently known to us or thatwe currently deem to be immaterial could also materially and adversely affect our business operations. You should also refer to the other informationcontained in our periodic reports, including the Forward-Looking Statements section, our consolidated financial statements and the related notes andManagement’s Discussion and Analysis of Financial Condition and Results of Operations for a further discussion of the risks, uncertainties and assumptionsrelating to our business. Except where the context otherwise indicates, references below to the "Company," "we," "our," "ours" and "us" include oursubsidiaries, including Bally.We operate in highly competitive industries and our success depends on our ability to effectively compete with numerous domestic and foreign businesses.We face significant competition in our traditional gaming and lottery businesses and in the evolving interactive gaming and lottery industries, notonly from our traditional competitors but also from a number of other domestic and foreign providers (or, in some cases, the operators themselves), some ofwhich have substantially greater financial resources and/or experience than we do. In addition, we cannot assure you that our products and services will besuccessful or that we will be able to attract and retain players as our products and services compete with other offerings, which may impact our results ofoperations, cash flows and financial condition.GamingOur gaming business faces significant competition, including from illegal operators. There are a limited number of gaming operators and manyestablished companies offer competing products. We compete on the basis of price and financing terms, the content, features, quality and functionality of ourproducts and the quality and responsiveness of our services. Some of our product lines may compete against each other for space on the casino floor.Consolidation of casino operators, increased competition among casino operations and economic conditions causing reductions in capital expenditures bycasino operators have significantly increased the level of competition among gaming machine providers.We also face high levels of competition in the supply of products products for newly legalized gaming jurisdictions and for openings of new orexpanded casinos. Our success is dependent on our ability to successfully enter new markets and compete successfully for new business especially in the faceof declining demand for gaming machine replacements.We also compete to obtain space and favorable placement on casino gaming floors. Casino operators focus on price, performance, longevity andplayer appeal when making their purchasing decisions. Competitors with a larger installed base of gaming machines and more game themes than ours mayhave an advantage in obtaining and retaining placements in casinos. Additionally, we face competition from the increased number of small gamingequipment companies that have emerged in the gaming space in recent years and are able to focus their resources on developing a smaller number ofhigh‑performing products.We have offered customers discounts, free trials and free gaming equipment including conversion kits (and, in some cases, free gaming machines) inconnection with the sale or placement of our products. There can be no assurance that competitive pressure will not cause us to increase the incentives thatwe offer to our customers, which could adversely impact our results of operations, cash flows and financial condition.We have provided a higher level of extended payment term financing for product purchases and we expect to continue providing a higher level ofextended payment term financing in this business until the economy and industry conditions improve and demand for such financings abates. We believethat our competitors also offer extended payment term financings to customers in similar situations. Our competitors may provide a greater amount offinancing or better terms than we do and this may impact demand for our gaming products.The competition for casino-management technology solutions and systems is significant. Product features and functionality, accuracy, reliability,service level and pricing are among the factors that determine how successful providers are in selling their systems. Competition for these products is intensedue to the number of providers and the limited number of casinos and jurisdictions in which they operate.We compete in our table products business on the basis of the scope of our offering, product reliability, our service network, our intellectual propertyand the extent of our sales, regulatory and distribution channels. Our shufflers also compete against hand shuffling, which remains the most competitiveshuffling option for casino card games around the world. Finally, since the need for our Utility products is dependent upon the casino's use of live tablegames, our shufflers also compete against any products that live table games compete against.24Competition for PTG content is focused on player appeal, brand recognition, price and the strength of underlying intellectual property. We competeon this basis, as well as on the extent of our sales, service, marketing and distribution channels. We also compete with several companies that primarilydevelop and license PTGs, as well as with non-proprietary table games such as blackjack and baccarat. It is easier for smaller companies to participate indeveloping and marketing PTG content relative to other gaming products due to the lower cost and complexity associated with the development of PTGproducts.LotteryOur lottery business faces competition from a number of domestic and foreign businesses, some of which have substantially greater financialresources than we do, which impacts our ability to win new contracts and renew existing contracts. We continue to operate in a period of intense price‑basedcompetition, which has affected and could continue to affect the number and the profitability of the lottery contracts we win.Contract awards by lottery authorities are sometimes challenged by unsuccessful bidders through costly and protracted legal proceedings that canresult in delayed implementation or cancellation of awards. In addition, the U.S. lottery industry has matured such that the number of states conductinglotteries is unlikely to increase materially in the near‑term.We believe our principal competitors in the instant lottery game business have increased, and are expected to continue to increase, their productioncapacity, resulting in pricing pressures in the instant lottery game business. This may adversely affect our ability to win or renew instant lottery gamecontracts or may reduce the profitability of instant lottery game contracts that we do win. We also compete in the international instant lottery game businesswith low‑price, low‑quality printers in a regulated environment where laws are being reinterpreted so as to create competition from non‑traditional lotteryvendors and products. Our U.S. instant lottery game business could be adversely affected if additional foreign competitors operating in Canada export theirlottery products to the U.S. or if other foreign competitors establish printing facilities in the U.S. or Canada to supply the U.S.We face increased price competition in our lottery systems business from our two principal competitors. Since late 2007, we have lost lottery systemscontracts to our competitors following the expiration of those contracts in South Carolina, West Virginia, South Dakota, New Hampshire, Vermont andColorado.As some jurisdictions seek to privatize or outsource lottery operations (including partial privatizations through private management agreements orotherwise), we face competition from both traditional and new competitors with respect to these opportunities. Our lottery systems contract with the Indianalottery was terminated in 2013 in connection with the award of a private management agreement to one of our competitors. In some cases, we may find itnecessary or desirable to enter into strategic relationships with third parties, including competitors, to pursue these opportunities.Any future success of our lottery business will also depend, in part, on the success of the lottery industry in attracting and retaining players in theface of increased competition for these players’ entertainment dollars, as well as our own success in developing innovative products and systems to achievethis goal. Our failure to achieve this goal could reduce our revenue from our lottery operations. Additionally, pressure on state and other government budgetscould lead to other forms of gaming being legalized, which could adversely impact our lottery business.InteractiveOur interactive social gaming and RMG businesses are also subject to significant competition. Our RMG business focuses on the supply of gamecontent to online casino operators and there are a number of competitors in that industry. Additionally, we have expanded into interactive social gaming ashave several of our competitors and our customers. This expansion also causes us to compete with social gaming companies that have no connection toregulated RMG and many of those companies have a base of existing users that is larger than ours. In order to stay competitive in both our interactive socialgaming and RMG businesses, we will need to continue to create and market game content that attracts players and invest in new and emerging technologies.Unfavorable U.S. and international economic conditions may adversely affect our business, results of operations, cash flows or financial condition.Unfavorable economic conditions, including recession, economic slowdown, decreased liquidity in the financial markets, decreased availability ofcredit and relatively high rates of unemployment, have had, and may continue to have, a negative effect on our business. We cannot fully predict the effectsthat unfavorable economic conditions and economic uncertainty will have on us as they also impact our customers, suppliers and business partners.In our gaming business, especially our participation gaming business, our revenue is driven in large part by players’ disposable incomes and level ofgaming activity. Unfavorable economic conditions have reduced the disposable incomes of25casino patrons and resulted in fewer patrons visiting casinos, whether land‑based or online, and lower amounts spent per casino visit. A further or extendeddecline in disposable income could result in reduced play levels on our participation gaming machines, causing our results of operations and cash flows fromthese products to decline. Additionally, higher airfares, gasoline prices and other costs may adversely affect the number of players visiting our customers’casinos. A decline in play levels may also negatively impact the results of operations, cash flows and financial condition of our casino customers and theirability to purchase our products and services. Unfavorable economic conditions may result in volatility in the credit and equity markets. The difficulty orinability of our customers to generate or obtain adequate levels of capital to finance their ongoing operations may reduce their ability to purchase ourproducts and services. Current unfavorable economic conditions have impacted, and could continue to impact, the ability of our gaming customers to make timelypayments to us. In addition, continued unfavorable conditions have caused, and could cause, some of our gaming customers to ultimately declarebankruptcy, which would adversely affect our business. In recent years, our gaming business has expanded the use of extended payment term financing forgaming machine purchases and we expect to continue providing a higher level of extended payment term financing in this business until demand from ourcustomers for such financings abates. These financing arrangements may increase our collection risk and, if customers are not able to pay us, whether as aresult of financial difficulties, bankruptcy or otherwise, we may incur provisions for bad debt related to our inability to collect certain receivables. Inaddition, both extended payment term financing and operating leases result in a delay in our receipt of cash, which reduces our cash balance, liquidity andfinancial flexibility to respond to changing economic events.In our lottery business, we believe that the difficult economic conditions have contributed to reductions in spending on marketing by our customersand, in certain instances, less favorable terms under our contracts, as many of our customers face significant budget shortfalls and seek to cut costs.There are ongoing concerns regarding the debt burden of certain countries, particularly in Europe and South America, and their ability to meet theirfuture financial obligations, which have resulted in downgrades of the debt ratings for these countries. We currently operate in, and our growth strategy mayinvolve pursuing expansion or business opportunities in certain of these countries, such as Greece and Italy. These sovereign debt concerns, whether real orperceived, could result in a recession, prolonged economic slowdown, or otherwise negatively impact the general health and stability of the economies inthese countries or more broadly. In more severe cases, this could result in a limitation on the availability of capital, thereby restricting our liquidity andnegatively impacting our results of operations, cash flows and financial condition.Our future results of operations may be negatively impacted by the slow growth of new gaming jurisdictions or slow addition of casinos in existingjurisdictions and by declines in the replacement cycle of gaming machines.Demand for our gaming products is driven by the establishment of new land‑based or interactive gaming jurisdictions, the opening of additionalcasinos in existing jurisdictions, the expansion of existing casinos and the replacement of existing gaming machines in existing casinos. The opening of newcasinos and expansion of existing casinos fluctuate with demand, economic conditions, regulatory approvals and the availability of financing. In addition,the expansion of gaming into new jurisdictions can be a protracted process. In the U.S., governments usually require a public referendum and legislativeaction before establishing or expanding gaming, whether in a land‑based or online capacity. Any of these factors could delay, restrict or prohibit theexpansion of our gaming business and negatively impact our results of operations, cash flows and financial condition.Over the years, due to the economic slowdown, the replacement cycle for gaming machines has grown longer. Low levels of demand for gamingmachine replacements could reduce the demand for our products and negatively impact our results of operations, cash flows and financial condition.Our future results of operations may be negatively impacted by ownership changes and consolidation in the casino industry.As repeat customers represent a substantial part of our revenue in our casino gaming business, our business, results of operations, cash flow andfinancial condition could be affected if our casino customers are sold to or merge with other entities. Such entities may purchase more products and servicesof our competitors, reduce spending on our products or cause downward pricing pressures. Consolidation among casino operators could result in ordercancellations, a slowing in the replacement cycle for existing gaming machines, or require our current customers to purchase our competitors’ products, anyof which could negatively impact our gaming business.Gaming opponents persist in their efforts to curtail the expansion of legalized gaming, which, if successful, could limit the growth of our operations.There is significant debate over, and opposition to, land‑based and interactive gaming. There can be no assurance that this opposition will notsucceed in preventing the legalization of gaming in jurisdictions where it is presently prohibited,26prohibiting or limiting the expansion of gaming where it is currently permitted or causing the repeal of legalized gaming in any jurisdiction. Any successfuleffort to curtail the expansion of, or limit or prohibit, legalized gaming could have an adverse effect on our results of operations, cash flows and financialcondition.Our success is dependent upon our ability to adapt to and offer products that keep pace with evolving technology related to our businesses.The success of our products and services is affected by changing technology and evolving industry standards. Our ability to anticipate or respond tosuch changes and to develop and introduce new and enhanced products and services, including, but not limited to, gaming and lottery content, gamingmachines, casino-management systems, table products and interactive gaming products and services, on a timely basis or at all is a significant factor affectingour ability to remain competitive, retain existing contracts or business and expand and attract new customers and players. There can be no assurance that wewill achieve the necessary technological advances or have the financial resources needed to introduce new products or services on a timely basis or at all.In our gaming business, our success depends upon our ability to respond to dynamic customer demand by producing new and innovative products.The process of developing new products and systems is inherently complex and uncertain. It requires accurate anticipation of changing customer needs andend user preferences as well as emerging technological trends. If our competitors develop new game content and technologically innovative products and wefail to keep pace, our business could be adversely affected. If we fail to accurately anticipate customer needs and end user preferences through thedevelopment of new products and technologies, we could lose business to our competitors, which would adversely affect our results of operations, cash flowsand financial condition.We may experience manufacturing, operational or design problems that could delay or prevent the launch of new products. Introducing new andinnovative products requires us to adapt and refine our manufacturing, operations and delivery capabilities to meet the needs of our product innovation. If wecannot efficiently adapt our manufacturing infrastructure to meet the needs associated with our product innovations, or if we are unable to upgrade ourproduction capacity in a timely manner, our gaming business could be negatively impacted. In the past, we have experienced delays in launching newproducts due to the complex or innovative technologies embedded in our products. Such delays can adversely impact our results of operations, cash flowsand financial condition.In addition, the social gaming landscape is rapidly evolving and is characterized by major fluctuations in the popularity of social products andplatforms, such as mobile. We may be unable to develop products at a rate necessary to respond to these changes, or at all, or that anticipate the interests ofsocial players. Likewise, our social gaming offerings operate largely through Facebook, GooglePlay® for Android devices, Apple’s iOS platform, Kindleplatform and Microsoft Windows 8. If alternative platforms increase in popularity, we could be adversely impacted if we fail to timely create compatibleversions of our products.Our success also depends on creating products and services with strong and sustained player appeal. We are under continuous pressure to anticipateplayer reactions to, and acceptance of, our new products, avoid jackpot fatigue (declining play levels on smaller jackpots) and continue to provide successfulproducts that generate a high level of play. In some cases, a new game or gaming machine will only be accepted by our casino or interactive customers if wecan demonstrate that it is likely to produce more revenue and net win and/or has more player appeal than our existing products and services or ourcompetitors’ products and services.WAP, premium and daily fee participation gaming machines are replaced on short notice by casino operators if they do not meet and sustain revenueand profitability expectations. Customers may cancel pending orders with us if our products are not performing to expectations at other casinos.We have invested, and may continue to invest, significant resources in R&D efforts. We invest in a number of areas, including product developmentfor game and system‑based hardware, software and game content. In addition, because of the sophistication of our newer products and the resourcescommitted to their development, they are generally more expensive to produce. If our new products do not gain market acceptance or the increase in theaverage selling price of these new products is not proportionate to the increase in production cost, in each case as compared to our prior products, or if theaverage cost of production does not go down over time, whether by reason of long-term customer acceptance, our ability to find greater efficiencies in themanufacturing process as we refine our production capabilities or a general decrease in the cost of the technology, our margins will suffer and couldnegatively impact our business, results of operation, cash flows and financial condition. There can be no assurance that our investment in R&D will lead tosuccessful new technologies or products. If a new product is not successful, we may not recover our development, regulatory approval or promotion costs.27Our success depends in part on our ability to develop, enhance and/or introduce successful gaming concepts and game content.Our businesses develop and source game content both internally and through third‑party suppliers. We also seek to secure third‑party brands forincorporation into our game content. We believe that creative and appealing game content produces more revenue for our gaming machine customers andprovides them with a competitive advantage, which in turn enhances our revenue and our ability to attract new business and to retain existing business. Inour lottery business, we believe that innovative game concepts and game content, such as multiplier games and game content that incorporates licensedbrands, can enhance the revenue of our lottery customers and distinguish us from our competitors. There can be no assurance that we will be able to sustainthe success of our existing game content or effectively develop or obtain from third parties game content or licensed brands that will be widely accepted bothby our customers and players.We and our industries are subject to strict government regulations that may limit our existing operations and have an adverse impact on our ability togrow.In the U.S. and many other countries, the provision of gaming and lottery products and services is subject to extensive and evolving regulation.These regulatory requirements vary from jurisdiction to jurisdiction. Therefore, we are subject to a wide range of complex laws and regulations in thejurisdictions in which we are licensed or operate. Most jurisdictions require that we be licensed, that our key personnel and certain of our security holders befound suitable or be licensed, and that our products be reviewed and approved before placement. Licenses, approvals or findings of suitability may berevoked, suspended or conditioned. If a license, approval or finding of suitability is required by a regulatory authority and we fail to seek or do not receivethe necessary approval, license or finding of suitability, or if it is granted and subsequently revoked, then we may be prohibited from providing our productsor services for use in the particular jurisdiction. In addition, the loss of a license in one jurisdiction could trigger the loss of a license, or affect our eligibilityfor a license, in other jurisdictions. We may also become subject to regulation in any new jurisdictions in which we decide to operate in the future, includingdue to expansion of a customer’s operations. Gaming authorities may levy fines against us or seize certain of our assets if we violate gaming regulations.There can be no assurance that we will be able to obtain or maintain the necessary licenses or approvals or that the licensing process will not result in delaysor adversely affect our operations. The failure to obtain or retain a required license or approval in any jurisdiction would decrease the geographic areas wherewe are permitted to operate and generate revenue, may limit our ability to obtain a license in other jurisdictions and may put us at a disadvantage relative toour competitors.Often, our games, gaming product hardware and software and our interactive gaming products and services must be approved in the jurisdictions inwhich they are operated, and we cannot assure you that such products or services will be approved in any jurisdiction. Our networked gaming technologyrequires regulatory approval in gaming jurisdictions prior to the shipment or implementation of any gaming machines, products or services and, although wehave received approvals from the jurisdictions in which we currently operate this technology, we cannot assure you that we will receive the approvalsnecessary to offer it in additional gaming jurisdictions. Many of our customers are required to be licensed and delays in approvals of our customers’operations or expansions may adversely affect our results of operations, cash flows and financial condition.The regulatory review process and licensing requirements also may preclude us from using technologies owned or developed by third parties if thoseparties are unwilling to subject themselves to regulatory review or do not meet regulatory requirements. Some gaming authorities require gamingmanufacturers to obtain approval before engaging in certain transactions, such as acquisitions, mergers, reorganizations, financings, stock offerings and sharerepurchases. Obtaining such approvals can be costly and time consuming and there can be no assurance that such approvals will be granted or that theapproval process will not result in delays or disruptions to our strategic objectives.The regulatory environment in any particular jurisdiction may change in the future, including changes that limit some or all of our existingoperations in that jurisdiction, and any such change could materially and adversely affect our results of operations, cash flow, financial condition, business orprospects. Moreover, there can be no assurance that gaming- or lottery-related activities will be approved by additional jurisdictions or that thosejurisdictions in which these activities are currently permitted will continue to permit such activities. Laws and regulations relating to interactive gaming andlottery are evolving. For additional discussion regarding risks associated with the evolving interactive regulatory landscape, see the risk factor belowcaptioned "-We may not be able to capitalize on the expansion of internet or other forms of interactive gaming or other trends and changes in the gaming andlottery industries, including due to laws and regulations governing these industries."The U.K. government recently adopted a new RGD for remote gaming operators and implemented an increase to the MGD for certain gamingmachines supplied to LBOs. We expect that these tax changes will negatively impact our U.K. customers’ businesses and, therefore, our U.K. gamingbusiness. The U.K. government has also announced its intention to impose additional restrictions on betting shops and high stakes play and is consideringadditional regulations with respect to land-based and interactive gaming activities, any of which could negatively impact our U.K. land-based and interactivegaming28businesses. In addition, various legislative and regulatory changes have been enacted or announced that expand the gaming licensing regime in the U.K and,as a result of these changes, we and certain of our customers will be required to obtain additional licenses. We cannot predict the extent to which any of theforegoing could negatively affect our customers or our U.K. gaming business.Current regulations in a number of jurisdictions where our customers operate, such as Macau SAR, limit the amount of space allocated to ourproducts and substantial changes in those regulations may adversely affect demand for our products. There can be no assurance that authorities will not seekto restrict our business in their jurisdictions or institute enforcement proceedings against us. There can be no assurance that any instituted enforcementproceedings will be favorably resolved, or that such proceedings will not have a material adverse impact on our ability to retain and renew existing licensesor to obtain new licenses in other jurisdictions. Our reputation may also be damaged by any legal or regulatory investigation, regardless of whether or not weare ultimately accused of, or found to have committed, any violation.We and certain of our affiliates, major stockholders (generally persons and entities beneficially owning a specified percentage (typically 5% ormore) of our equity securities), directors, officers and key employees are subject to extensive background investigations and suitability standards in ourbusinesses. In some jurisdictions, these investigations may require extensive personal and financial disclosure from major stockholders, directors, officers andkey employees. The failure of any such individuals or entities to submit to such background checks and provide the required disclosure could jeopardize theaward of a contract or license to us or provide grounds for termination of an existing contract or license. Regulatory authorities generally have broaddiscretion when granting, renewing or revoking these approvals and licenses. Gaming and lottery authorities may require the removal of any of our directorsor employees who are deemed to be unsuitable and these authorities are generally empowered to disqualify us from receiving a gaming or lottery contract oroffering our gaming or lottery products in that jurisdiction a result of any such investigation. Our failure, or the failure of any of our major stockholders,directors, officers, key employees, products or technology, to obtain or retain a required license or approval in one jurisdiction could negatively impact ourability (or the ability of any of our major stockholders, directors, officers, key employees, products or technology) to obtain or retain required licenses andapprovals in other jurisdictions.In light of these regulations and the potential impact on our business, our restated certificate of incorporation allows for the restriction of stockownership by persons or entities who fail to comply with informational or other regulatory requirements under applicable gaming laws, who are foundunsuitable to hold our stock by gaming authorities or whose stock ownership adversely affects our ability to obtain, maintain, renew or qualify for a license,contract, franchise or other regulatory approval from a gaming authority. The licensing procedures and background investigations of the authorities thatregulate our businesses and the restriction in our certificate of incorporation may inhibit potential investors from becoming significant stockholders orinhibit existing stockholders from retaining or increasing their ownership.Our businesses are subject to a number of federal, state, local and foreign laws and regulations governing data privacy and security, including withrespect to the collection, storage, use, transmission and protection of personal information and other consumer data. In particular, the European Union hasadopted strict data privacy regulations. The scope of data privacy and security regulations is evolving and we believe that the adoption of increasinglyrestrictive regulations in this area is likely within the U.S. and other jurisdictions. Compliance with data privacy and security restrictions could increase thecost of our operations and failure to comply with such restrictions could subject us to criminal and civil sanctions as well as other penalties.We are subject to the provisions of the Foreign Corrupt Practices Act and other anti‑corruption laws that generally prohibit U.S. persons andcompanies and their agents from offering, promising, authorizing or making improper payments to foreign government officials for the purpose of obtainingor retaining business. Certain of these anti‑corruption laws also contain provisions that require accurate record keeping and further require companies todevise and maintain an adequate system of internal accounting controls. Although we have policies and controls in place that are designed to ensurecompliance with these laws, if those controls are ineffective or an employee or intermediary fails to comply with the applicable regulations, we may besubject to criminal and civil sanctions as well as other penalties. Any such violation could disrupt our business and adversely affect our reputation, results ofoperation, cash flows and financial condition.We have developed and implemented an internal compliance program in an effort to ensure that we comply with legal requirements imposed inconnection with our gaming and lottery activities, as well as legal requirements generally applicable to all publicly traded companies. The complianceprogram is run on a day‑to‑day basis by our chief compliance officer with legal advice provided by attorneys in our legal and compliance departments andoutside experts. The compliance program is overseen by the compliance committee of our board of directors, consisting of non‑employee directors and a non-employee gaming law expert. There can be no assurance that such steps will prevent the violation of one or more laws or regulations, or that a violation by usor an employee will not result in the imposition of a monetary fine, suspension or revocation of one or more of our licenses or other penalties.29See Exhibit 99.12 "Gaming Regulations" for additional information regarding certain of the regulations that govern our gaming business.We may not be able to capitalize on the expansion of internet or other forms of interactive gaming or other trends and changes in the gaming and lotteryindustries, including due to laws and regulations governing these industries.We participate in the new and evolving interactive gaming and lottery industries through our social, RMG and other interactive products. Part of ourstrategy is to take advantage of the liberalization of interactive gaming, both within the U.S. and internationally. These industries involve significant risksand uncertainties, including legal, business and financial risks. The success of these industries and of our interactive products and services may be affected byfuture developments in social networks, including Facebook, mobile platforms, regulatory developments, data privacy laws and other factors that we areunable to predict and are beyond our control. This fast‑changing environment can make it difficult to plan strategically and can provide opportunities forcompetitors to grow their businesses at our expense. Consequently, our future results of operations, cash flows and financial condition relating to ourinteractive gaming and lottery products and services are difficult to predict and may not grow at the rates we expect, and we cannot provide assurance thatthese products and services will be successful in the long term.In general, our ability to successfully pursue our interactive gaming and lottery strategy depends on the laws and regulations relating to wageringthrough interactive channels. Until 2011, there was uncertainty as to whether the Federal Wire Act of 1961 prohibited states from conducting intrastatelottery transactions via the internet if the transmissions over the internet during the transaction crossed state lines. In late 2011, the Office of Legal Counsel ofthe DOJ issued an opinion to the effect that state lottery ticket sales over the internet to in‑state adults do not violate the Wire Act. The opinion may providean impetus for states to authorize forms of interactive gaming or interactive lottery in order to generate additional revenue. However, to the extent states wishto pursue interactive gaming, such states may be required or otherwise deem it advisable to enact enabling legislation or new regulations addressing the saleof lottery tickets or the offering of other forms of gaming through interactive channels, such as the actions recently taken by Delaware, Nevada and NewJersey to authorize various forms of internet gaming. Despite the 2011 DOJ opinion, there are still very significant forces working to limit or prohibitinteractive gaming and lottery in the U.S. The enactment of internet gaming legislation that federalizes significant aspects of the regulation of internetgaming and/or limits the forms of internet wagering that are permissible could have an adverse impact on our ability to pursue our interactive strategy in theU.S. Internationally, laws relating to internet gaming are evolving, particularly in Europe. To varying degrees, a number of European governments have takensteps to change the regulation of internet wagering through the implementation of new or revised licensing and taxation regimes, including the possibleimposition of sanctions on unlicensed providers. We cannot predict the timing, scope or terms of any such state, federal or foreign laws and regulations, or theextent to which any such laws and regulations will facilitate or hinder our interactive strategy.With respect to our social gaming business, although largely unregulated at this time, there are movements in some jurisdictions to review socialgaming and possibly implement social gaming regulations. We cannot predict the likelihood, timing, scope or terms of any such regulation or the extent towhich they may affect our social gaming business.In jurisdictions that authorize internet gaming, there can be no assurance that we will be successful in offering our technology, content and servicesto internet gaming operators as we expect to face intense competition from our traditional competitors in the gaming and lottery industries as well as anumber of other domestic and foreign providers (or, in some cases, the operators themselves), some of which have substantially greater financial resourcesand/or experience in this area than we do. In addition, there is a risk that the authorization of the sale of gaming and lottery offerings via interactive channelsin a particular jurisdiction could, under certain circumstances, adversely impact our gaming and lottery offerings through traditional channels in suchjurisdiction. Any such adverse impact would be magnified to the extent we are not involved in, and generating revenue from, the provision of interactiveproducts or services in such jurisdiction. Know‑your‑customer and geo‑location programs and technologies supplied by third parties are an important aspectof certain internet and mobile gaming products and services because they confirm certain information with respect to players and prospective players, such asage, identity and location. Payment processing programs and technologies, typically provided by third parties, are also a necessary feature of interactivewagering products and services. These programs and technologies are costly and may have an adverse impact on our results of operations, cash flows andfinancial condition of our interactive business. Additionally, there can be no assurance that products containing these programs and technologies will beavailable to us on commercially reasonable terms, if at all, or that they will perform accurately or otherwise in accordance with our required specifications.Our social gaming business is largely dependent upon our relationships with key providers and changes in those relationships could negatively impact oursocial gaming business.In our social gaming business, our services operate largely through Facebook, GooglePlay for Android devices, Apple’s iOS platform, Kindleplatform and Windows 8. Consequently, our expansion and prospects of our social gaming30offerings are dependent on our continued relationships with these providers (and any emerging app store providers). Our relationships with Facebook, Googleand Apple are not governed by contracts but rather by the provider’s standard terms and conditions for application developers. Our social gaming businesswill be adversely impacted if we are unable to continue these relationships in the future or if the terms and conditions offered by these providers are altered toour disadvantage. For instance, if any of these providers were to increase their fees, our results of operations, cash flows and financial condition would suffer.Likewise, if Facebook, Google or Apple were to alter their operating platforms, we could be adversely impacted as our offerings may not be compatible withthe altered platforms or may require significant and costly modifications in order to become compatible. If Facebook, Google or Apple were to developcompetitive offerings, either on their own or in cooperation with one or more competitors, our growth prospects would be negatively impacted.We are heavily dependent on our ability to maintain and renew our customer contracts, including our long‑term lottery contracts, and we could losesubstantial revenue and profits if we are unable to renew certain of our contracts on substantially similar terms or at all.Generally, our lottery contracts contain initial multi‑year terms, with optional renewal periods at the discretion of the customer. Upon the expirationof any such contract, including any extensions thereof, a new contract may be awarded through a competitive bidding process. Since late 2007, we have lostlottery systems contracts in South Carolina, West Virginia, South Dakota, New Hampshire, Vermont and Colorado to our competitors following theexpiration or termination of our contracts.A substantial portion of our gaming revenue is dependent on repeat customers. In certain regions, our business may be concentrated with a smallnumber of customers, such as our U.K. LBO business.There can be no assurance that our current contracts will be extended or that we will be awarded new contracts as a result of competitive biddingprocesses or otherwise in the future. The termination, expiration or failure to renew one or more of our contracts could cause us to lose substantial revenueand profits, which could have an adverse effect on our ability to win or renew other contracts or pursue growth initiatives. There can be no assurance that newor renewed contracts will contain terms that are as favorable as our current terms or will contemplate the same scope of products and services as our currentcontracts and any less favorable contract terms or diminution in scope could negatively impact our results of operations, cash flows and financial condition.For additional information regarding the potential expiration dates of certain of our more significant lottery contracts, see the table in "Business-LotterySegment-Contract Procurement" in Item 1 of this Annual Report on Form 10-K.We are also required by certain of our lottery customers to provide surety or performance bonds in connection with our contracts. As of December 31,2014, we had $197.6 million of outstanding performance bonds. There can be no assurance that we will continue to be able to obtain surety or performancebonds on commercially reasonable terms or at all. Our inability to provide such bonds would materially and adversely affect our ability to renew existing, orobtain new, lottery contracts.Our level of indebtedness could adversely affect our results of operations, cash flows and financial condition.As of December 31, 2014, we had total indebtedness of $8,516.0 million, consisting primarily of borrowings under our credit agreement, SeniorNotes and Subordinated Notes.Our level of indebtedness could affect our ability to obtain financing or refinance existing indebtedness; require us to dedicate a significant portionof our cash flow from operations to interest and principal payments on our indebtedness, thereby reducing the availability of cash flow to fund workingcapital, capital expenditures and other general corporate purposes; increase our vulnerability to adverse general economic, industry or competitivedevelopments or conditions; and limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate or inpursuing our strategic objectives. In addition, we are exposed to the risk of higher interest rates as a significant portion of our borrowings are at variable ratesof interest. If interest rates increase, the interest payment obligations under our non‑hedged variable rate indebtedness would increase even if the amountborrowed remained the same and our results of operations, cash flows and financial condition would be negatively impacted. All of these factors could placeus at a competitive disadvantage compared to competitors that may have less debt than we do.We may not have sufficient cash flows from operating activities, cash on hand and available borrowings under our credit agreement to finance requiredcapital expenditures under new contracts, service our indebtedness and meet our other cash needs and may be forced to take other actions to satisfy ourobligations under our indebtedness, which may not be successful. These obligations require a significant amount of cash.Our gaming participation and lottery systems businesses generally require significant upfront capital expenditures for gaming machine or lotteryterminal assembly, software customization and implementation, systems and equipment installation and telecommunications configuration. In connectionwith a renewal or bid of a gaming machine or lottery systems contract, a customer may seek to obtain new equipment or impose new service requirements,which may require additional capital31expenditures in order to retain or win the contract. Historically, we have funded these upfront costs through cash flows generated from operations, availablecash on hand and borrowings. Our ability to generate revenue and to continue to procure new contracts will depend on, among other things, our then presentliquidity levels or our ability to obtain additional financing on commercially reasonable terms.If we do not have adequate liquidity or are unable to obtain financing for these upfront costs on favorable terms or at all, we may not be able to bidon certain contracts, which could restrict our ability to grow and have a material adverse effect on our results of operations, cash flows and financialcondition. Moreover, we may not realize the return on investment that we anticipate on new or renewed contracts due to a variety of factors, including lowerthan anticipated retail sales or amounts wagered, higher than anticipated capital or operating expenses and unanticipated regulatory developments orlitigation. We may not have adequate liquidity to pursue other aspects of our strategy, including bringing our products and services to new customers or newor underpenetrated geographies (including through equity investments) or pursuing strategic acquisitions.Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. This, to some extent, issubject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our lenders, including the lendersparticipating in our revolving credit facilities under our credit agreement, may become insolvent or tighten their lending standards, which could make it moredifficult for us to borrow under our revolving credit facilities or to obtain other financing on favorable terms or at all. Our results of operations, cash flow andfinancial condition would be adversely affected if we were unable to draw funds under our revolving credit facilities because of a lender default or to obtainother cost‑effective financing. Any default by a lender in its obligation to fund its commitment under our revolving credit facilities (or its participation inletters of credit) could limit our liquidity to the extent of the defaulting lender’s commitment. If we are unable to generate sufficient cash flow in the future tomeet our commitments, we will be required to adopt one or more alternatives, such as refinancing or restructuring our indebtedness, selling material assets oroperations or seeking to raise additional debt or equity capital. We cannot assure you that any of these actions could be completed on a timely basis or onsatisfactory terms or at all, or that these actions would enable us to continue to satisfy our capital requirements. Moreover, our existing debt agreementscontain, and our future debt agreements may contain, restrictive covenants that may prohibit us from adopting these alternatives. Our failure to comply withthese covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt.Agreements governing our indebtedness impose certain restrictions that may affect our ability to operate our business. Failure to comply with any of theserestrictions could result in the acceleration of the maturity of our indebtedness. Were this to occur, we would not have sufficient cash to pay ouraccelerated indebtedness.Agreements governing our indebtedness, including our credit agreement and the indentures governing our Senior Notes and Subordinated Notes,impose, and future financing agreements are likely to impose, operating and financial restrictions on our activities that may adversely affect our ability tofinance future operations or capital needs or to engage in new business activities. In some cases, these restrictions require us to comply with or maintaincertain financial tests and ratios. Subject to certain exceptions, our credit facilities and/or indentures restrict our ability to, among other things:• declare dividends or redeem or repurchase capital stock;• prepay, redeem or purchase other debt;• incur liens;• make loans, guarantees, acquisitions and investments;• incur additional indebtedness;• engage in sale and leaseback transactions;• amend or otherwise alter debt and other material agreements;• engage in mergers, acquisitions or asset sales;• engage in transactions with affiliates;•enter into arrangements that would prohibit us from granting liens or restrict our ability to pay dividends, make loans or transfer assetsamong our subsidiaries; and• alter the business we conduct.32In addition, our credit agreement requires us to maintain a maximum first lien net leverage ratio on a quarterly basis. As a result of these covenants,we will be limited in the manner in which we can conduct our business, and may be unable to engage in favorable business activities or finance futureoperations or capital needs.Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of thecovenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containingcross‑default provisions. Such a default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon anycollateral securing the debt. Under these circumstances, we might not have, or be able to obtain, sufficient funds or other resources to satisfy all of ourobligations. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantlyimpair our ability to obtain other financing.There can be no assurance that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with theseobligations or that we will be able to refinance our debt on terms acceptable to us, or at all.Our business depends on the protection of our intellectual property and proprietary information and on our ability to license intellectual property fromthird parties.We believe that our success depends, in part, on protecting our intellectual property in the U.S. and in foreign countries and our ability to licenseintellectual property from third parties on commercially reasonable terms. Our intellectual property includes certain patents, trademarks and copyrightsrelating to our products and services (including gaming machines, interactive gaming products, table games, Utility products and accessories, instant lotterygames and gaming and lottery systems), as well as proprietary or confidential information that is not subject to patent or similar protection. Our success maydepend, in part, on our ability to obtain protection for the trademarks, names, logos or symbols under which we market our products and to obtain copyrightand patent protection for our proprietary technologies, intellectual property and innovations. There can be no assurance that we will be able to build andmaintain consumer value in our trademarks, obtain patent, trademark or copyright protection or that any trademark, copyright or patent will provide us withcompetitive advantages.Our intellectual property protects the integrity of our games, systems, products and services. For example, our intellectual property is designed toensure the security of the printing of our instant lottery games and provide simple and secure validation of our lottery tickets. Competitors mayindependently develop similar or superior products, software or systems. In cases where our technology or product is not protected by enforceable intellectualproperty rights, such independent development may result in a significant diminution in the value of such technology or product.We rely on products, technologies and intellectual property that we license from third parties, including licensed properties and content for ourgaming, lottery and interactive businesses. In addition, substantially all of our gaming machines and our interactive gaming products and services utilizeintellectual property licensed from third parties. The future success of our business may depend, in part, on our ability to obtain, retain and/or expand licensesfor popular technologies and games in a competitive market. Certain of the products and technologies we rely upon are licensed from our competitors. Therecan be no assurance that these third‑party licenses, or support for such licensed products and technologies, will continue to be available to us oncommercially reasonable terms, if at all. In the event that we cannot renew and/or expand existing licenses, we may be required to discontinue or limit our useof the products that include or incorporate the licensed intellectual property. Certain of our license agreements grant the licensor rights to audit our use oftheir intellectual property. Disputes with licensors over uses or terms could result in the payment of additional royalties or penalties by us, cancellation ornon‑renewal of the underlying license or litigation.We also rely on trade secrets and proprietary know‑how. We enter into confidentiality agreements with our employees and independent contractorsregarding our trade secrets and proprietary information, but we cannot assure you that the obligation to maintain the confidentiality of our trade secrets andproprietary information will be honored.The intellectual property rights of others may prevent us from developing new products, entering new markets or may expose us to liability.Our success depends in part on our ability to continually adapt our products and systems to incorporate new technologies and to expand intomarkets that may be created by new technologies. If technologies are protected by the intellectual property rights of others, including our competitors, wemay be prevented from introducing products based on these technologies or expanding into markets created by these technologies. If the intellectualproperty rights of others prevent us from taking advantage of innovative technologies, our prospects, results of operations, cash flows and financial conditionmay be adversely affected.There can be no assurance that our business activities, games, products and systems will not infringe upon the proprietary rights of others, or thatother parties will not assert infringement claims (with or without merit) against us. Any such33claim and any resulting litigation, should it occur, could subject us to significant liability for damages and could result in invalidation of our proprietaryrights or discontinuation of the affected products, distract management and/or require us to enter into costly and burdensome royalty and licensingagreements. Such royalty and licensing agreements, if required, may not be available on terms acceptable to us or may not be available at all. In the future, wemay also need to file or respond to lawsuits to defend the validity of our intellectual property rights and trade secrets or to determine the validity and scope ofthe proprietary rights of others. Such litigation, whether successful or unsuccessful, could result in substantial costs and diversion of our resources.Litigation regarding our intellectual property could have a material adverse effect on our business, intellectual property, results of operations, cash flowsor financial condition.A significant portion of our success depends on the protection of our intellectual property. We are making and in the future may make claims ofinfringement, invalidity or enforceability against third parties. For example, with the emergence of interactive gaming, we have increased enforcementagainst parties that infringe our intellectual property. This enforcement could:•cause us to incur greater costs and expenses in the protection of our intellectual property;•potentially negatively impact our intellectual property rights;•cause one or more of our patents, trademarks, copyrights or other intellectual property interests to be ruled or rendered unenforceable orinvalid; or•divert management’s attention and our resources.In addition, third parties may allege claims of infringement, invalidity or unenforceability against us or against our licensees or manufacturers inconnection with their use of our technology. A successful challenge to, or invalidation of, one of our intellectual property interests, a successful claim ofinfringement by a third party against us, our products, or one of our licensees in connection with the use of our technologies, or an unsuccessful claim ofinfringement made by us against a third party or its products could adversely affect our business or cause us financial harm. Any claim could:•be expensive and time consuming to defend or require us to pay significant amounts in damages;•cause us to cease making, licensing or using products that incorporate the challenged intellectual property;•require us to redesign, reengineer, rebrand our products or limit our ability to bring new products to the market in the future;•require us to enter into royalty, licensing or settlement agreements in order to obtain the right to use a product, process or component;•impact the commercial viability of the products that are the subject of the claim during the pendency of such claim; or•require us by way of injunction to remove products on lease or stop selling or leasing new products.Our business is dependent on the security and integrity of the systems and products we offer.We believe that our success depends, in part, on providing secure products and systems to our customers. Attempts to penetrate security measuresmay come from various combinations of customers, retailers, vendors, employees and others. Our ability to monitor and ensure the quality of our products isperiodically reviewed and enhanced. Similarly, we regularly assess the adequacy of our security systems to protect against any material loss to any of ourcustomers and the integrity of our products to end users. Expanded utilization of the internet and other interactive technologies may result in increasedsecurity risks for us and our customers. There can be no assurance that our business will not be affected by a security breach or lapse, which could have amaterial adverse impact on our results of operations, cash flows and financial condition.Our success depends on our ability to avoid, detect, replicate and correct software and hardware anomalies and fraudulent manipulation of ourgaming machines, lottery systems and interactive gaming products and services. All of our games are designed with security features to prevent fraudulentactivity. However, we cannot guarantee that these features will effectively stop all fraudulent activities. If our security features do not prevent fraud, we couldbe adversely affected.Our gaming machines have experienced anomalies and fraudulent manipulation in the past. Games and gaming machines may be replaced bycasinos and other gaming machine operators if they do not perform according to expectations or they may be shut down by regulators. The occurrence ofanomalies in, or fraudulent manipulation of, our gaming machines or34our other gaming and lottery products and services (including our interactive gaming products and services), may give rise to claims from players and claimsfor lost revenue and profits and related litigation by our customers and may subject us to investigation or other action by regulatory authorities, includingsuspension or revocation of our licenses or other disciplinary action. Additionally, in the event of the occurrence of any such issues with our products andservices, substantial engineering and marketing resources may be diverted from other projects to correct these issues, which may delay other projects and theachievement of our strategic objectives.We rely on information technology systems and any failures in our systems could disrupt our business and adversely impact our results.We rely on information technology systems that are important to the operation of our business, some of which are managed by third parties. Thesesystems are used to process, transmit and store electronic information, to manage and support our business operations and to maintain internal controls overour financial reporting. We could encounter difficulties in developing new systems, maintaining and upgrading current systems and preventing securitybreaches. Among other things, our systems are susceptible to outages due to fire, floods, power loss, break‑ins, cyber‑attacks, network penetration, denial ofservice attacks and similar events. While we have and will continue to implement network security measures and data protection safeguards, our servers andother computer systems are vulnerable to viruses, malicious software, hacking, break‑ins or theft, data privacy or security breaches, third‑party securitybreaches, employee error or malfeasance and similar events. Failures in our systems or services or unauthorized access to or tampering with our systems anddatabases could have a material adverse effect on our business, reputation, results of operations, cash flows and financial condition. Any failures in ourcomputer systems or telecommunications services could affect our ability to operate our linked games or otherwise conduct business.Portions of our information technology infrastructure also may experience interruptions, delays or cessations of service or produce errors inconnection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems andtransitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource‑intensive. Such disruptionscould materially and adversely impact our ability to deliver products to customers and interrupt other processes. If our information systems do not allow us totransmit accurate information, even for a short period of time, to key decision makers, the ability to manage our business could be disrupted and our results ofoperations, cash flows and financial condition could be materially and adversely affected. Failure to properly or adequately address these issues could impactour ability to perform necessary business operations, which could materially and adversely affect our reputation, competitive position, results of operations,cash flows and financial condition.In the fourth quarter of 2013, we initiated a process to upgrade and standardize our enterprise resource planning ("ERP") systems on a worldwidebasis. Additionally, in connection with the Bally acquisition, we are in the process of planning for the implementation of our ERP system within Bally. Thereare inherent risks associated with upgrading or changing systems, including inaccurate data or reporting. If we cannot maintain and execute adequate internalcontrol over financial reporting or implement required new or improved controls that provide reasonable assurance of the reliability of the financial reportingand preparation of our financial statements for external use, we may suffer harm to our reputation, fail to meet our public reporting requirements on a timelybasis or be unable to properly report on our business and our results of operations, cash flows and financial condition. Additionally, the inherent limitationsof internal controls over financial reporting may not prevent or detect all misstatements or fraud, regardless of the adequacy of those controls. In addition, theprocess of upgrading and standardizing our ERP system is complex, time‑consuming and expensive. Although we believe we are taking appropriate action tomitigate these risks through, among other things, testing, training and staging implementations, there can be no assurance that we will not experience dataloss, disruptions, delays or negative business impacts from the upgrades. Any operational disruptions during the course of this process and any delays ordeficiencies in the design and implementation of the new ERP system or in the performance of our legacy systems could materially and adversely affect ourability to operate our businesses. Additionally, while we have spent considerable efforts to plan and budget for the implementation of the new ERP system,changes in scope, timeline or cost could have a material adverse effect on our results of operations, cash flows and financial condition.Our results of operations, cash flows and financial condition could be affected by natural events in the locations in which we or our customers, suppliers orregulators operate.We may be impacted by severe weather and other geological events, including hurricanes, earthquakes, floods or tsunamis, that could disrupt ouroperations or the operations of our customers, suppliers, data service providers and regulators. Natural disasters or other disruptions at any of our facilities orour suppliers’ facilities may impair or delay delivery of our products and services. Additionally, disruptions experienced by our regulators due to naturaldisasters or otherwise could delay our introduction of new products or entry into new jurisdictions where regulatory approval is necessary. While we insureagainst certain business interruption risks, we cannot provide any assurance that such insurance will compensate us for any losses incurred as a result ofnatural or other disasters. Any serious disruption to our operations, or those of our customers’, our35suppliers’ or our regulators, could have a material adverse effect on our results of operations, cash flows and financial condition.We may not succeed in realizing the anticipated benefits of our strategic equity investments and relationships.Under certain circumstances we pursue growth through strategic equity investments, including joint ventures, as a means to, among other things,gain access to new and important geographies, business opportunities and technical expertise, while simultaneously offering the potential for reducingcapital requirements.These strategic equity investments currently include investments in LNS, Northstar Illinois, Northstar New Jersey, Hellenic Lotteries, CSL, GLB andITL. For additional information regarding our equity investments, see Note 11 (Equity Investments).Northstar New Jersey is responsible for payments to the State of New Jersey to the extent certain net income targets are not achieved by the NewJersey lottery, subject to a cap of 2% of the applicable year’s net income and a $20.0 million shortfall payment credit. Our results of operations, cash flowsand financial condition from our equity investment in Northstar New Jersey may be impacted to the extent the New Jersey lottery achieves, or fails to achieve,the applicable net income targets and will be impacted to the extent Northstar New Jersey incurs non‑reimbursable expenses. We may be required to makecapital contributions to Northstar New Jersey to fund our pro rata share of any shortfall payments that are payable to the State under our agreements.Under the Northstar New Jersey services agreement, New Jersey has certain termination rights, including the right to terminate the agreement forconvenience (subject to payment of a termination fee) and the right to terminate the agreement in the event net income shortfalls exceeding 10% of theapplicable targets occur for any consecutive two contract year period or for any three contract years in a five contract year period.Under the terms of a PMA, Northstar Illinois is entitled to receive annual incentive compensation payments from the Illinois Department of theLottery (the “Illinois Lottery”) to the extent it is successful in increasing the Illinois Lottery's net income (as defined in the PMA) above specified targetlevels, subject to a cap of 5% of the applicable year's net income, and is responsible for annual shortfall payments to the Illinois Lottery to the extent suchtargets are not achieved, subject to a similar cap. Northstar Illinois and the State of Illinois have disagreed regarding the State’s calculation of net income foreach of the Illinois Lottery fiscal years during the term of the PMA. In August 2014, we understand that the Governor’s office of the State of Illinois directedthe Illinois Lottery to end the PMA with Northstar Illinois.In December 2014, Northstar Illinois, the State of Illinois, SGI and Gtech Corporation ("Gtech") entered into a termination agreement with respect tothe PMA. The termination agreement contemplates, among other things, (1) termination of the PMA in December 2015 (subject to extension by the State forup to an additional 18 months), (2) that, following the Illinois Lottery’s 2014 fiscal year, Northstar Illinois will no longer be entitled to any incentivecompensation payments and will no longer be liable for any shortfall payments, (3) reimbursement of Northstar Illinois for certain costs it incurs intransitioning its obligations under the PMA and (4) continuation of our instant lottery game supply agreement (and Gtech’s lottery systems supplyagreement) until June 2021, subject to a reduced rate structure, early termination in certain circumstances and a "matching right" for SGI (and Gtech) undercertain circumstances involving a competitive procurement to replace the supply agreements.In February 2015, the Illinois Governor’s Office sent a letter to Northstar Illinois stating that the Illinois Attorney General issued a formal decisiondisapproving the termination agreement and that the Governor’s Office has directed the Illinois Lottery to enforce the terms of the PMA. Both NorthstarIllinois and we believe that the termination agreement is valid and binding on the parties. We intend to continue to investigate this matter.We may not realize the anticipated benefits of these strategic equity investments and relationships and other strategic investments and relationshipsthat we may make or enter into, or may not realize them in the timeframes expected. These arrangements pose significant risks that could have a negativeeffect on our operations, including: the potential diversion of our management’s attention from our core business; the potential failure to realize anticipatedsynergies, economies of scale or other value associated with these arrangements; unanticipated costs and other unanticipated events or circumstances,including losses for which we may be responsible for our pro rata portion; possible adverse effects on our operating results during any integration process;impairment charges if our strategic equity investments or relationships are not as successful as we originally anticipate; and our potential inability to achievethe intended objectives of these arrangements.Furthermore, our strategic equity investments and other strategic relationships pose risks arising from our reliance on our partners and our lack ofsole decision‑making authority, which may give rise to disputes between us and our partners. For instance, our investments in LNS, Northstar Illinois andNorthstar New Jersey are minority investments in ventures whose largest equity holder is Gtech and, although certain corporate actions require our priorconsent, we do not unilaterally control36decisions relating to the governance of these entities. We are party to strategic agreements with a subsidiary of Playtech Limited relating to gaming machinesthat contemplate our license of, and reliance on, the subsidiary’s back‑end technology platform in certain jurisdictions, particularly in the U.K. Our equitypartners, licensors and other third parties with which we have strategic relationships may have economic or business interests or goals that are inconsistentwith our interests and goals, take actions contrary to our objectives or policies, undergo a change of control, experience financial and other difficulties or beunable or unwilling to fulfill their obligations under our arrangements.In certain regions, we enter into agreements with local distributors for the distribution of our land-based gaming products to one or more customers.Changes to these distributor relationships, including modification or termination of our agreements or difficulties with any such distributor could prevent usfrom delivering products to our customers on a timely basis, or at all, and could negatively impact our business.The failure to avoid or mitigate the risks described above or other risks associated with such arrangements could have a material adverse effect onour results of operations, cash flows and financial condition.Our inability to complete future acquisitions and integrate those businesses successfully could limit our future growth.From time to time, we pursue strategic acquisitions in support of our strategic goals. In connection with any such acquisitions, we could facesignificant challenges in managing and integrating our expanded or combined operations, including acquired assets, operations and personnel. There can beno assurance that acquisition opportunities will be available on acceptable terms or at all or that we will be able to obtain necessary financing or regulatoryapprovals to complete potential acquisitions. Our ability to succeed in implementing our strategy will depend to some degree upon the ability of ourmanagement to identify, complete and successfully integrate commercially viable acquisitions. Acquisition transactions may disrupt our ongoing businessand distract management from other responsibilities.We may not achieve the intended benefits of our recent acquisitions or such acquisitions may disrupt our current plans and operations.There can be no assurance that we will be able to successfully integrate the businesses we have acquired, including our recent acquisitions of Ballyand WMS, or do so within the intended timeframes or otherwise realize the expected benefits of such acquisitions. The expected cost synergies associatedwith such acquisitions may not be fully realized in the anticipated amounts or within the contemplated timeframes or cost expectations, which could result inincreased costs and have an adverse effect on our prospects, results of operations, cash flows and financial condition. Our businesses may be negativelyimpacted if we are unable to effectively manage our expanded operations. The integration of these acquisitions will require significant time and focus frommanagement and may divert attention from the day‑to‑day operations of the combined business or delay the achievement of our strategic objectives. Weexpect to incur incremental costs and capital expenditures related to our contemplated integration activities.We may incur additional restructuring costs.We have restructured portions of our operations from time to time and it is possible that we may engage in additional restructuring initiatives in thefuture. Restructuring initiatives are primarily driven by acquisitions or other Company reorganizations in an attempt to maximize the efficiency andprofitability of our businesses and can result in employee termination and severance costs, facility closure expenses, and/or write‑downs of property,equipment or other assets. Because we are not able to predict with certainty when we will complete acquisitions or reorganize portions of our business, wecannot predict the extent, timing and magnitude of restructuring charges.Our products and services may be subject to complex revenue recognition standards, which could materially affect our financial results.As we introduce new gaming and lottery products and our commercial transactions become increasingly complex, additional analysis and judgmentis required to account for them and to recognize revenue in accordance with GAAP. We may enter into transactions that include multiple‑elementarrangements and/or software components and applicable accounting principles or regulatory product approval delays could change when we recognizerevenue with respect to such transactions and could adversely affect our financial results for any given period. In addition, fluctuations may occur in ourrevenue and related deferred revenue as a result of multiple‑element arrangements that include both systems and software. See "Management's Discussion andAnalysis of Financial Condition and Results of Operations—Critical Accounting Estimates—Valuation of investments, long-lived and intangible assets andgoodwill" in Item 7 of this Annual Report on Form 10-K and Note 1 (Description of the Business and Summary of Significant Accounting Policies) foradditional information.37We may be required to recognize additional impairment charges.We assess our goodwill and other intangible assets and our long‑lived assets as and when required by GAAP to determine whether they are impaired.For additional information, including a description of impairments recorded during the years ended December 31, 2014, 2013 and 2012, refer to"Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates—Valuation of investments, long-lived and intangible assets and goodwill" in Item 7 of this Annual Report on Form 10-K, Note 1 (Description of the Business and Summary of SignificantAccounting Policies) and Note 8 (Property and Equipment). We cannot predict the occurrence of impairments and there can be no assurance that we will nothave to record additional impairment charges in the future.Our results of operations fluctuate due to seasonality and other factors and, therefore, our periodic operating results are not guarantees of futureperformance. Our results of operations can fluctuate due to seasonal trends and other factors. Sales of our gaming machines to casinos are generally strongest inthe spring and slowest in the summer, while revenue from our participation gaming machines is generally strongest in the spring and summer. Certain otherseasonal trends and factors that may cause our results to fluctuate include: the geographies where we operate; holiday and vacation seasons; climate; weather;economic and political conditions; timing of the release of new products; significant equipment sales or the introduction of gaming or lottery activities innew jurisdictions or to new customers; the size and duration of draw lottery game jackpots; and other factors.In light of the foregoing, results for any quarter are not necessarily indicative of the results that may be achieved in another quarter or for the fullfiscal year. There can be no assurance that the seasonal trends and other factors that have impacted our historical results will repeat in future periods as wecannot influence or forecast many of these factors.We are dependent on our suppliers and contract manufacturers and any failure of these parties to meet our performance and quality standards orrequirements could cause us to incur additional costs or lose customers.Our production of instant lottery games, in particular, depends upon a continuous supply of raw materials, supplies, power and natural resources. Ouroperating results could be adversely affected by an interruption or cessation in the supply of these items or a serious quality assurance lapse, including as aresult of the insolvency of any of our key suppliers.Similarly, the operation of our printing presses and the manufacture and maintenance of our gaming machines and gaming and lottery systems aredependent upon a regular and continuous supply of raw materials and components, many of which are manufactured or produced outside of the United States.Certain of the components we use are customized for our products. The assembly of certain of our products and other hardware is performed by third parties.Any interruption or cessation in the supply of these items or services or any material quality assurance lapse with respect thereto could materially adverselyaffect our ability to fulfill customer orders, results of operations, cash flows and financial condition. We may be unable to find adequate replacements for oursuppliers within a reasonable time frame, on favorable commercial terms or at all. The impact of the foregoing may be magnified as we continue to seek tostreamline our gaming supply chain by reducing the number of our suppliers. Further, manufacturing costs may unexpectedly increase and we may not beable to successfully recover any or all of such cost increases.In our lottery systems business, we transmit certain wagering data utilizing satellite transponders, generally pursuant to long‑term contracts. Thetechnical failure of any of these satellites would require us to obtain other communication services, including other satellite access. In some cases, we employbackup systems to limit our exposure in the event of such a failure. There can be no assurance of access to such other satellites or, if available, the ability toobtain the use of such other satellites on favorable terms or in a timely manner. While satellite failures are infrequent, the operation of satellites is outside ofour control.In addition, in our gaming business, we rely upon a number of significant third‑party suppliers and vendors delivering parts, equipment and serviceson schedule in order for us to meet our contractual commitments. Furthermore, we outsource the manufacturing of certain of our sub-assemblies to third-parties in the United States, Europe, Central America and Asia. Failure of these third parties to meet their delivery commitments could result in us being inbreach of, and subsequently losing, the affected customer orders, which loss could have a material adverse effect on our results of operations, cash flows andfinancial condition. Certain of our products are reliant on network and/or telecommunications services. For instance, any disruption to our network ortelecommunications could impact our linked or networked games, reducing our revenue.In our interactive business, we often rely on third-party data center providers to, among other things, host our remote game servers. Our interactivebusinesses would be adversely impacted to the extent any such data center provider was unable or unwilling to continue to provide services to us.38We have foreign operations, which subjects us to foreign currency exchange rate fluctuations and other risks.We are a global business and derive a substantial portion of our revenue and profits from operations outside the United States. Additionally, thesuccess of our strategic initiatives is dependent upon expansion of our operations outside of the United States. For the twelve months ended December 31,2014, we derived approximately 40% of our revenue from sales to customers outside of the United States. Our consolidated financial results are affected byforeign currency exchange rate fluctuations. Foreign currency exchange rate exposures arise from current transactions and anticipated transactionsdenominated in currencies other than U.S. dollars and from the translation of foreign currency denominated balance sheet accounts into U.S.dollar‑denominated balance sheet accounts. We are exposed to currency exchange rate fluctuations because portions of our revenue and expenses aredenominated in currencies other than the U.S. dollar, particularly the British Pound Sterling and the Euro. In particular, uncertainty regarding economicconditions in Europe and the debt crisis affecting certain countries in the European Union pose risk to the stability of the Euro. Exchange rate fluctuationshave in the past adversely affected our results of operations, cash flows and financial condition and may adversely affect our results of operations, cash flowsand financial condition and the value of our assets outside the U.S. in the future. If a foreign currency is devalued in a jurisdiction in which we are paid insuch currency, we may require our customers to pay higher amounts for our products, which they may be unable or unwilling to pay.From time to time, we enter into foreign currency forward or other hedging contracts. We are subject to the risk that a counterparty to one or more ofthese contracts defaults on its performance under the contracts. During an economic downturn, a counterparty’s financial condition may deteriorate rapidlyand with little notice and we may be unable to take action to protect our exposure. In the event of a counterparty default, we could lose the benefit of ourhedging contract, which may harm our business, results of operations, cash flows and financial condition. In the event that one or more of our counterpartiesbecomes insolvent or files for bankruptcy, our ability to eventually recover any benefit lost as a result of that counterparty’s default may be limited by theliquidity of the counterparty.Foreign governments can impose restrictions on currency movements that may make it costly or impossible to transfer money to the U.S.Additionally, foreign governments may limit or prevent our ability to import our products and services into foreign jurisdictions. In 2012, governmentalauthorities in Argentina modified regulations relating to importing products and limiting the exchange of pesos into U.S. dollars and the transfer of fundsfrom Argentina. If the Argentine government’s current restrictions on currency transfer remain unchanged, the excess peso balances in our Argentinian bankaccount may continue to grow, which would increase our exposure to any potential currency devaluation in Argentina. Currently, our legal entities inArgentina cannot directly import our gaming products and, if the regulations remain unchanged or if we are unable to continue to import our products intoArgentina, our revenue from customers in Argentina will be negatively impacted, as occurred in the twelve months ended December 31, 2014. See"Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Segments Results—Gaming-—Current Year Update."Our operations in foreign jurisdictions subject us to additional risks customarily associated with such operations, including: the complexity offoreign laws, regulations and markets; the uncertainty of enforcement of remedies in foreign jurisdictions; the impact of foreign labor laws and disputes; theeconomic, tax and regulatory policies of local governments; compliance with applicable anti‑corruption laws; and the ability to attract and retain keypersonnel in foreign jurisdictions. In addition, our international business operations could be interrupted and negatively affected by terrorist activity,political unrest or other economic or political uncertainties. For example, recent government actions and challenges affecting the gaming industry in Mexicohave increased the credit quality risk with respect to certain of our current Mexico customers. In addition, foreign jurisdictions could impose tariffs, quotas,trade barriers and other similar restrictions on our international sales.As a significant amount of our profits and cash flows are generated outside the U.S., the repatriation of funds currently held in foreign jurisdictionsmay result in higher effective tax rates for the Company. In addition, there have been proposals to change U.S. tax laws that could significantly impact howU.S. multinational corporations, such as us, are taxed on foreign earnings. Although we cannot predict the likelihood, timing, scope or terms of any such laws,certain of the proposed changes, such as those seeking to limit the deferral of taxes, if enacted, could have a material adverse impact on our tax expense,results of operations, cash flows and financial condition.Additionally, foreign taxes paid by our foreign subsidiaries and equity investees on their earnings may not be recovered against our U.S. taxliability. At December 31, 2014, we had a deferred tax asset for our foreign tax credit carry forward of $17.2 million. Although we will continue to explore taxplanning strategies to use all of our foreign tax credit carry forward, at December 31, 2014, we had a valuation allowance of $11.2 million against the foreigntax credit deferred tax asset to reduce the asset to the net amount that our management estimates is "more likely than not" to be realized.In addition, our ability to expand successfully in foreign jurisdictions involves other risks, including difficulties in integrating foreign operations,risks associated with entering jurisdictions in which we may have little experience and the day‑to‑day management of a growing and increasinglygeographically diverse company. Our investment in foreign39jurisdictions often entails entering into joint ventures or other business relationships with locally based entities, which can involve additional risks arisingfrom our lack of sole decision‑making authority, our reliance on a partner’s financial condition, inconsistency between our business interests or goals andthose of our partners and disputes between us and our partners.We have lottery‑related investments and business operations in China, including through our joint ventures. Our business in, and results ofoperations from, China are subject to a number of risks relating to China, including risks relating to competition, the bidding and contract negotiationprocesses, our ability to finance or refinance our operations, the complex regulatory environment (including currency and money transfer restrictions), ourability to receive timely product approvals, the political climate, the economy and our joint venture and other business partners in China.We may not realize the operating efficiencies, competitive advantages or financial results that we anticipate from our investments in foreignjurisdictions and our failure to effectively manage the risks associated with our operations in foreign jurisdictions could have a material adverse effect on ourbusiness prospects, results of operations, cash flows and financial condition.We are dependent on our employees.We depend on the continued performance of our executive officers and key personnel, including M. Gavin Isaacs, our president and chief executiveofficer. If we lose the services of any of our executive officers or key personnel and cannot find suitable replacements for such persons in a timely manner, itcould have an adverse impact on our business. Our ability to expand is dependent on our ability to recruit and retain talented employees in the U.S. andinternationally who are capable of leading our employees to achieve our strategic objectives.We also rely on our highly skilled, technically trained and creative employees to develop new technologies and create innovative products. A lackof skilled technical workers could delay or negatively impact our business plans, ability to compete, results of operations, cash flows and financial condition.We could incur costs in the event of violations of, or liabilities under, environmental laws.Our operations and real property are subject to U.S. and foreign environmental laws and regulations, including those relating to air emissions, themanagement and disposal of hazardous substances and wastes and the cleanup of contaminated sites. We could incur costs, including cleanup costs, fines orpenalties, and third‑party claims as a result of violations of, or liabilities under, environmental laws. Some of our operations require environmental permitsand controls to prevent or reduce environmental pollution, and these permits are subject to review, renewal and modification by issuing authorities.Failure to perform under our gaming and lottery contracts may result in litigation, substantial monetary liquidated damages and contract termination.Our business subjects us to contract penalties and risks of litigation, including potential allegations that we have not fully performed under ourcontracts or that goods or services we supply are defective in some respect. Litigation is pending in Colombia arising out of the termination of certainColombian lottery contracts in 1993. An agency of the Colombian government has asserted claims against certain parties, including the Company, whichowned a minority interest in Wintech de Colombia S.A., or Wintech (now liquidated), the former operator of the Colombian national lottery. The claims arefor, among other things, contract penalties, interest and the amount of a bond issued by a Colombian surety. For additional information regarding this orother litigations, see "Legal Proceedings" in Item 3 of this Annual Report on Form 10-K. There can be no assurance that this litigation will not be finallyresolved adversely to us or result in material liability.In addition, our lottery contracts, including our contracts relating to the provision of VLTs, typically permit a lottery authority to terminate thecontract at any time for a material failure to perform, other specified reasons and, in many cases, for no reason at all. Upon such a termination or failure toperform, we may be required to refund fees paid to us for services performed or allow our lottery customers to return our products to us for a full refund. Lottery contracts to which we are a party also frequently contain exacting implementation schedules and performance requirements and the failure to meetthese schedules and requirements may result in substantial monetary liquidated damages, as well as possible contract termination. We are also required bycertain of our lottery customers to provide surety or performance bonds. We have paid or incurred liquidated damages and have been required to allow thereturn of VLTs for a full refund under our lottery contracts and material amounts of liquidated damages could be imposed on us in the future, which could, ifimposed, have a material adverse effect on our business prospects, results of operations, cash flows and financial condition.We may be liable for product defects or other claims relating to our products.Our products could be defective, fail to perform as designed or otherwise cause harm to our customers, their equipment or their products. If any of ourproducts are defective, we may be required to recall the products and/or repair or replace them, which could result in substantial expenses and affect ourprofitability. Any problem with the performance of our40products, such as an instant lottery game misprint or false jackpot or other prize, could harm our reputation, which could result in a loss of sales to customersand/or potential customers. In addition, the occurrence of errors in, or fraudulent manipulation of, our products or software may give rise to claims by ourcustomers or by our customers’ patrons, including claims by our customers for lost revenues and related litigation that could result in significant liability.Any claims brought against us by customers may result in diversion of management’s time and attention, expenditure of large amounts of cash on legal feesand payment of damages, lower demand for our products or services, or injury to our reputation. Our insurance may not sufficiently cover a judgment againstus or a settlement payment and is subject to customary deductibles, limits and exclusions. In addition, a judgment against us or a settlement could make itdifficult for us to obtain insurance in the coverage amounts necessary to adequately insure our businesses, or at all, and could materially increase ourinsurance premiums and deductibles. In addition, software bugs or malfunctions, errors in distribution or installation of our software, failure of our products toperform as approved by the appropriate regulatory bodies or other errors or malfunctions, may subject us to investigation or other action by gamingregulatory authorities, including fines.In October 2012, SNAI S.p.a. ("SNAI") filed a lawsuit in Italy against our subsidiaries, Barcrest and Global Draw, relating to the erroneous printing ofwhat appeared to be winning jackpots on certain VLTs operated by SNAI and supplied by Barcrest. For additional information regarding this litigation, see"Legal Proceedings" in Item 3 of this Annual Report on Form 10-K.Litigation may adversely affect our business and our results of operations, cash flows and financial condition.We may become subject to litigation claims in the operation of our business, including, but not limited to, with respect to employee matters, allegedproduct and system malfunctions, alleged intellectual property infringement and claims relating to our contracts, licenses and strategic investments. We mayincur significant expense defending or settling any such litigation. Additionally, adverse judgments that may be decided against us could result insignificant monetary damages or injunctive relief that could adversely affect our ability to conduct our business and our results of operations, cash flows andfinancial condition.Labor disputes may have an adverse effect on our operations.Certain of our employees are represented by unions, including a majority of the employees at our printing facilities in Canada, Chile and the U.K.Our gaming manufacturing facility in Illinois employs union employees that are represented by the International Brotherhood of Electrical Workers under acollective bargaining agreement that expires in December 2015. While we believe our relations with our employees are satisfactory, we cannot predictwhether we will be successful in negotiating new collective bargaining agreements without any disruptions in our manufacturing. Any disruption in ourprinting or manufacturing operations could have an adverse effect on our results of operations, cash flows and financial condition. There can be no assurancethat we will not encounter conflicts or strikes with any labor unions that represent our employees. Any such conflict or strike could adversely impact ourresults of operations, cash flows and financial condition or our customers’ operations, or could cause us to lose customers.Certain holders of our common stock exert significant influence over the Company and may make decisions that conflict with the interests of otherstockholders.In August 2004, MacAndrews & Forbes Incorporated (formerly known as MacAndrews & Forbes Holdings Inc.) was issued approximately 25% ofour outstanding common stock in connection with its conversion of our then outstanding Series A Convertible Preferred Stock. According to an amendmentto Schedule 13D filed with the SEC on January 2, 2015, this holder beneficially owns 34,255,737 shares of our common stock, or approximately 40.1% ofour outstanding common stock as of March 12, 2015. Pursuant to a stockholders’ agreement with us, which we originally entered into with holders of theSeries A Convertible Preferred Stock, such holder is entitled to appoint up to four members of our board of directors and certain actions of our Companyrequire the approval of such holder. As a result, this holder has the ability to exert significant influence over our business and may make decisions with whichother stockholders may disagree, including, among other things, delaying, discouraging or preventing a change of control of our Company or a potentialmerger, consolidation, tender offer, takeover or other business combination.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.41ITEM 2. PROPERTIESWe occupy approximately 2,954,000 square feet of space in the U.S. and Puerto Rico. Internationally, we occupy approximately 1,434,000 squarefeet of space. Set forth below is an overview of the principal owned and leased real estate properties that support our Gaming, Lottery and Interactivesegments.•We own an approximate 128,000 square foot facility in Las Vegas, Nevada for our global headquarters that supports all of our business segments.•We own an approximate 355,000 square foot facility in Alpharetta, Georgia for administrative offices, manufacturing and warehousing that supportsall of our business segments.•We own an approximate 151,000 square foot facility in Las Vegas, Nevada for manufacturing and warehousing that supports our Gaming businesssegment.•We own an approximate 483,000 square foot campus in Chicago, Illinois for R&D that supports our Gaming and Interactive business segments.•We own an approximate 365,000 square foot facility in Waukegan, Illinois for administrative offices and manufacturing that supports our Gamingbusiness segment.•We lease approximately 260,000 square feet of facilities in Las Vegas, Nevada for administrative offices and warehousing that supports our Gamingbusiness segment.•We lease approximately 186,000 square feet of facilities in India (Bangalore, Chennai and Pune) for R&D that supports our Gaming, Lottery andInteractive business segments.•We own an approximate 150,000 square foot facility in Leeds, England for administrative offices, manufacturing and warehousing that supports ourLottery business segment.•We own an approximate 119,000 square foot facility in Montreal, Canada for administrative offices, manufacturing and warehousing that supportsour Lottery business segment.•We own an approximate 47,000 square foot facility in Santiago, Chile for manufacturing and distribution that supports our Lottery businesssegment.Our Alpharetta and Chicago facilities listed above are encumbered by mortgages securing indebtedness under our credit agreement and SecuredNotes. In addition to those listed above, we own or lease a number of additional properties in the U.S. and internationally that support our operations, some ofwhich are also encumbered by mortgages securing indebtedness under our credit agreement and Secured Notes.ITEM 3. LEGAL PROCEEDINGSThe Company is involved in various legal proceedings, including those discussed below. We record an accrual for legal contingencies when it isboth probable that a liability will be incurred and the amount or range of the loss can be reasonably estimated (although, as discussed below, there may be anexposure to loss in excess of the accrued liability). We evaluate our accruals for legal contingencies at least quarterly and, as appropriate, establish newaccruals 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 ofmanagement. Legal costs associated with our legal proceedings are expensed as incurred. We had accrued liabilities of $47.3 million and $25.9 million for allof our legal matters that were contingencies as of December 31, 2014 and 2013, respectively.Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or themeasurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies couldresult 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 the Companyor its subsidiaries, even when the amount of damages claimed against the Company or its subsidiaries is stated because, among other things: (1) the claimedamount 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 beuncertainty 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 ormotions; (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 progressedsufficiently that we are able to estimate a range of possible loss. For those legal contingencies disclosed below 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 currentestimated range is up to approximately $14.5 million in excess of the accrued liabilities (if any) related to those legal contingencies. This aggregate rangerepresents management’s estimate of additional possible loss in excess of the accrued liabilities (if any) with respect to these matters based on currentlyavailable information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherentuncertainties. For example, at the time of making an estimate, management may have only42preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunalon significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co‑defendants, may prove to be wrong; and the outcomes itis 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 mayoccur that management had not accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregaterange does not include any matters for which the Company is not able to estimate a range of possible loss. Accordingly, the estimated aggregate range ofpossible loss does not represent our maximum loss exposure. Any such losses could have a material adverse impact on our results of operations, cash flowsand financial condition. The legal proceedings underlying the estimated range will change from time to time, and actual results may vary significantly fromthe current estimate.Colombia litigationOur subsidiary, SGI, owned a minority interest in Wintech de Colombia S.A., or Wintech (now liquidated), which formerly operated the Colombiannational lottery under a contract with Empresa Colombiana de Recursos para la Salud, S.A. (together with its successors, "Ecosalud"), an agency of theColombian government. The contract provided for a penalty against Wintech, SGI and the other shareholders of Wintech of up to $5.0 million if certainlevels 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 thecontract. Wintech started the instant lottery in Colombia but, due to difficulties beyond its control, including, among other factors, social and political unrestin Colombia, frequently interrupted telephone service and power outages, and competition from another lottery being operated in a province of Colombiathat 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 claimsfor 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 contractdefault resolution, which decision was notified to us in August 2012. In October 2013, the Council of State upheld the liquidation resolution, which decisionwas 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 claimsasserted 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 May2013, the Tribunal denied SGI’s merit defenses to the collection proceeding and issued an order of payment of approximately 90 billion Colombian pesos(approximately $36 million based on the current exchange rate) plus default interest (potentially accrued since 1994). SGI has filed an appeal to the Councilof State, which appeal has stayed the payment order.SGI believes it has various defenses, including on the merits, against Ecosalud’s claims. Although we believe these claims will not result in amaterial adverse effect on our consolidated results of operations, cash flows or financial position, it is not feasible to predict the final outcome, and there canbe no assurance that these claims will not ultimately be resolved adversely to us or result in material liability.SNAI litigationOn April 16, 2012, certain VLTs operated by SNAI in Italy and supplied by Barcrest erroneously printed what appeared to be winning jackpot andother tickets with a face amount in excess of €400.0 million. SNAI has stated, and system data confirms, that no jackpots were actually won on that day. Theterminals have been deactivated by the Italian regulatory authority. Following the incident, we understand that the Italian regulatory authority revoked thecertification of the version of the gaming system that Barcrest provided to SNAI and fined SNAI €1.5 million, but determined to not revoke SNAI’sconcession to operate VLTs in Italy.In October 2012, SNAI filed a lawsuit in the Court of First Instance of Rome in Italy against Barcrest and Global Draw, our subsidiary which acquiredBarcrest from IGT‑UK Group Limited, a subsidiary of IGT, claiming liability based on breach of contract and tort. The lawsuit sought to terminate SNAI’sagreement with Barcrest and damages arising from the deactivation of the terminals, including among other things, lost profits, expenses and costs, potentialawards to players who43have sought to enforce what appeared to be winning jackpot and other tickets, compensation for lost profits sought by managers of the gaming locationswhere SNAI VLTs supplied by Barcrest were installed, damages to commercial reputation and any future damages arising from SNAI’s potential loss of itsconcession or inability to obtain a new concession. In June 2013, Barcrest and Global Draw filed a counterclaim based on SNAI’s alleged breach of contract.In September 2013, Global Draw brought an action against IGT‑UK Group Limited and IGT in the High Court of Justice (Commercial Court) inLondon, England seeking relief under the indemnification and warranty provisions contained in the agreement pursuant to which Barcrest was acquired fromIGT‑UK Group, including in connection with the April 2012 incident and a number of ancillary matters. In November 2013, IGT‑UK Group Limited filed adefense in which it denied Global Draw’s claims and counterclaimed based on Global Draw’s alleged breach of contract in connection with another ancillarymatter. In September 2014, Global Draw’s motion for summary judgment was granted in respect of one of the ancillary matters but denied in respect of theApril 2012 incident. Accordingly, the parties are scheduled to proceed to trial relating to the April 2012 incident and the other remaining issues in May2015.In February 2015, we entered into a settlement agreement with SNAI that provides, among other things, for us to make a €25 million upfrontpayment to SNAI and to indemnify SNAI against certain potential future losses. In connection with the settlement, the parties’ pending claims in the Court ofFirst Instance of Rome were dismissed on February 19, 2015. We are continuing to pursue recovery from third party sources in connection with this matter,including IGT and our insurance carriers; however, there can be no assurance that any amounts will ultimately be recovered.WMS merger litigationComplaints challenging the WMS merger were filed in early 2013 in the Delaware Court of Chancery, the Circuit Court of Cook County, Illinoisand the Circuit Court of Lake County, Illinois. The actions are putative class actions filed on behalf of WMS stockholders. The complaints generally allegethat the WMS directors breached their fiduciary duties in connection with their consideration and approval of the merger and in connection with their publicdisclosures concerning the merger. The complaints allege that other defendants, including WMS, Scientific Games Corporation and certain affiliates ofScientific Games Corporation, aided and abetted those alleged breaches. The plaintiffs sought equitable relief, including to enjoin the acquisition, to rescindthe acquisition if not enjoined, damages, attorneys’ fees and other costs.The Delaware actions have been consolidated under the caption In re WMS Stockholders Litigation (C.A. No. 8279‑VCP). The plaintiffs in theconsolidated Delaware actions submitted to the Delaware Court of Chancery a letter advising that they had conferred with the plaintiffs in the Illinois actionsand agreed to stay the consolidated Delaware action.The Lake County, Illinois actions were transferred to Cook County. All of the Illinois actions were consolidated in Cook County with Gardner v.WMS Industries Inc., et al. (No. 2013 CH 3540).In April 2013, the plaintiffs in the Gardner action filed a motion for preliminary injunction to enjoin the WMS stockholder vote on the merger.Following that, in April 2013, lead counsel in the Gardner action, on behalf of counsel for plaintiffs in all actions in Delaware and Illinois, agreed to withdrawthe motion for preliminary injunction and not to seek to enjoin the WMS stockholder vote in return for WMS’ agreement to make certain supplementaldisclosures related to the merger. WMS made those supplemental disclosures in a Current Report on Form 8‑K filed with the SEC on April 29, 2013.In January 2014, the plaintiffs in the Illinois action filed an amended complaint seeking damages for the alleged breach of fiduciary duties by theindividual defendants and the alleged aiding and abetting of those breaches by WMS and Scientific Games Corporation. In February 2014, WMS andScientific Games Corporation filed motions to dismiss the amended complaint. In September 2014, the plaintiffs’ claims in the Illinois action were dismissedwith prejudice. The plaintiffs in the Illinois action have filed a claim for attorney fees of $0.9 million, which we have opposed. A ruling on this matter isanticipated in March 2015.The Company believes the claims in the consolidated Delaware action are without merit.Bally merger litigationComplaints challenging the Bally merger were filed in August 2014 in the District Court of Clark County, Nevada. The actions are putative classactions filed on behalf of the public stockholders of Bally and name as defendants Bally, its directors, Scientific Games Corporation and certain of itsaffiliates. The complaints generally allege that the Bally directors breached their fiduciary duties in connection with their consideration and approval of themerger and that we aided and abetted those alleged breaches. The plaintiffs seek equitable relief, including to enjoin the merger, to rescind the merger if notenjoined, damages, attorneys’ fees and other costs.All of the actions have been consolidated under the caption In re Bally Technologies, Inc. Shareholders Litigation (C.A. No. A‑14‑ 705012‑B) (the"Nevada Action"). In October 2014, plaintiffs filed a motion for limited expedited discovery44in connection with an anticipated motion to enjoin the proposed transaction. Following that, in October 2014, Bally and its directors filed a motion todismiss the consolidated complaint and Scientific Games Corporation and its affiliates filed a motion to dismiss the count of the consolidated complaintalleging wrongdoing by Scientific Games Corporation and its affiliates. Following that, the plaintiffs withdrew their motion for expedited discovery and theparties entered into preliminary settlement discussions.On October 17, 2014, following arm’s‑length negotiations, the parties to the Nevada Action entered into a Memorandum of Understanding ("MOU")under which they agreed in principle to settle all of the claims asserted in the Nevada Action on a class‑wide basis, subject to certain conditions, includingconfirmatory discovery by the plaintiffs in the Nevada Action and preliminary and final approval of the Nevada court, which will consider the fairness,reasonableness and adequacy of the settlement. Bally, Scientific Games and the other named defendants entered into the MOU solely to avoid the costs, risksand uncertainties inherent in litigation and without admitting any liability or wrongdoing, and vigorously denied, and continue to vigorously deny, theclaims alleged in the Nevada Action.On November 18, 2014, Bally's stockholders approved the Bally acquisition and the Bally acquisition was consummated on November 21, 2014. Since entering into the MOU, the plaintiffs have completed confirmatory discovery and have concluded that the settlement contemplated by the MOU is fair,reasonable and adequate, and is in the best interests of the Bally public stockholders. The parties are in the process of negotiating final versions of thedefinitive settlement documents to be submitted to the Nevada court for approval.There can be no assurance that the parties will ultimately enter into a definitive settlement agreement or that the Nevada court will approve thesettlement. In such event, the proposed settlement will be null and void and of no force and effect. Payments made in connection with the settlement, whichare subject to court approval, are not expected to be material.Oregon State Lottery matterOn December 31, 2014, a representative of a purported class of persons alleged to have been financially harmed by relying on the "auto hold" featureof various manufacturers' video lottery terminals played in Oregon, filed suit in the Circuit Court of Multnomah County, Oregon, against the Oregon StateLottery and various manufacturers, including WMS Gaming Inc. The suit alleges that the auto hold feature of video poker games is perceived by players asproviding the best possible playing strategy that will maximize the odds of the player winning, when such auto hold feature does not maximize the players'odds of winning. The plaintiffs are seeking in excess of $134.0 million in monetary damages. We filed a motion to dismiss in March 2015 and intend tovigorously defend against the claims asserted in this lawsuit.45ITEM 4. MINE SAFETY DISCLOSURESNot applicable.46PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESMarket for Our Common StockOur outstanding common stock is listed for trading on the Nasdaq Global Select Market under the symbol "SGMS". The following table sets forth,for the periods indicated, the range of high and low sales prices of our Class A common stock: Sales Price ofScientific GamesCommon Stock High LowFiscal Year 2014 (January 1, 2014 - December 31, 2014) First Quarter $17.25 $12.80Second Quarter $14.31 $8.28Third Quarter $13.61 $6.97Fourth Quarter $15.66 $8.44Fiscal Year 2013 (January 1, 2013 - December 31, 2013) First Quarter $10.88 $8.07Second Quarter $11.82 $7.55Third Quarter $16.70 $11.33Fourth Quarter $19.48 $15.50On March 12, 2015, the last reported sale price for our common stock on the Nasdaq Global Select Market was $12.62 per share. There were 829holders of record of our common stock as of March 12, 2015.Dividend PolicyWe have never paid any cash dividends on our Class A common stock and do not presently intend to pay cash dividends on our Class A commonstock in the foreseeable future. Further, under the terms of certain of our debt agreements, we are limited in our ability to pay cash dividends or make certainother restricted payments (other than stock dividends) on our Class A common stock. For further discussion related to dividend restrictions, see"Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, Capital Resources and Working Capital—CreditAgreement and Other Debt" in Item 7 of this Annual Report on Form 10-K.Stock Repurchase ProgramIn December 2014, our existing stock repurchase program, which was originally announced in May 2010, expired and was not renewed. Under theprogram, we were authorized to repurchase, from time to time through open market purchases or otherwise, shares of our outstanding common stock in anaggregate amount up to $200.0 million. During the first quarter of 2014, we repurchased 2.0 million shares at an aggregate cost of $29.5 million. Purchasesmade during 2014 were funded by cash flows from operations, borrowings or a combination thereof. As of the program’s expiration on December 31, 2014,we had $75.0 million remaining available for potential repurchases under the program which expired.During 2013, we repurchased 49.3 thousands shares under the repurchase program at an aggregate cost of $0.8 million. As of December 31, 2013, wehad $104.5 million available for potential repurchases under the program. Purchases made during 2013 were funded by cash flows from operations,borrowings, or a combination thereof.Period Total Numberof SharesPurchased (1) AveragePrice Paidper Share Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs Approximate Dollar Valueof Shares that May Yet BePurchased Under thePlans or Programs10/1/2014 - 10/31/2014 7,103 $9.58 — $75.0 million11/1/2014 - 11/30/2014 35,786 $13.01 — $75.0 million12/1/2014 - 12/31/2014 46,232 $13.26 — $75.0 millionTotal 89,121 $12.87 — $75.0 million_________________________________________________________________________________________________________________________47(1)This column reflects 89,121 shares acquired from employees to satisfy the withholding taxes associated with the vesting of RSUs during the threemonths ended December 31, 2014.Shares Authorized For Issuance Pursuant to Equity Compensation PlansWhen we acquired WMS in October 2013, we assumed the WMS Incentive Plan (renamed the Scientific Games Corporation Incentive Plan (2013Restatement)) (the "Legacy WMS Plan"), including WMS equity awards that were not cashed out in connection with the acquisition (which were adjusted tobecome awards relating to approximately 0.5 million shares of our common stock using a customary exchange ratio based on the stock prices of WMS andthe Company at the time of the acquisition) and approximately 5.6 million shares of our common stock (after adjustment using the customary exchange ratio)available for future awards under the WMS Legacy Plan. At our annual meeting of stockholders on June 11, 2014, our stockholders approved an amendmentand restatement of the Company’s 2003 Incentive Compensation Plan (the “2003 Plan”). Under the amended and restated 2003 Plan, the Legacy WMS Planwas merged into the 2003 Plan. As a result, the shares reserved and available under the two plans were combined into a single share pool, with such sharesavailable for equity awards to any employee, non-employee director or other eligible service provider of the Company or its subsidiaries, including WMS. Inorder to account for a share counting rule under the Legacy WMS Plan under which each share delivered in settlement of a “full-value” award (e.g., an RSU)was counted as 1.8 shares against the shares reserved under the Legacy WMS Plan, only 55.55% of the shares that nominally would be available for futuregrants under the Legacy WMS Plan were included in the combined share pool in the merger of the two plans. For additional information, see the Company'sCurrent Report on Form 8-K filed with the SEC on June 17, 2014.When we acquired Bally in November 2014, we consolidated the Bally 2010 Long Term Incentive Plan (amended and restated in 2013) (“LegacyBally Plan”) with and into the 2003 Plan such that the Legacy Bally Plan became a sub-plan of the 2003 Plan with respect to the Bally awards that weassumed (discussed below). In connection therewith, Bally equity awards that were not cashed out in connection with the acquisition were assumed andadjusted (using a customary exchange ratio based on the stock prices of Bally and the Company at the time of the acquisition) to become awards relating toapproximately 1.4 million shares of our common stock. In addition, we assumed shares available for future awards under the Bally Legacy Plan that totaled(after adjustment using the customary exchange ratio) 3.4 million shares of our common stock (such shares, together with the shares underlying the assumedBally equity awards, the “Legacy Bally Shares”).As a result of merging the Legacy WMS Plan and the Legacy Bally Plan into the 2003 Plan, as of December 31, 2014, we had approximately 21.3 millionshares of common stock authorized for awards under the 2003 Plan (plus available shares from a pre-existing equity-based compensation plan). As ofDecember 31, 2014, we had approximately 8.9 million shares available for future grants of equity awards (excluding shares underlying the outstandingawards) under the 2003 Plan (plus available shares from a pre-existing equity-based compensation plan). We also have outstanding stock options and RSUsgranted as part of inducement awards that were not approved by our stockholders, as permitted by applicable stock exchange rules. The table below shows information regarding our equity compensation plans (in millions) as of December 31, 2014:Equity Compensation Plans Shares available for future issuance under the 2003 Plan(1) 8.9Unrecognized cost of outstanding awards (in millions) $54.8Weighted average future recognition period (years) 2.0(1) Excludes 128 thousand shares available for future issuance under our employee stock purchase plan as of December 31, 2014. Under the share counting rules of the 2003 Plan,awards may be outstanding relating to a greater number of shares than the aggregate remaining available under the plan so long as awards will not result in delivery and vesting ofshares in excess of the number then available under the 2003 Plan. Shares available for future issuance under the 2003 Plan do not include shares expected to be withheld inconnection with outstanding awards to satisfy tax withholding obligations, which may be deemed to be available for awards under the 2003 Plan as permitted under the applicableshare counting rules of the plan.(2) Shares available for grants of equity awards to Bally employees as of December 31, 2014 under the 2014 Plan.Stockholder Return Performance GraphThe following graph compares the cumulative total stockholder return over the five-year period ended December 31, 2014 of our common stock, theNasdaq Composite Index and indices of two peer group companies that operate in industries or lines of business similar to ours: our old peer group and ournew peer group.As a result of the continued consolidation of gaming industry manufacturers in 2014, we modified our peer group companies. The new peer groupindex consists of Aristocrat Leisure Limited (Australian Securities Exchange: ALL), Gtech48S.p.A. (Borsa Italiana S.p.A.: GTK), Intralot, S.A (Athens Stock Exchange: INLOT), Pollard Banknote Limited (Toronto Stock Exchange: PLB.UN-TO) andGlobal Cash Access (New York Stock Exchange: GCA). The old peer group consists of Bally Technologies, Inc. (New York Stock Exchange: BYI), IGT (NewYork Stock Exchange: IGT), Multimedia Games, Inc. (Nasdaq Global Select Market: MGAM), Aristocrat Leisure Limited (Australian Securities Exchange:ALL), Gtech S.p.A. (Borsa Italiana S.p.A.: GTK), Intralot, S.A (Athens Stock Exchange: INLOT) and Pollard Banknote Limited (Toronto Stock Exchange:PLB.UN-TO).The companies in each peer group have been weighted based on their relative market capitalization each year. The graph assumes that $100 wasinvested in our common stock, the Nasdaq Composite Index and the peer group indices at the beginning of the five-year period and that all dividends werereinvested. The comparisons are not intended to be indicative of future performance of our common stock. 12/09 12/10 12/11 12/12 12/13 12/14Scientific Games Corporation 100.00 65.45 66.67 59.59 116.36 87.49NASDAQ Composite 100.00 117.61 118.70 139.00 196.83 223.74Prior Peer Group 100.00 82.35 82.14 91.99 123.64 114.38Current Peer Group 100.00 68.08 69.89 102.42 139.47 122.9449ITEM 6. SELECTED FINANCIAL DATASelected financial data presented below as of and for the years ended December 31, 2014, 2013, 2012, 2011 and 2010 have been derived from ouraudited consolidated financial statements. The information below reflects the acquisitions and dispositions of certain businesses from 2010 through 2014,including the Bally acquisition in November 2014, the WMS acquisition in October 2013, the disposition of our equity investment in Sportech in January2014, the disposition of our pub business in March 2013, the acquisition of substantially all of the assets of Parspro in July 2012, the acquisition ofProvoloto in June 2012 and the exit of that business in February 2014, the acquisition of ADS in June 2012, the acquisition of Barcrest in September 2011,the disposition of our Racing Business in October 2010, the acquisition of substantially all of GameLogic Inc.'s assets in August 2010 and the acquisition ofcertain assets of Sceptre Leisure Solutions Limited in April 2010. This data should be read in conjunction with "Management's Discussion and Analysis ofFinancial Condition and Results of Operations" in Item 7 of this Annual Report on Form 10-K and our Consolidated Financial Statements and the Notesthereto included in Item 8 of this Annual Report on Form 10-K.FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA(in millions, except per share amounts) As of and for the Years Ended December 31, 2014 2013 2012 2011 2010Total revenue $1,786.4 $1,090.9 $928.6 $865.9 $870.5Operating (loss) income (1) (172.7) (18.3) 62.9 92.2 62.9Total other expense, net (2) (322.2) (125.0) (86.1) (79.6) (63.5)Net (loss) income fromcontinuing operations beforeincome taxes (494.9) (143.3) (23.2) 12.6 (0.6)Income tax benefit (expense) 260.6 117.7 (20.7) (18.4) (143.8)Net loss from continuingoperations $(234.3) $(25.6) $(43.9) $(5.8) $(144.4) Basic and diluted net loss per share: Basic from continuing operations $(2.77) $(0.30) $(0.49) $(0.06) $(1.56)Diluted from continuing operations $(2.77) $(0.30) $(0.49) $(0.06) $(1.56) Weighted average number of sharesused in per share calculations: Basic shares 84.6 85.0 90.0 92.1 92.7Diluted shares 84.6 85.0 90.0 92.1 92.7 Statement of Cash Flows Data Net cash provided by operatingactivities $203.5 $171.2 $156.8 $171.1 $170.5Net cash used in investing activities (3,332.9) (1,664.7) (141.9) (161.1) (287.6)Net cash provided by (used in)financing activities 3,157.4 1,538.7 (10.1) (24.7) (9.8)Effect of exchange rates changes oncash and cash equivalents (9.9) (0.5) (0.2) (5.2) (9.0)Increase (decrease) in cash and cashequivalents $18.1 $44.7 $4.6 $(19.9) $(135.9) Balance Sheet Data Total assets $9,995.2 $4,236.4 $2,186.9 $2,161.9 $2,151.5Total long-term debt, including currentinstallments $8,516.0 $3,192.6 $1,468.2 $1,390.7 $1,396.7Total stockholders' equity $3.9 $375.0 $364.8 $443.7 $452.750(1) Operating (loss) income includes:•Cost of product sales includes $6.6 million and $13.0 million for the write-up of finished goods inventory required under purchase accounting forthe Bally and WMS acquisitions in 2014 and 2013, respectively. Cost of products sold also includes $17.8 million of inventory write-offs related tocertain of our product lines in the gaming operating segment in 2014.•SG&A includes charges for legal contingencies and settlements of $24.8 million and $24.5 million in 2014 and 2013, respectively. Also included inSG&A are $76.6 million of acquisition-related fees and expenses related to the Bally acquisition (including $41.0 million for the acceleration ofBally equity awards at the closing of the acquisition) in 2014 and $19.8 million of acquisition-related fees and expenses related to the WMSacquisition in 2013.•Stock-based compensation expense of $24.1 million, $22.3 million, $24.2 million, $21.5 million and $22.7 million in 2014, 2013, 2012, 2011 and2010, respectively.•Employee termination and restructuring costs of $30.7 million, $22.7 million, $10.6 million, $2.0 million and $0.6 million in 2014, 2013, 2012,2011 and 2010, respectively.•D&A, which includes accelerated depreciation charges related to equipment or technology, the impact of any impairment charges related to assets orunderperforming contracts and accelerated depreciation expense related to restructuring plans. Charges for accelerated D&A were $31.5 million,$22.3 million, $45.5 million, $6.4 million and $31.3 million for 2014, 2013, 2012, 2011 and 2010, respectively. See "Management's Discussion andAnalysis of Financial Condition and Results of Operations—Results of Operations" in Item 7 of this Annual Report on Form 10-K for furtherdiscussion regarding these charges.(2) Other expense includes:•Interest expense which includes $64.7 million of debt financing fees incurred as a result of the Bally acquisition in 2014.•Loss on early extinguishment of debt, which includes losses that we incur when we refinance our long-term debt obligations and also includes write-offs of the associated deferred financing costs, which aggregated $25.9 million, $5.9 million, $15.5 million, $4.2 million and $2.9 million in 2014,2013, 2012, 2011 and 2010, respectively. See Note 15 (Long-Term and Other Debt) for more information regarding our debt instruments.51ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following MD&A is intended to enhance the reader's understanding of our operations and current business environment and should be read inconjunction with the description of our business (Item 1 of this Annual Report on Form 10-K) and our Consolidated Financial Statements and Notes (Item 8of this Annual Report on Form 10-K). This MD&A contains forward-looking statements and should be read in conjunction with the disclosures and information contained under "Forward-Looking Statements" and "Risk Factors" at the beginning and in Item 1A, respectively, of this Annual Report on Form 10-K. As used in this MD&A, the terms"we," "us," "our" and the "Company" mean Scientific Games Corporation together with its consolidated subsidiaries.Our MD&A is organized into the following sections:•BUSINESS OVERVIEW•CONSOLIDATED RESULTS•BUSINESS SEGMENT RESULTS•RECENTLY ISSUED ACCOUNTING GUIDANCE•CRITICAL ACCOUNTING ESTIMATES•LIQUIDITY, CAPITAL SOURCES AND WORKING CAPITALBUSINESS OVERVIEWWe are a leading developer of technology‑based products and services and associated content for the worldwide gaming and lottery industries. Ourportfolio includes gaming machines and game content, instant and draw‑based lottery games, server‑based gaming and lottery systems, casino managementsystems, table game products and services, sports betting technology, loyalty and rewards programs and interactive gaming and lottery content and services.We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments.Impact of Bally Acquisition, WMS Acquisition and Other ItemsOn November 21, 2014, we acquired Bally for $5.1 billion (including the refinancing of approximately $1.9 billion of existing Bally indebtedness),creating one of the largest diversified global gaming suppliers. For additional information regarding the Bally acquisition, please see Note 3 (Acquisitionsand Dispositions). On October 1, 2014, in connection with the Bally acquisition, we amended our existing credit agreement pursuant to which our $300.0million revolving credit facility was increased by $267.6 million effective upon the Bally acquisition. In addition, we entered into an escrow creditagreement providing for a $2.0 billion senior secured incremental term loan facility (which became an incremental term loan facility under our existing creditagreement upon the consummation of the Bally acquisition). On November 21, 2014, in connection with the Bally acquisition, the Company issued $950million of 7.0% Senior Secured Notes due 2022 and $2.2 billion of 10.0% Senior Unsecured Notes due 2022. We used the net proceeds from the issuance ofthe Secured Notes and the Unsecured Notes, $200.0 million of borrowings under the increased revolving credit facility and $2.0 billion of borrowings underthe incremental term loan facility, together with cash on hand, to finance the consideration paid in the Bally acquisition, to repay Bally indebtedness and topay related acquisition expenses and financing fees. For additional information regarding the indebtedness we incurred to finance the Bally acquisition, seeNote 15 (Long-Term and Other Debt).On October 18, 2013, we acquired WMS for $1.5 billion. For additional information regarding the WMS acquisition, please see Note 3 (Acquisitionsand Dispositions). In connection with the WMS acquisition, we entered into senior secured credit facilities in an aggregate principal amount of $2.6 billion,including a $300.0 million revolving credit facility and a $2.3 billion term loan facility. The term loan facility was used, in part, to finance the considerationpaid in the WMS acquisition, to pay off indebtedness under our and WMS's prior credit agreements and to pay related acquisition expenses and financingfees. For additional information regarding our indebtedness, see Note 15 (Long-Term and Other Debt).We believe that the Bally and WMS acquisitions are transformational for Scientific Games, creating one of the largest diversified global gamingsuppliers. In particular, we believe that the Bally and WMS acquisitions (1) significantly expand our gaming business, (2) diversify our mix of products,customers and geographies in which we do business and (3) allow the combined company to benefit from economies of scale, which we believe will provideopportunities for cost savings and cash flow improvements.52Our consolidated results of operations for the year ended December 31, 2014 were impacted by the inclusion of the results of operations for Bally forthe 40 days following the acquisition date in November 2014. Our consolidated results of operations for the year ended December 31, 2013 include theresults of operations for WMS for the 74 days following the acquisition date in October 2013 and do not include the results of operations of Bally. Ourconsolidated results of operations for the year ended December 31, 2012 do not include results of operations for Bally or WMS. Items related to the Ballyacquisition and other items that impacted our results of operations for the year ended December 31, 2014 are detailed below:▪$151.6 million of our revenue was attributable to Bally;▪our consolidated results also reflected:•costs of product sales includes $6.6 million of additional cost related to the write-up of finished goods inventory required under purchaseaccounting for the Bally acquisition, $17.8 million of inventory write-downs for discontinued product lines and $2.1 million of inventorywrite-offs . Cost of services includes a $5.7 million charge related to the suspension of the MONOPOLY MILLIONAIRES’CLUBTM ("MMC") draw lottery game and $3.1 million of inventory write-offs;•SG&A includes $76.6 million of acquisition-related fees and expenses related to the Bally acquisition (including $41.0 million for theacceleration of Bally equity awards at the closing of the acquisition), $24.8 million for legal contingencies and settlements that impactedSG&A, $6.0 million impairment of intangible assets with indefinite useful lives and $4.0 million of write-downs of certain receivables frominternational customers;•employee termination and restructuring costs of $30.7 million, comprised of $11.8 million related to WMS integration activities, $1.6million related to the exit of an agreement following the Bally acquisition, $13.8 million related to other employee termination chargesfollowing the Bally acquisition (of which $9.1 million related to Gaming and Interactive and $3.8 million related to Lottery and corporate),$1.6 million related to the exit from our instant lottery game operations in Mexico and the exit from our paper roll conversion operations inthe U.S., as well as $1.9 million of corporate costs unrelated to the Bally acquisition;•$46.8 million of accelerated or incremental depreciation expense, including $4.2 million related to impairments of U.S. lottery contracts, a$9.4 million of impairment on our Waukegan, Illinois manufacturing facility, $14.5 million of accelerated depreciation on certain gamingoperations assets and cabinets and $3.8 million related to software in our gaming business for a product we are discontinuing related to theBally acquisition. In addition, includes $18.1 million of incremental D&A from the write-up of tangible and intangible assets underpurchase accounting for the Bally acquisition;•a $187.7 million year-over-year increase in interest expense related to the incremental indebtedness that we incurred in the fourth quarter of2013 to finance the WMS acquisition and in the fourth quarter of 2014 to finance the Bally acquisition; the increase in interest expensealso included a $64.7 million debt financing fees incurred in connection with the Bally acquisition;•a $19.7 million non-cash impairment charge in earnings (loss) from equity investments to write down our Northstar Illinois equityinvestment and $11.1 million of charges we recorded related to our share of shortfall payments accrued by Northstar Illinois; and•a loss on early extinguishment of debt of $25.9 million related to the tender and redemption premiums and the write-off of deferredfinancing costs in connection with the purchase and redemption of our 2019 Notes.For additional information, see Note 3 (Acquisitions and Dispositions), Note 4 (Employee Termination and Restructuring Plans), Note 8 (Propertyand Equipment), Note 9 (Intangible Assets and Goodwill), Note 10 (Software), Note 11 (Equity Investments) and Note 15 (Long-Term and Other Debt).Our results of operations for the year ending December 31, 2015 will reflect a full year of the results of operations of Bally. Among other things,these results are anticipated to reflect (1) significant investment in R&D by Bally (as illustrated by the $18.7 million increase in our R&D expense in thefourth quarter of 2014 compared to the prior-year period, most of which was attributable to the inclusion of Bally in our results since November 21, 2014), (2)incremental D&A resulting from the write-up of tangible and intangible assets required under purchase accounting for the Bally acquisition and (3) higherinterest expense related to our increased indebtedness.For 2015, we are focused on successfully integrating Bally, completing the integration of WMS and achieving anticipated cost savings byimplementing our plans to streamline our operations and cost structure. We are also focused on positioning the Company for profitable growth by leveragingour core strengths and capabilities to enhance our portfolio of53products and services and to expand market penetration worldwide. We anticipate our future results of operations will benefit from these efforts, although weexpect these benefits to be offset to some extent by certain incremental costs and capital expenditures in 2015 and 2016 related to our contemplatedintegration activities. We also expect to incur additional costs during 2015 to position ourselves to capitalize on longer-term revenue synergy opportunities.SegmentsIn connection with the Bally acquisition, we reviewed our operating and business segments in light of certain changes in the financial informationregularly reviewed by our chief executive officer and other factors. Based on this review, we combined our previous lottery-related Instant Products andLottery Systems business segments into one "Lottery" segment. We also determined that the interactive operating segment should be disclosed as a separatebusiness segment and not aggregated with the gaming operating segment, reflecting the growth of the interactive operating segment. These changes, whichwere effective prior to December 31, 2014, had no impact on our consolidated financial statements for any periods. Prior-period business segment informationfor the years ended December 31, 2013 and 2012 has been adjusted to reflect the changes in business segments. See "Business Segment Results" below andNote 2 (Business and Geographic Segments) for additional information regarding our business segments.Discontinued OperationsOn March 25, 2013, we completed the sale of our installed base of gaming machines in our pub business, as discussed in Note 3 (Acquisitions andDispositions). The results of our discontinued pub operations for the years ended December 31, 2013 and 2012 are presented in the Consolidated Statementsof Operations and Comprehensive Loss in accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations ("ASC 205"). Forthe years ended December 31, 2013 and 2012, we recorded a loss from discontinued operations of $3.0 million and $24.6 million, respectively, and a net lossfrom discontinued operations of $4.6 million and $18.7 million, respectively. There were no results of operations for our discontinued pub business for theyear ended December 31, 2014.Foreign ExchangeOur results are subject to the impact of changes in foreign currency exchange rates, which results in the translation of foreign functional currenciesinto U.S. dollars and the re-measurement of foreign currency transactions. The impact of foreign currency exchange rate fluctuations represents the differencebetween current rates and prior-period rates applied to current activity. We derived approximately 40% and 49% of our revenue from sales to customersoutside of the U.S. in 2014 and 2013, respectively. We have exposure to foreign currency volatility, particularly the British Pound Sterling and the Euro. TheBritish Pound Sterling and the Euro represented, respectively, $239.6 million, or 13%, and $104.3 million, or 6%, of our consolidated revenue for the yearended December 31, 2014. We also have foreign currency exposure related to certain of our equity investments. Our earnings from our Euro-denominatedequity investment in LNS were $17.6 million for the year ended December 31, 2014. See further information regarding our foreign exchange exposures in"Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of this Annual Report on Form 10-K.54CONSOLIDATED RESULTS (in millions) Years ended December 31, Variance 2014 2013 2012 (2) 2014 vs 2013 2013 vs 2012Revenue: Instant games $533.0 $516.0 $493.6 $17.0 3% $22.4 5 %Services 788.5 415.0 340.3 373.5 90% 74.7 22 %Product sales 464.9 159.9 94.7 305.0 191% 65.2 69 %Total revenue 1,786.4 1,090.9 928.6 695.5 64% 162.3 17 %Operating expenses: Cost of instant games (1) 291.4 285.1 282.5 6.3 2% 2.6 1 %Cost of services (1) 283.7 203.1 170.7 80.6 40% 32.4 19 %Costs of product sales (1) 274.3 103.5 65.1 170.8 165% 38.4 59 %Selling, general and administrative 507.7 266.4 179.4 241.3 91% 87.0 48 %Research and development 117.0 26.0 6.6 91.0 350% 19.4 294 %Employee termination and restructuring 30.7 22.7 10.6 8.0 35% 12.1 114 %Depreciation and amortization 454.3 202.4 150.8 251.9 124% 51.6 34 %Operating (loss) income (172.7) (18.3) 62.9 (154.4) 844% (81.2) (129)%Total other expense (322.2) (125.0) (86.1) (197.2) 158% (38.9) 45 %Net loss from continuing operationsbefore income taxes (494.9) (143.3) (23.2) (351.6) 245% (120.1) 518 %Income tax benefit (expense) 260.6 117.7 (20.7) 142.9 121% 138.4 (669)%Net loss from continuing operations $(234.3) $(25.6) $(43.9) $(208.7) 815% $18.3 (42)%________________________________________________________________________________________________________________________________(1)Exclusive of depreciation and amortization.(2)2012 consolidated results have been recast to exclude discontinued operations.Year Ended December 31, 2014 Compared to Year Ended December 31, 2013RevenueConsolidated revenue increased in each of our categories of revenues (instant games, services and product sales). The inclusion of WMS revenue fora full year in 2014 as compared to 74 days in 2013 increased our consolidated revenue by $506.3 million. The inclusion of Bally revenue for the 40-daypost-acquisition period in 2014 increased consolidated revenue by $151.6 million. The remaining $37.7 million increase in revenue was due to growth in ourlottery business and our legacy gaming business (i.e., our gaming business that pre-existed the WMS acquisition, primarily based in the U.K.) of $34.2million and favorable foreign currency translation of $3.4 million.Instant games revenue increased by $17.0 million reflecting higher revenue from our U.S. and international participation contracts and higherrevenue from our U.S. price-per-unit contracts. This increase was partially offset by a decrease in revenue related to international price-per-unit contracts, theexit from our Provoloto business in early 2014 and lower revenue from our licensing and player loyalty programs. Services revenue increased $373.5 million,primarily reflecting a $315.6 million increase in WMS services revenue (including a full year of results as compared to 74 days in 2013), and the inclusion ofBally service revenue of $63.2 million for the 40-day post-acquisition period in 2014, partially offset by a decrease of $5.3 million in services revenuerelated to our lottery and legacy gaming businesses. The $305.0 million increase in product sales revenue reflected a $190.7 million increase in WMSproduct sales revenue (including a full year of results as compared to 74 days in 2013), the inclusion of Bally product sales revenue of $88.3 million for the40-day post-acquisition period in 2014, and a $26.0 million increase primarily due to higher hardware and software sales to our international and U.S. lotterycustomers. 55Cost of RevenueConsolidated cost of revenue increased $257.7 million, including an incremental $169.0 million from WMS (reflecting a full year of results ascompared to 74 days in 2013), an incremental $52.9 million from Bally for the 40-day post-acquisition period in 2014 and an increase of $35.8 million fromour lottery and legacy gaming businesses.Cost of instant games increased $6.3 million primarily due to higher instant games revenue and a $5.7 million charge related to the suspension ofthe MMC draw lottery game. Cost of service revenue increased $80.6 million related to an increase of $67.4 million from WMS (reflecting a full year ofresults as compared to 74 days in 2013), an incremental $11.0 million from Bally for the 40-day post-acquisition period in 2014 and an increase of $2.2million from our lottery businesses reflecting a less profitable mix of service revenue. Cost of product sales increased by $170.8 million including anincremental $101.6 million from WMS (reflecting a full year of results as compared to 74 days in 2013), which was partly due to a $17.8 million write-downof inventory for discontinued product lines following the Bally acquisition, an incremental $41.9 million from Bally for the 40-day post-acquisition periodin 2014, an increase of $27.3 million from our lottery business due to higher product sales revenue.SG&ASG&A increased $241.3 million, which reflected a $117.4 million increase in SG&A (including a $6.0 million impairment charge for intangibleassets with indefinite useful lives) related to WMS (reflecting a full year of results as compared to 74 days in 2013), $81.2 million from Bally for the for the40-day post-acquisition period in 2014 (including $41.0 million related to the acceleration of Bally equity awards in connection with the acquisition), $25.8million of additional acquisition-related charges related to the Bally acquisition, $24.8 million related to legal contingencies and settlements and $4.0million for the write-down of certain receivables from international customers, partially offset by $11.5 million of lower SG&A in the legacy gamingbusiness.R&DR&D increased $91.0 million primarily reflecting a full year of WMS R&D (as compared to 74 days in 2013), which accounted for $74.1 million ofthe increase, as well as $13.0 million of Bally R&D for the 40-day post-acquisition period in 2014.Employee Termination and RestructuringEmployee termination and restructuring costs of $30.7 million, comprised of $11.8 million related to WMS integration activities, $1.6 millionrelated to the exit of an agreement following the Bally acquisition, $13.8 million related to other employee termination charges following the Ballyacquisition (of which $9.2 million related to Gaming and Interactive and $4.6 million related to Lottery and corporate), $1.6 million related to the exit fromour instant game operations in Mexico and the exit from our paper roll conversion operations in the U.S., as well as $1.9 million of corporate costs unrelatedto the Bally acquisition. We discuss these charges in more detail in Note 4 (Employee Termination and Restructuring Plans).D&AD&A increased $251.9 million, of which $201.8 million was attributable to WMS, reflecting a full year of results (as compared to 74 days in 2013)as well as $27.7 million of long-term asset impairments and write-downs following the Bally acquisition. The increase in D&A also included $37.0 millionattributable to Bally for the 40-day post-acquisition period in 2014. Excluding the increase related to the WMS and Bally acquisitions, D&A reflected higheramortization of capitalized internally developed software assets and $4.2 million related to impairments of lottery contracts, partially offset by acceleratedD&A recorded in the prior year for the write-down of used gaming machines and a change in the estimated useful lives of certain gaming machines.Other Income and ExpenseInterest expense increased $187.7 million due primarily to the additional indebtedness that we incurred to finance the WMS and Bally acquisitions.The increase also reflected a $64.7 million debt fee incurred in connection with the Bally acquisition financing. This increase in interest expense was slightlyoffset by a reduction in interest expense as a result of the refinancing of the 2019 Notes with the 2021 Notes in June 2014. For additional informationregarding our indebtedness, see Note 15 (Long-Term and Other Debt) in this Annual Report on Form 10-K.Earnings (loss) from equity investments declined $9.1 million primarily due to the $19.7 million non-cash impairment charge to write down ourNorthstar Illinois equity investment and the $11.1 million charge we recorded related to our share of shortfall payments accrued by Northstar Illinois. Thischarge was partially offset by higher earnings (loss) from equity investments in ITL of $14.7 million and the commencement of operations of the HellenicLotteries in May 2014. For additional information regarding our equity investments, see Note 11 (Equity Method Investments).56We recorded a loss on early extinguishment of debt of $25.9 million related to the tender and redemption premiums and the write-off of deferredfinancing costs in connection with the refinancing of our 2019 Notes in June 2014.In January 2014, we completed the sale of our 20% equity interest in Sportech for cash proceeds of £27.8 million, or $44.9 million, resulting in again of approximately £9 million, or $14.5 million.Income Tax Benefit (Expense)We recorded an income tax benefit of $260.6 million for the year ended December 31, 2014 compared to an income tax benefit of $117.7 million forthe year ended December 31, 2013. The effective income tax rates for the years ended December 31, 2014 and 2013 were 52.6% and 82.1% respectively.After considering the net deferred tax liabilities assumed as a result of the Bally acquisition, we recorded a net release of the valuation allowance related to itsnet U.S. deferred tax assets in the amount of $79.1 million.Our 2014 effective income tax rate on foreign earnings was impacted by the mix of income and the statutory tax rates in our foreign jurisdictions,which ranged from a low of 0% to a high of 35%. The foreign jurisdictions that had the most impact on our foreign income tax benefit (expense) in 2014included Austria, Bermuda, Canada, Ireland, Mexico and the U.K.Our income tax benefit (expense) may change from period to period based on, among other factors, the mix of earnings between U.S. and foreignjurisdictions and among foreign jurisdictions, the effect of the valuation allowance related to our U.S. deferred tax assets (or the release thereof), state andlocal taxes, specific events such as the settlement of income tax audits and changes in tax law, and the effects of our global income tax strategies. Please referto Note 21 (Income Tax Expense) for additional information regarding our foreign and domestic pre-tax income (loss), our foreign and domestic income taxbenefit (expense) and the effect foreign taxes have on our overall effective tax rate.Year Ended December 31, 2013 Compared to Year Ended December 31, 2012RevenueConsolidated revenue increased in each of our categories of revenues (instant games, services and product sales). The inclusion of revenue fromWMS for the 74 days following the acquisition increased consolidated revenue by $144.7 million. Consolidated revenue also reflected unfavorable foreigncurrency translation of $1.7 million.Instant games revenue increased by $22.4 million reflecting higher revenue from game licensing and player loyalty programs, higher revenue fromour participation contracts in U.S. and international jurisdictions and higher revenue from our international price-per-unit contracts, partially offset by adecrease in revenue from our U.S. price-per-unit contracts.Service revenue, which includes our participation-based and other service revenue from our Gaming, Lottery and Interactive business segments,increased $74.7 million reflecting the inclusion of $75.9 million of WMS service revenue. Excluding the portion related to WMS, service revenue wasessentially flat year-over-year.Product sales revenue included $68.8 million of post-acquisition WMS product sales revenue, and otherwise decreased by $3.6 million. Thedecrease resulted from lower U.S. lottery systems hardware sales and lower sales of gaming machines to our bingo and arcade customers in the U.K., partiallyoffset by higher sales of hardware and software to our international lottery systems customers.Cost of RevenueConsolidated cost of revenue increased $73.4 million, including $63.8 million from WMS. Cost of instant games increased primarily due toincreased revenue. Excluding $19.5 million of cost of revenue incurred by WMS following the acquisition, cost of service revenue increased $12.9 millionrelated to a less profitable mix of service revenue. Excluding cost of product sales related to WMS, cost of product sales decreased $5.9 million primarily dueto lower product sales in our U.K. gaming business.SG&ASG&A increased $87.0 million, which reflected $47.5 million of SG&A incurred by WMS following the acquisition, $19.8 million of fees andexpenses related to the WMS acquisition and $24.5 million related to legal contingencies and settlements. The increase in SG&A was partially offset by a$6.2 million decrease in compensation expense.R&DR&D increased $19.4 million primarily related to WMS, which accounted for $19.1 million of the increase.57Employee Termination and RestructuringEmployee termination and restructuring costs included $5.3 million related to WMS integration activities, $9.1 million related to managementchanges, $4.5 million related to the exit from our instant lottery game operations in Mexico and $2.2 related to the discontinuance of a line of gamingmachines following the WMS acquisition. We discuss these charges in more detail in Note 4 (Employee Termination and Restructuring Plans).D&AD&A increased $51.6 million, including $40.1 million of D&A from WMS, which included $4.9 million of incremental D&A resulting from thewrite-up of tangible and intangible assets under our purchase accounting for the WMS acquisition. In addition, as a result of our restructuring activities, werecorded $4.6 million of accelerated depreciation related to software for a line of gaming machines that we discontinued following the WMS acquisition and$3.1 million of accelerated depreciation related to the exit from our instant lottery game operations in Mexico. We also recorded an additional $3.4 millionof accelerated depreciation expense related to other obsolete software in our gaming business and higher depreciation due to the placement of an internallydeveloped software platform into service and the deployment of new lottery terminals in China. These increases were offset by $3.3 million of lower lotterysystems impairments as compared to the prior year.Other Income and ExpenseInterest expense increased $19.5 million due to the incremental indebtedness that we incurred under our credit facilities to finance the WMSacquisition. In addition, we recorded a loss on early extinguishment of debt of $5.9 million related to the write-off of deferred financing costs associated withthe early termination of our prior credit facilities in connection with the financing of the WMS acquisition. See further details regarding our indebtedness inNote 15 (Long-term and Other Debt). In 2012, we recorded a loss on early extinguishment of debt of $15.5 million due to the redemption of our 2016 Notescomprised primarily of the redemption premium and the write-off of previously deferred financing costs.Earnings (loss) from equity investments decreased by $26.6 million primarily due to lower earnings from our investment in ITL related to theaccelerated depreciation of certain gaming machines, as well as lower earnings from our investments in Northstar Illinois and RCN. We also recorded a $6.4million impairment charge on our equity investment in GLB. These decreases in earnings (loss) from equity investments were partially offset by a one-time$7.9 million early termination fee earned by ITL as part of a five-year contract extension. See further details in Note 11 (Equity Investments).Income Tax Benefit (Expense)We recorded an income tax benefit of $117.7 million for the year ended December 31, 2013 compared to income tax expense of $20.7 million forthe year ended December 31, 2012. The effective income tax rates for the years ended December 31, 2013 and 2012 were 82.1% and (89.2)% respectively. In2013, the Company recorded an income tax benefit of $131.1 million related to the net deferred tax liabilities acquired in the WMS acquisition. The incometax benefit was partially offset by income tax related to current-year profits of our foreign operations, the tax impact related to amortization of indefinite livedintangibles and our inability to recognize tax benefits associated with current-year losses in the U.S. After considering the net deferred tax liabilities acquiredas a result of the WMS acquisition and the current-year U.S. loss, the Company recorded a partial release of the valuation allowance related to its net U.S.deferred tax assets in the amount of $68.9 million.Our 2013 effective income tax rate on foreign earnings was impacted by the mix of income and the statutory tax rates in our foreign jurisdictions,which ranged from a low of 0% to a high of 35%. The foreign jurisdictions that had the most impact on our foreign income tax benefit (expense) in 2013include Austria, Bermuda, Canada, Ireland, Mexico and the U.K.Our income tax benefit (expense) may change from period to period based on, among other factors, the mix of earnings between U.S. and foreignjurisdictions and among foreign jurisdictions, the effect of the valuation allowance related to our U.S. deferred tax assets (or the release thereof), state andlocal taxes, specific events such as the settlement of income tax audits and changes in tax law, and the effects of our global income tax strategies. Please referto Note 21 (Income Tax Expense) for additional information regarding our foreign and domestic pre-tax income (loss), our foreign and domestic income taxbenefit (expense) and the effect foreign taxes have on our overall effective tax rate.BUSINESS SEGMENTS RESULTSGAMING58Our Gaming business segment designs, develops, manufactures, markets and distributes a comprehensive portfolio of gaming products and services.We lease gaming machines, systems and content and sell new and used gaming machines, VLTs, networked and casino management systems, table gameproducts and services, conversion kits and spare parts to commercial casinos, Native American casinos, wide-area gaming operators, such as LBOs, arcade andbingo operators in the U.K. and continental Europe, and gaming operators affiliated with governments, such as lotteries and gaming regulators. Our equityinvestments in RCN and ITL are part of our Gaming business segment. Our equity investment in Sportech was included in our Gaming segment until its salein January 2014.We generate Gaming revenue from product sales and services. Our product sales include the sale of gaming machines, table products and casino-management technology solutions and systems to commercial, tribal and government casino operators and wide-area gaming operators as well as sales ofVLTs, conversion kits (including game, hardware or operating system conversions), spare parts and game content. Our services revenue includes revenueearned from participation games, other gaming machine services, casino-management systems and table product leasing and licensing.Current Year UpdateOur Gaming revenue increased during the year ended December 31, 2014 compared to the prior-year period, primarily due to the inclusion ofrevenue from Bally for the 40-day post-acquisition period and a full year of WMS revenue (as compared to 74 days in 2013). However, we believe thatchallenging market conditions in the gaming industry adversely impacted our Gaming results for 2014 relative to WMS' results for the prior year and couldcontinue to negatively impact our results of operations. These challenges included: (1) fewer new casino openings and expansions than in the prior year inaddition to casino closures in the current year, resulting in lower demand for new gaming machines; (2) increased competition resulting in pricing pressureswhich negatively impacted our shipments of new gaming machines; (3) a decline in gaming operators' gross gaming revenues for the year ended December31, 2014, which we believe resulted in a decrease in capital spending by gaming operators on new gaming machines; (4) government actions in Argentina,which limited our ability to import our products for sale in Argentina; and (5) industry challenges and a maturing market in Mexico, including fewer gamingoperators, resulting in a decline in shipments of gaming machines to customers in Mexico.The U.K. government recently adopted a new RGD for remote gaming operators and implemented an increase to the MGD for certain gamingmachines supplied to LBOs. We expect that these tax changes will negatively impact our U.K. customers’ businesses and, therefore, our U.K. gamingbusiness. The U.K. government has also announced its intention to impose additional restrictions on betting shops and high stakes play and is consideringadditional regulations with respect to land-based and interactive gaming activities, any of which could negatively impact our U.K. land-based and interactivegaming businesses. In addition, various legislative and regulatory changes have been enacted or announced that expand the gaming licensing regime in theU.K and, as a result of these changes, we and certain of our customers will be required to obtain additional licenses. We cannot predict the extent to whichany of the foregoing could negatively affect our customers or our U.K. gaming business.In January 2014, we completed the sale of our 20% equity interest in Sportech for cash proceeds of £27.8 million, or $44.9 million, resulting in again of approximately £9 million, or $14.5 million.In April 2014, we entered into a three-year contract extension with the Delaware lottery, which contemplates the placement of a minimum of 400 ofour VLTs at charitable gaming organizations in Delaware.In June 2014, we signed a ten-year contract with the Independent Gaming Corporation Limited of South Australia to supply one of our centralmonitoring and control systems, which is expected to monitor approximately 12,500 gaming machines in more than 550 locations throughout SouthAustralia. Operations under the contract have commenced.Results of Operations and Key Performance Indicators for GamingAll results for 2014 referenced below reflect the results of operations of Bally for the 40 days following the November 21, 2014 closing of theacquisition. All results for 2013 referenced below reflect the results of operations of WMS for the 74 days following the October 18, 2013 closing of theacquisition and exclude the results of operations of Bally. All results for 2012 referenced below exclude the results of operations of Bally and WMS.59(in millions) Years ended December 31, Variance 2014 2013 2012 (2) 2014 vs 2013 2013 vs 2012Revenue: Services $442.6 $181.8 $133.1 $260.8 143 % $48.7 37 %Product sales 363.8 88.7 31.2 275.1 310 % 57.5 184 %Total revenue 806.4 270.5 164.3 535.9 198 % 106.2 65 %Operating expenses: Cost of services (1) 111.0 77.9 60.2 33.1 42 % 17.7 29 %Cost of product sales (1) 195.5 56.4 22.1 139.1 247 % 34.3 155 %Research and development 98.7 17.4 2.1 81.3 467 % 15.3 729 %Selling, general and administrative 235.3 87.1 28.1 148.2 170 % 59.0 210 %Employee termination and restructuring 15.5 6.7 4.7 8.8 131 % 2.0 43 %Depreciation and amortization 318.7 103.9 57.7 214.8 207 % 46.2 80 %Operating loss $(168.3) $(78.9) $(10.6) $(89.4) 113 % $(68.3) 644 % Earnings (loss) from equity investments $3.3 $(12.1) $3.0 $15.4 (127)% $(15.1) (503)%___________________________________________________________________________________________________________________________________(1)Exclusive of depreciation and amortization.(2)2012 consolidated results have been recast to exclude discontinued operations.60(in millions, except for unit and per unit revenue information) Years ended December 31, Variance 2014 2013 2012 2014 vs 2013 2013 vs 2012Key Performance Indicators: WAP, premium and daily fee participation units (1): WAP participation units 5,749 3,817 — 1,932 51% 3,817 n/mPremium and daily-fee participation units 17,805 5,323 — 12,482 234% 5,323 n/mInstalled base at period end 23,554 9,140 — 14,414 158% 9,140 n/mAverage installed base 10,024 9,094 — 930 10% 9,094 n/mAverage daily revenue per unit $68.25 $66.67 $— $1.58 2% $66.67 n/m Other participation and leased units (2): Installed base at period end 45,867 29,289 25,044 16,578 57% 4,245 17 %Average installed base 29,893 26,783 27,390 3,110 12% (607) (2)%Average daily revenue per unit $12.95 $11.62 $12.00 $1.33 11% $(0.38) (3)% Gaming machine sales: U.S. and Canadian new unit shipments 10,573 2,243 90 8,330 371% 2,153 n/mInternational new unit shipments 6,439 2,845 3,450 3,594 126% (605) (18)%Total new unit shipments 17,012 5,088 3,540 11,924 234% 1,548 44 %Average sales price per new unit $15,127 $13,267 $3,757 $1,860 14% $9,510 253 % Table products: Utility products sold 358 — — 358 n/m — n/mAverage sales price per unit $16,407 — — $16,407 n/m — n/m Table products installed base at period end: Utility products leased 9,494 — — $9,494 n/m — n/mProprietary table games 3,148 — — $3,148 n/m — n/mTable games progressive units, table side bets andadd-ons 5,983 — — $5,983 n/m — n/m________________________________________________________________________________________________________________________________n/m - "Not Meaningful"(1)WAP (wide-area progressive), premium and daily-fee participation products comprise participation gaming machines (WAP, LAP (local-area progressives) and standalone units)generally without fixed-term lease periods. Certain Scientific Games units previously included as standalone premium units are now included in "Other leased and participationproducts" and totaled less than 925 units for each period presented.(2)Other leased and participation products comprise server-based gaming machines, video lottery terminals, centrally determined gaming machines, electronic table seats ("ETS"), ClassII and other leased units. Certain Scientific Games units previously included as standalone premium units are now included in "Other leased and participation products" and totaledless than 925 units for each period presented.Year Ended December 31, 2014 Compared to Year Ended December 31, 2013RevenueThe $260.8 million increase in Gaming services revenue reflected higher revenue of $202.3 million from WMS (including a full year of results ascompared to 74 days in 2013), $60.3 million from Bally for the 40-day post-acquisition period and a favorable impact from foreign currency translation of$7.1 million, partially offset by $8.9 million of lower services revenue primarily due to the loss of our Betfred contract in December 2013. Our installed baseof WAP, premium and daily-fee participation units increased to 23,554 units as of December 31, 2014 primarily as a result of the inclusion of 15,349 unitsfrom Bally. The increase in units from Bally was offset by a 935 unit decline from WMS. The average daily revenue per WAP, premium and daily-feeparticipation units increased by $1.58 primarily due to an 11% increase in average daily revenue from61WMS units as compared to the prior year despite challenging gaming industry conditions, reflecting the positive performance of new games, partially offsetby lower revenues per day generated by the Bally units for the 40 days following the closing of the acquisition. Our average installed base of otherparticipation and leased units rose to 45,867 units, reflecting the addition of 18,618 other participation and leased units within the Bally footprint, partiallyoffset by a decline in the U.K. gaming installed base that largely resulted from the loss of our Betfred contract. Average daily revenue for our other leased andparticipation units increased 11% compared to the prior-year period, primarily due to the addition of the Bally units for the 40 days following the closing ofthe acquisition.The $275.1 million increase in product sales revenue reflected $190.7 million of higher WMS revenue (including a full year of results as comparedto 74 days in 2013) and $88.3 million from Bally for the 40-day post-acquisition period. The increase in new unit sales reflected 3,101 of new unit sales byBally during the 40-day post-acquisition period and an increase of 9,242 new unit sales by WMS (reflecting a full year of results as compared to 74 days in2013). Excluding the impact of WMS and Bally product sales, our Gaming product sales revenue declined $3.9 million primarily related to our legacy U.K.gaming business.Operating Loss The $168.3 million operating loss in the Gaming segment primarily reflected an operating loss of $102.9 from WMS (including a $6.0 millionimpairment charge for intangible assets with indefinite useful lives), $33.3 million from Bally (which includes $41.0 million for the acceleration of Ballyequity awards due to the closing of the acquisition) and $32.7 million from other gaming operations primarily due to $24.8 million for legal contingenciesand settlements, as well as higher SG&A and R&D. Operating losses were partially offset by a more profitable mix of business and improvement in our coststructure in our U.K. business, including lower SG&A of $3.1 million primarily reflecting higher compensation and related expenses recorded in the prior-year period and lower D&A of $12.3 million primarily due to accelerated D&A recorded in the prior-year period related to the write-down of used gamingmachines and a change in the estimated useful lives of certain gaming machines.Year Ended December 31, 2013 Compared to Year Ended December 31, 2012RevenueThe $48.7 million increase in Gaming service revenue included $45.9 million from WMS. Excluding WMS, service revenue decreased $2.8 millionprimarily due to lower revenue from our international gaming customers, including our customers in Italy and Puerto Rico, and the loss of our William HillPLC contract in 2012. Service revenue also reflected unfavorable foreign currency translation of $1.6 million. These decreases were partially offset by higherrevenue of $3.5 million from our U.K. LBO customers.The $57.5 million increase in product sales revenue included $68.8 million from WMS. Excluding WMS, product sales revenue decreased $11.3million due to lower sales of gaming machines to our bingo and arcade customers in the U.K. as well as to customers outside the U.K.Operating Income The $78.9 million operating loss reflected an operating loss of $32.2 million from WMS and a $46.7 million loss from the legacy SG Gamingbusiness. The WMS operating loss included a fourth quarter charge to cost of product sales of $13.0 million relating to a purchase accounting adjustment toincrease finished goods inventory to market value, a bad debt allowance of $5.0 million related to a particular customer, and employee termination andrestructuring costs of $3.4 million related to the post-acquisition integration. Legacy SG Gaming operating income decreased $46.7 million due to lowerrevenue from our international gaming customers, including our customers in Italy and Puerto Rico, an increase in SG&A of $19.5 million primarily due tolegal contingencies, settlements and related expenses, and higher D&A of $8.2 million primarily due to the write-off of certain obsolete software in ourGaming business as a result of the acquisition of WMS. The decrease in operating income was partially offset by a decrease in non-WMS employeetermination and restructuring costs. R&D increased $15.3 million, primarily related to WMS, which accounted for $15.0 million of the increase.As described in Note 1 (Description of the Business and Summary of Significant Accounting Policies), our policy is to periodically review theestimated useful lives of our fixed assets. Our reviews during 2013 and 2012 indicated lower estimated useful lives for our gaming machines deployed to ourU.K. LBO customers relative to historical estimates due to market changes that we believe impacted the replacement cycle of these machines. During 2013and 2012, we recorded accelerated depreciation related to our changes in estimates of $8.7 million and $6.6 million, respectively.Loss from equity investments was primarily due to a decrease from our ITL joint venture related to the accelerated depreciation of certain gamingmachines that will be replaced as a result of an early contract termination. Our earnings from RCN declined as a result of temporarily discontinuing theapplication of equity method accounting in accordance with ASC 323, Investments - Equity Method and Joint Ventures ("ASC 323") and recording $3.2million of cash dividends received during 2013 as62equity income versus recording equity earnings in the prior periods. These decreases were partially offset by a one-time $7.9 million early termination feeearned by ITL as part of a five-year contract extension and an increase in earnings from Sportech. See further information regarding our equity investments inNote 11 (Equity Method Investments).LOTTERYThe Lottery segment is primarily comprised of our instant games business and our systems based services business. We generate revenue from themanufacture and sale of instant games, as well as the provision of value-added services such as game design, sales and marketing support, specialty gamesand promotions, inventory management, warehousing, fulfillment services, as well as full instant game category management. In addition, we providelicensed games, promotional entertainment and internet-based marketing services to the lottery industry. These revenues are presented as instant gamesrevenue in our Consolidated Statement of Operations and Comprehensive Statement of Loss.Our systems based services business provides customized computer software, software support, equipment and data communication services, sportswagering systems and keno to lotteries. In the U.S., we typically provide the necessary point-of-sale terminals and equipment, software and maintenanceservices on a participation basis under long-term contracts that typically have an initial term of at least five years. Internationally, we typically sell point-of-sale terminals and/or computer software to lottery authorities and may provide ongoing fee-based systems maintenance and software support services. Our equity investments in LNS (Italy), Northstar Illinois, Northstar New Jersey, CSG (China), Hellenic Lotteries (Greece) and GLB are included in theLottery segment.Current Year UpdateIn January 2014, we completed the installation of a new, state-of-the-art instant game printing press at our Alpharetta, Georgia facility, whichprovides increased capacity for the production of our instant games.In March 2014, we executed an eight-year contract with the North Dakota Lottery, an existing customer, to implement and operate a lottery systemand to provide a range of related services and marketing support. The contract commenced in July 2014 and may be extended by the lottery for an additionaltwo-year period. In April 2014, we entered into a three-year price-per-unit instant games contract to continue serving as the primary supplier to La Française des Jeux("FDJ"), the operator of the French National Lottery and the second largest instant game lottery in the world, which includes options for FDJ to extend thecontract for three additional one-year periods.In May 2014, Hellenic Lotteries commenced sales of lottery games in Greece under its 12-year concession, which provides exclusive rights to theproduction, operation and management of instant games and certain traditional lotteries in Greece. We own a 16.5% equity interest in Hellenic Lotteries andare its exclusive supplier of instant games under a participation contract.In May 2014, we signed an amendment to our contract with Loteria Nacional de Beneficencia of Panama (the National Lottery of Panama) toprovide Panama’s first draw-based lottery game, which is expected to launch in the second quarter of 2015.In September 2014, Puerto Rico joined POWERBALL. All retailers that sell lottery tickets in Puerto Rico are now eligible to sell POWERBALLtickets as well.In October 2014, MMC was launched by lotteries in 23 states through the Multi-State Lottery Association ("MUSL"). MMC was created by theCompany and was the first $5 multi-state draw game in the United States. The Company is also producing a weekly one-hour MONOPOLY-themed televisiongame show associated with the MMC draw game, which we expect will begin to air in late March 2015. In December 2014, participating lotteries suspendedsales of the MMC draw game tickets due to lower than expected retail sales. The Company and MUSL are currently negotiating the terms of a MMC instantgame which would also include a second chance the MONOPOLY-themed television game show.In March 2015, we signed a five-year contract with the Atlantic Lottery Corporation, an existing customer, to provide a lottery gaming system andinternet-based iLottery gaming system. The contract includes extension opportunities for up to 15 years.In June 2013, the Colorado Lottery awarded a new lottery systems contract to one of our competitors. We have continued to provide lottery systemsservices to the Colorado Lottery under our existing contract through October 2014.In November 2013, we were awarded a new price-per-unit contract with Loto-Québec, which took effect in the fourth quarter of 2014 and represents asignificantly smaller portion of Loto-Québec’s instant game business than our prior contract, which expired in January 2014. We understand that a contracthas been awarded to one of our competitors for certain categories of instant games that we provided under the recently expired contract. We have continuedto provide instant games to Loto-Québec since the expiration of our prior contract.63In December 2013, we initiated a plan to exit our instant lottery game operations in Mexico. In February 2014, we exited the operations andsimultaneously entered into a three-year agreement to supply instant lottery games to a distributor in Mexico. In June 2014, we initiated a plan to exit ourpaper roll conversion operations in the U.S., which are immaterial to our operations.Under the terms of a PMA, Northstar Illinois is entitled to receive annual incentive compensation payments from the Illinois Department of theLottery (the “Illinois Lottery”) to the extent it is successful in increasing the Illinois Lottery's net income (as defined in the PMA) above specified targetlevels, subject to a cap of 5% of the applicable year's net income, and is responsible for annual shortfall payments to the Illinois Lottery to the extent suchtargets are not achieved, subject to a similar cap. Northstar Illinois and the State of Illinois have disagreed regarding the State’s calculation of net income foreach of the Illinois Lottery fiscal years during the term of the PMA. In August 2014, we understand that the Governor’s office of the State of Illinois directedthe Illinois Lottery to end the PMA with Northstar Illinois.In December 2014, Northstar Illinois, the State of Illinois, SGI and Gtech Corporation ("Gtech") entered into a termination agreement with respect tothe PMA. The termination agreement contemplates, among other things, (1) termination of the PMA in December 2015 (subject to extension by the State forup to an additional 18 months), (2) that, following the Illinois Lottery’s 2014 fiscal year, Northstar Illinois will no longer be entitled to any incentivecompensation payments and will no longer be liable for any shortfall payments, (3) reimbursement of Northstar Illinois for certain costs it incurs intransitioning its obligations under the PMA and (4) continuation of our instant lottery game supply agreement (and Gtech’s lottery systems supplyagreement) until June 2021, subject to a reduced rate structure, early termination in certain circumstances and a "matching right" for SGI (and Gtech) undercertain circumstances involving a competitive procurement to replace the supply agreements.In February 2015, the Illinois Governor’s Office sent a letter to Northstar Illinois stating that the Illinois Attorney General issued a formal decisiondisapproving the termination agreement and that the Governor’s Office has directed the Illinois Lottery to enforce the terms of the PMA. Both NorthstarIllinois and we believe that the termination agreement is valid and binding on the parties. We intend to continue to investigate this matter.During the three months ended June 30, 2014, we recorded a charge of $8.0 million, representing our 20% share of the estimated shortfall paymentfor the lottery's fiscal year ended June 30, 2014, in earnings (loss) from equity investments in our Consolidated Statements of Operations and ComprehensiveLoss. During the three months ended September 30, 2014, we contributed $13.5 million to Northstar Illinois primarily to fully fund our pro rata share of theshortfall payments for the lottery's fiscal year ended June 30, 2014. In connection with the contemplated termination of the PMA, during the three monthsended September 30, 2014, we recorded a non-cash impairment charge of $19.7 million to write down our investment in Northstar Illinois. During the threemonths ended December 31, 2014, we recorded a charge of $3.1 million, representing our 20% share of the remaining shortfall liability for the lottery's fiscalyear ended June 30, 2014, in earnings (loss) from equity investments and contributed $1.2 million to Northstar Illinois primarily to fund our pro rata share ofthis remaining shortfall payment. We are the exclusive instant game validation network provider to the CSL under an agreement that expires in January 2016 and we currently expectthat this contract will not be renewed or extended. We have seen a decline in our instant lottery game validation revenue and our joint venture's instant gameprinting revenue as CSL's retail sales of instant games have declined, which we believe is due in part to competition from other lottery products. We arecurrently seeking opportunities to continue providing our value-added services relating to the CSL, as well as additional business development opportunitiesto maintain our revenue and profit relating to our China lottery business following the expiration of the our current CSL agreement. To the extent we are notable to do so, our operating results relating to our China lottery business will be adversely affected.We believe retail sales of instant games can be a key performance indicator of our instant games revenue, although there may not always be a directcorrelation between retail sales and our instant games revenue due to the type of contract (e.g., participation contracts versus price-per-unit contracts), theimpact of changes in our customer contracts, the performance of our games and player loyalty business or other factors. Our services revenue is also impactedby retail sales of instant games where we provide instant game validation services on a standalone basis or as part of a contract. We also believe that our U.S.lottery customers' retail sales is a key performance indicator of our services revenue, although there may not always be a direct correlation between retail salesand our services revenue due to the terms of our contracts, the impact of changes in our customer contracts or other factors. Additionally, we believe the levelof jackpots of the POWERBALL and MEGA MILLIONS multi-state draw games, and the number of drawings conducted before a jackpot is won, may have animpact on U.S. retail sales and, therefore, on our services revenue in any given period. Our product sales revenue primarily relates to sales of equipment tointernational customers that are not subject to long-term contracts. Based on third-party data, our U.S. customers' total instant games retail sales increased 6% for the year ended December 31, 2014 compared to theprior-year period, driven by several factors, including strong performance in those states where we provide instant game product management services. Retailsales of U.S. lottery customers' draw games decreased 2% for the year ended December 31, 2014 compared to the prior-year period, driven by several factors,including larger POWERBALL jackpots in64the prior year. Retail sales of instant games in Italy decreased 2% year ended December 31, 2014 compared to the prior-year period.Results of Operations and Key Performance Indicators for Lottery(in millions) Years ended December 31, Variance 2014 2013 2012 2014 vs 2013 2013 vs 2012Revenue: Instant games $533.0 $516.0 $493.6 $17.0 3 % $22.4 5 %Services 201.4 203.2 201.1 (1.8) (1)% 2.1 1 %Product sales 101.1 71.2 63.5 29.9 42 % 7.7 12 %Total revenue 835.5 790.4 758.2 45.1 6 % 32.2 4 %Operating expenses: Cost of instant games (1) 291.4 285.1 282.5 6.3 2 % 2.6 1 %Cost of services (1) 120.8 113.8 109.6 7.0 6 % 4.2 4 %Cost of product sales (1) 78.8 47.1 43.0 31.7 67 % 4.1 10 %Research and development 4.6 5.5 4.5 (0.9) (16)% 1.0 22 %Selling, general and administrative 73.3 70.7 65.4 2.6 4 % 5.3 8 %Employee termination and restructuring 3.5 5.1 5.9 (1.6) (31)% (0.8) (14)%Depreciation and amortization 97.1 94.5 92.6 2.6 3 % 1.9 2 %Operating income $166.0 $168.6 $154.7 $(2.6) (2)% $13.9 9 % Earnings (loss) from equity investments $(10.9) $13.6 $25.1 $(24.5) (180)% $(11.5) (46)% Key Performance Indicators: Instant games by revenue type: Participation contracts $277.0 $254.7 $243.9 $22.3 9 % $10.8 4 %Price-per-unit contracts 199.9 202.5 204.0 (2.6) (1)% (1.5) (1)%Licensing and player loyalty 56.1 58.8 45.7 (2.7) (5)% 13.1 29 %Total instant games revenue $533.0 $516.0 $493.6 $17.0 3 % $22.4 5 % Retail sales of instant games of U.S.instant game customers $38,792 $36,747 $35,329 $2,045 6 % $1,418 4 % Retail sales of U.S. lottery systemcustomers (2) $8,398 $8,558 $3,697 $(160) (2)% $4,861 131 % Italy retail sales of instant games (inEuros) €9,442 €9,612 €9,764 €(170) (2)% €(152) (2)%________________________________________________________________________________________________________________________________(1)Exclusive of depreciation and amortization.(2)U.S. lottery systems customers' retail sales primarily include retail sales of draw games, keno and instant games validated by the relevant system. This retail sales metric previously disclosed for earlier periodsincluded draw game retail sales only. We believe the revised metric more clearly correlates to our services revenue, since we are generally compensated based on total retail sales generated by the relevant lotterysystem and not just draw game retail sales. The prior-year period retail sales information presented above has been revised to conform to the revised metric.Year Ended December 31, 2014 Compared to Year Ended December 31, 2013RevenueThe $17.0 million increase in Lottery instant games revenue reflected higher revenue of $22.3 million from our U.S. and international participationcontracts driven by an increase in retail sales partially offset by lower revenue of $2.6 million from our price-per-unit contracts due to unfavorable contractrevisions, the mix of orders, a reduction in revenue from the closing of our Mexico business and lower revenue of $2.7 million from our licensing and playerloyalty programs. Instant game revenue also reflected an unfavorable foreign currency translation of $1.5 million.65Lottery service revenue decreased $1.8 million primarily due to a decline in instant lottery game validation revenue from the CSL and lower revenuefrom U.S. customers, reflecting lower retail sales and unfavorable contract revisions. The decrease in service revenue was partially offset by our internationaloperations from an increase in sports betting services in our international operations. Service revenue also reflected favorable foreign currency translation of$0.6 million.The $29.9 million increase in Lottery product sales revenue primarily reflected higher international sales of hardware and software of $24.7 millionand higher U.S. hardware and software sales of $6.0 million.Operating IncomeOperating income decreased primarily due to an increase in D&A and SG&A reflecting a full year of the operations of Provoloto, which we acquiredin June 2012 and a less profitable mix of service revenue, partially offset by a higher and more profitable mix of instant game revenue and a decrease inemployee termination and restructuring charges. These changes reflected the impact of the reorganization of our instant lottery game operations in Mexico in2013.Year Ended December 31, 2013 Compared to Year Ended December 31, 2012RevenueThe increase in our instant games revenue reflected higher revenue of $13.1 million from licensing and player loyalty programs, $10.8 million fromour U.S. and international participation contracts driven by an increase in retail sales, and $3.6 million from our international price-per-unit contracts. Theincrease was partially offset by a decrease in revenue from our U.S. price-per-unit contracts of $5.2 million due to unfavorable contract revisions and thetiming of orders. Instant game revenue reflected unfavorable foreign currency translation of $1.7 million.Lottery services revenue increased $2.1 million primarily from our international operations mainly due to an increase in sports betting services,partially offset by a decline in instant lottery game validation revenue from the CSL. Our service revenue also reflected lower revenue from U.S. customers,reflecting a decrease in retail sales and unfavorable contract revisions. Service revenue also reflected favorable foreign currency translation of $0.7 million.The increase in product sales revenue primarily reflected higher international sales of hardware and software of $8.1 million, partially offset by lower U.S.hardware and software sales of $3.5 million. Product sales revenue also reflected favorable foreign currency translation of $1.2 million.Operating IncomeOperating income increased $13.9 million primarily due to a higher and more profitable mix of instant games revenue, higher services revenue and adecrease in employee termination and restructuring charges as a result of the impact of the reorganization of our Australian operations in the prior-year periodand by lower impairments related to underperforming contracts and an insurance settlement recovered in 2012 that did not recur in 2013. The increase inoperating income was partially offset due to higher SG&A reflecting a full year of the operations of Provoloto, which we acquired in June 2012 and highercompensation expense related to additional headcount, higher research and development, reorganization costs of our instant game operations in Mexico in2013,higher D&A driven by increased amortization of our internally developed software platform that was placed into service during the current-year periodand increased terminal deployment in China.We recorded a $6.4 million impairment on our equity method investment in GLB. See Note 11 (Equity Investments) for additional information.INTERACTIVEWithin our Interactive segment, we generate revenue from the provision of interactive gaming products and services for both social gaming andRMG, available via desktop and mobile devices. This revenue is included in services revenue in our Consolidated Statement of Operations andComprehensive Statement of Loss.In our social gaming business, we generate revenue from the sale of virtual coins or chips, which players can use to play (i.e., spin in the case of slots,bet in the case of poker) our WMS® branded (slots), Dragonplay branded (slots, poker) or third-party branded (slots) games. We also host play-for-fun andplay-for-free services for traditional land-based casinos and earn revenue based on fixed fees, a share of the proceeds from the sale of virtual coins, or a mix offixed fees and a share of such proceeds.In our RMG business, we provide game content to real-money online casino operators, primarily in Europe. We host our game content on ourcentrally-located servers (often referred to as remote game servers) that are integrated with the online casino operators’ websites. We typically earn apercentage of the operator’s net gaming revenue generated by their players playing the games we host. We also host on-premises interactive RMG gaming fortraditional land-based casinos and earn revenue based on fixed fees, a share of the related revenue, or a mix of fixed fees and revenue share.66Current Year UpdateOur interactive product portfolio expanded with the addition of a second social casino gaming site, Gold Fish® Social Slots, which becameavailable on Facebook in the first quarter of 2014 and on mobile devices in the second quarter of 2014.In 2014, we expanded our interactive RMG business by entering into several new game content agreements with online casino operators and wentlive on several sites, including, among others, with bwin.party in Europe and certain online casino sites in New Jersey. With the Bally acquisition, we added(1) RMG customers with which we previously did not have contracts, (2) on-premises mobile gaming customers and capabilities and (3) expanded our play-for-fun and play-for-free offerings.Results of Operations and Key Performance Indicators for InteractiveThe results for 2014 included below reflect the results of operations for Bally for the 40 days following the closing of the Bally acquisition onNovember 21, 2014. The results for 2013 included below reflect the results of operations for WMS for the 74 days following the closing of the WMSacquisition on October 18, 2013 and exclude the results of operations of Bally. All results for 2012 included below exclude the results of operations for Ballyand WMS.(in millions) Years ended December 31, Variance 2014 2013 2012 2014 vs 2013 2013 vs 2012Revenue: Services $144.5 $30.0 $6.1 $114.5 382 % $23.9 392 %Total revenue 144.5 30.0 6.1 114.5 382 % 23.9 392 %Operating expenses: Cost of services (1) 51.9 11.4 0.9 40.5 355 % 10.5 1,167 %Research and development 13.7 3.1 — 10.6 342 % 3.1 nmSelling, general and administrative 57.3 10.1 0.7 47.2 467 % 9.4 1,343 %Employee termination and restructuring 7.1 1.9 — 5.2 274 % 1.9 nmDepreciation and amortization 13.3 2.7 — 10.6 393 % 2.7 nmOperating income $1.2 $0.8 $4.5 $0.4 50 % $(3.7) (82)% Earnings in equity investments $— $— $— $— — % $— — % Key Performance Indicators: Social gaming: Average MAU (2) 5.6 4.2 — 1.4 33 % 4.2 nmAverage DAU (3) 1.5 1.2 — 0.3 25 % 1.2 nmARPDAU (4) $0.22 $0.26 $— $(0.04) (15)% $0.26 nm___________________________________________________________________________________________________________________________(1)Exclusive of depreciation and amortization.(2)MAU = Monthly Active Users, a count of unique visitors to our sites during a month.(3)DAU = Daily Active Users, a count of unique visitors to our sites during a day.(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.Year Ended December 31, 2014 Compared to Year Ended December 31, 2013RevenueThe $114.5 million increase in Interactive service revenue reflects revenue from WMS of $113.3 million (including a full year of results as comparedto 74 days in 2013), growth in the DAU, and the inclusion of $2.9 million of revenue from Bally for the 40-day post-acquisition period, partially offset by areduction in ARPDAU.67Operating IncomeThe increase in Interactive operating income reflects a full year of WMS operating income (as compared to 74 days in 2013) and greater profitabilityfrom the growth in revenue, partially offset by a $3.1 million operating loss from Bally for the 40-day post-acquisition period.Year Ended December 31, 2013 Compared to Year Ended December 31, 2012RevenueThe $23.9 million increase in Interactive service revenue reflects $27.2 million of WMS revenue for the 74-day post-acquisition period in 2013,partially offset by lower revenue from our legacy interactive gaming business.Operating IncomeThe $3.7 million decrease in operating income reflects lower profitability of our legacy interactive gaming business and a $0.1 million operatingloss of WMS for the 74-day post-acquisition period.RECENTLY ISSUED ACCOUNTING GUIDANCEFor a description of recently issued accounting pronouncements, see Note 1 (Description of the Business and Summary of Significant AccountingPolicies).CRITICAL ACCOUNTING ESTIMATESAccounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of ourfinancial statements because they involve significant judgments and uncertainties. Some of these estimates include determining fair value. All of theseestimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their effects based on informationavailable as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments andestimates described below could change, which may result in future impairments of investments, goodwill, intangibles and long-lived assets, incrementallosses on financing receivables, increases in reserves for contingencies, establishment of valuation allowances on deferred tax assets and increased taxliabilities, among other effects.The following is not intended to be a comprehensive list of all of our accounting policies. Our significant accounting policies are more fullydescribed in Note 1 (Description of the Business and Summary of Significant Accounting Policies). In many cases, the accounting treatment of a particulartransaction is specifically dictated by U.S. GAAP, with no need for management's judgment in its application. There are also areas in which management'sjudgment in selecting an available alternative would not produce a materially different result.Revenue recognitionWe evaluate the recognition of revenue based on the criteria set forth in the following accounting guidance: ASC 605, Revenue Recognition ("ASC605") and ASC 985, Software ("ASC 985"). See Note 1 (Description of the Business and Summary of Significant Accounting Policies) for a description of ourrevenue recognition policy for our revenue streams by business segment.Judgment is often required to determine whether an arrangement consists of multiple deliverables in accordance with ASU 2009-13, whether thedelivered item has value to the customer on a standalone basis and, if applicable, management’s estimated selling price used to allocate the arrangement feeto each deliverable. The fair value of the undelivered elements is deferred and the remaining portion is allocated to the delivered item and is recognized asrevenue. Such determination affects the timing of revenue recognition. We evaluate the primary use and functionality of each deliverable in determiningwhether a delivered item has standalone value and qualifies as a separate unit of accounting.Judgment is required to determine whether there is sufficient history to prove assurance of collectability and whether pricing is fixed or determinablein accordance with ASC 605. We have determined that gaming machine sales with extended payment term arrangements with original periods of 36 monthsor less qualify for revenue recognition at time of sale. Other factors considered include the nature of our customers, our historical collection experience withthe specific customer, the terms of the arrangement and the nature of the product being sold. Our annual determination is based on our history of collectingamounts due under such arrangements, the lack of concessions given to collect amounts owed under such arrangements, including any refinancingarrangements, and the low risk of technological obsolescence, as our product life significantly exceeds the payment terms. Our product sales contracts do notinclude specific performance, cancellation, termination or refund-type provisions.68Determining whether certain of our products are within the scope of software revenue recognition under ASC 985 and whether the software and non-software elements of these products function together to deliver the essential functionality under ASU 2009-14 can require judgment. Our determinationdictates whether general revenue recognition guidance under ASC 605 or software revenue recognition guidance under ASC 985 applies and could impactthe timing of revenue recognition.Revenue from the sale of lottery systems that require the production and delivery of terminals with customized software and revenue from ourlicensed merchandising contracts are recognized using the percentage-of-completion method of accounting. The percentage-of-completion methodrecognizes income as work on a contract progresses. The use of the percentage-of-completion method depends on our ability to make reasonably dependablecost estimates for the design, manufacture and delivery of our products. Estimation of these costs requires the use of judgment. Revenue under percentage-of-completion contracts is recorded as costs are incurred.Valuation of investments, long-lived and intangible assets and goodwillWe assess the recoverability of our equity method investments, long-lived assets and intangible assets with indefinite and finite lives wheneverevents or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We assess the impairment of goodwill annually ormore frequently if events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Factors we consider important thatcould trigger an impairment review of our long-lived and intangible assets or goodwill include:•significant under-performance relative to expected historical performance or projected future operating results;•significant changes in the manner of use of the acquired assets or the strategy of our overall business;•significant adverse changes in the legality of our business ventures or the business climate in which we operate; and•loss of a significant customer.InvestmentsAn investment is impaired only if the estimate of the fair value of the investment is less than the carrying value of the investment, and such declinein value is deemed to be other than temporary. To measure the recoverability of the investment, we estimate the fair value of the investment using both adiscounted cash flow analysis and a market approach. If the fair value is less than the carrying value of the investment, we then consider a number of factorsto determine if the impairment is other than temporary, including the estimated duration of the impairment, the financial condition of the entity and ourintent to hold the investment in the entity. If an impairment occurs, the amount is measured as the excess of the carrying amount of the equity investmentover the fair value of the equity investment. Significant judgment is required in the forecasting of future operating results, which are used in the preparationof projected cash flows. Any significant adverse changes in key assumptions, including discount rate and selected market comparables, or adverse changes ineconomic and market conditions may cause a change in the estimation of fair value and could result in an impairment charge that could be material to ourfinancial statements. See Note 1 (Description of the Business and Summary of Significant Accounting Policies) and Note 11 (Equity Investments).Long-lived and intangible assetsRecoverability of long-lived assets and intangible assets with finite lives are measured by a comparison of the carrying amount of the asset to theexpected net future undiscounted cash flows to be generated by that asset. If an impairment is indicated, the amount of the impairment is measured as theamount by which the carrying value of the asset exceeds the fair market value. The fair market value is determined using a discounted cash flow model or inthe case of indefinite lived intangible assets, another appropriate valuation methodology is used. Significant judgment is required in the forecasting of futureoperating results and determining the discount rate and terminal value, which are used in the preparation of projected cash flows. While we believe ourestimates of future operating results and projected cash flows are reasonable, any significant adverse changes in key assumptions or adverse changes ineconomic and market conditions may cause a change in the estimation of fair value and could result in an impairment charge that could be material to ourfinancial statements. Assets held for sale are reported at the lower of the carrying amount or fair market value, less expected costs to sell.GoodwillWe evaluate goodwill for impairment by comparing the carrying value of each reporting unit to its fair value using a quantitative two-stepimpairment test. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired. In the event that the fair valueof the reporting unit is less than its carrying value, the amount of the impairment loss will be measured by comparing the implied fair value of goodwill to itscarrying value. If the carrying amount69of reporting unit goodwill exceeds the implied fair value of that goodwill, a step 2 analysis is performed to determine the amount of impairment loss torecord.To determine the fair value of each of our reporting units, we apply a number of methodologies consistent with our historical approach, includingthe income approach based on a discounted cash flow analysis and the market approach using implied public and private multiples. Specifically, we appliedmultiples based on where comparable companies publicly trade and relevant historical acquisition transactions. In arriving at a valuation of our reportingunits, we considered each approach and weighted the results based on the relative applicability to each reporting unit. Our discounted cash flow analysis isbased on the present value of two components: the sum of our projected cash flows; and a terminal value assuming a perpetual growth rate ranging from 1%to 3%. The cash flow estimates are derived from our budget and long-term forecasts prepared for each reporting unit, considering historical results,anticipated future performance and capital expenditures and require considerable judgment. The discount rates used to determine the present value of futurecash flows were derived from a weighted average cost of capital analysis utilizing a beta that is derived from the same group of comparable companies used inour multiple analysis. In addition, we gave consideration in the calculation of the weighted average cost of capital for the size and specific industry risks ofeach of our reporting units. As a result of the weighted average cost of capital calculations, our discount rate used for each reporting unit ranged from 8% to11% for 2014 and 2013, primarily reflecting the change in risk premium on the discount rates.The estimate of a reporting unit's fair value requires the use of several assumptions and estimates regarding the reporting unit's future cash flows,growth rates, market comparables, perpetual growth rates and weighted average cost of capital, among others. Significant judgment is required in theforecasting of future operating results, which are used in the preparation of projected cash flows. Any significant adverse changes in key assumptions aboutthese businesses and their prospects, such as changes in our strategy or products, the loss of key customers, changes in regulatory licensing or adversechanges in economic and market conditions may cause a change in the estimation of fair value valuation of our reporting units and may result in animpairment charge that could be material to our financial statements.We regularly review our segment reporting for alignment with our strategic goals and operational structure as well as for evaluation of businessperformance and allocation of resources by our Chief Operating Decision Maker ("CODM"). Following the Bally acquisition in the fourth quarter of 2014, werevised our operating segments to reflect certain changes in the financial information regularly reviewed by our chief executive officer, who is designated asthe CODM, and other factors and determined that our reporting and operating segments consist of: gaming, lottery and interactive. With the acquisition ofWMS during the fourth quarter of 2013, we revised our operating segments to consist of: instant products, lottery systems, gaming and interactive. Forperiods prior to the fourth quarter of 2013, our operating segments consisted of: instant products; licensed properties; U.S. lottery systems; internationallottery systems; China lottery; video systems; and gaming.We reviewed our operating segments in accordance with ASC 350, Intangibles - Goodwill and Other ("ASC 350") to determine if additionalreporting units exist within our operating segments based on the availability of discrete financial information that is regularly reviewed by segmentmanagement. We determined that we have eight reporting units as of December 31, 2014: instant products; U.S. lottery systems; international lottery systems;SG gaming; legacy U.K. gaming; casino management systems; table products; and interactive. As of December 31, 2013 we had six reporting units: instantproducts; licensed products; U.S. lottery systems; international lottery systems; gaming; and interactive. Our goodwill totaled $4,108.3 million and $1,183.1million as of December 31, 2014 and 2013, respectively.The allocation of goodwill to each reporting unit as of December 31, 2014 was as follows:(U.S. dollars in millions)Reporting UnitInstantProductsU.S. LotterySystemsInternationalLottery SystemsSG GamingLegacy U.K.GamingSystemsTableProductsInteractiveTotalGoodwill$335.4$67.6$95.8$2,063.9$220.6$571.4$643.8$109.8$4,108.3 The allocation of goodwill to each reporting unit as of December 31, 2013 was as follows:(U.S. dollars in millions)Reporting UnitInstant ProductsLicensedPropertiesU.S. LotterySystemsInternationalLottery SystemsGamingInteractiveTotalGoodwill$318.9$21.2$67.6$106.2$612.7$56.5$1,183.170For a reconciliation of changes in the carrying value of goodwill by business segment, see Note 9 (Intangible Assets and Goodwill). Prior-periodbusiness segment results have been restated to conform to the new segment reporting structure. Our annual impairment valuation as of December 31, 2014 produced estimated fair values of equity, under our old and new structures, in excess ofthe carrying value of equity for all of our reporting units. As a result of the Bally acquisition, we recorded the fair value of all assets acquired and liabilitiesassumed as of November 21, 2014 and corresponding goodwill. The estimated fair values of equity for each of our instant products, U.S. lottery systems,international lottery systems, casino management systems, table products and interactive reporting units were substantially in excess of the carrying value ofsuch reporting units. Although the estimated fair value of equity of our SG gaming and legacy U.K. gaming reporting units were in excess of their respectivecarrying values under our new structure in 2014, a decrease in the fair value of more than 16% and 10% for our SG gaming and legacy U.K. gaming reportingunits, respectively, could potentially result in an impairment of goodwill.Business CombinationsWe account for our business combinations under the acquisition method of accounting. The total cost of acquisitions is allocated to the underlyingidentifiable net tangible and intangible assets based on their respective estimated fair values at the acquisition date. Goodwill is calculated as the excess ofthe purchase price over the net of the fair value of the assets acquired and the liabilities assumed. Determining the fair value of assets acquired and liabilitiesassumed requires management’s judgment, the utilization of independent valuation experts and often involves the use of significant estimates andassumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items.Small changes in the underlying assumptions can impact the estimates of fair value by material amounts, which can in turn materially impact our results ofoperations. See Note 3 (Acquisitions and Dispositions).Income Taxes and Deferred Income TaxesIncome taxes are determined using the liability method of accounting for income taxes. The Company's tax expense includes U.S. and internationalincome taxes but excludes the provision for U.S. taxes on undistributed earnings of certain international subsidiaries deemed to be permanently invested.The Company applies a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return. Current accounting guidance allows the recognition of only those income tax positions that have a greater than50 percent likelihood of being sustained upon examination by the taxing authorities. While we believe we have adequately provided for our uncertain taxpositions, amounts asserted by taxing authorities could vary from our liability for uncertain tax positions. Accordingly, additional provisions for tax-relatedmatters, including interest and penalties, could be recorded in income tax expense in the period revised estimates are made or the underlying matters aresettled or otherwise resolved. The Company operates within multiple taxing jurisdictions and in the normal course of business its tax returns are examined invarious jurisdictions. The reversal of the accruals for uncertain tax positions is recorded when examinations are completed, statutes of limitation are closed ortax laws are changed.Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effect of such temporarydifferences is reported as deferred income taxes. Accounting guidance for income taxes requires that the future realization of deferred tax assets depends onthe existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the futurereversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess ofanticipated losses in the carryforward period and projected future taxable income.If, based upon all available evidence, both positive and negative, it is more likely than not (more than 50 percent likely) such deferred tax assets willnot be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company’sthree-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable and the accounting guidancerestricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets.At December 31, 2014 and 2013, we had valuation allowances of $58.1 million and $126.7 million, respectively, related to the U.S. net deferred taxassets. Prior to 2014, we had maintained a valuation allowance against our net deferred tax assets related to U.S. net deferred tax assets based on the negativeevidence of our three-year cumulative loss position. After considering the net deferred tax liabilities resulting from the Bally acquisition, in 2014 werecorded a net release of the valuation allowance related to our net U.S. deferred tax assets in the amount of $79.1 million.71Notes ReceivableLosses on notes receivable are recognized when they are incurred, which requires us to make our best estimate of probable losses inherent in theportfolio of notes receivable. The method for calculating the best estimate of losses depends on the size, type and risk characteristics of the receivable. Suchan estimate requires consideration of historical loss experience, adjusted for current conditions, and judgments about the probable effects of relevantobservable data, including present economic conditions such as delinquency rates, financial health of specific customers and market sectors, collateralvalues, and the present and expected future levels of interest rates. The underlying assumptions, estimates and assessments we use to provide for losses areupdated periodically to reflect our view of current conditions, which can result in changes to our assumptions. Changes in such estimates can significantlyaffect the allowance for doubtful accounts. It is possible that we will experience credit losses that are different from our current estimates. Write-offs in ourportfolio can also reflect both losses that are incurred subsequent to the beginning of a fiscal year and information becoming available during that fiscal yearthat may identify further deterioration on exposures existing prior to the beginning of that fiscal year, and for which reserves could not have been previouslyrecognized. Our risk management process includes standards and policies for reviewing major risk exposures and concentrations, and we evaluate relevantdata either for individual loans or financing leases, or on a portfolio basis, as appropriate.Equity-based compensation We periodically grant certain stock-based awards that are contingent upon the Company achieving certain pre-determined financial performancetargets. Upon determining the performance target is probable, the fair value of the award is recognized over the service period, subject to potentialadjustment. Determining the probability of achieving a performance target requires judgment and any significant adverse changes in key assumptions usedto reach our conclusions could result in an adjustment to our financial statements that could be material.We measure compensation cost for non-performance-based stock-based awards at fair value on grant date and recognize compensation expense overthe service period for awards expected to vest. The fair value of RSUs is determined based on the number of underlying shares and the quoted price of ourcommon stock and the fair value of stock options are determined using the Black-Scholes valuation model. The estimation of stock-based awards that willultimately vest requires judgment and, to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as acumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards,employee class and historical experience. Actual results and future changes in estimates may differ substantially from our current estimates. See Note 1(Description of the Business and Summary of Significant Accounting Policies) and Note 18 (Stock-Based and Other Incentive Compensation).InventoriesInventories are stated at the lower of cost or market. Our inventory primarily consists of instant games for our participation arrangements in ourlottery business, new and used gaming machines for sale and related parts and our licensed branding merchandise. When we receive a gaming machine ontrade-in, we record an estimated carrying value for the used gaming machine based on the condition of the used gaming machine as well as our experience inselling used gaming machines. Effective January 1, 2015, we will substantially reduce our used gaming machine business and will therefore no longer recordan estimated carrying value for used gaming machines. We determine the lower of cost or market value of our inventory based on estimates of potentiallyexcess and obsolete inventories after considering historical and forecasted demand and average selling prices. However, forecasts are subject to revisions,cancellations and rescheduling. Demand for new and used gaming machines and parts inventory is also subject to technological obsolescence. Actualdemand may differ from anticipated demand, and such differences could have a material effect on our financial statements. See Note 1 (Description of theBusiness and Summary of Significant Accounting Policies) and Note 7 (Inventories).RestructuringWe have restructured portions of our operations in the past, have restructuring initiatives currently taking place, and may engage in additionalrestructuring activities in the future. Identifying and calculating the costs to exit operations or properties requires certain assumptions to be made. Althoughour estimates have been reasonably accurate in the past, judgment is sometimes required, and these estimates and assumptions may change as additionalinformation becomes available and facts or circumstances change.72LIQUIDITY, CAPITAL SOURCES AND WORKING CAPITALSources of LiquidityAs of December 31, 2014, our principal sources of liquidity, other than cash flows provided by operating activities, were cash and cash equivalentsand amounts available under our revolving credit facility discussed below under "Credit Agreement and Other Debt."As of December 31, 2014, our available cash and cash equivalents and borrowing capacity totaled $513.4 million including cash and cashequivalents of $171.8 million and availability of $341.6 million under our revolving credit facility, compared to $411.0 million as of December 31, 2013including cash and cash equivalents of $153.7 million and availability of $257.3 million under our prior revolving credit facility. We had $185.0 million inborrowings outstanding and $41.0 million of letters of credit outstanding under our revolving credit facility as of December 31, 2014, which reduces ourcapacity to borrow under our revolving credit facility. The amount of our available cash and cash equivalents fluctuates principally based on borrowings orrepayments under our credit facilities, investments, acquisitions and changes in our working capital position. The borrowing capacity under our revolvingcredit facility will depend on the amount of outstanding borrowings and letters of credit issued and will also depend on us remaining in compliance with thecovenants under our credit agreement, including the maintenance of an applicable financial ratio. We were in compliance with the covenants under our creditagreement as of December 31, 2014.We believe that our cash flow from operations, available cash and cash equivalents and available borrowing capacity under our revolving creditfacility will be sufficient to meet our liquidity needs for the foreseeable future; however, there can be no assurance that this will be the case. We believe thatsubstantially all cash held outside the U.S. is free from legal encumbrances or similar restrictions that would prevent it from being available to meet ourglobal liquidity needs.Total cash held by our foreign subsidiaries was $108.7 million as of December 31, 2014. To the extent that a portion of our foreign cash was requiredto meet liquidity needs in the U.S. (which we do not currently anticipate), we might incur a tax liability to repatriate it, the timing and amount of whichwould depend on a variety of factors. A significant amount of the cash held by our foreign subsidiaries as of December 31, 2014 could be transferred to theU.S. as intercompany loan repayments or tax-free basis reductions.Our lottery contracts are periodically subject to renewal or re-bid and there can be no assurance that we will be successful in sustaining our cash flowfrom operations if our contracts are not renewed or replaced or are renewed on less favorable terms, or if we are unable to enter into new contracts. In addition,lottery customers in the U.S. generally require service providers to provide performance bonds in connection with the relevant contract. As of December 31,2014, our outstanding performance bonds totaled $197.6 million. Our ability to obtain performance bonds on commercially reasonable terms is subject to ourfinancial condition and to prevailing market conditions, which may be impacted by economic and political events. Although we have not experienceddifficulty in obtaining such bonds to date, there can be no assurance that we will continue to be able to obtain performance bonds on commerciallyreasonable terms or at all. If we need to refinance all or part of our indebtedness at or before maturity, there can be no assurance that we will be able to obtainnew financing or to refinance any of our indebtedness on commercially reasonable terms or at all.Cash Flow Summary—A Three Year Comparative(U.S. dollars in millions) Years ended December 31, Variance 2014 2013 2012 2014 vs 2013 2013 vs 2012Net cash provided by operating activities 203.5 171.2 $156.8 $32.3 $14.4Net cash used in investing activities (3,332.9) (1,664.7) (141.9) (1,668.2) (1,522.8)Net cash provided by (used in) financingactivities 3,157.4 1,538.7 (10.1) 1,618.7 1,548.8Effect of exchange rates on cash and cashequivalents (9.9) (0.5) (0.2) (9.4) (0.3)Increase (decrease) in cash and cashequivalents $18.1 $44.7 $4.6 $(26.6) $40.173Year Ended December 31, 2014 Compared to Year Ended December 31, 2013Cash flows from operating activities Net cash provided by operating activities for the year ended December 31, 2014 increased $32.3 million over the prior-year reflecting favorable changes incurrent assets and liabilities of $115.5 million, net of effects of acquisitions, due primarily to the inclusion of WMS for a full year in 2014 as compared to 74days in 2013 and the inclusion of Bally for the 40 days following the closing of the acquisition in 2014. Net cash provided by operating activities alsoincreased $20.0 million compared to the prior-year from losses on the early extinguishment of debt. These increases in net cash provided by operatingactivities were offset by a $87.7 million decrease in net earnings after adjustments for non-cash items, a $14.5 million gain on sale of an equity interest and adecrease in distributions received from our equity investments of $1.0 million.Cash flows from investing activitiesThe increase in net cash used in investing activities of $1,668.2 million primarily reflected an increase of $1,667.7 million in cash used to completethe Bally acquisition compared to the cash used to complete the WMS acquisition in 2013, an increase in capital expenditures of $73.5 million related tocontracts in our Lottery Systems business, property, plant and equipment additions and capital expenditures in our Gaming business and a change inrestricted cash of $30.5 million. These increases in net cash used in investing activities were partially offset by a decrease in capital contributions to ourequity investments of $37.9 million primarily reflecting contributions made to Hellenic Lotteries in the third quarter of 2013 and Northstar Illinois in thefourth quarter of 2013, an increase of $28.1 million in distributions from our equity investments and an increase of $34.9 million in proceeds from the sale ofour equity interests due to the sale of our equity interest in Sportech in the first quarter of 2014.Cash flows from financing activitiesThe increase in net cash provided by financing activities of $1,618.7 million was due to an increase in the incurrence of long-term debt of $3,368.6million, primarily for the Bally acquisition compared to the incurrence of long-term debt for the WMS acquisition in 2013. This increase in net cash providedby financing activities was partially offset by increases in payments on long-term debt of $1,596.7 million, an increase in financing fees of $80.5 millionrelated to the Bally acquisition and the issuance of the 2021 Notes and the subsequent repurchase and redemption of the 2019 Notes, common stockrepurchases of $29.5 million in the first quarter of 2014, an increase in the redemption of common stock under our stock-based compensation plans of $16.6million, an increase in contingent earnout payments of $13.2 million and payments on license obligations of $13.6 million.Year Ended December 31, 2013 Compared to Year Ended December 31, 2012Cash flows from operating activitiesThe increase in net cash provided by operating activities for the year ended December 31, 2013 was primarily due to changes in working capital of$62.6 million primarily due to the timing of payments resulting in a net increase in our current liabilities and accounts payable of $36.0 million and adecrease in our accounts and notes receivable of $9.9 million and net loss adjusted for non-cash items (such as changes in deferred taxes and D&A) resultingin higher cash earnings in 2013 versus 2012. These increases were partially offset by a decrease in distributed earnings from our equity method investees of$8.6 million.Cash flows from investing activitiesThe increase in net cash used in investing activities was primarily due to the acquisition of WMS for $1,485.9 million and an increase of our equitymethod investments of $86.1 million (using approximately $30 million of previously restricted cash) related to capital contributions to Hellenic Lotteries,Northstar New Jersey and Northstar Illinois. Net cash used in investing activities also increased by $54.4 million reflecting an increase in capital expendituresfor new press upgrades and gaming terminals for our LBO customers in the U.K. These increases in net cash used in investing activities were partially offsetby $10.0 million of additional proceeds from the sale of our Racing Business, which was originally sold in 2010.Cash flows from financing activitiesNet cash provided by financing activities increased primarily due to the financing for the acquisition of WMS of $2,300.0 million and a reductionof $67.7 million for share repurchases. The increase in cash provided by financing activities was partially offset by a $503.2 million increase in payments onlong-term debt and financing fees related to our credit facilities and the 2020 Notes, partially offset by the redemption of our 2016 Notes in the prior-yearperiod.Credit Agreement and Other DebtAs of December 31, 2014, our total debt of $8,516.0 million was comprised of our revolving credit facility of $185.0 million, our term B-1 loans inthe amount of $2,277.0 million (excluding an unamortized discount of $9.4 million) and our term74B-2 loans in the amount of $2,000.0 million (excluding an unamortized discount of $19.7 million) outstanding under the credit agreement discussed below,$250.0 million in aggregate principal amount of our 2018 Notes, $300.0 million in aggregate principal amount of our 2020 Notes, $350.0 million (excludingan unamortized discount of $2.2 million) in aggregate principal amount of our 2021 Notes, $950.0 million in aggregate principal amount of our 2022Secured Notes, $2,200.0 million in aggregate principal amount of our 2022 Unsecured Notes and $35.3 million in capital leases related to our U.K. gamingoperations. We use interest rate swap derivatives to diversify our debt portfolio between fixed and variable rate instruments. For additional informationregarding our interest rate risk and interest rate hedging instruments, see "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of thisAnnual Report on Form 10-K.Senior Secured Credit FacilitiesOn October 1, 2014, the Company entered into an amendment to its credit agreement to, among other things, (1) permit the Bally acquisition and thetransactions related thereto, and (2) effective as of the consummation of the Bally acquisition, (A) increase the Company’s revolving credit facility to $567.6million, (B) permit SGI to assume the term loans under the Escrow Credit Agreement (as defined below) as incremental term B-2 loans under the creditagreement and (C) modify the financial covenant applicable to the revolving credit facility such that it will be tested each quarter, irrespective of usage ofthat revolving credit facility.On October 1, 2014, SGMS Escrow Corp. ("Escrow Corp") entered into an escrow credit agreement (the "Escrow Credit Agreement") by and amongEscrow Corp., as borrower, the lenders and other agents from time to time party thereto, and Bank of America, N.A., as administrative agent. The EscrowCredit Agreement provided for $2.0 billion of term loans, the net proceeds of which provided a portion of the funds used to finance the Bally acquisition.Upon the consummation of the Bally acquisition, the term loans under the Escrow Credit Agreement were assumed by SGI as incremental term B-2 loansunder the credit agreement (and, as of such date, the Escrow Credit Agreement no longer applied to the terms B-2 loans. On February 11, 2015, SGI enteredinto a lender joinder agreement to the credit agreement with an additional commitment lender. Pursuant to the lender joinder agreement, the amount of theCompany’s revolving credit facility was increased by $25.0 million to $592.6 million.For further information regarding our credit facilities, please see the full text of our credit agreement, the amendment to our credit agreement and theEscrow Credit Agreement, copies of which are filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 18, 2013, and Exhibit10.1 and Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on October 7, 2014, respectively. The foregoing summaries of the terms of thecredit agreement, the amendment to the credit agreement and the Escrow Credit Agreement are qualified in their entirety by reference to the respectiveexhibit.Subordinated Notes2021 NotesOn June 4, 2014, SGI issued $350.0 million in aggregate principal amount of 2021 Notes at a price of 99.321% of the principal amount thereof in aprivate offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and topersons outside the United States under Regulation S under the Securities Act. The 2021 Notes were issued pursuant to an indenture dated as of June 4, 2014(the "2021 Notes Indenture").The 2021 Notes bear interest at the rate of 6.625% per annum, which accrues from June 4, 2014 and is payable semiannually in arrears on May 15and November 15 of each year. The 2021 Notes mature on May 15, 2021, unless earlier redeemed or repurchased, and are subject to the terms and conditionsset forth in the 2021 Notes Indenture. In connection with the issuance of the 2021 Notes, the Company capitalized financing costs of $7.3 million.For additional information regarding the terms of the 2021 Notes, please see the full text of the 2021 Notes Indenture, a copy of which is attached asExhibit 4.1 to our Current Report on Form 8-K filed with the SEC on June 4, 2014.2019 NotesOn June 4, 2014, SGI completed a tender offer pursuant to which it purchased $140.6 million in aggregate principal amount of the 2019 Notes fortotal consideration of $1,051.25 for each $1,000.0 principal amount of the 2019 Notes tendered, plus accrued and unpaid interest to the redemption date.On June 4, 2014, SGI delivered a notice of redemption with respect to all $209.4 million of the remaining outstanding principal amount of the 2019Notes, and satisfied and discharged the indenture governing the 2019 Notes by depositing funds with the trustee sufficient to pay the redemption price of104.625% of the principal amount of the 2019 Notes, plus accrued and unpaid interest to the redemption date. In accordance with the notice of redemption,the 2019 Notes were redeemed on July 4, 2014 and the redemption payment was made on July 7, 2014.75The purchase and redemption of the 2019 Notes were funded, in part, with the net proceeds from the issuance of the 2021 Notes. In connection withthe purchase and redemption of the 2019 Notes, we recorded a loss on early extinguishment of debt of $25.9 million comprised primarily of the tender andredemption premiums and the write-off of previously deferred financing costs.Senior NotesUnsecured NotesIn connection with the Bally acquisition, on November 21, 2014, Escrow Corp. issued $2,200.0 million in aggregate principal amount of theUnsecured Notes in a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside theUnited States under Regulation S under the Securities Act. The Unsecured Notes were issued pursuant to an indenture dated as of November 21, 2014 (the"Unsecured Notes Indenture"). Promptly following consummation of the Bally acquisition, Escrow Corp. merged with and into SGI, with SGI continuing asthe surviving corporation, and SGI assumed the obligations of Escrow Corp. under the Unsecured Notes and the Unsecured Notes Indenture.The Unsecured Notes bear interest at the rate of 10.00% per annum, which accrues from November 21, 2014 and is payable semiannually in arrearson June 1 and December 1 of each year, beginning on June 1, 2015. The Unsecured Notes mature on December 1, 2022, unless earlier redeemed orrepurchased, and are subject to the terms and conditions set forth in the Unsecured Notes Indenture.For additional information regarding the terms of the Unsecured Notes, please see the full text of the Unsecured Notes Indenture, a copy of which isattached as Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on November 26, 2014.Secured NotesIn connection with the Bally acquisition, on November 21, 2014, Escrow Corp. issued $950.0 million in aggregate principal amount of the SecuredNotes in a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United Statesunder Regulation S under the Securities Act. The Secured Notes were issued pursuant to an indenture dated as of November 21, 2014 (the "Secured NotesIndenture"). Promptly following consummation of the Bally acquisition, Escrow Corp. merged with and into SGI, with SGI continuing as the survivingcorporation, and SGI assumed the obligations of Escrow Corp. under the Secured Notes and the Secured Notes Indenture.The Secured Notes bear interest at the rate of 7.00% per annum, which accrues from November 21, 2014 and is payable semiannually in arrears onJanuary 1 and July 1 of each year, beginning on July 1, 2015. The Secured Notes mature on January 1, 2022, unless earlier redeemed or repurchased, and aresubject to the terms and conditions set forth in the Secured Notes Indenture.For additional information regarding the terms of the Secured Notes, please see the full text of the Secured Notes Indenture, a copy of which isattached as Exhibit 4.2 to our Current Report on Form 8-K filed with the SEC on November 26, 2014.Other DebtDuring 2014, we repaid in full our $7.4 million China Loan with cash on hand.Capital LeasesOn March 31, 2014, we entered into a new leasing arrangement with ITL for the lease of gaming machines in connection with a long-term contractwith a U.K. customer. We completed the placement of the new gaming machines under this contract as of June 30, 2014 and recorded a capital lease asset andminimum lease liability of $42.8 million. No additional capital leases were entered into during the year and our remaining capital lease obligation atDecember 31, 2014 was $35.3 million.76Contractual ObligationsOur contractual obligations and commercial commitments principally include obligations associated with our outstanding indebtedness, contractualpurchase obligations and future minimum operating lease obligations and other long-term liabilities as set forth in the table below as of December 31, 2014: Cash Payments Due By Period In millions Total Within1 Year Within2 - 3 Years Within4 - 5 Years After5 YearsRevolver, varying interest rate, due 2018 (1) $185.0 $— $— $185.0 $—Term Loan, varying interest rate, due 2020 (1) 2,277.0 23.0 46.0 46.0 2,162.0Term Loan, varying interest rate, due 2022 (1) 2,000.0 20.0 40.0 40.0 1,900.02018 Notes (1) 250.0 — — 250.0 —2020 Notes (1) 300.0 — — — 300.02021 Notes (1) 350.0 — — — 350.0Secured Notes (1) 950.0 — — — 950.0Unsecured Notes (1) 2,200.0 — — — 2,200.0Capital lease obligations, 3.9% interest as ofDecember 31, 2014 payable monthly through2019 35.3 7.6 16.1 11.6 —Interest expense (2) 4,061.7 614.3 1,220.2 1,178.5 1,048.7License royalty minimum guarantees fees 173.7 33.359.3 54.6 26.5Purchase obligations (3) 236.7 236.7 — — —Operating leases (4) 107.9 34.8 42.4 16.7 14.0Other liabilities (5) 74.6 47.8 4.5 4.2 18.1Total contractual obligations $13,201.9 $1,017.5 $1,428.5 $1,786.6 $8,969.3________________________________________________________________________________________________________________________________(1)See Note 15 (Long-Term and Other Debt) for information regarding long-term and other debt.(2)Based on rates in effect at December 31, 2014.(3)Includes, among other contractual obligations, estimated obligations and/or capital commitments in connection with our gaming and lottery supply contracts.(4)See Note 14 (Leases) for information regarding our operating leases.(5)Includes certain other long term liabilities reflected in our Consolidated Balance Sheet as of December 31, 2014. We have excluded $21.7 million of long-term pension planand other post retirement liabilities at December 31, 2014. Due to the high degree of uncertainty regarding the timing of potential future cash flows associated with theseliabilities, we are unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid.Included in our contractual obligations table above are approximately $21 million of compensation-related liabilities resulting from change incontrol and other contractually required payments as a result of the Bally acquisition. We expect to pay these liabilities in 2015. We periodically bid on new lottery systems contracts. Once awarded, these contracts generally require significant upfront capital expenditures forterminal assembly, customization of software, software and equipment installation and telecommunications configuration. Historically, we have funded theseupfront costs through cash flows generated from operations, available cash on hand and borrowings under our credit facilities. Our ability to continue tocommit to new contracts will depend on, among other things, our then present liquidity levels and/or our ability to borrow at commercially acceptable ratesin order to finance the upfront costs. The actual level of capital expenditures will ultimately depend on the extent to which we are successful in winning newcontracts. We also periodically elect to upgrade the technological capabilities of older gaming machines and replace gaming machines that have exhaustedtheir useful lives. Servicing our installed gaming machines and terminal base requires us to maintain a supply of parts and accessories on hand. We are alsotypically required, contractually in some cases, to provide spare parts over an extended period of time, principally in connection with our systems, terminaland select gaming machine sale transactions. To meet our contractual obligations and maintain sufficient levels of on-hand inventory to service our installedterminal and gaming machine base, we purchase inventory on an as-needed basis. We presently have no inventory purchase obligations other than in theordinary course of business.77Under the terms of our strategic equity investments, we could be required to make additional capital contributions or shortfall payments. During2014, we contributed $17.8 million to Northstar Illinois primarily to fully fund our pro rata share of the shortfall payments for the lottery's fiscal year endedJune 30, 2014. In September 2014, we contributed $3.7 million to Northstar New Jersey. During 2014, we contributed $40.3 million to ITL. We currentlyhave no outstanding capital obligations to any of our equity investees. See Note 11 (Equity Investments) for further details about our equity methodinvestments.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are subject to certain market risks and uncertainties inherent in our operations. These market risks generally arise from transactions in the normalcourse of business. Our primary market risk exposures relate to interest rate risk and foreign currency exchange risks. We use derivative financial instrumentsto manage certain of our interest rate and foreign currency exchange risks. The primary objective of our hedging programs, as defined in our corporate riskmanagement policy, is to minimize the impact to our financial results and cash flows from fluctuations in interest rates and from changes in foreign currencyexchange rates.Interest Rate RiskIn the normal course of business, we are exposed to fluctuations in interest rates as we seek debt and equity capital to sustain our operations. All ofour interest rate sensitive financial instruments are held for purposes other than trading purposes. At December 31, 2014, approximately 48% of our debt wasin fixed-rate instruments, although our $4,277.0 million of variable rate term loans have a LIBOR floor of 1% and with the actual three month LIBOR rate atthat date of 0.30%, therefore this debt is essentially at a fixed rate until the LIBOR rate exceeds 1%.We use interest rate swap derivatives to synthetically diversify our debt portfolio between fixed and variable rate instruments. In August 2013 andagain in October 2013, we entered into forward starting interest rate swap contracts with an aggregate notional value of $700.0 million that become effectivein April 2015 and mature in January 2018. The objective of the forward starting interest rate swap contracts, which are designated as cash flow hedges of thefuture interest payments, is to eliminate the variability of cash flows attributable to the LIBOR component of interest expense to be paid on our variable ratedebt. In January 2014, we entered into a LIBOR swaption contract with a notional value of $150.0 million, for which we paid a premium of $0.9 million. TheLIBOR swaption gives us the right, but not the obligation, to enter into a swap in which we would pay a fixed rate and receive a floating LIBOR rate. To theextent the swap rate prevailing on the April 2015 expiration date exceeds the swaption rate, we would exercise the swaption and receive a cash payment. Thiscash offset would effectively reduce our future interest costs. To the extent the swap rate prevailing on the expiration date was less than the swaption rate, wewould not exercise the swaption and it would expire with no further cash payment from either party. See additional information about our derivatives inNote 16 (Fair Value Measurements).The table below provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal cashflows (exclusive of the unamortized discount of $31.3 million) and related weighted-average interest rates by expected maturity dates. See "Management'sDiscussion and Analysis of Financial Condition and Results of Operations—Liquidity, Capital Resources and Working Capital" in Item 7 of this AnnualReport on Form 10-K for additional information about our financial instruments.Principal Amount by Expected Maturity—Average Interest RateDecember 31, 2014(U.S. dollars in millions) Twelve Months Ended December 31, 2015 2016 2017 2018 2019 Thereafter Total FMVDebt at fixedinterest rates $7.6 $7.9 $8.2 $258.5 $3.0 $3,800.0 $4,085.2 $3,652.3Weighted-average interestrates 3.9% 3.9% 3.9% 8.0% 3.9% 8.6% 8.6% —%Debt at variableinterest rates $43.0 $43.0 $43.0 $228.0 $43.0 $4,062.0 $4,462.0 $4,378.2Weighted-average interestrates 6.0% 6.0% 6.0% 3.7% 6.0% 6.0% 5.9% —%78Foreign Currency RiskWe are also exposed to fluctuations in foreign currency exchange rates from our international transactions and because the financial results of ourforeign subsidiaries are translated into U.S. dollars in consolidation. Assets and liabilities outside the United States are primarily located in Australia, Austria,Chile, China, Germany, Greece, Ireland, Italy, Mexico, Canada, South Africa, Spain, Sweden and the United Kingdom. Our investments in foreign subsidiarieswith a functional currency other than the U.S. dollar are generally considered long-term investments. In addition, a significant portion of the cost attributableto our international operations is incurred in local currencies. Although we provide technology-based products, systems and services to gaming and lotteryindustries worldwide, some of our transactions and their resulting financial impact are transacted in U.S. dollars. In 2012, governmental authorities inArgentina modified regulations relating to importing products and limiting the exchange of pesos into dollars and the transfer of funds from Argentina. If theArgentine government’s current restrictions on currency transfer remain unchanged, the excess peso balances in our Argentinian bank account may continueto grow, which would increase our exposure to any potential currency devaluation in Argentina. In addition, any devaluation of the currency in Argentinawould adversely impact the collectability of our customer receivables in Argentina as we invoice our customers in pesos adjusted to reflect original U.S.dollars sales volumes.We derived approximately 40% and 49% of our revenue from sales to customers outside of the U.S. in 2014 and 2013, respectively, particularlyrevenue in the British Pound Sterling and the Euro. The British Pound Sterling and the Euro represented, respectively, $239.6 million, or 13.0%, and $104.3million, or 6.0%, of our consolidated revenue for the year ended December 31, 2014. Historically, our exposure to foreign currency fluctuations has beenmore significant with respect to revenues than expenses, as a significant portion of our expenses, such as paper and ink, are contracted for in U.S. dollars. AtDecember 31, 2014, a hypothetical 10% strengthening in the value of the U.S. dollar relative to the British Pound Sterling and the Euro would result in adecrease in revenue of $20.7 million and $9.1 million, respectively, and a decrease in operating income of $1.2 million and $1.4 million, respectively. Wealso have foreign currency exposure related to certain of our equity investments. Our earnings from our Euro-denominated equity investment in LNS were$17.6 million for the year ended December 31, 2014. Our foreign currency exposure from equity investments denominated in other foreign currencies was notmaterial in the aggregate for the year ended December 31, 2014. When we refer to the impact of foreign currency exchange rate fluctuations, we are referringto the difference between the relevant period rates and the prior period rates applied to the relevant period activity.We manage our foreign currency exchange risks on a global basis by (1) securing payment from our customers in U.S. dollars when possible, (2)securing payment from our customers in the functional currency of the selling subsidiary when possible, (3) entering into foreign currency exchange or othercontracts to hedge the risk associated with certain firm sales commitments, net investments and certain assets and liabilities denominated in foreigncurrencies and (4) netting asset and liability exposures denominated in similar foreign currencies to the extent possible.During 2012, we entered into foreign currency forward contracts for the sale of Euros for U.S. dollars to hedge a portion of the net investment in oneof our subsidiaries that is denominated in Euros. Some of these foreign currency forward contracts settled in 2012. In May 2013, we settled the remaining€20.0 million in aggregated notional amount of the foreign currency forward contracts, which had a weighted average rate of 1.269%. See additionalinformation about our derivatives in Note 16 (Fair Value Measurements).ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe financial statements and other information required by this item are included in Part IV, Item 15 of this Annual Report on Form 10-K and arepresented beginning on page 84.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresAs of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with theparticipation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our chief executive officer andour chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.79Management Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. With the participation of ourchief executive officer and chief financial officer, our management conducted an evaluation of the effectiveness of our internal control over financialreporting based on the framework and criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizationsof the Treadway Commission (2013 Framework). The scope of management's assessment of the effectiveness of internal control over financial reportingincludes all of our businesses except for Bally, which was acquired on November 21, 2014 and whose financial statements constitute approximately 60% oftotal assets and 8% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2014. Further discussion of thisacquisition can be found in Note 3 (Acquisitions and Dispositions). Based on this evaluation, our management has concluded (except with respect to Bally)that our internal control over financial reporting was effective as of December 31, 2014. Deloitte & Touche LLP, the registered public accounting firm thataudited our consolidated financial statements, has issued an attestation report on our internal control over financial reporting included below.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting during the quarter ended December 31, 2014 that have materially affected, orare reasonably likely to materially affect, our internal control over financial reporting.80REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of Scientific Games CorporationWe have audited the internal control over financial reporting of Scientific Games Corporation and subsidiaries (the "Company") as of December 31,2014, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting.Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.As described in Management Report on Internal Control over Financial Reporting, management excluded from its assessment the internal controlover financial reporting at Bally Technologies, Inc. ("Bally"), which was acquired on November 21, 2014 and whose financial statements constitute 60% oftotal assets and 8% of revenue of the consolidated financial statement amounts as of and for the year ended December 31, 2014. Accordingly, our audit didnot include the internal control over financial reporting at Bally.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained inall material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe company's assets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper managementoverride of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation ofthe effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, basedon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedfinancial statements and financial statement schedule as of and for the year ended December 31, 2014 of the Company and our report dated March 16, 2015expressed an unqualified opinion on those financial statements and financial statement schedule based on our audit and the report of other auditors./s/ DELOITTE & TOUCHE LLPAtlanta, GeorgiaMarch 16, 201581ITEM 9B. OTHER INFORMATION.None.82PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEWe have adopted a Code of Business Conduct that applies to all of our officers, directors and employees (including our chief executive officer, chieffinancial officer and chief accounting officer) and have posted the Code on our website at www.scientificgames.com. In the event that we have anyamendments to or waivers from any provision of the Code applicable to our chief executive officer, chief financial officer and chief accounting officer, weintend to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting such information on our website.Information relating to our executive officers is included in Part I, Item 1 of this Annual Report on Form 10-K. The other information called for bythis item is incorporated by reference to our definitive proxy statement relating to our 2015 Annual Meeting of Stockholders, which will be filed with theSEC. If such proxy statement is not filed on or before April 30, 2015, the information called for by this item will be filed as part of an amendment to thisAnnual Report on Form 10-K on or before such date.ITEM 11. EXECUTIVE COMPENSATIONThe information called for by this item is incorporated herein by reference to our definitive proxy statement relating to our 2015 Annual Meeting ofStockholders, which will be filed with the SEC. If such proxy statement is not filed on or before April 30, 2015, the information called for by this item will befiled as part of an amendment to this Annual Report on Form 10-K on or before such date.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information called for by this item is incorporated herein by reference to our definitive proxy statement relating to our 2015 Annual Meeting ofStockholders, which will be filed with the SEC. If such proxy statement is not filed on or before April 30, 2015, the information called for by this item will befiled as part of an amendment to this Annual Report on Form 10-K on or before such date.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information called for by this item is incorporated herein by reference to our definitive proxy statement relating to our 2015 Annual Meeting ofStockholders, which will be filed with the SEC. If such proxy statement is not filed on or before April 30, 2015, the information called for by this item will befiled as part of an amendment to this Annual Report on Form 10-K on or before such date.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe information called for by this item is incorporated herein by reference to our definitive proxy statement relating to our 2015 Annual Meeting ofStockholders, which will be filed with the SEC. If such proxy statement is not filed on or before April 30, 2015, the information called for by this item will befiled as part of an amendment to this Annual Report on Form 10-K on or before such date.83PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Form 10-KPage1. Financial Statements: Report of Independent Registered Public Accounting Firm85Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014,2013 and 201286Consolidated Balance Sheets as of December 31, 2014 and 201387Consolidated Statements of Stockholders' Equity for the years ended December 31, 2014, 2013 and 201288Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 201289Notes to Consolidated Financial Statements902. Financial Statement Schedule: Schedule II. Valuation and Qualifying Accounts146All other schedules have been omitted because they are inapplicable, not required, or the information isincluded elsewhere in the consolidated financial statements or related notes. 3. Exhibits149The Exhibit Index attached to this report is incorporated by reference into this Item 15(a)(3) and is filedas part of this Annual Report on Form 10-K. 84REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of Scientific Games CorporationWe have audited the accompanying consolidated balance sheets of Scientific Games Corporation and subsidiaries (the "Company") as of December 31,2014 and 2013, and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for each of the three yearsin the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index. These financial statements andfinancial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements andfinancial statement schedule based on our audits. We did not audit the financial statements of Lotterie Nazionali S.r.l. ("LNS"), the Company's investmentwhich is accounted for by use of the equity method (see note 11 to the consolidated financial statements), as of December 31, 2014 and 2013 and for the threeyears in the period ended December 31, 2014. The Company's equity in income of LNS was $17.6 million, $17.9 million and $17.9 million for the yearsended December 31, 2014, 2013 and 2012, respectively. Those statements were prepared in accordance with International Financial Reporting Standards asissued by the International Accounting Standards Board and were audited by other auditors whose report has been furnished to us, and our opinion, insofar asit relates to the amounts included for LNS, on the basis of International Financial Reporting Standards as issued by the International Accounting StandardsBoard, for the three years ended December 31, 2014, is based solely on the report of the other auditors. We have applied auditing procedures to theadjustments to reflect equity in net income of LNS in accordance with accounting principles generally accepted in the United States of America.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsand the report of the other auditors provide a reasonable basis for our opinion.In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, thefinancial position of Scientific Games Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flowsfor each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States ofAmerica. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,presents fairly, in all material respects, the information set forth therein.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internalcontrol over financial reporting as of December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2015 expressed an unqualified opinion on theCompany's internal control over financial reporting based on our audit./s/ DELOITTE & TOUCHE LLPAtlanta, GeorgiaMarch 16, 201585SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(in millions, except per share amounts) Years Ended December 31, 201420132012Revenue: Instant games$533.0$516.0$493.6Services788.5415.0340.3Product sales464.9159.994.7Total revenue1,786.41,090.9928.6Operating expenses: Cost of instant games (1)291.4285.1282.5Cost of services (1)283.7203.1170.7Cost of product sales (1)274.3103.565.1Selling, general and administrative507.7266.4179.4Research and development117.0 26.0 6.6Employee termination and restructuring30.722.710.6Depreciation and amortization454.3202.4150.8Operating (loss) income(172.7)(18.3)62.9Other (expense) income: Interest expense(307.2)(119.5)(100.0)Earnings (loss) from equity investments(7.6)1.528.1Loss on early extinguishment of debt(25.9)(5.9)(15.5)Gain on sale of equity interest14.5 — —Other (expense) income, net4.0(1.1)1.3Total other expense, net(322.2)(125.0)(86.1)Net loss from continuing operations before income taxes(494.9)(143.3)(23.2)Income tax benefit (expense)260.6117.7(20.7)Net loss from continuing operations$(234.3)$(25.6)$(43.9)Discontinued operations: Loss from discontinued operations—(3.0) (24.6)Other expense—— (0.1)Gain on sale of assets— 0.8 —Income tax (expense) benefit—(2.4) 6.0Net loss from discontinued operations$— $(4.6) $(18.7) Net loss$(234.3) $(30.2) $(62.6) Other comprehensive (loss) income:Foreign currency translation (loss) gain(97.4)18.230.5Pension and post-retirement (loss) gain, net of tax(8.7)5.3(1.1)Derivative financial instruments unrealized (loss) gain, net of tax(6.6)(2.2)0.4Other comprehensive income (loss)(112.7)21.329.8Comprehensive loss$(347.0)$(8.9)$(32.8)Basic and diluted net loss per share: Basic from continuing operations$(2.77)$(0.30)$(0.49)Basic from discontinued operations—(0.06)(0.21)Total basic net loss per share$(2.77) $(0.36) $(0.70) Diluted from continuing operations$(2.77) $(0.30) $(0.49)Diluted from discontinued operations— (0.06) (0.21)Total diluted net loss per share$(2.77) $(0.36) $(0.70) Weighted average number of shares used in per share calculations: Basic shares84.685.090.0Diluted shares84.685.090.0(1) Exclusive of depreciation and amortization. See accompanying notes to consolidated financial statements.86SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSAs of December 31, 2014 and 2013(in millions) As of December 31, 2014 2013ASSETSCurrent assets: Cash and cash equivalents$171.8 $153.7Restricted cash27.2 10.9Accounts receivable, net468.4 346.0Notes receivable, net188.7 158.7Inventories265.6 137.8Deferred income taxes72.8 31.0Prepaid expenses, deposits and other current assets183.5 119.3Total current assets1,378.0 957.4Long-term restricted cash16.8 —Property and equipment, net1,012.8 773.1Long-term notes receivable87.5 72.6Goodwill4,108.3 1,183.1Intangible assets, net2,251.6 411.1Software, net592.7 343.5Equity investments288.2 367.2Other assets259.3 128.4Total assets$9,995.2 $4,236.4LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Debt payments due within one year$50.6 $30.4Accounts payable155.8 140.9Accrued liabilities453.9 280.3Total current liabilities660.3 451.6Deferred income taxes628.8 138.0Other long-term liabilities236.8 109.6Long-term debt, excluding current installments8,465.4 3,162.2Total liabilities9,991.3 3,861.4Commitments and contingencies Stockholders' equity: Class A common stock, par value $0.01 per share, 199.3 shares authorized, 102.3 and 100.4shares issued and 85.1 and 85.2 shares outstanding as of December 31, 2014 and December 31,2013, respectively1.0 1.0Additional paid-in capital743.2 737.8Accumulated loss(470.7) (236.4)Treasury stock, at cost, 17.2 and 15.2 shares held as of December 31, 2014 and December 31,2013, respectively(175.2) (145.7)Accumulated other comprehensive (loss) income(94.4) 18.3Total stockholders' equity3.9 375.0Total liabilities and stockholders' equity$9,995.2 $4,236.4 See accompanying notes to consolidated financial statements87SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(in millions) Years Ended December 31, 2014 2013 2012Common stock: Beginning balance$1.0 $1.0$1.0Issuance of Class A common stock in connection withemployee stock purchase plan— ——Issuance of Class A common stock in connection with stockoptions, RSUs and warrants— ——Purchases of Class A common stock— ——Ending balance1.0 1.01.0Additional paid-in capital: Beginning balance737.8 715.9693.6Issuance of Class A common stock in connection withemployee stock purchase plan1.6 0.70.6Net issuance and redemption of Class A common stock inconnection with stock options, RSUs and warrants(20.6) (0.9)(4.3)Stock-based compensation24.1 21.824.2Tax effect from employee stock options and RSUs0.3 0.3(1.5)Deferred compensation— —3.3Ending balance743.2 737.8715.9Accumulated losses: Beginning balance(236.4) (206.2)(143.6)Net loss(234.3) (30.2)(62.6)Ending balance(470.7) (236.4)(206.2)Treasury stock: Beginning balance(145.7) (142.9)(74.5)Purchase of Class A common stock(29.5) (2.8)(68.4)Ending balance(175.2) (145.7)(142.9)Accumulated other comprehensive (loss) income: Beginning balance18.3 (3.0)(32.8)Other comprehensive (loss) income(112.7) 21.329.8Ending balance(94.4) 18.3(3.0)Total stockholders' equity$3.9 $375.0$364.8See accompanying notes to consolidated financial statements.88SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in millions) Years Ended December 31, 2014 20132012Cash flows from operating activities: Net loss$(234.3) $(30.2)$(62.6)Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization454.3 203.0173.4Change in deferred income taxes(264.3) (107.8)7.9Stock-based compensation24.1 22.324.2Non-cash interest expense19.4 8.77.8Loss (earnings) from equity investments, net7.6 (1.5)(28.1)Distributed earnings from equity investments28.5 29.538.1Loss on early extinguishment of debt25.9 5.915.5Gain on sale of equity interest(14.5) — —Changes in current assets and liabilities, net of effects of acquisitions Accounts and notes receivable, net97.1 (7.8) (19.7)Inventories12.4 13.6 (2.6)Other current assets32.2 (9.1) (9.6)Accounts payable(33.4) (5.1) 10.0Accrued liabilities47.0 52.6 1.5Other, net1.5 (2.9) 1.0Net cash provided by operating activities203.5 171.2156.8Cash flows from investing activities: Additions to property and equipment(41.7) (29.4)(12.2)Gaming and lottery operations expenditures(107.5) (84.3)(44.8)Intangible assets expenditures(89.1) (52.1)(54.4)Proceeds from asset disposals0.5 0.90.1Change in other assets and liabilities, net0.4 (1.6)(1.3)Proceeds from sale of equity interest44.9 10.0 —Additions to equity method investments(48.2) (86.1)—Restricted cash(0.4) 30.1 (29.4)Distributions of capital on equity investments48.8 20.724.9Business acquisitions, net of cash acquired(3,140.6) (1,472.9)(24.8)Net cash used in investing activities(3,332.9) (1,664.7)(141.9)Cash flows from financing activities: Borrowings under revolving credit facility220.0 ——Repayments under revolving credit facility(35.0) — —Proceeds from issuance of long-term debt5,477.3 2,293.7312.5Payment on long-term debt(2,267.1) (670.4)(235.8)Payment of financing fees(163.1) (82.6)(14.0)Common stock repurchases(29.5) (0.8)(68.5)Payment on license obligations(13.6) — —Contingent earnout payments(13.2) — —Excess tax effect from stock-based compensation plans0.3 0.90.4Net redemptions of common stock under stock-based compensation plans(18.7) (2.1)(4.7)Net cash provided by (used in) financing activities3,157.4 1,538.7(10.1)Effect of exchange rate changes on cash and cash equivalents(9.9) (0.5)(0.2)Increase in cash and cash equivalents18.1 44.74.6Cash and cash equivalents, beginning of period153.7 109.0104.4Cash and cash equivalents, end of period$171.8 $153.7$109.0See accompanying notes to consolidated financial statements89SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)(1) Description of the Business and Summary of Significant Accounting PoliciesDescription of the BusinessWe are a leading developer of technology‑based products and services and associated content for the worldwide gaming and lottery industries. Ourportfolio includes gaming machines and game content, instant and draw‑based lottery games, server‑based gaming and lottery systems, casino managementsystems, table game products and services, sports betting technology, loyalty and rewards programs and interactive gaming and lottery content and services.We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments. As a result of our recent acquisitionsof Bally and WMS, we have significantly expanded our global gaming business. We report our operations in three business segments—Gaming, Lottery andInteractive.Basis of Presentation and Principles of ConsolidationThe accompanying consolidated financial statements of the Company have been prepared in accordance with SEC and U.S. GAAP requirements. Allmonetary values set forth in these financial statements are in United States dollars ("USD" or "$") unless otherwise stated herein. The accompanyingconsolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as well as those subsidiaries in which we have acontrolling financial interest. Investments in other entities in which we do not have a controlling financial interest but we exert significant influence areaccounted for in our consolidated financial statements using the equity method of accounting. All intercompany balances and transactions have beeneliminated in consolidation. We have evaluated subsequent events through the date these financial statements were issued. In the opinion of management, wehave made all adjustments necessary to present fairly our consolidated financial position, results of operations and comprehensive loss and cash flows for theperiods presented. Such adjustments are of a normal, recurring nature.On March 25, 2013, we completed the sale of our installed base of gaming machines in our pub business as discussed in Note 3 (Acquisitions andDispositions). The results of the discontinued pub operations for the years ended December 31, 2013 and 2012 are presented herein in accordance with ASC205. There were no results of operations for this discontinued business for the year ended December 31, 2014.Use of EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Some of the significant estimates involve revenue recognition estimates for contracted lottery systemsprojects and multi-deliverable contract arrangements, stock-based and/or performance-based compensation expense, evaluation of the recoverability ofassets, assessment of legal and other contingencies, allocation of the purchase price to assets acquired and liabilities assumed in business combinations, andincome and other taxes. Actual results could differ from estimates.Revenue RecognitionGeneralWe evaluate the recognition of revenue based on the criteria set forth in ASC 605, Revenue Recognition ("ASC 605") and ASC 985, Software ("ASC985").Our revenue recognition policy is to record revenue when all the following criteria are met:•persuasive evidence of an agreement exists;•the price to the customer is fixed or determinable;•delivery has occurred, title has been transferred and any acceptance terms have been fulfilled; and•collectability is reasonably assured.We sometimes generate revenue under multiple-deliverable revenue arrangements, under which we provide more than one product or service in asingle arrangement. At the inception of a multiple-deliverable revenue arrangement, we are required to allocate the consideration to all deliverables based ontheir relative selling price (the "relative selling price method"). When90SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)applying the relative selling price method, a hierarchy is used for estimating the selling price based first on vendor-specific objective evidence ("VSOE"),then third-party evidence ("TPE") and finally management’s estimated selling price ("ESP").Our multiple-deliverable revenue arrangements include gaming equipment arrangements that involve the sale of gaming machines and gamecontent conversion kits. In addition, we may enter into arrangements with customers for the implementation of systems, which will generally include acombination of systems software, systems-based hardware products, maintenance and product support and professional services. We recognize revenue onlywhen all of the criteria listed above are met. We defer revenue for any undelivered units of accounting. Deliverables are divided into separate units ofaccounting if:•each item has value to the customer on a stand-alone basis; and•delivery of any undelivered item is considered probable and substantially in our control.In allocating consideration under the relative selling price hierarchy, the Company generally uses VSOE for all products that have been sold on astand-alone basis. As TPE is generally not available, the Company uses ESP for products that are not sold on a stand-alone basis and for recently introducedproducts that are sold on a stand-alone basis but for which a history of stand-alone sales has not yet been developed. Following these guidelines, inallocating the consideration under multi-deliverable revenue arrangements, we use either VSOE or ESP for gaming machines, table game products, systems-based hardware products, maintenance and product support (associated with perpetual licenses) and professional services. The Company uses ESP forperpetual and time-based software licenses and maintenance and product support associated with time-based licenses.The establishment of VSOE requires judgment as to whether there is a sufficient quantity of items sold on a stand-alone basis or substantive post-contract customer support ("PCS") contract renewals and whether the prices or PCS renewal rates demonstrate an appropriate level of concentration toconclude that VSOE exists. In determining ESP, management considers a variety of information including historic pricing and discounting practices,competitive market activity, internal costs, and the pricing and discounting practices of products sold in similar arrangements.Revenue is reported net of incentive rebates, discounts, sales taxes and all other items of a similar nature. For products sold under arrangements withextended payment terms the probability of collection is evaluated based on a review of the customer's creditworthiness and a review of historic collectionexperience under contracts with extended payment terms. As a result of such review, we recognize revenue on extended payment term arrangements when wehave determined that collectability is reasonably assured and the price is considered fixed and determinable.In addition to the general policies discussed above, the following are the specific revenue recognition policies for our revenue streams within eachof our three business segments.GamingWe design, develop, manufacture, market and distribute gaming machines, VLTs, server-based gaming machines, systems and game content, casino-management systems hardware and software, table game products (including utility products and PTG content), video lottery central monitoring and controlsystems and wide area systems networks. We provide products and services for the traditional land-based commercial and Native American casino industry,and for wide area gaming operators (such as LBO, arcade and bingo operators in the U.K. and continental Europe) and government-affiliated gamingoperators such as lotteries and gaming regulators.We earn services revenue from leasing gaming machines, table game products and VLTs to casinos and other gaming operators under operatingleases. We also generate revenue from placing our networked gaming system and applications, which is a turnkey offering that typically includes gamingmachines, remote management of game content, central computer systems, secure data communication and field support services, under operating leases.•Revenue from leasing gaming machines and VLTs to casinos and other gaming operators under operating leases is based upon: (1) a percentageof the casino’s net win; (2) fixed daily fees; (3) a percentage of the amount wagered (coin-in); or (4) a combination of a fixed daily fee and apercentage of the coin-in. We recognize revenue from these operating leases on a daily basis. We do not consider these arrangements to havemultiple revenue-generating activities as the services offered constitute a comprehensive solution in exchange for a daily fee and all of theproducts and services are delivered contemporaneously. Therefore, revenue is recognized under general revenue recognition guidance as theproducts and services provide the customer with the right to use the gaming machines and software that is essential to the functionality of thegaming machine.91SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)•Revenue from the provision of server-based gaming machines, systems and game content under arrangements with wide-area gaming operators(such as LBO operators in the U.K.) is generally recognized as a percentage of net win generated by our gaming machines (subject to certainadjustments as may be specified in a particular contract, including adjustments for taxes and other fees) over the term of the arrangement. We donot consider these arrangements to have multiple revenue-generating activities as the services offered constitute a comprehensive solution inexchange for a percentage of net win and all of the products and field services are delivered contemporaneously.•Revenue from leasing table game products, including automatic card shufflers, deck checkers and roulette chip sorters and licensing PTGcontent, is earned based on a fixed monthly rate. Service revenue for leased table game products and licensed PTG content is recognized undergeneral revenue recognition guidance as the products and services provide the customer with the right to use the table product and license thatis essential to the functionality of the table product.•Revenue from casino-management system implementation services is recognized when the system implementation is complete as theimplementation services are not considered to have stand-alone value and are therefore not a separate unit of accounting. Other professionalservices not related to system implementation are recognized as the services are provided.Our product sales include the sale of gaming machines, casino-management systems and table game products to casinos, wide-area gaming operatorsand other gaming operators, as well as sales of VLTs, conversion kits (including game, hardware or operating system conversions), parts and game content.•Revenue from the sale of gaming machines, table game products and content under wide-area gaming operator contracts is recognized pursuantto the terms of the contract. Sales of gaming machines and table game products are also recorded pursuant to ASC 605 as the software and non-software components of our gaming machines and table products function together to deliver the product's essential functionality. Gamecontent conversion kits are considered software deliverables and are recognized in accordance with software revenue recognition guidance.•Revenue from casino-management systems software and maintenance and product support is recognized under software revenue recognitionguidance. Although the casino-management systems software and certain systems-based hardware products function together, the functionalityof casino-management systems software is primarily derived from the software. The casino-management systems software is not essential to thefunctionality of the system-based hardware products.•The Company licenses casino-management systems software on a perpetual basis or under time-based licenses. Revenue from perpetual licensesoftware is recognized at the inception of the license term provided all revenue recognition criteria have been satisfied. Revenue frommaintenance and product support sold with perpetual licenses is recognized over the term of the support period. The Company’s time-basedlicenses are generally for 12-month terms and are bundled with software maintenance and product support. All revenue from such arrangementsis recognized over the term of the license.•Revenue from systems-based hardware products include embedded software that is essential to the functionality of the hardware. Accordingly,revenue related to all systems-based hardware sales and related maintenance and product support is recognized under general revenuerecognition guidance and is generally recognized upon delivery when title and risk of loss have passed to the customer and all other revenuerecognition criteria are satisfied. However, in the case of arrangements involving a systems installation, revenue on the systems-based hardwareis generally not recognized until the system has been installed and the customer has accepted the system.•Revenue from the sale of gaming machines, VLTs, conversion kits (including game, hardware or operating system conversions) and parts tocasinos and other gaming operators is recognized based on the general revenue recognition policy stated above. These sales are recorded net ofany incentive rebates, discounts and applicable sales taxes.LotteryWe generate revenue from the manufacturing and sale of instant games, as well as the provision of value-added services such as game design, salesand marketing support, specialty games and promotions, inventory management,92SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)warehousing, fulfillment services, as well as full instant game category management. We also provide licensed games, promotional entertainment andinternet-based services to the lottery industry.In addition, we are a leading provider of lottery systems, including customized computer software, software support, point-of-sale terminals andequipment and data communication services to lotteries. In the U.S., we typically provide the necessary point-of sale and other equipment, software andmaintenance services pursuant to long-term contracts that typically have an initial term of at least five years under which we are generally paid a fee equal toa percentage of the lottery's total retail sales. Our U.S. contracts typically contain multiple renewal options that generally have been exercised by ourcustomers in the past. Internationally, we typically sell point-of-sale terminals and equipment/or computer software to lottery authorities and may provideongoing fee-based systems and software support services.Our instant games revenue is primarily generated under long-term contracts to supply instant games and provide related services to our lotterycustomers. We also generate instant games revenue under our licensed properties game contracts, which are generally instant game-specific and thereforeshort-term and non-recurring. The following are specific revenue recognition policies for our instant games revenue:•Revenue from the sale of instant games that are sold on a price-per-unit basis is recognized when the customer accepts the product pursuant tothe terms of the contract.•Revenue from the sale of instant games that are sold on a participation basis is recognized as retail sales are generated. We do not consider thesearrangements to have multiple revenue-generating activities as the services offered are a comprehensive solution in exchange for participation-based compensation and all of the products and services are delivered contemporaneously; accordingly, this revenue is recognized undergeneral revenue recognition guidance.•Revenue from sublicensing brands coupled with a service component whereby we purchase and distribute merchandise prizes to identifiedwinners on behalf of lotteries is recognized as a multiple-deliverable arrangement. There are typically two deliverables in this arrangement—thelicense and the merchandising services—which are separate units of accounting. We allocate revenue to the deliverables in accordance with therelative selling price method prescribed in ASC 605. If neither VSOE nor TPE of selling price exists for a deliverable, we use an ESP for thatdeliverable. Revenue allocated to the license is determined using ESP based on the rates we charge when we license branded property on astand-alone basis and is recognized when the use of the licensed property is permitted, which is typically when the contract is signed. Revenueallocated to the merchandising services is determined using ESP, which is generally based on a cost-plus margin approach taking into account avariety of company-specific factors, including pricing models, internal costs and minimum operating margin requirements. Revenue frommerchandising services is recognized on a proportional performance method as this method best reflects the pattern in which the obligations ofthe merchandising services to the customer are fulfilled. A performance measure is used based on total estimated cost allocated to themerchandising services. By accumulating costs for services as they are incurred, and dividing such costs by the total costs of merchandisingservices, which is estimated based on a budget prior to contract inception, a percentage is determined. This percentage is applied to the revenueallocated to the merchandising services and that proportionate amount of revenue is recognized.•Revenue from the licensing of branded property with no service component is recognized when the contract is signed.•Revenue from our loyalty and reward programs is typically based on a percentage of a lottery's prize payout structure calculated as a percentageof retail sales. Revenue is recognized as retail sales are generated.Our Lottery segment offers our customers a number of related, value-added services as part of an integrated product offering. These services includelottery systems, including point-of-sale terminals and other equipment, software, data communication services and support and instant game validationsystems, as well as software, hardware and related services for sports wagering and keno systems. The following are specific revenue recognition policies forpolicies for our service revenue within our Lottery segment:•Revenue from the provision of lottery system services provided on a participation basis is recognized when the retail sales of draw lottery gamesare generated.93SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)•Revenue from the perpetual licensing of customized lottery software is recognized under the percentage of completion method of accounting,based on the ratio of costs incurred to estimated costs to complete.•Revenue derived from software maintenance on lottery software and hardware maintenance on lottery terminals is recognized ratably over themaintenance period.Our Lottery segment generates product sales revenue from the sale of lottery systems, terminals and prepaid phone cards.•Revenue from the sale of a lottery system services is recognized under the percentage of completion method of accounting, based on the ratio ofcosts incurred to estimated costs to complete.•Revenue from the sale of lottery terminals is recognized when the customer accepts the product pursuant to the terms of the contract. Sales oflottery terminals are recorded pursuant to ASC 605 as the software and non-software components of our lottery terminals function together todeliver the product's essential functionality.•Revenue from the sale of prepaid phone cards is recognized when the customer accepts the product pursuant to the terms of the contract.InteractiveOur Interactive segment generates revenue from social gaming and interactive RMG services. We generate revenue by offering play-for-fun socialgames on Facebook, GooglePlay for Android devices, Apple’s iOS platform, Kindle platform and Microsoft Windows 8. We also offer our games on third-party interactive RMG casino websites, which are integrated with our remote game servers.Services•In social gaming, we earn revenue from the sale of virtual coins or chips, which is recorded when the purchased coins or chips are used by thecustomer. We also host play-for-fun and play-for-free services and earn revenue based on fixed fees, a share of the proceeds from the sale ofvirtual coins, or a mix of fixed fees and a share of such proceeds.•For RMG, we typically earn a percentage of the operator’s net gaming revenue generated by their players playing the games we host. We alsohost on-premises interactive gaming for certain customers and earn revenue based on fixed fees, a revenue share with our online casino-customer, or a mix of fixed fees and revenue share.•Revenue from hosting game content for RMG sites from our remote game servers and from our social games is recorded on a gross basis.Processing fees charged by platform providers are recorded in cost of services.Deferred revenue and deferred cost of revenueDeferred revenue arises from the timing differences between the shipment or installation of gaming equipment and systems products and thesatisfaction of all revenue recognition criteria consistent with the Company's revenue recognition policy, as well as prepayment of contracts which arerecognized ratably over a service period, such as maintenance or licensing revenue. Deferred cost of revenue consists of the direct costs associated with themanufacture of gaming equipment and systems products for which revenue has been deferred. Deferred revenue and deferred cost of revenue expected to berealized within one year are classified as current liabilities and current assets, respectively.Cash and Cash EquivalentsCash and cash equivalents include all cash balances and highly liquid investments with a maturity of three months or less. We place our temporarycash investments with high credit quality financial institutions. At times, such investments in U.S. accounts may be in excess of the Federal Deposit InsuranceCorporation insurance limit.Restricted CashWe are required by gaming regulations to maintain sufficient reserves in restricted cash accounts to be used for the purpose of funding payments toWAP jackpot winners. Restricted cash accounts are based primarily on the jackpot meters displayed to slot players and vary by jurisdiction. Compliance withmaintaining adequate restricted cash balances and complying with appropriate investment guidelines for jackpot funding is periodically reported to gamingauthorities. The94SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)aggregate current and non-current restricted cash was $44.0 million and $10.9 million, respectively, at December 31, 2014 and 2013 primarily consisted ofrestricted cash required to fund WAP jackpot payments.Accounts Receivable and Notes Receivable, netAccounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of theamount of probable credit losses in our existing accounts receivable. Changes in circumstances relating to accounts receivable may result in the need toincrease or decrease our allowance for doubtful accounts in the future. We determine the allowance based on historical experience, current market trends and,for larger customer accounts, our assessment of the ability of the customers to pay outstanding balances. We continually review our allowance for doubtfulaccounts. Past due balances and other higher risk amounts are reviewed individually for collectability. Account balances are charged against the allowanceafter all collection efforts have been exhausted and the potential for recovery is considered remote. In our Gaming product sales business, we file liens on a significant portion of our domestic accounts and notes receivable to secure our interest inthe gaming machines underlying the accounts and notes receivable until the receivable balance is fully paid. However, the value of the gaming machines, ifrepossessed, may be less than the balance of the outstanding receivable. For international customers, depending on the country and our historic collectionexperience with the customer, we may have pledge agreements, bills of exchange, guarantees, post-dated checks or other forms of security agreementsdesigned to enhance our ability to collect the receivables, although a majority of our international accounts and notes receivables do not have these features.In our gaming operations business, because we own the participation gaming machines that are leased or otherwise provided to the customer, in a bankruptcythe customer has to generally either accept or reject the lease or other agreement and, if rejected, our gaming machines are returned to us. Our accounts andnotes receivable related to participation gaming machines and all other revenue sources are typically unsecured claims.Due to the significance of our gaming machines to the on-going operations of our casino customers, we may be designated as a key vendor in anybankruptcy filing by a casino customer, which can enhance our position above other creditors in the bankruptcy. Due to our successful collection experienceand our continuing operating relationship with casino customers and their businesses, it is infrequent that we repossess gaming machines from a customer inpartial settlement of outstanding accounts or notes receivable balances. In those unusual instances where repossession occurs to mitigate our exposure on therelated receivable, the repossessed gaming machines are subsequently resold in the used gaming machine market; however, we may not fully recover thereceivable from this re-sale.Under certain of our contracts, our invoices do not coincide with revenue recognized under the contract. We have unbilled accounts receivablewhich represent revenue recorded in excess of amounts invoiced under the contract and generally become billable at contractually specified dates or uponthe attainment of contractually defined milestones.Our notes receivable portfolio consists of domestic and international receivables with installment payment terms ranging from 90 days to three yearsor single payment terms greater than 12 months. As of December 31, 2014, we had $276.2 million of notes receivable, net, of which $188.7 million wasrecorded as current. As of December 31, 2013, we had $231.3 million of notes receivable, net, of which $158.7 million was recorded as current. Interestincome, if any, is recognized ratably over the life of the note receivable and any related fees or costs to establish the notes are charged to selling, general andadministrative expense as incurred, as they are immaterial. Actual or imputed interest, if any, is determined based on current market rates at the time the noteoriginated and is recorded in other income and expense, net, ratably over the payment period. We generally impute interest income on all notes receivablewith terms greater than one year that do not contain a stated interest rate. The interest rates on outstanding notes receivable ranged from 4.0% to 10.4% atDecember 31, 2014 and from 5.25% to 8.0% at December 31, 2013. Our policy is to generally recognize interest on notes receivable until the note receivableis deemed non-performing, which we define as a note where payments have not been received within 180 days of the agreed-upon terms. When a notereceivable is deemed to be non-performing, the note is placed on non-accrual status and interest income is recognized on a cash basis. The amount of ournon-performing notes was immaterial at December 31, 2014 and 2013.In certain international jurisdictions, we offer extended financing terms ranging between 18 to 36 months. Sales with extended financing termstypically result in a higher selling price and, if financed over periods longer than one year, incur interest. The impact of extended financing terms on ourcurrent and long-term notes receivable is expected to increase current and long-term notes receivable balances and reduce our cash provided by operatingactivities over the periods in which the extended financing terms are offered. The collection of these notes receivable in future periods will increase theamount of cash flow provided by operating activities, reduce our total notes receivable and increase our cash balance. For additional95SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)information on notes receivables, see Note 6 (Accounts Receivable, Notes Receivable, Allowance for Doubtful Accounts and Bad Debt).InventoriesInventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out or weighted moving average method. Our inventoryprimarily consists of gaming machines and table products for sale and related parts, instant games for our participation and price-per-unit arrangements andour licensed branding merchandise. Through December 31, 2014, when we received a used gaming machine on trade-in, we recorded an estimated carryingvalue for the used gaming machine based on the condition of the used gaming machine and our experience in selling used gaming machines. BeginningJanuary 1, 2015, we are substantially reducing our used gaming machine business and any value given to the customer for a used gaming machine on trade-inwill be treated as additional discount off the sales price of the new gaming machines. We determine the lower of cost or market value of our inventory basedon estimates of potentially excess and obsolete inventories after considering historical and forecasted demand and average selling prices. However, forecastsare subject to revisions, cancellations and rescheduling. Demand for gaming machines and parts inventory is also subject to technological obsolescence.Actual demand may differ from anticipated demand, and such differences could have a material effect on our consolidated financial statements.Property and EquipmentProperty and equipment are stated at cost, and when placed into service, are depreciated using the straight-line method over the estimated usefullives of the assets as follows:Item Estimated Life in YearsLottery and other machinery and equipment 3 - 15Gaming equipment 1 - 5Transportation equipment 3 - 8Furniture and fixtures 5 - 10Buildings and improvements 15 - 40Costs incurred for equipment associated with specific gaming and lottery contracts and internal use software projects not yet placed into service areclassified as construction in progress and are not depreciated. Leasehold improvements are amortized over the lesser of the term of the corresponding lease ortheir useful life.Our policy is to periodically review the estimated useful lives of our fixed assets. As a result of our review during 2014, other than the personalproperty at the Waukegan, Illinois manufacturing facility described in Note 8 (Property and Equipment), no additional accelerated depreciation was recorded.Our reviews during 2013 and 2012 indicated lower estimated useful lives for our gaming machines deployed to our U.K. LBO customers relative to historicalestimates due to market changes that we believe impacted the replacement cycle of these gaming machines. During 2013 and 2012, we recorded accelerateddepreciation related to our change in estimated lives of $8.7 million and $6.6 million, respectively.Deferred Installation CostsCertain participation contracts require us to perform installation activities. Direct installation activities, which include costs for installing gamingmachines, terminals, facilities wiring, computers, internal labor and travel, are performed at the inception of the contract to enable us to perform under theterms of the contract. Such activities do not represent a separate earnings process and, therefore, the costs are deferred and amortized over the expected life ofthe contract, which we define as the original life of the contract plus all available extensions in the case of lottery-related contracts and typically over the lifeof the equipment when no long-term contract exists, as is often the case within our gaming participation business. Additionally, certain of our product salescontracts require us to perform installation activities and as we do not retain ownership of gaming machines and terminals, we defer revenue to cover the costof installation and then expense the costs related to installation activities as they are incurred. At December 31, 2014 and 2013, we had $34.0 million and$39.3 million of deferred installation costs, net of accumulated depreciation, including $33.4 million and $30.6 million included within lottery machineryand equipment and $0.6 million and $1.9 million included within gaming equipment. For additional information regarding deferred installation costs, seeNote 8 (Property and Equipment).96SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Goodwill and Intangible Assets with Indefinite Useful LivesWe assess the impairment of goodwill annually at the end of the fourth quarter, or more frequently if events or changes in circumstances indicate thecarrying value of goodwill may not be recoverable. We assess the recoverability of our intangible assets with indefinite useful lives whenever events orchanges in circumstances indicate that the carrying value of the asset may not be recoverable. Goodwill represents the excess of the purchase price over thefair value of the assets acquired and liabilities assumed of acquired companies. We follow the acquisition method of accounting for all businesscombinations. Goodwill and intangible assets with indefinite useful lives are not amortized.Impairment of Long-Lived Assets and Intangible AssetsIdentified intangible assets with finite useful lives are amortized over two to twenty years using the straight-line method. Factors considered whenassigning useful lives include legal, regulatory and contractual provisions, product obsolescence, demand, competition and other economic factors. Weassess the recoverability of long-lived assets and identifiable intangible assets with finite useful lives whenever events or changes in circumstances indicatethat the carrying value of such an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carryingamount of the asset to the expected net future undiscounted cash flows to be generated by that asset or, for identifiable intangibles with finite useful lives, bydetermining whether the amortization of the intangible asset balance over its remaining life can be recovered through expected net future undiscounted cashflows. The amount of impairment of other long-lived assets is measured by the amount by which the carrying value of the asset exceeds the fair market valueof the asset. Assets held for sale are reported at the lower of the carrying amount or fair market value, less expected costs to sell.Minimum GuaranteesWe enter into long-term license agreements with third parties in which we are obligated to pay a minimum guaranteed amount of royalties, typicallyannually over the life of the contract. We account for the minimum guaranteed obligations within other long-term liabilities at the onset of the licensearrangement and record a corresponding licensed asset within intangible assets, net. The licensed assets related to the minimum guaranteed obligations areamortized over the term of the license agreement and included in D&A. The long-term liability related to the minimum guaranteed obligations is reduced asroyalty payments are made as required under the license agreement. The weighted average remaining term of our license agreements with minimumguaranteed obligations was six years and four years as of December 31, 2014 and 2013, respectively. Our total minimum guaranteed obligations reflected inour Consolidated Balance Sheets were $173.7 million and $216.0 million as of December 31, 2014 and 2013, respectively. Our remaining expected futurepayments of minimum guaranteed obligations are $33.3 million, $29.9 million, $29.4 million, $26.5 million, $28.1 million and $26.5 million in the yearsending December 31, 2015, 2016, 2017, 2018 and 2019 and thereafter, respectively.Software, netWe classify software development costs as either internal use software or external use software. We account for costs incurred to develop internal usesoftware in accordance with ASC 350-40, Internal Use Software. Consequently, any costs incurred during preliminary project stages are expensed; costsincurred during the application development stages are capitalized; and costs incurred during the post-implementation/operation stages are expensed. Oncethe software is placed in operation, we amortize the capitalized software cost over its estimated economic useful life, which is typically two to ten years.We purchase, license and incur costs to develop external use software to be used in the products we sell or provide to customers. Such costs arecapitalized under ASC 985. Costs incurred in creating software are expensed when incurred as R&D until technological feasibility has been established, afterwhich costs are capitalized up to the date the software is available for general release to customers. Generally, the software we develop reaches technologicalfeasibility when a working model of the software is available. Software that we purchase or license for use in our products has met the technologicalfeasibility criteria prior to our purchase or license and, therefore, we capitalize the payments made for such purchase or license. Annual amortization ofcapitalized software costs is recorded over the estimated economic life, which is typically eight to ten years. For our game themes, we have determined that such products reach technological feasibility when internal testing is complete and the product is ready tobe submitted to gaming regulators for approval. We incur and capitalize regulatory approval costs for our game themes after technological feasibility isachieved. Annual amortization of regulatory approval costs is recorded over the estimated economic life, which is typically two to four years.97SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Equity InvestmentsWe account for our investments where we own a non-controlling interest, but exercise significant influence, under the equity method of accounting.Under the equity method of accounting, our original cost of the investment is adjusted for our share of equity in the earnings of the equity investee andreduced by distributions of capital received. We assess the impairment of equity investments annually at the end of the fourth quarter, or more frequently, ifevents or changes in circumstances indicate the carrying value of the investment may not be recoverable. An equity investment is impaired only if theestimate of the fair value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary.If an impairment was to occur, the impairment would be measured as the excess of the carrying amount of the equity investment over the fair value of theequity investment.Other AssetsWe capitalize costs associated with long-term debt financing. An evaluation is performed to determine if any impairment has occurred with respectto any amortized or non-amortized assets. Other assets also include the long-term portion of our deferred tax assets.Derivative Financial InstrumentsWe record derivative financial instruments on the balance sheet at their respective fair values. From time to time, we utilize interest rate forwardcontracts, swap contracts or swaptions, designated as cash flow hedges, to mitigate gains or losses associated with the change in expected cash flows due tofluctuations in interest rates on our variable rate debt. We also enter into foreign currency forward contracts from time to time to mitigate the risk associatedwith cash payments required to be made in non-functional currencies or to mitigate the risk associated with cash payments received in non-functionalcurrencies from our equity method investees. See Note 16 (Fair Value Measurements).Advertising CostsThe cost of advertising is expensed as incurred and totaled $32.2 million, $9.4 million and $5.0 million in 2014, 2013 and 2012, respectively.R&DR&D related to hardware product development is expensed. Employee related costs associated with product development are included in R&D.Employee Termination and RestructuringWe have terminated employees and restructured portions of our operations in the past and have restructuring initiatives currently underway relatedto our recent acquisitions of Bally and WMS. We may engage in additional restructuring activities in the future. Identifying and calculating the costs toterminate employees and exit operations or properties requires certain estimates to be made. Although our estimates have been reasonably accurate in thepast, judgment is required, and these estimates and assumptions may change as additional information becomes available or facts or circumstances change.Income TaxesIncome taxes are determined using the liability method of accounting for income taxes. Our tax expense includes U.S. and international income taxexpense, but excludes the provision for U.S. taxes on undistributed earnings of specified international subsidiaries that are treated as permanently invested.The Company applies a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return. Current accounting guidance allows the recognition of only those income tax positions that have a greater than50 percent likelihood of being sustained upon examination by the taxing authorities. While we believe we have adequately provided for our uncertain taxpositions, amounts asserted by taxing authorities could vary from our liability for uncertain tax positions. Accordingly, additional provisions for tax-relatedmatters, including interest and penalties, could be recorded in income tax expense in the period revised estimates are made or the underlying matters aresettled or otherwise resolved. The Company operates within multiple taxing jurisdictions and is examined in various jurisdictions in the normal course ofbusiness. The reversal of the accruals is recorded when examinations are completed, statutes of limitation are closed or tax laws are changed.98SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effect of such temporarydifferences is reported as deferred income taxes. Accounting guidance for income taxes requires that the future realization of deferred tax assets depends onthe existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the futurereversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess ofanticipated losses in the carryforward period and projected future taxable income.If, based upon all available evidence, both positive and negative, it is more likely than not (more than 50 percent likely) such deferred tax assets willnot be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company’sthree-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable and the accounting guidancerestricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets.At December 31, 2014 and 2013, we had valuation allowances of $58.1 million and $126.7 million, respectively, related to the U.S. net deferred taxassets. Prior to 2014, we had maintained a valuation allowance against our net deferred tax assets related to U.S. net deferred tax assets based on the negativeevidence of our three-year cumulative loss position. After considering the net deferred tax liabilities resulting from the Bally acquisition, in 2014 werecorded a net release of the valuation allowance related to our net U.S. deferred tax assets in the amount of $79.1 million.Foreign Currency TranslationWe have significant operations where the local currency is the functional currency, including our operations in the U.K., Europe, Australia andCanada. Assets and liabilities of foreign operations are translated at period-end rates of exchange and results of operations are translated at the average ratesof exchange for the period. Gains or losses resulting from translating the foreign currency financial statements are accumulated as a separate component ofaccumulated other comprehensive (loss) income in stockholders' equity. Gains or losses resulting from foreign currency transactions are included in otherincome (expense) in the Consolidated Statements of Operations and Comprehensive Loss.Equity-based compensation We periodically grant certain stock-based awards that are contingent upon the Company achieving certain pre-determined financial performancetargets. Upon determining that the performance target is probable, the fair value of the award is recognized over the service period. Determining theprobability of achieving a performance target requires estimates and judgment and any significant adverse changes in key assumptions used to reach ourconclusions could result in an adjustment to our financial statements that could be material.We measure compensation cost for stock-based awards at fair value on grant date and recognize compensation expense over the service period forawards that are expected to vest. The fair value of RSUs is determined based on the number of underlying shares and the quoted price of our common stockand the fair value of stock options is determined using the Black-Scholes valuation model. The estimation of stock-based awards that will ultimately vestrequires judgment and, to the extent actual or updated estimates of forfeiture rates differ from our current estimates, such amounts will be recorded as acumulative adjustment in the period in which such estimates are revised. We consider many factors when estimating expected forfeitures, including types ofawards, employee class, and historical experience. Actual results and future changes in estimates may differ substantially from our current estimates. See Note18 (Stock-Based and Other Incentive Compensation).Comprehensive IncomeWe include and separately classify in comprehensive loss unrealized gains and losses from our foreign currency translation adjustments, gains orlosses associated with pension or other post-retirement benefits, prior service costs or credits associated with pension or other post-retirement benefits,transition assets or obligations associated with pension or other post-retirement benefits, the effective portion of derivative financial instruments andunrealized gains and losses on investments.Business CombinationsWe apply the provisions of ASC 805, Business Combinations ("ASC 805"), in the accounting for acquisitions. It requires us to recognize separatelyfrom goodwill the fair value of assets acquired and liabilities assumed on the acquisition date. Goodwill as of the acquisition date is measured as the excess ofconsideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates andassumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. Theseestimates are inherently uncertain and subject to refinement and typically include the calculation of an appropriate discount rate99SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)and projection of the cash flows associated with each acquired asset. As a result, during the measurement period, which may be up to one year from theacquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion ofthe measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustmentsare recorded to the consolidated statements of operations. For additional information regarding recent business combinations, see Note 3 (Acquisitions andDispositions).Recently Issued Accounting GuidanceIn February 2013, the FASB issued ASU 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amountof the Obligation Is Fixed at the Reporting Date, which amended guidance related to the recognition, measurement, and disclosure of obligations resultingfrom joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. Theguidance requires an entity to measure obligations resulting from such arrangements as the sum of the amount the reporting entity agreed to pay pursuant toits agreement with its co-obligors and any additional amount it expects to pay on behalf of such co-obligors. In addition, the amendment requires an entity todisclose the nature and amount of the obligation as well as other information about the obligation. The guidance is effective for interim and annual periodsbeginning after December 15, 2013 and is to be applied retrospectively. The adoption of this guidance did not have a material impact on our financialposition, results of operations or cash flows.In March 2013, the FASB issued ASU 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of CertainSubsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, which amended guidance related to a parent company'saccounting for the release of the cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within aforeign entity or of an investment in a foreign entity. This guidance is effective for fiscal periods beginning after December 15, 2013, and is to be appliedprospectively to derecognition events occurring after the effective date. The adoption of this guidance did not have a material impact on our financialposition, results of operations or cash flows.In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar TaxLoss, or a Tax Credit Carryforward Exists, which requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as areduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, to the extent a net operatingloss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settleany additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entityto use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financialstatements as a liability and should not be combined with a deferred tax asset. The guidance is effective for fiscal years beginning after December 15, 2013and interim periods within those years. The adoption of this guidance did not have a material impact on our financial position, results of operations or cashflows.In January 2014, the FASB issued ASU 2014-05, Service Concession Arrangements (Topic 853), a consensus of the FASB Emerging Issues TaskForce, which specified that an operating entity should not account for a service concession arrangement within the scope of the update as a lease inaccordance with ASC 840, Leases. The guidance is effective for fiscal years beginning after December 15, 2014. We do not expect ASU 2014-05 to have amaterial effect on our financial condition, results of operations or cash flows.In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU2014-08 changes the criteria for reporting discontinued operations and modifies related disclosure requirements. The new guidance is effective on aprospective basis for fiscal years beginning after December 15, 2014, and interim periods thereafter. We do not expect ASU 2014-08 to have a material effecton our financial condition, results of operations or cash flows.In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The amended guidance outlines a single comprehensiverevenue model for entities to use in accounting for revenue from contracts with customers. The guidance supersedes most current revenue recognitionguidance, including industry-specific guidance. The core principle of the revenue model is that "an entity recognizes revenue to depict the transfer ofpromised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods orservices." ASU 2014-09 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016 (early adoption isnot permitted). We are currently evaluating the impact of adopting ASU 2014-09.100SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a PerformanceTarget Could Be Achieved after the Requisite Service Period. ASU 2014-12 requires that a performance target that affects vesting and could be achieved afterthe requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718, Compensation—StockCompensation, as it relates to such awards. ASU 2014-12 is effective for annual periods, and interim periods within those annual periods, beginning afterDecember 15, 2015 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date; or (ii)retrospective to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statementsand to all new or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balanceas of the beginning of the earliest annual period presented in the financial statements. We do not expect ASU 2014-12 to have a material effect on ourfinancial condition, results of operations or cash flows.In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties About anEntity's Ability to Continue as a Going Concern. ASU 2014-15 requires management to perform interim and annual assessments as to whether there areconditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year of the date the financial statementsare issued and to provide related disclosures, if required. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and for annual periodsand interim periods thereafter. Early adoption is permitted. We do not expect ASU 2014-15 to have a material effect on our financial condition, results ofoperations or cash flows.In January 2015, the FASB issued ASU No. 2015-01, Income Statement-Extraordinary and Unusual Items: Simplifying Income StatementPresentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. The presentationand disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that were previouslyclassified as extraordinary. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 withearly adoption permitted using either a prospective or retrospective method. We do not expect ASU 2015-01 to have a material effect on our financialcondition, results of operations or cash flows.(2) Business and Geographic SegmentsWe report our operations in three business segments—Gaming, Lottery and Interactive—representing our different products and services. These areour reportable segments under ASC 280, Segment Reporting. Each of our business segments is managed by a separate executive who reports to our chiefexecutive officer (who is our "chief operating decision maker" under applicable accounting standards). Our three business segments represent separatestandalone businesses based on the industries we operate in. Our Gaming business segment generally sells gaming machines and VLTs, conversion kits andparts, and leases or otherwise provides gaming machines, server-based systems and content, to commercial, tribal and governmental gaming operators.Additionally, through our acquisition of Bally, this business segment also sells and supports specialized casino-management systems-based software andhardware, provides PTG content and sells and leases Utility products, including automatic card shufflers, deck checkers and roulette chip sorters. Our Lotterybusiness segment provides instant lottery games and related value-added services, as well as licensed brands that are printed on instant lottery games andother promotional lottery products. Our Lottery business segment also provides systems products and services generally comprised of point-of-sale terminals,a central system, customized computer software, data communication services, support and/or related equipment. Our Interactive business segment providessocial gaming and RMG services to online casino operators through our remote game servers. The products and services from which each reportable segmentderives its revenues are further discussed in Note 1 (Description of the Business and Summary of Significant Accounting Policies).In connection with the Bally acquisition, we reviewed our operating and business segments in light of certain changes in the financial informationregularly reviewed by our chief executive officer and other factors. Based on this review, we combined our previous lottery-related Instant Products andLottery Systems business segments into one "Lottery" segment. We also determined that the interactive operating segment should be disclosed as a separatebusiness segment and not aggregated with the gaming operating segment, reflecting the growth of the interactive operating segment. These changes, whichwere effective prior to December 31, 2014, had no impact on our consolidated financial statements for any periods. Prior-period business segment informationfor the years ended December 31, 2013 and 2012 has been adjusted to reflect the changes in business segments.The following tables present revenue, cost of revenue, SG&A, R&D, employee termination and restructuring, D&A, operating (loss) income fromcontinuing operations, earnings (loss) from equity investments, gaming, lottery and interactive operations expenditures and assets for the years ended (or at)December 31, 2014, 2013 and 2012, respectively, by business101SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)segment. Certain unallocated expenses managed at the corporate level, comprised primarily of general and administrative costs and other income (expense),are not allocated to our business segments. Year Ended December 31, 2014 Gaming Lottery Interactive TotalRevenue: Instant games $— $533.0 $— $533.0Services 442.6 201.4 144.5 788.5Product sales 363.8 101.1 — 464.9Total revenue 806.4 835.5 144.5 1,786.4Cost of instant games (1) — 291.4 — 291.4Cost of services (1) 111.0 120.8 51.9 283.7Cost of product sales (1) 195.5 78.8 — 274.3Selling, general and administrative 235.3 73.3 57.3 365.9Research and development 98.7 4.6 13.7 117.0Employee termination and restructuring 15.5 3.5 7.1 26.1Depreciation and amortization 318.7 97.1 13.3 429.1Segment operating (loss) income from continuingoperations $(168.3) $166.0 $1.2 $(1.1)Unallocated corporate costs 171.6Consolidated operating loss $(172.7)Earnings (loss) from equity investments $3.3 $(10.9) $— $(7.6)Assets at December 31, 2014 $7,905.5 $1,425.3 $185.4 Unallocated assets at December 31, 2014 479.0Consolidated assets at December 31, 2014 $9,995.2Gaming, lottery and interactive capital expenditures $160.5 $58.3 $5.4 $224.2________________________________________________________________________________________________________________________________(1)Exclusive of depreciation and amortization.102SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) Year Ended December 31, 2013 GamingLotteryInteractiveTotalRevenue: Instant games$—$516.0$—$516.0Services181.8203.230.0415.0Product sales88.771.2—159.9Total revenue270.5790.430.01,090.9Cost of instant games (1)—285.1—285.1Cost of services (1)77.9113.811.4203.1Cost of product sales (1)56.447.1—103.5Selling, general and administrative87.170.710.1167.9Research and development 17.4 5.5 3.1 26.0Employee termination and restructuring6.75.11.913.7Depreciation and amortization103.994.52.7201.1Segment operating (loss) income from continuingoperations$(78.9)$168.6$0.8$90.5Unallocated corporate costs 108.8Consolidated operating loss $(18.3)Earnings (loss) from equity investments $(12.1) $13.6 $— $1.5Assets at December 31, 2013$2,338.7$1,601.5$83.2Unallocated assets at December 31, 2013 213.0Consolidated assets at December 31, 2013 $4,236.4Gaming, lottery and interactive capital expenditures$75.8$79.0$3.2$158.0________________________________________________________________________________________________________________________________(1)Exclusive of depreciation and amortization.103SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) Year Ended December 31, 2012 GamingLotteryInteractiveTotalRevenue: Instant games$—$493.6—$493.6Services133.1201.16.1340.3Product sales31.263.5—94.7Total revenue164.3758.26.1928.6Cost of instant games (1)—282.5—282.5Cost of services (1)60.2109.60.9170.7Cost of product sales (1)22.143.0—65.1Selling, general and administrative28.1 65.4 0.794.2Research and development 2.1 4.5 — 6.6Employee termination and restructuring4.75.9—10.6Depreciation and amortization57.792.6—150.3Segment operating (loss) income from continuingoperations$(10.6)$154.74.5$148.6Unallocated corporate costs 85.7Consolidated operating income $62.9Earnings from equity investments $3.0 $25.1 $— 28.1Assets at December 31, 2012$504.0$1,645.0$0.6Unallocated assets at December 31, 2012 37.3Consolidated assets at December 31, 2012 $2,186.9Gaming, lottery and interactive capital expenditures$42.5$66.0$—$108.5________________________________________________________________________________________________________________________________(1)Exclusive of depreciation and amortization.In evaluating financial performance, we focus on operating (loss) income from continuing operations as a segment's measure of profit or loss.Segment operating (loss) income from continuing operations is (loss) income before interest expense, earnings (loss) from equity investments (net ofimpairments), loss on early extinguishment of debt, gain on sale of equity interest, other (expense) income, net, unallocated corporate costs and income taxes.Certain corporate assets consisting of cash, prepaid expenses and property, plant and equipment are not allocated to the segments. The accounting policies ofour business segments are the same as those described above in the summary of significant accounting policies.The following table presents a reconciliation of business segment operating (loss) income to net loss from continuing operations before incometaxes for each period: Years Ended December 31, 2014 2013 2012Reported segment operating (loss) income from continuing operations$(1.1)$90.5$148.6Unallocated corporate costs(171.6)(108.8)(85.7)Consolidated operating (loss) income(172.7)(18.3)62.9Interest expense(307.2)(119.5) (100.0)Earnings (loss) from equity investments (7.6) 1.5 28.1Loss on early extinguishment of debt(25.9)(5.9) (15.5)Gain on sale of equity interest 14.5 — —Other (expense) income, net 4.0 (1.1) 1.3Net loss from continuing operations before income taxes$(494.9)$(143.3)$(23.2)104SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Sales to international customers originating from the U.S. were $58.1 million, $18.5 million and $16.6 million for the years ended December 31,2014, 2013 and 2012, respectively. The following tables present revenue by customer location and long-lived assets by geographic segment: Years Ended December 31, 2014 2013 2012Revenue: United States$1,070.1$559.8$445.2North America, other than United States131.074.266.1United Kingdom162.5157.5163.7Europe, other than the United Kingdom283.6213.2187.6Other139.286.266.0Total (1)$1,786.4$1,090.9$928.6 As of December 31, 2014 2013Property and equipment, net: United States$771.1$580.3North America, other than United States59.947.5United Kingdom96.685.2Europe, other than the United Kingdom34.219.6Other51.040.5Total (2)$1,012.8$773.1_____________________________________________________________________________(1)Total revenue from international customers for the years ended December 31, 2014, 2013 and 2012 was $716.3 million, $531.1 million and $483.4 million, respectively.(2)Total property and equipment held outside the United States as of December 31, 2014 and 2013 was $242.2 million and $192.8 million, respectively.(3) Acquisitions and DispositionsAcquisitions2014On November 21, 2014, the Company acquired all of the outstanding common stock of Bally for $5.1 billion (including the refinancing ofapproximately $1.9 billion of existing Bally indebtedness), creating one of the largest diversified global gaming suppliers.We have recorded Bally's assets acquired and liabilities assumed based on our preliminary estimates of their fair values at the acquisition date. Thedetermination of the fair values of the assets acquired and liabilities assumed (and the related determination of estimated lives of depreciable and amortizabletangible and identifiable intangible assets) requires significant judgment and estimates. The estimates and assumptions used include the projected timing andamount of future cash flows and discount rates reflecting risk inherent in the future cash flows. The estimated fair values of Bally's assets acquired andliabilities assumed and resulting goodwill are subject to adjustment as we finalize our fair value analysis. The significant items for which a final fair value hasnot been determined as of the filing of this Annual Report on Form 10-K include accrued liabilities, deferred income taxes and other long-term liabilities. Weexpect to complete our fair value determinations no later than the fourth quarter of 2015. We do not currently expect our fair value determinations to change;however, there may be differences compared to those amounts reflected in our consolidated financial statements at December 31, 2014 as we finalize our fairvalue analysis and such changes could be material.Based on our preliminary estimates, the equity purchase price exceeded the aggregate estimated fair value of the acquired assets and assumedliabilities at the acquisition date by $2,956.1 million, which amount has been allocated and105SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)recognized as goodwill within our Gaming and Interactive business segments. We attribute this goodwill to our enhanced financial and operational scale,market diversification, opportunities for synergies, assembled workforce and other strategic benefits. None of the goodwill associated with the acquisition isdeductible for income tax purposes and, as such, no deferred taxes have been recorded related to goodwill.In connection with the Bally acquisition we incurred $76.6 million of acquisition-related costs which were recorded in SG&A in the ConsolidatedStatement of Operations and Comprehensive Loss for the year ended December 31, 2014.The preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed is presented below:At November 21, 2014 Cash and cash equivalents$59.9Restricted cash16.0Accounts receivable217.1Notes receivable22.0Inventories134.0Deferred income taxes, current portion32.4Prepaid expenses, deposits and other current assets71.6Property and equipment335.3Goodwill2,956.1Restricted long-term cash and investments19.3Intangible assets1,800.3Software308.3Other assets61.8Total assets6,034.1Long-term debt, including amounts due within one year(1,882.9)Accounts payable(33.0)Accrued liabilities(133.7)Deferred income taxes(747.0)Other long-term liabilities(37.0)Total liabilities(2,833.6)Total equity purchase price$3,200.5Our estimates of the fair values of depreciable tangible assets and identifiable intangible assets are presented below:106SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) Fair values at November21, 2014 Remaining useful life range (inyears)Land and land improvements $18.1 IndefiniteBuildings and leasehold improvements 36.3 2 - 40 yearsFurniture, fixtures, and other property, plant and equipment 33.6 2 - 15 yearsGaming equipment 247.3 1 - 3 yearsTotal property and equipment $335.3 Fair values at November21, 2014 Weighted-average remaining usefullife (in years)Trade names $225.0 IndefiniteBrand names 90.7 9.2 yearsCore technology and content 734.7 7.2 yearsCustomer relationships 726.0 15.1 yearsLong-term licenses 23.9 3.0 yearsTotal intangible assets $1,800.3 9.4 yearsThe fair value of acquired real property was determined primarily using a cost approach, in which we determined an estimated replacement cost forthe assets. To determine the fair value of the land, we utilized the sales comparison approach, which compares the land to properties that have recently beensold in similar transactions. For gaming equipment and other personal property assets, we determined the fair value using cost approaches in which wedetermined an estimated reproduction or replacement cost, as applicable.The estimated fair values of acquired finite and indefinite-lived trade names and finite-lived internally-developed intellectual property ("IP") wasdetermined using the royalty savings method, which is a risk-adjusted discounted cash flow approach. Finite-lived intangible assets valued using the royaltysavings method include gaming content and operating system software, casino management systems and game server software (all included within softwareabove), certain product trade names and game cabinet design IP (included in core technology and content above). The royalty savings method values anintangible asset by estimating the royalties saved through ownership of the asset. The royalty savings method requires identifying the future revenue thatwould be impacted by the trade name or IP asset (or royalty-free rights to the assets), multiplying it by a royalty rate deemed to be avoided through ownershipof the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in such valuation was based on aconsideration of market rates for similar categories of assets. The indefinite-lived trade names include "Bally" and "SHFL". Game content and operatingsystem software, casino management systems software and game server software is classified as capitalized software, net, on the Consolidated Balance Sheetas of December 31, 2014 and has a weighted average useful life of 4.4 years.The estimated fair values of the acquired PTG IP and Utility products IP (both included in core technology and content above) and customerrelationships were determined using the excess earnings method, which is a risk-adjusted discounted cash flow approach that determines the value of anintangible asset as the present value of the cash flows attributable to such asset after excluding the proportion of the cash flows that are attributable to otherassets. The contribution to the cash flows that are made by other assets - such as fixed assets, working capital, workforce and other intangible assets, includingtrade names and game content and design IP - was estimated through contributory asset capital charges. The value of the acquired customer relationship assetis the present value of the attributed post-tax cash flows, net of the post-tax return on fair value attributed to the other assets.The estimated fair value of deferred income taxes was determined by applying the appropriate enacted statutory tax rate to the temporary differencesthat arose on the differences between the financial reporting value and tax basis of the assets acquired and liabilities assumed. The estimated fair value ofaccounts receivable includes consideration of the contractual amount of the receivables of $234.1 million and our estimate of the amount not expected to becollected of $17.0 million. The estimated fair value of notes receivable includes consideration of the contractual amount of the receivables of $68.2 millionand our estimate of the amount not expected to be collected of $1.5 million.The estimated fair value of current and long-term deferred revenue was determined using the bottoms-up approach which involves the application ofa normal profit margin to the direct and incremental costs required to fulfill the remaining107SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)performance obligation. The costs to fulfill are reflective of those that the Company will incur to fulfill the service and do not include costs such as selling,marketing and training. The estimated fair value of current and long-term deferred revenue is approximately $10.3 million.The revenue and loss from continuing operations of Bally from the acquisition date through December 31, 2014 are presented below and included inour consolidated statements of operations. These amounts are not necessarily indicative of the results of operations that Bally would have realized if it hadcontinued to operate as a stand-alone company during the period presented, primarily due to the elimination of certain headcount and administrative costssince the acquisition date resulting from integration activities or due to costs that are now reflected in our unallocated corporate costs and not allocated toBally. From November 21, 2014 throughDecember 31, 2014Revenue$151.6Loss from continuing operations$(21.1)As required by ASC 805, the following unaudited pro forma statements of operations for the years ended December 31, 2014 and 2013 give effect tothe Bally acquisition as if it had been completed on January 1, 2013 and give effect to the WMS acquisition as if it had been completed on January 1, 2012.The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating resultsactually would have been during the periods presented had the Bally acquisition and the WMS acquisition been completed during the periods presented. Inaddition, the unaudited pro forma financial information does not purport to project future operating results. This information is preliminary in nature andsubject to change based on final purchase price adjustments. The pro forma statements of operations do not reflect: (1) any anticipated synergies (or costs toachieve synergies) or (2) the impact of non-recurring items directly related to the Bally acquisition. Year Ended December 31, 2014 2013Revenue from Consolidated Statements of Operations and Comprehensive Loss$1,786.4 $1,090.9Add: Bally revenue not reflected in Consolidated Statements of Operations and Comprehensive Loss *1,159.5 1,358.6Add: WMS revenue not reflected in Consolidated Statements of Operations and Comprehensive Loss— 567.4Unaudited pro forma revenue$2,945.9 $3,016.9 Year Ended December 31, 2014 2013Net loss from continuing operations from Consolidated Statements of Operations and Comprehensive Loss$(234.3) $(25.6)Add: Bally net loss from continuing operations not reflected in Consolidated Statements of Operations andComprehensive Loss plus pro forma adjustments described below *(195.4) (349.1)Add: WMS net loss from continuing operations not reflected in Consolidated Statements of Operations andComprehensive Loss plus pro forma adjustments described below— (34.7)Unaudited pro forma net loss from continuing operations$(429.7) $(409.4)* Bally acquired SHFL on November 25, 2013. Bally revenue and net loss from continuing operations for the year ended December 31, 2013 have been combined with thehistorical results of SHFL on a pro forma basis to reflect the pro forma results as if Bally acquired SHFL on January 1, 2013.Unaudited pro forma amounts for the Bally acquisition include adjustments to reflect the following:108SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)(1)An adjustment to reflect additional D&A of $143.7 million and $168.2 million for the years ended December 31, 2014 and 2013, respectively, that would have beencharged assuming the fair value adjustments to intangible assets and property and equipment had been applied on January 1, 2013.(2)An adjustment to decrease cost of sales by $6.6 million for the year ended December 31, 2014 to reflect the impact of purchase accounting adjustments on the carryingvalue of finished goods inventory.(3)An adjustment to reverse acquisition-related fees and expenses of $100.5 million for the year ended December 31, 2014, which includes $41.0 million associated withthe cancellation of outstanding Bally equity awards upon the closing of the acquisition.(4)An adjustment to reflect the additional interest expense of $285.7 million and $380.7 million for the years ended December 31, 2014 and 2013, respectively, thatwould have been incurred assuming the Bally acquisition financing transactions (as well as the issuance of the 2021 Notes and subsequent purchase and redemption ofthe 2019 Notes) had occurred on January 1, 2013. The $285.7 million adjustment to interest expense for the year ended December 31, 2014 is net of $64.7 million ofcertain debt financing fees incurred in connection with the financing of the Bally acquisition.(5)An adjustment to reverse the loss on extinguishment of debt of $25.9 million for the year ended December 31, 2014 recorded in connection with the purchase andredemption of the 2019 Notes.(6)An adjustment of $33.0 million and $76.6 million for the years ended December 31, 2014 and 2013, respectively, to reflect the income tax benefit of the pro formaadjustments made to the pro forma statement of operations calculated at the statutory rates in effect in each significant jurisdiction. The pro forma adjustment to incometax (expense) benefit for the year ended December 31, 2014 also reflects the reversal of the income tax benefit of $79.1 million resulting from the partial release of thevaluation allowance on Scientific Games’ net U.S. deferred tax assets related to the net deferred tax liabilities recognized in conjunction with the Bally acquisition.Unaudited pro forma amounts for the WMS acquisition include adjustments to reflect the following:(1)An adjustment to reflect additional D&A of $22.2 million for the year ended December 31, 2013 that would have been charged assuming the fair value adjustments tointangible assets and property and equipment had been applied on January 1, 2012.(2)An adjustment to decrease cost of sales by $13.0 million to reflect the impact of purchase accounting adjustments on the carrying value of inventory for the year endedDecember 31, 2013.(3)An adjustment to reverse acquisition-related fees and expenses of $74.0 million for the year ended December 31, 2013 as these expenses are deemed non-recurring innature.(4)An adjustment to reflect the additional interest expense of $61.0 million for the year ended December 31, 2013 that would have been charged assuming our October18, 2013 credit facilities were in place as of January 1, 2012.(5)An adjustment of $12.5 million for the year ended December 31, 2013 to reverse the U.S. tax expense of WMS under the assumption that the U.S. taxable income ofWMS for each period presented would have been offset by U.S. tax attributes of the Company.2013On October 18, 2013, we acquired all of the outstanding common stock of WMS, a global gaming supplier with a diversified suite of products andstrong content creation capabilities, for $1,485.9 million.Subsequent to the filing of our 2013 Annual Report on Form 10-K, we adjusted the estimated fair values of certain WMS assets to reflect newinformation obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as ofthat date. The adjustments resulted in a decrease in goodwill of approximately $3.8 million related to the recognition of non-U.S.-based current and deferredtax assets and liabilities. We have applied the adjustment retrospectively to the opening balance sheet at October 18, 2013.We have completed the allocation of the purchase price, which resulted in the purchase price exceeding the aggregate fair value of the acquiredassets and assumed liabilities at the acquisition date by $381.8 million. Such excess amount has been recognized as goodwill within our Gaming andInteractive business segments. We attribute this goodwill to enhanced financial and operational scale, market diversification, opportunities for synergies,assembled workforce and other strategic benefits. None of the goodwill associated with the acquisition is deductible for income tax purposes and, as such, nodeferred taxes have been recorded related to goodwill.109SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)At October 18, 2013 Current assets$503.9Long-term notes receivable76.2Property, plant and equipment, net465.8Goodwill381.8Intangible assets325.0Intellectual property201.2Other long-term assets7.8Total assets1,961.7Current liabilities(158.9)Deferred income taxes(166.6)Long-term liabilities(150.3)Total liabilities(475.8)Total equity purchase price$1,485.9Our estimates of the fair values of depreciable tangible assets and identifiable intangible assets are presented below: Fair values at October 18,2013 Average remaining useful life (inyears)Land $14.9 IndefiniteReal property 110.5 40Gaming equipment 230.8 1-6Personal property 109.6 4-6Total property and equipment $465.8 Trade names $66.0 IndefiniteProduct names 39.3 10Customer relationships 131.5 2-15Long-term licenses 88.2 2-5Total intangible assets $325.0 The fair value of acquired real property was determined primarily using a cost approach, in which we determined an estimated replacement cost forthe assets. To fair value the land, we utilized the sales comparison approach, which compares the land to properties that have recently been sold in similartransactions. For gaming equipment and other personal property assets, we determined the fair value using cost approaches in which we determined anestimated reproduction or replacement cost, as applicable.The fair values of acquired finite- and indefinite-lived trade names and finite-lived internally-developed IP was determined using the royalty savingsmethod discussed above. Finite-lived intangible assets include certain product trade names, game content and design IP and operating system and gameserver software. The indefinite-lived trade names include "WMS" and "Williams Interactive".The fair value of the acquired customer relationships was determined using the excess earnings method discussed above. The fair value of the long-term licenses was determined based on a comparison of rates and terms of the acquired licenses to a portfolio of market comparables to determine if theacquired long term liabilities were at rates above or below market. In addition, we recorded a long-term asset and liability related to the minimum guaranteefor long-term licenses in accordance with the Company's policy as described in Note 1 (Description of the Business and Summary of Significant AccountingPolicies).110SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)The fair value of deferred income taxes was determined by applying the appropriate enacted statutory tax rate to the temporary differences that aroseon the differences between the financial reporting value and tax basis of the assets acquired and liabilities assumed.The revenue and loss from continuing operations of WMS since the acquisition date through December 31, 2013 that are included in ourconsolidated statements of operations are presented below. These amounts are not necessarily indicative of the results of operations that WMS would haverealized if it had continued to operate as a stand-alone company during the period presented, primarily due to the elimination of certain headcount andadministrative costs since the acquisition date that are the result of integration activities or due to costs that are now reflected in our unallocated corporatecosts and not allocated to WMS. From October 18, 2013 throughDecember 31, 2013Revenue$144.7Loss from continuing operations$(31.4)As required by ASC 805, the following unaudited pro forma statements of operations for the years ended December 31, 2013 and 2012 give effect tothe WMS acquisition as if it had been completed on January 1, 2012. The unaudited pro forma financial statements are presented for illustrative purposesonly and are not necessarily indicative of what the operating results actually would have been had the WMS acquisition been completed during the periodspresented. In addition, the unaudited pro forma financial statements do not purport to project the future operating results of the Company. The pro formastatements of operations do not reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related tothe WMS acquisition. Year Ended December 31, 2013 2012Revenue from Consolidated Statements of Operations and Comprehensive Loss$1,090.9 $928.6Add: WMS revenue not reflected in Consolidated Statements of Operations and Comprehensive Loss567.4 688.5Unaudited pro forma revenue$1,658.3 $1,617.1 Year Ended December 31, 2013 2012Net loss from continuing operations from Consolidated Statements of Operations and Comprehensive Loss$(25.6) $(43.9)Add: WMS net loss from continuing operations not reflected in Consolidated Statements of Operations andComprehensive Loss plus pro forma adjustments described below(34.7) (50.4)Unaudited pro forma net loss from continuing operations$(60.3) $(94.3)Unaudited pro forma amounts include adjustments to reflect the following:(1)An adjustment to reflect additional D&A of $22.2 million and $60.9 million for the years ended December 31, 2013 and 2012, respectively, that would have beencharged assuming the fair value adjustments to intangible assets and property and equipment had been applied on January 1, 2012.(2)An adjustment to increase cost of sales by $13.0 million to reflect the impact of purchase accounting adjustments on the carrying value of inventory for the year endedDecember 31, 2013.(3)An adjustment to reverse acquisition-related fees and expenses of $74.0 million and $2.5 million for the years ended December 31, 2013 and 2012, respectively.(4)An adjustment to reflect the additional interest expense of $61.0 million and $83.0 million for the years ended December 31, 2013 and 2012, respectively, that wouldhave been charged assuming our credit facilities were in place as of January 1, 2012.(5)An adjustment of $12.5 million and $33.3 million for the years ended December 31, 2013 and 2012, respectively, to reverse the U.S. tax expense of WMS under theassumption that the U.S. taxable income of WMS for each period presented would have been offset by U.S. tax attributes of the Company.111SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)2012In July 2012, we acquired substantially all of the assets of Parspro for $11.8 million. Parspro is a provider of sports betting systems and relatedproducts via point of sale terminals, the internet and mobile devices. We allocated $9.9 million of the $11.8 million purchase price in excess of the fair valueof the assets acquired and liabilities assumed to goodwill. The acquired assets include technology that we have integrated into our Lottery business segmentas part of an expanded service offering to lottery customers. Had the operating results of Parspro been included as if the transaction was consummated onJanuary 1, 2011, our pro forma results of operations for the years ended December 31, 2012 would not have been materially different.In June 2012, we acquired 100% of the equity interests of Provoloto for $9.7 million (including an estimated earn-out payable to the sellers ofapproximately $2.0 million contingent on the future performance of the acquired business). We allocated $5.1 million of the purchase price in excess of thefair value of the acquired net assets to goodwill. The operating results of Provoloto were included in our Lottery business segment and were consolidated inour results of operations from the date of acquisition until we exited the operations (as discussed below). Had the operating results of Provoloto beenincluded as if the transaction was consummated on January 1, 2011, our pro forma results of operations for the years ended December 31, 2012 would nothave been materially different. In December 2013, we initiated a reorganization plan to exit the Provoloto instant lottery game operations in Mexico, whichwas completed in February 2014.In June 2012, we acquired ADS for £3.5 million, subject to certain adjustments. ADS provides maintenance and other services for LBOs in the U.K.The acquisition has allowed us to expand our service offering to the LBOs. We allocated £2.2 million of the £3.5 million purchase price in excess of the fairvalue of the assets acquired and liabilities assumed to goodwill. The operating results of ADS have been included in our Gaming business segment and havebeen consolidated in our results of operations since the date of acquisition. Had the operating results of ADS been included as if the transaction wasconsummated on January 1, 2011, our pro forma results of operations for the years ended December 31, 2012 would not have been materially different.DispositionsIn January 2014, we completed the sale of our equity interest in Sportech for cash proceeds of £27.8 million, or $44.9 million, resulting in a gain ofapproximately £9 million, or $14.5 million, which is reflected as a gain on sale of equity interest in our Consolidated Statements of Operations andComprehensive Loss.On March 25, 2013, we completed the sale of our installed base of gaming machines in our pub business for a purchase price of £0.5 million. Thepub business was previously included in our Gaming business segment. The revenue and expenses of the discontinued pub operations for the years endedDecember 31, 2014, 2013, and 2012 were as follows: Year Ended December 31, 2014 2013 2012Revenue: Services $— $1.8 $12.0 Operating expenses: Cost of services (1) — 3.0 10.4Selling, general and administrative — 1.2 2.8Employee termination and restructuring — — 0.9Depreciation and amortization — 0.6 22.5 Loss from discontinued operations — (3.0) (24.6) Other (expense) income, net — 0.8 (0.1)Income tax (expense) benefit — (2.4) 6.0 Net loss from discontinued operations $— $(4.6) $(18.7)(1) Exclusive of depreciation and amortization.112SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)(4) Employee Termination and Restructuring PlansWe recorded pre-tax employee termination and restructuring costs of $30.7 million, $22.7 million and $10.6 million for the years ended 2014, 2013and 2012, respectively. All employee termination and restructuring actions reported in 2014 were completed as of December 31, 2014, except for certainintegration-related restructuring plan actions discussed below that are expected to be completed in 2015 and 2016. As of December 31, 2013, the WMSintegration-related restructuring plan and the Provoloto reorganization plan were not completed. All employee termination and restructuring actions reportedin 2012 were completed as of December 31, 2012.Bally Integration-Related Restructuring PlanUpon our acquisition of Bally in November 2014, we began integrating Scientific Games and Bally by implementing our plans to streamline ouroperations and cost structure. We have recorded costs that meet the criteria under ASC 420, Exit and Disposal Cost Obligations ("ASC 420"), in each of ourbusiness segments associated with integration activities that have been initiated in the relevant period. These costs include employee separation costs andcosts relating to exiting contracts. For information regarding other costs associated with our plans to streamline our operations and cost structure see Note 8(Property and Equipment).WMS Integration-Related Restructuring PlanUpon our acquisition of WMS in October 2013, we began integrating Scientific Games and WMS and implementing our plans to streamline ouroperations and cost structure. We have recorded costs that meet the criteria under ASC 420 in each of our business segments associated with integrationactivities that have been initiated in the relevant period. These costs include employee separation costs, costs relating to the exiting of facilities and costsrelated to exiting two immaterial business lines. In addition to these restructuring costs, which are included in the table below, we recorded $4.6 million ofaccelerated D&A related to software for a line of gaming machines we discontinued as a result of our reorganization plans in 2013.Other Restructuring PlansIn December 2013, we initiated a reorganization plan to exit our Provoloto instant lottery game operations in Mexico, which was completed duringthe three months ended March 31, 2014. In addition to the restructuring charges included in the table below, we recorded $3.1 million of accelerated D&A in2013 related to this reorganization plan. In June 2014, we initiated a plan to exit our paper roll conversion operations in the U.S., which are immaterial to ouroperations. Employee termination and restructuring costs related to these initiatives are included in our Lottery business segment.Unallocated corporate employee termination costs primarily related to terminations of certain executives, including our former chief executiveofficer, in the fourth quarter of 2013. Employee Termination and Restructuring Costs by Business SegmentThe following table presents a summary of employee termination and restructuring costs by business segment related to the restructuring plansdescribed above, including the cumulative costs incurred through December 31, 2014 since the relevant restructuring activities were initiated and the totalexpected costs related to the relevant restructuring activities that have been initiated. As additional integration-related activities are initiated, we expect toincur additional costs related to those activities.113SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Business Segment EmployeeTermination Costs Property Costs Other TotalGaming (1)2014 $14.9 $(0.1) $0.7 $15.5Cumulative 18.3 0.9 2.9 22.1Expected Total 21.3 0.9 2.9 25.1 Lottery (2)2014 3.1 0.4 — 3.5Cumulative 3.5 0.4 4.7 8.6Expected Total 3.5 0.4 4.7 8.6 Interactive2014 3.4 0.4 3.3 7.1Cumulative 3.8 0.4 4.9 9.1Expected Total 3.8 0.4 4.9 9.1 Unallocated corporate (3)2014 4.4 0.2 — 4.6Cumulative 11.3 2.3 — 13.6Expected Total 11.3 2.3 — 13.6 Total2014 $25.8 $0.9 $4.0 $30.7Cumulative $36.9 $4.0 $12.5 $53.4Expected Total $39.9 $4.0 $12.5 $56.4(1) Other restructuring costs reflect costs related to the exit of two immaterial business lines.(2) Includes other restructuring costs incurred in 2013 related to the write-off goodwill of $5.4 million and other costs of $1.4 million, partially offset by the reversal of an acquisition-related earn-out liability of $2.1 million.(3) Unallocated corporate employee termination costs primarily relates to an accrual for cash severance due to our former chief executive officer.The following table presents a summary of restructuring charges and the changes in the restructuring accrual during 2014:EmployeeTermination CostsPropertyCosts OtherTotalBalance as of December 31, 2013$9.3$2.8 $0.1$12.2Accrual additions25.80.9 4.030.7Cash payments(17.7)(1.2) (2.7)(21.6)Non-cash expense 0.5 (0.8) 1.6 1.3Balance as of December 31, 2014$17.9$1.7 $3.0$22.6(5) Basic and Diluted Loss Per Common ShareBasic loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of commonshares outstanding during the period. Diluted loss per common share gives effect to all potentially dilutive common shares that were outstanding during theperiod. As of December 31, 2014, 2013 and 2012, we had outstanding stock options and RSUs that could potentially dilute basic earnings per share in thefuture.The following represents a reconciliation of the numerator and denominator used in computing basic and diluted income available to commonstockholders per common share for the years ended December 31, 2014, 2013 and 2012:114SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) Years Ended December 31, 2014 2013 2012Loss (numerator) Net loss from continuing operations $(234.3) $(25.6) $(43.9)Net loss from discontinued operations — (4.6) (18.7)Net loss $(234.3) $(30.2) $(62.6)Shares (denominator) Basic weighted-average common shares outstanding 84.6 85.0 90.0Diluted weighted-average common shares outstanding 84.6 85.0 90.0Basic and diluted net loss per share amounts Basic net loss per share from continuing operations $(2.77) $(0.30) $(0.49)Basic net loss per share from discontinued operations — (0.06) (0.21)Total basic net loss per share $(2.77) $(0.36) $(0.70)Diluted net loss per share from continuing operations $(2.77) $(0.30) $(0.49)Diluted net loss per share from discontinued operations — (0.06) (0.21)Total diluted net loss per share $(2.77) $(0.36) $(0.70)For all periods presented, basic and diluted loss per share were the same, as any additional common stock equivalents would be anti-dilutive. Weexcluded 1.6 million, 2.6 million and 3.5 million of stock options from the calculation of diluted weighted-average loss per share for the years endedDecember 31, 2014, 2013 and 2012, respectively, which would be anti-dilutive due to the net loss in those periods. In addition, we excluded 5.0 million, 5.2million and 4.8 million RSUs from the calculation of diluted weighted-average loss per share for the years ended December 31, 2014, 2013 and 2012,respectively, which would be anti-dilutive due to the net loss in those periods.(6) Accounts Receivable, Notes Receivable, Allowance for Doubtful Accounts and Bad DebtThe following summarizes the components of current and long-term accounts and notes receivable, net: As of December 31, 2014 2013Current: Accounts receivable$479.5 $360.4Notes receivable194.6 164.3Allowance for doubtful accounts(17.0) (20.0)Current accounts and notes receivable, net$657.1 $504.7Long-term: Notes receivable87.5 72.6Total accounts and notes receivable, net$744.6 $577.3 At December 31, 2014, the change in accounts and notes receivable, net was primarily related to recording the accounts and notes receivable ofBally of $283.8 million upon acquisition, partially offset by a reduction in receivables in our Gaming segment due to lower revenues.Credit Quality of Notes ReceivableThe Company has provided development financing to certain customers in the form of notes receivable. We carry our notes receivable at faceamounts less an allowance for doubtful accounts and imputed interest, if any. Interest income is recognized ratably over the life of the note receivable andany related fees or costs to establish the notes are expensed as incurred, as they are considered insignificant. Actual or imputed interest, if any, is determinedbased on stated rates or current market rates at the time the note originated and is recorded as interest income in other income (expense), net, ratably over thepayment period. We generally impute interest income on notes receivable with terms greater than one year that do not contain a stated interest rate. Theinterest rates on our outstanding notes receivable ranged from 4.0% to 10.4% at December 31, 2014 and115SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)from 5.25% to 8.0% at December 31, 2013. Our policy is to generally recognize interest on our notes receivable until the note receivable is deemed non-performing, which we define as a note on which payments are over 180 days past due. The amount of our non-performing notes was immaterial at December31, 2014 and 2013.We monitor the credit quality of our accounts receivable by reviewing an aging of customer invoices. Invoices are considered past due if ascheduled payment is not received within agreed-upon terms. Our notes receivable are reviewed for impairment at least quarterly. We also review a variety ofother relevant qualitative information such as collection experience, economic conditions and customer-specific financial conditions to evaluate credit riskin recording the allowance for doubtful accounts or as an indicator of an impaired loan. Where possible, we seek payment deposits, collateral, pledgeagreements, bills of exchange, foreign bank letters of credit, post-dated checks or personal guarantees with respect to notes receivable from our customers.However, the majority of our international notes receivable do not have these features. Currently, we have not sold our notes receivable to third parties;therefore, we do not have any off-balance sheet liabilities for factored receivables.The government authorities in Argentina limit the exchange of pesos into U.S. dollars and the transfer of funds from Argentina. Our accounts andnotes receivable, net, from customers in Argentina at December 31, 2014 was $24.0 million, which is denominated in U.S. dollars, although, under the termsof our arrangements with our customers in Argentina, they are required to pay us in pesos at the spot exchange rate between the peso and the U.S. dollar onthe date of payment. In evaluating the collectability of customer receivables in Argentina at December 31, 2014, we specifically evaluated recent payments,receivable aging, any additional security or collateral we had (bills of exchange, pledge agreements, etc.) and other facts and circumstances relevant to ourcustomers’ ability to pay. Our customers in Argentina have continued to pay us in pesos based on the spot exchange rate between the peso and the U.S. dollaron the payment date. We collected $34.5 million of outstanding receivables from customers in Argentina during the year ended December 31, 2014.Recent government actions and challenges affecting the gaming industry in Mexico have increased the credit quality risk with respect to certain ofour current Mexico customers. Our accounts and notes receivable, net, from these certain customers in Mexico at December 31, 2014 was $25.7 million. Wecollected $18.7 million of outstanding receivables from these customers during the year ended December 31, 2014.The following summarizes the components of total notes receivable, net: December 31, 2014 Balances over 90 dayspast due December 31, 2013 Balances over 90 dayspast dueNotes receivable: Domestic$95.3 $7.9 $65.1 $0.4International186.8 12.0 171.8 8.7 Total notes receivable282.1 19.9 236.9 9.1 Notes receivable allowance for doubtful accounts: Domestic— — — —International(5.9) (3.5) (5.6) (3.3)Total notes receivable allowance for doubtful accounts(5.9) (3.5) (5.6) (3.3) Notes receivable, net$276.2 $16.4 $231.3 $5.8At December 31, 2014, 5.9% of our total notes receivable, net, was past due by over 90 days compared to 2.5% at December 31, 2013.The following tables detail our evaluation of notes receivable for impairment as of December 31, 2014 and 2013: As of December 31,2014 Ending BalanceIndividually Evaluated forImpairment Ending BalanceCollectively Evaluated forImpairmentNotes receivable: Domestic$95.3 $36.1 $59.2International186.8 121.0 65.8Total notes receivable$282.1 $157.1 $125.0116SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) As of December 31,2013 Ending BalanceIndividually Evaluated forImpairment Ending BalanceCollectively Evaluated forImpairmentNotes receivable: Domestic$65.1 $4.8 $60.3International171.8 99.7 72.1Total notes receivable$236.9 $104.5 $132.4The following table reconciles the allowance for doubtful notes receivable from December 31, 2013 to December 31, 2014: Total Ending Balance IndividuallyEvaluated for Impairment Ending Balance Collectively Evaluatedfor ImpairmentBeginning balance at December 31, 2013$5.6 $5.6 $—Charge-offs(3.4) (3.4) —Recoveries— — —Provision3.7 3.7 —Ending balance at December 31, 2014$5.9 $5.9 $—Modifications to original financing terms are exceptions to our cash collection process and are a function of collection activities with the customer.If a customer requests a modification of financing terms during the collection process, we evaluate the proposed modification in relation to the recovery ofour gaming machines, generally seek additional security and recognize any additional interest income ratably over the remaining new financing term.Additionally, we often take the opportunity to simplify the customer's future payments by consolidating several notes (each typically representing anindividual purchase transaction) into one note. In those instances, the aging of any outstanding receivable balance would be adjusted to reflect the newpayment terms. Any such modifications generally do not include a concession on the amount owed and generally result only in a delay of payments relativeto the original terms.The following summarizes the notes receivable financing terms that were modified during the year ended December 31, 2014: Twelve Months Ended December 31, 2014 # of Customers# of Notes Pre-Modification Investment Post-ModificationInvestmentFinancing term modifications: International (1)1134 $17.1 $17.1Total financing term modifications1134 $17.1 $17.1 (1) The modifications are detailed below:•One customer for which 12 notes were consolidated into one note aggregating $4.0 million, with an average 28-month payment extension;•One customer for which three notes were consolidated into one note aggregating $3.1 million, with an average four-month paymentextension;•One customer for which five notes were consolidated into one note aggregating $2.5 million, with an average 24-month paymentextension;•One customer with a note for $2.3 million for which original payment terms were extended by nine months;•One customer with a note for $1.8 million for which original payment terms were extended by 34 months;•One customer for which four notes were consolidated into one note aggregating $1.4 million, with an average five-month extension andanother note for $0.2 million for which original payment terms were extended by seven months;117SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)•One customer for which two notes were consolidated into one note aggregating $0.7 million, with an average 15-month payment extension;•One customer with a note for $0.5 for which original payment terms were extended by 21 months;•One customer with a note for $0.3 million for which original payment terms were extended by 27 months;•One customer for which two notes were consolidated into one note aggregating $0.2 million, with an average 14-month payment extension;and•One customer with a note for $0.1 million for which original payment terms were extended by 21 months.In certain international jurisdictions, we offer extended financing terms related to our customers. Such financing activities subject us to increasedcredit risk, which could be exacerbated by, among other things, unfavorable economic conditions or political or economic instability in those regions. Ournotes receivable were concentrated in the following international gaming jurisdictions at December 31, 2014:Peru16%Mexico15%Argentina8%Italy7%Colombia6%Other (less than 5% individually)14%International66%(7) InventoriesInventories consisted of the following: As of December 31, 2014 2013Parts and work-in-process$105.7 $62.1Finished goods159.9 75.7Inventory$265.6 $137.8Parts and work-in-process include parts for gaming machines, lottery terminals and instant lottery ticket materials, as well as labor and overheadcosts associated with the manufacturing of instant lottery games. Our finished goods inventory primarily consists of gaming machines for sale, instant gamesfor our participation arrangements and our licensed branded merchandise.(8) Property and EquipmentGaming and lottery machinery and equipment, including assets under capital leases, were as follows:118SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)As of December 31, 2014 2013Gaming equipment 799.9 439.2Less: accumulated depreciation (279.1) (145.0)Gaming equipment, net 520.8 294.2 Lottery machinery and equipment $311.7 $350.3Less: accumulated depreciation (207.4) (210.6)Lottery machinery and equipment, net 104.3 139.7 Total gaming and lottery machinery and equipment, net $625.1 $433.9Property and equipment consisted of the following: As of December 31, 2014 2013Land $43.0 $25.6Buildings and leasehold improvements 206.3 181.6Furniture and fixtures 36.2 30.1Transportation equipment 5.0 6.4Construction in progress 11.7 33.4Other property and equipment, at cost 292.8 239.1Less: accumulated depreciation (207.3) (177.0)Property and equipment, net $387.7 $339.2 Total property and equipment, net $1,012.8 $773.1The increase in property and equipment, net, was primarily related to recording the assets of Bally at fair value upon acquisition. See Note 3(Acquisitions and Dispositions).Depreciation expense for the years ended December 31, 2014, 2013 and 2012 was $269.6 million, $126.9 million and $122.6 million, respectively.Cost of equipment (and related start-up costs) associated with specific gaming and lottery contracts and internal use software projects are recorded asconstruction in progress and not depreciated until placed in service. When the equipment is placed into service, the related costs are transferred fromconstruction in progress to lottery machinery and equipment, gaming equipment or other property and equipment, and we commence depreciation.Depreciation expense is excluded from cost of services, cost of product sales and other operating expenses and is separately included with amortizationexpense on the Consolidated Statements of Operations and Comprehensive Loss.As described in Note 1 (Description of the Business and Summary of Significant Accounting Policies), we assess the recoverability of long-livedassets whenever events or changes in circumstances indicate that the carrying value of such an asset may not be recoverable. Recoverability of assets to beheld and used is measured by a comparison of the carrying amount of the asset to the expected net future undiscounted cash flows to be generated by thatasset. If it is determined that an impairment has occurred, the amount of the impairment recorded is equal to the excess of the asset's carrying value over itsestimated fair value, which is generally derived from a discounted cash flow model. As a result of our acquisition of Bally in December 2014, we determined that we would consolidate our gaming machine manufacturing to LasVegas, Nevada and recorded a $9.4 million impairment on our Waukegan, Illinois manufacturing facility. We also assessed the remaining useful lives ofpersonal property assets utilized in the Waukegan facility and began accelerating the depreciation of these assets through their planned cease use date in2015. In addition, during 2014, 2013 and 2012, we recorded long-lived asset impairments of $4.2 million, $2.5 million and $5.8 million, respectively, relatedto underperforming U.S. lottery contracts. See Note 16 (Fair Value Measurements). In 2012, we recorded long-lived asset impairments of $20.8 millionrelated to a write-down of certain undeployed gaming machines.119SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Upon our acquisition of Bally in November 2014, we began integrating Scientific Games and Bally and implementing our plans to streamline ourproduct offerings, operations and cost structure. As a result of these plans we recorded $14.5 million of accelerated depreciation on certain gamingequipment assets. In December 2013, we initiated a reorganization plan to exit our instant lottery game operations in Mexico. We recorded $3.1 million ofaccelerated D&A in 2013 related to this reorganization plan. During 2012, we recorded $3.4 million related to the reorganization of our Australia printingoperations.As described in Note 1 (Description of the Business and Summary of Significant Accounting Policies), our policy is to periodically review theestimated useful lives of our fixed assets. As a result of our review during 2014, other that the personal property at the Waukegan manufacturing facilitydescribed above, no additional accelerated depreciation was recorded. Our reviews during 2013 and 2012 indicated lower estimated useful lives for ourgaming machines deployed to our U.K. LBO customers relative to historical estimates due to market changes that we believe impacted the replacement cycleof these gaming machines. During 2013 and 2012, we recorded accelerated depreciation related to our change in estimated lives of $8.7 million and $6.6million, respectively.The impairment charges and accelerated depreciation expense discussed above are included in D&A in our Consolidated Statements of Operationsand Comprehensive Loss for the respective years ended December 31, 2014, 2013, and 2012 and included in accumulated depreciation in our ConsolidatedBalance Sheets as of December 31, 2014 and 2013, respectively.(9) Intangible Assets and GoodwillIntangible AssetsThe following tables present certain information regarding our intangible assets as of December 31, 2014 and 2013. Amortizable intangible assetsare being amortized on a straight-line basis over their estimated useful lives with no estimated120SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)residual values. Intangible AssetsGross CarryingAmountAccumulatedAmortizationNet BalanceBalance as of December 31, 2014 Amortizable intangible assets: Patents$17.9$8.4$9.5Customer relationships883.246.7836.5Licenses332.888.5244.3Intellectual property736.319.5716.8Brand names 128.2 5.3 122.9Non-compete agreements 0.3 0.2 0.1Lottery contracts1.51.5—2,100.2170.11,930.1Non-amortizable intangible assets: Trade names323.62.1321.5Total intangible assets$2,423.8$172.2$2,251.6Balance as of December 31, 2013 Amortizable intangible assets: Patents$14.5$7.1$7.4Customer relationships161.924.0137.9Licenses181.059.9121.1Intellectual property8.65.72.9Brand names 39.3 0.6 38.7Non-compete agreements 0.4 0.2 0.2Lottery contracts1.51.40.1407.298.9308.3Non-amortizable intangible assets: Trade names104.92.1102.8Total intangible assets$512.1$101.0$411.1In 2014, the increase in intangible assets was primarily related to recording the intangible assets of Bally of $1,800.3 million at fair value uponacquisition. Additionally, the increase in the carrying amount of licenses for the year ended December 31, 2014 primarily reflected the recording ofapproximately $106 million associated with a long-term license agreement, which was amended and extended in the first quarter of 2014.The aggregate intangible asset amortization expense for the years ended December 31, 2014, 2013 and 2012 was $89.0 million, $32.5 million and$17.6 million, respectively. The estimated intangible asset amortization expense for the year ending December 31, 2015 and each of the subsequent fouryears is $218.6 million, $224.9 million, $218.0 million, $204.3 million and $186.2 million, respectively.As a result of our annual review of assets with indefinite useful lives as of December 31, 2014, we recorded an impairment of $6.0 million to reducethe historical book value of one indefinite lived asset to the fair value, which impairment is reflected in SG&A in our Consolidated Statements of Operationsand Comprehensive Loss. No impairments were recorded for the years ended December 31, 2013 or 2012.121SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)GoodwillThe table below reconciles the change in the carrying amount of goodwill, by business segment, for the period from December 31, 2012 toDecember 31, 2014. Goodwill Gaming Lottery Interactive TotalsBalance as of December 31, 2012 $262.7 $538.7 $— $801.4Acquisitions (1) 361.1 — 24.5 385.6Foreign currency adjustments 5.0 0.3 — 5.3Write-off of goodwill (2) — (5.4) — (5.4)Reallocation of Goodwill (11.6) (19.7) 31.3 —Reported balance as of December 31, 2013 617.2 513.9 55.8 1,186.9Prior year adjustments (4.5) — 0.7 (3.8)Revised balance as of December 31, 2013 612.7 513.9 56.5 1,183.1Acquisitions 2,902.8 — 53.3 2,956.1Foreign currency adjustments (15.8) (15.1) — (30.9)Balance as of December 31, 2014 $3,499.7 $498.8 $109.8 $4,108.3(1) Subsequent to the filing of our 2013 Annual Report on Form 10-K, we adjusted the estimated fair values of certain WMS assets to reflect new information obtained about facts andcircumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date. The adjustments resulted in a decrease in Gaminggoodwill of approximately $3.8 million related to the recognition of non-U.S.-based current and deferred tax assets and liabilities. We have applied the adjustment retrospectively tothe opening balance sheet at October 18, 2013.(2) At December 31, 2013, $5.4 million of goodwill was written off associated with the exit of our Provoloto instant lottery game operations in Mexico. See Note 3 (Acquisitions andDispositions) for additional information.Following the Bally acquisition in the fourth quarter of 2014, we revised our operating segments to reflect changes in the financial informationregularly reviewed by our chief executive officer, who is designated as the CODM, and other factors and determined that we have three operating andbusiness segments consisting of: Gaming, Lottery and Interactive. For business segment information see Note 2 (Business and Geographic Segments).We reviewed our operating segments in accordance with ASC 350 to determine if additional reporting units exist within our operating segmentsbased on the availability of discrete financial information that is regularly reviewed by segment management. We determined that we have eight reportingunits as of December 31, 2014 consisting of: instant products; U.S. lottery systems; international lottery systems; SG gaming; legacy U.K. gaming; casinomanagement systems; table products; and interactive. The change in reporting units did not result in a reallocation of goodwill balances in accordance withASC 350. With the acquisition of WMS during the fourth quarter of 2013, we revised our operating segments to consist of: instant products, lottery systems,gaming and interactive. As a result of the change in operating segments, we determined that we had six reporting units: instant products; licensed properties;U.S. lottery systems; international lottery systems, gaming and interactive. For periods prior to the fourth quarter of 2013, we had seven operating segmentsand reporting units and, therefore, the change required the reallocation of certain goodwill balances to our new reporting units based on a relative fair valueapproach in accordance with ASC 350.Our annual impairment valuation as of December 31, 2014 produced estimated fair values of equity, under our old and new structures, in excess ofthe carrying value of equity for all of our reporting units. As a result of the Bally acquisition, we recorded the fair value of all assets acquired and liabilitiesassumed as of November 21, 2014 and corresponding goodwill. The estimated fair values of equity for each of our instant products, U.S. lottery systems,international lottery systems, casino management systems, table products and interactive reporting units was substantially in excess of the carrying value ofsuch reporting units. Although the estimated fair value of equity of our SG gaming and legacy U.K. gaming reporting units were in excess of their respectivecarrying values under our new structure in 2014, a decrease in the fair value of more than 16% and 10% for our SG gaming and legacy U.K. gaming reportingunits, respectively, could potentially result in an impairment of goodwill.122SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)(10) Software As of December 31, 2014 2013Software $812.1 $457.7Accumulated amortization (219.4) (114.2)Software, net $592.7 $343.5During the fourth quarter of 2014, we recorded $308.3 million of software associated with our acquisition of Bally. During the fourth quarter of2013, we recorded $257.8 million of software associated with our acquisition of WMS including $201.2 million of intellectual property. In the years endedDecember 31, 2014 and 2013, we capitalized $47.9 million and $37.9 million, respectively, of software systems development costs. The total amountcharged to amortization expense for amortization of software costs was $95.7 million, $39.6 million and $28.0 million for the years ended December 31,2014, 2013 and 2012, respectively.During the year ended December 31, 2014, we recorded accelerated amortization expense of $3.8 million related to software in our gaming businessfor a product we are discontinuing. During the year ended December 31, 2013, we recorded accelerated amortization expense of $8.0 million related to thewrite-down of certain development costs including $4.6 million related to software for a line of gaming machines we discontinued as a result of ourreorganization plans and $3.4 million related to software in our gaming business for a product we are discontinuing. During 2012, we recorded $3.1 millionrelated to the write-down of certain hardware development costs in our licensed brands business.(11) Equity InvestmentsAt December 31, 2014, we had investments in the entities described below, which are accounted for using the equity method of accounting (otherthan RCN, as discussed below). We record income or loss from equity method investments as "Earnings (loss) from equity investments" in the ConsolidatedStatements of Operations and Comprehensive Loss and record the carrying value of each investment in "Equity investments" in the Consolidated BalanceSheets.LNSWe own a 20% equity interest in LNS, an entity comprised principally of us, Gtech S.p.A. and Arianna 2001, a company owned by the Federation ofItalian Tobacconists, that was awarded the concession from the Italian Monopoli di Stato to be the exclusive operator of the Italian Gratta e Vinci instantgame lottery beginning in October 2010. The concession has an initial term of nine years (subject to a performance evaluation during the fifth year) andcould be extended by the Monopoli di Stato for an additional nine years. LNS succeeded Consorzio Lotterie Nazionali ("CLN"), a consortium comprised ofessentially the same group that owns LNS, as holder of the concession. Under the new concession, we are the primary supplier of instant lottery games forLNS, as we were under the prior concession. CLN, which had held the concession since 2004, is being wound up, with the bulk of its assets having beentransferred to LNS. As of December 31, 2014, our investment in CLN was $2.1 million. LNS paid €800.0 million in upfront fees in 2010 under the terms of thenew concession. We paid our pro rata share of these fees to LNS in 2010. The upfront fees associated with the new concession are amortized by LNS (€89.0million each year of the new concession on a pre-tax basis), which reduces our earnings from our equity investment in LNS. Our share of the amortization is€18.0 million each year on a pre-tax basis. Subject to applicable limitations, we are entitled to receive from LNS annual cash dividends as well as periodicreturn of capital payments over the life of the concession.For the years ended December 31, 2014, 2013 and 2012, we recorded income of $17.6 million, $17.9 million and $17.9 million, respectively,representing our share of earnings of LNS. We recognized revenue from the sale of instant games to LNS during the years ended December 31, 2014, 2013and 2012 of $47.1 million, $52.0 million and $52.0 million, respectively. As of December 31, 2014 we had accounts receivable of $10.7 million from LNS.We received dividends of $18.5 million, $18.3 million and $17.7 million from LNS and CLN for the years ended December 31, 2014, 2013 and 2012,respectively. We received distributions of capital of $31.5 million, $17.6 million and $21.0 million from LNS and CLN during the years ended December 31,2014, 2013 and 2012, respectively.Northstar IllinoisWe own a 20% equity interest in Northstar Illinois, an entity formed with Gtech Corporation to be the private manager for the Illinois lottery.Northstar Illinois was selected as the private manager following a competitive procurement and entered into a PMA with the State of Illinois in January 2011for a 10-year term. Northstar Illinois, subject to the oversight of the123SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Illinois lottery, manages the day-to-day operations of the lottery including lottery game development and portfolio management, retailer recruitment andtraining, supply of goods and services and overall marketing strategy. Northstar Illinois is reimbursed on a monthly basis for most of its operating expensesunder the Northstar Illinois PMA. Under our supply agreement with Northstar Illinois, we are responsible for the design, development, manufacturing,warehousing and distribution of instant lottery games and are compensated based on a percentage of retail sales.Under the terms of a PMA, Northstar Illinois is entitled to receive annual incentive compensation payments from the Illinois Department of theLottery (the “Illinois Lottery”) to the extent it is successful in increasing the Illinois Lottery's net income (as defined in the PMA) above specified targetlevels, subject to a cap of 5% of the applicable year's net income, and is responsible for annual shortfall payments to the Illinois Lottery to the extent suchtargets are not achieved, subject to a similar cap. Northstar Illinois and the State of Illinois have disagreed regarding the State’s calculation of net income foreach of the Illinois Lottery fiscal years during the term of the PMA. In August 2014, we understand that the Governor’s office of the State of Illinois directedthe Illinois Lottery to end the PMA with Northstar Illinois. In December 2014, Northstar Illinois, the State of Illinois, SGI and Gtech Corporation ("Gtech") entered into a termination agreement with respect tothe PMA. The termination agreement contemplates, among other things, (1) termination of the PMA in December 2015 (subject to extension by the State forup to an additional 18 months), (2) that, following the Illinois Lottery’s 2014 fiscal year, Northstar Illinois will no longer be entitled to any incentivecompensation payments and will no longer be liable for any shortfall payments, (3) reimbursement of Northstar Illinois for certain costs it incurs intransitioning its obligations under the PMA and (4) continuation of our instant lottery game supply agreement (and Gtech’s lottery systems supplyagreement) until June 2021, subject to a reduced rate structure, early termination in certain circumstances and a "matching right" for SGI (and Gtech) undercertain circumstances involving a competitive procurement to replace the supply agreements.In February 2015, the Illinois Governor’s Office sent a letter to Northstar Illinois stating that the Illinois Attorney General issued a formal decisiondisapproving the termination agreement and that the Governor’s Office has directed the Illinois Lottery to enforce the terms of the PMA. Both NorthstarIllinois and we believe that the termination agreement is valid and binding on the parties. We intend to continue to investigate this matter.During the three months ended June 30, 2014, we recorded a charge of $8.0 million, representing our 20% share of the estimated shortfall paymentfor the lottery's fiscal year ended June 30, 2014, in earnings (loss) from equity investments in our Consolidated Statements of Operations and ComprehensiveLoss. During the three months ended September 30, 2014, we contributed $13.5 million to Northstar Illinois primarily to fund our pro rata share of theshortfall payments for the lottery's fiscal year ended June 30, 2014. In connection with the contemplated termination of the PMA, during the three monthsended September 30, 2014, we recorded a non-cash impairment charge of $19.7 million to write down our investment in Northstar Illinois. During the threemonths ended December 31, 2014, we recorded a charge of $3.1 million, representing our 20% share of the remaining shortfall liability for the lottery's fiscalyear ended June 30, 2014, in earnings (loss) from equity investments and contributed $1.2 million to Northstar Illinois primarily to fund our pro rata share ofthis remaining shortfall payment.For the years ended December 31, 2014, 2013 and 2012, we recorded losses of $34.8 million (inclusive of a $19.7 million non-cash impairmentcharge to write down our investment in Northstar Illinois), $4.5 million and $2.6 million, respectively. We recognized revenue from the sale of instant gamesto Northstar Illinois during the years ended December 31, 2014, 2013 and 2012 of $24.5 million, $25.0 million and $24.6 million, respectively. As ofDecember 31, 2014 we had accounts receivable of $8.1 million from Northstar Illinois. We received no dividends or distributions of capital from NorthstarIllinois during the years ended December 31, 2014, 2013 and 2012.Northstar New JerseyWe own a 17.69% equity interest in Northstar New Jersey, the operating entity comprised of us, Gtech Corporation, and a subsidiary of theadministrator of the Ontario Municipal Employees Retirement System that executed a long-term services agreement to provide marketing and sales servicesto the New Jersey lottery until 2029. In connection with the execution of the services agreement, Northstar New Jersey made a $120.0 million payment to theState, of which we contributed our pro rata portion of $21.5 million. The award of the agreement to Northstar New Jersey was protested by a union thatrepresents certain of the lottery workers. The protest was denied and the union has appealed the denial of the protest. Services under Northstar New Jersey'sagreement with the New Jersey lottery commenced on October 1, 2013. We account for our investment in Northstar New Jersey as an equity methodinvestment due to our significant influence through our substantive participating and minority interest protection rights with respect to the entity. Wecontributed an additional $7.2 million to124SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Northstar New Jersey during the year ended December 31, 2013 representing our pro rata portion of its initial working capital requirements.Northstar New Jersey is entitled to receive annual incentive compensation payments from the State to the extent the lottery's net income for theapplicable year exceeds specified target levels, subject to a cap of 5% of the applicable year's net income. Northstar New Jersey is responsible for payments tothe State to the extent such targets are not achieved, subject to a cap of 2% of the applicable year's net income and a $20.0 million shortfall payment credit.We may be required to make capital contributions to Northstar New Jersey to fund our pro rata share of any shortfall payments that are payable to the Stateunder the services agreement.Under separate supply agreements, we provide Northstar New Jersey with instant games and related services and Gtech provides Northstar NewJersey with lottery systems equipment and related services. We have a 30% economic interest (and are responsible for 30% of the capital requirements)associated with these supply arrangements. We own a 30% equity interest in Northstar SupplyCo New Jersey, LLC ("Northstar SupplyCo."), an entity weformed with Gtech in connection with these supply arrangements. During the year ended December 31, 2014 we contributed $3.7 million pursuant to theterms of the operating agreement of Northstar SupplyCo.For the years ended December 31, 2014 and 2013, we recorded a loss of $3.7 million and income of $0.9 million, respectively, representing our shareof the combined losses and earnings of Northstar New Jersey and Northstar SupplyCo. We recognized revenue of $12.7 million and $1.2 million,respectively, from the sale of instant games to Northstar New Jersey during the years ended December 31, 2014 and 2013. As of December 31, 2014, we hadaccounts receivable of $3.1 million from Northstar New Jersey. We received no dividends or distributions of capital from Northstar New Jersey or NorthstarSupplyCo. during the years ended December 31, 2014 and 2013.Hellenic LotteriesWe own a 16.5% equity interest in Hellenic Lotteries, a company we formed with OPAP S.A. and Intralot S.A. In July 2013, Hellenic Lotteries wasgranted a 12-year concession for the exclusive rights to the production, operation and management of instant game and certain traditional lotteries in Greece.We account for our investment in Hellenic Lotteries as an equity method investment due to our significant influence through our substantive participatingand minority interest protection rights with respect to the entity. In connection with the concession, Hellenic Lotteries paid an upfront fee of €190.0 millionto the Greek government, of which we contributed our pro rata portion of €31.4 million. In addition to our portion of the upfront payment, we contributed anadditional €0.3 million to Hellenic Lotteries for working capital requirements, resulting in aggregate contributions of €31.7 million to Hellenic Lotteries forthe year ended December 31, 2013. Hellenic Lotteries will also be responsible for a monthly fee to the Greek government equal to a percentage of grossgaming revenue. In July 2013, we executed an instant games supply agreement with Hellenic Lotteries, pursuant to which we will be the exclusive providerof instant games and design services to Hellenic Lotteries and will also be responsible for certain advisory services applicable to all lottery games included inthe concession. Operations under the concession agreement commenced in May 2014.For the year ended December 31, 2014, we recorded income of $2.3 million representing our share of the earnings of Hellenic Lotteries. Werecognized revenue of $6.3 million from the sale of instant games to Hellenic Lotteries during the year ended December 31, 2014. As of December 31, 2014,we had accounts receivable of $0.1 million from Hellenic Lotteries. We received no dividends or distributions of capital from Hellenic Lotteries during theyears ended December 31, 2014 and 2013, respectively.CSGOn October 12, 2007, we invested $7.4 million for a 49% equity interest in CSG. CSG established an instant game manufacturing facility thatproduces instant lottery games for sale to the China Sports Lottery for a 15-year period that began in 2009. For the years ended December 31, 2014, 2013 and2012, we recorded income of $6.0 million, $6.9 million and $8.3 million, respectively, representing our share of the earnings of CSG. We are also entitled to aroyalty fee from CSG for intellectual property rights equal to 1% of the total gross profits distributed by CSG. We received dividends of $6.4 million, $6.3million and $9.3 million from CSG for the years ended December 31, 2014, 2013 and 2012, respectively. We received no distributions of capital from CSGduring the years ended December 31, 2014, 2013 and 2012, respectively.GLBOn November 15, 2007, we acquired a 50% equity interest in the ownership of GLB, a provider of instant lottery game validation and inventorymanagement systems to all of the China Welfare Lottery provincial jurisdictions, for $28.0 million. For125SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)the years ended December 31, 2014, 2013 and 2012, we recorded income of $1.8 million, a loss of $5.7 million (including an impairment of our investmentof $6.4 million) and income of $1.7 million, respectively, representing our share of earnings of GLB.As a result of our investment review as of December 31, 2013, we recorded an impairment of $6.4 million to reduce the historical book value of ourinvestment in GLB to the fair value, which impairment is reflected in earnings (loss) from equity investments in our Consolidated Statements of Operationsand Comprehensive Loss. No impairments were recorded for the years ended December 31, 2014 or 2012. We received no dividends or distributions ofcapital from GLB during the years ended December 31, 2014, 2013 and 2012, respectively.RCNIn February 2007, we sold our racing communications business and our 70% equity interest in NASRIN, our data communications business, to RCNin exchange for a 29.4% equity interest in RCN. RCN provides communications services to racing and other companies. For the year ended December 31,2012, we recorded income of $6.4 million representing our share of earnings of RCN. For the years ended December 31, 2014 and 2013, respectively, ourinvestment basis was reduced to zero as dividends were received in excess of our investment basis. In accordance with ASC 323, we temporarily discontinuedthe application of equity method accounting and recorded $4.3 million and $3.2 million of cash dividends received during the years ended December 31,2014 and 2013, respectively, as equity income. We received dividends of $4.3 million, $3.2 million and $11.7 million from RCN for the years endedDecember 31, 2014, 2013 and 2012, respectively. We received no distributions of capital from RCN during the years ended December 31, 2014, 2013 and2012.SportechFollowing the sale of our racing business to Sportech in 2010, we owned a 20% equity interest in Sportech, a U.K. company that operates footballpools and associated games and provides wagering technology solutions to racetracks and off-track wagering networks. We recorded our equity interest inSportech on a 90-day lag as allowed under ASC 323. In January 2014, we completed the sale of our equity interest in Sportech for cash proceeds of £27.8million, or $44.9 million, resulting in a gain of approximately £9 million, or $14.5 million, which is reflected as a gain on sale of equity interest in ourConsolidated Statements of Operations and Comprehensive Loss.ITLWe formed ITL in 2011 with a subsidiary of Playtech Limited in connection with our license of a back-end technology platform from such entity.ITL acquires gaming machines and fixed odds betting terminals with funds contributed to it by us and the Playtech subsidiary. We lease gaming machinesand fixed odds betting terminals from ITL and provide them to certain of our customers. The allocation of equity ownership interests in ITL between us andthe Playtech subsidiary varies based on the respective capital contributions from each party; however, operating decisions of ITL are made jointly by theparties. Intra-entity profits and losses are eliminated as necessary. For the years ended December 31, 2014, 2013 and 2012, we recorded losses of $1.8 million,$16.5 million and $3.8 million, respectively, attributable to our share of losses of ITL. We received dividends from ITL of $2.4 million for the year endedDecember 31, 2013 and no dividends for the years ended December 31, 2014 and 2012, respectively. We received distributions of capital of $17.4 million,$2.4 million and $3.8 from ITL during the years ended December 31, 2014, 2013 and 2012, respectively. We contributed an additional $40.3 million to ITLduring the year ended December 31, 2014, primarily to fund new fixed odds betting terminals under a renewed contract with our largest U.K. customer. Nocontributions were made during the years ended December 31, 2013 or 2012.Combined summary financial informationThe combined summary financial information as of and for the years ended December 31, 2014, 2013 and 2012 is presented for all equity methodinvestments owned during the respective periods. The audited financial statements of LNS are attached as Exhibit 99.1 to this Annual Report on Form 10-K.No other equity method investments were considered significant for the years ended December 31, 2014, 2013 and 2012. Years Ended December 31, 2014 * 2013 * 2012Revenue$962.8 $901.1$949.5Revenue less cost of revenue$352.5 $398.4$506.4Net income$83.1 $90.4$111.2126SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) As of December 31, 2014 *2013 *Current assets$879.6$870.5Non-current assets$1,062.8$1,500.9Current liabilities$648.8$621.9Non-current liabilities$41.9$156.9 * No equity method investments were deemed significant for the years ended December 31, 2014 and 2013 under applicable SEC rules. This information is included forinformational purposes only.As described in Note 1 (Description of the Business and Summary of Significant Accounting Policies), we assess on a periodic basis whether thereare any indicators that the fair value of our equity investments may be impaired. An equity investment is impaired if the estimate of the fair value of suchinvestment is less than the carrying value, and such decline in value is deemed to be other than temporary. If an impairment was to occur, the loss would bemeasured as the excess of the carrying amount over the fair value of the equity investment. No other than temporary impairments were identified for the yearsended December 31, 2014, 2013 and 2012 other than the impairment of our equity investment in GLB described above for 2013.(12) Other AssetsOther assets consisted of the following: As of December 31, 2014 2013Deferred financing costs$219.9 $92.5Deferred tax asset, long-term portion18.6 24.5Other assets20.8 11.4$259.3 $128.4Deferred financing costs arise in connection with our long-term financing and are amortized over the life of the financing agreements. We capitalized$150.0 million, $92.1 million and $6.3 million of deferred financing costs during 2014, 2013 and 2012, respectively, in connection with financingtransactions. Amortization of deferred financing costs amounted to $17.4 million, $7.8 million and $7.1 million for the years ended December 31, 2014, 2013and 2012, respectively and is included in interest expense in our Consolidated Statement of Operations and Comprehensive Loss. During 2014, we wrote off$5.4 million of unamortized deferred financing fees related to the purchase and redemption of our 2019 Notes. See Note 15 (Long-Term and Other Debt).During 2013, we wrote off $5.9 million of unamortized deferred financing fees related to our prior credit agreement. See Note 15 (Long-Term and Other Debt).During 2012, we wrote off $7.6 million of unamortized deferred financing fees related to the redemption of our 2016 Notes. All of these losses are recorded inloss on debt extinguishment in our Consolidated Statement of Operations and Comprehensive Loss.(13) Accrued LiabilitiesAccrued liabilities consisted of the following:127SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) As of December 31, 2014 2013Compensation and benefits $106.4 $48.7Customer advances 10.7 2.8Deferred revenue 45.2 36.3Taxes, other than income 40.2 13.6Accrued licenses 11.4 19.5Liabilities assumed in business combinations 6.6 26.1Accrued contract costs 13.1 10.2Accrued interest 70.5 22.8Sales incentive 5.8 8.2Accrued rent 3.7 5.7Legal accruals 60.0 31.3WAP jackpot liabilities 14.4 4.6Other 65.9 50.5$453.9 $280.3(14) LeasesAt December 31, 2014, we were obligated under operating leases covering office equipment, office and warehouse space, transponders andtransportation equipment expiring at various dates. Future minimum lease payments required under our operating leases at December 31, 2014 wereapproximately as follows: 2015 2016 2017 2018 2019 ThereafterFuture minimum lease payments $34.8 $25.6 $16.8 $10.3 $6.4 $14.0Total rental expense under these operating leases was $44.5 million, $23.7 million and $22.0 million for the years ended December 31, 2014, 2013and 2012, respectively.Some of our operating leases contain provisions for future rent increases, rent-free periods or periods in which rent payments are reduced. The totalamount of rental payments due over the lease term is being charged to rent expense on the straight-line method over the term of the lease. The differencebetween rent expense recorded and the amount paid is credited or charged to deferred rent obligation, which is included in other current liabilities and otherlong-term liabilities in the accompanying Consolidated Balance Sheets.15) Long-Term and Other DebtOutstanding Debt and Capital LeasesThe following reflects outstanding debt as of December 31, 2014 and 2013:128SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) December 31, 2014 2013Senior Secured Credit Facilities: Revolver, varying interest rate, due 2018 $185.0 $—Term Loan, varying interest rate, due 2020 (1) 2,267.6 2,288.8Term Loan, varying interest rate, due 2022 (2) 1,980.3 —2018 Notes 250.0 250.02019 Notes (3) — 346.32020 Notes 300.0 300.02021 Notes (4) 347.8 —Secured Notes 950.0 —Unsecured Notes 2,200.0 —China Loans, varying interest rate — 7.4Capital lease obligations, 3.9% interest as of December 31, 2014 payable monthlythrough 2019 35.3 0.1Total long-term debt outstanding 8,516.0 3,192.6Less: debt payments due within one year (50.6) (30.4)Long-term debt, net of current installments $8,465.4 $3,162.2_______________________________________________________________________________________________________________________(1)Total of $2,277.0 million face value less amortization of a loan discount in the amount of $9.4 million as of December 31, 2014. Total of $2,300 million face value lessunamortized balance of loan discount in the amount $11.2 million as of December 31, 2013.(2)Total of $2,000.0 million face value less amortization of a loan discount in the amount of $19.7 million as of December 31, 2014.(3)Total of $350.0 million less unamortized balance of a loan discount in the amount of $3.7 million as of December 31, 2013.(4)Total of $350.0 million less unamortized balance of a loan discount in the amount of $2.2 million as of December 31, 2014.The following reflects debt and capital lease payments due over the next five years and beyond as of December 31, 2014: As of December 31, 2014 Total Within1 Year In2 Years In3 Years In4 Years In5 Years After5 YearsRevolver, varying interest rate,due 2018 $185.0 $— $— $— $185.0 $— $—Term Loan, varying interest rate,due 2020 2,277.0 23.0 23.0 23.0 23.0 23.0 2,162.0Term Loan, varying interest rate,due 2022 2,000.0 20.0 20.0 20.0 20.0 20.0 1,900.02018 Notes 250.0 — — — 250.0 — —2020 Notes 300.0 — — — — — 300.02021 Notes 350.0 — — — — — 350.0Secured Notes 950.0 — — — — — 950.0Unsecured Notes 2,200.0 — — — — — 2,200.0Capital lease obligations, 3.9%interest as of December 31, 2014payable monthly through 2019 35.3 7.6 7.9 8.2 8.5 3.1 —Total long-term debtoutstanding $8,547.3 $50.6 $50.9 $51.2 $486.5 $46.1 $7,862.0Unamortized discount (31.3) $8,516.0 129SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Senior Secured Credit FacilitiesThe Company and certain of its subsidiaries are party to a credit agreement dated as of October 18, 2013, by and among SGI, as the borrower, theCompany, as a guarantor, Bank of America, N.A., as administrative agent, and the lenders and other agents party thereto. Prior to the increase in the revolvingcredit facility and the assumption of the incremental term loans referred to below, the credit agreement provided for senior secured credit facilities in anaggregate principal amount of $2,600 million, including a $300.0 million revolving credit facility, which has dollar and multi-currency tranches and a$2,300 million term B-1 loan facility.On October 1, 2014, the Company entered into an amendment to the credit agreement to, among other things, (1) permit the Bally acquisition andthe transactions related thereto and (2) effective as of the consummation of the Bally acquisition, (A) increase the revolving credit facility to $567.6 million,(B) permit SGI to assume the term loans under the Escrow Credit Agreement referred to below as incremental term B-2 loans under the credit agreement and(C) modify the financial covenant contained in the credit agreement such that it will be tested each quarter, irrespective of usage of the revolving creditfacility.On October 1, 2014, Escrow Corp. entered into the Escrow Credit Agreement by and among Escrow Corp., as borrower, the lenders and other agentsfrom time to time party thereto, and Bank of America, N.A., as administrative agent. The Escrow Credit Agreement provided for $2.0 billion of term loans, thenet proceeds of which provided a portion of the funds used to finance the Bally acquisition. Upon the consummation of the Bally acquisition, the term loansunder the Escrow Credit Agreement were assumed by SGI as incremental term B-2 loans under the credit agreement.On February 11, 2015, SGI entered into a lender joinder agreement to the credit agreement with an additional commitment lender. Pursuant to thejoinder agreement, the amount of the revolving credit facility under the credit agreement was increased by $25.0 million to $592.6 million. Up to $350.0million of the revolving credit facility is available for issuances of letters of credit.The term B-1 loans incurred in 2013 under the credit agreement are scheduled to mature on October 18, 2020, the term B-2 loans incurred in 2014under the credit agreement are scheduled to mature on October 1, 2021 and the revolving credit facility under the credit agreement is scheduled to mature onOctober 18, 2018 (subject to accelerated maturity depending on our liquidity at the time our 2018 Notes, 2020 Notes and 2021 Notes become due).The term B-1 loans and the term B-2 loans under the credit agreement amortize in equal quarterly installments in an amount equal to 1.00% perannum of the stated principal amount thereof, with the remaining balance due at final maturity.Interest on the term B-1 loans and the term B-2 loans is payable under the credit agreement at a rate equal to the eurodollar (LIBOR) rate or the baserate, plus an applicable margin, in each case, subject to a eurodollar (LIBOR) rate floor of 1.00% or a base rate floor of 2.00% as applicable. The applicablemargin for the term B-1 loans and the term B-2 loans is 5.00% per annum for eurodollar (LIBOR) loans and 4.00% per annum for base rate loans. The initialapplicable margin on eurodollar (LIBOR) rate borrowings under the revolving credit facility under the credit agreement is 3.000% per annum and may bereduced by 0.25% or 0.50% based on step downs tied to our net first lien leverage ratio.SGI is required to pay commitment fees to revolving lenders on the actual daily unused portion of the revolving commitments at a rate of 0.50% perannum through maturity, subject to a step-down to 0.375% based upon the achievement of certain net first lien leverage ratios. SGI may voluntarily prepayall or any portion of outstanding amounts under the credit facilities at any time, in whole or in part, without premium or penalty, subject to (1) redeploymentcosts in the case of a prepayment of eurocurrency loans on a day that is not the last day of the relevant interest period and (2) a 1.00% prepayment premiumon any prepaid term loans in connection with a repricing transaction occurring prior to November 21, 2015.The credit agreement contains certain negative covenants that, among other things and subject to certain exceptions, restrict the Company’s and itsrestricted subsidiaries’ ability to incur additional debt or guarantees, grant liens on assets, make acquisitions or other investments, dispose of assets, prepayjunior indebtedness or modify certain debt instruments, pay dividends or other payments on capital stock, consolidate or merge, enter into arrangements thatrestrict the ability to pay dividends, transfer assets or grant liens, enter into sale and leaseback transactions, enter into or consummate transactions withaffiliates, or change fiscal year. The credit agreement contains customary events of default (subject to customary grace periods and materiality thresholds).Upon the occurrence of certain events of default, the obligations under the credit facilities may be accelerated and the commitments may be terminated.130SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Borrowings under the credit agreement are guaranteed by the Company and each of its current and future direct and indirect wholly owned domesticsubsidiaries (other than SGI), subject to certain customary exceptions as set forth in the credit agreement. The obligations under the credit agreement aresecured by a first priority lien on (1) substantially all the property and assets (real and personal, tangible and intangible) of SGI, the Company and the otherguarantors and (2) 100% of the capital stock (or other equity interests) of all of the Company’s direct and indirect wholly owned domestic subsidiaries and65% of the capital stock (or other equity interests) of the direct foreign subsidiaries of SGI and the guarantors, in each case, subject to certain customaryexceptions.In connection with the issuance of the Senior Secured Credit Facilities in 2014, the Company capitalized $74.3 million of financing fees and $20.0million of original issuance discount. In addition, in 2014 we expensed $64.7 million of debt financing fees related to commitment fees related to the Ballyacquisition, which were included as interest expense in our Consolidated Statements of Operations and Comprehensive Loss.Subordinated Notes2018 NotesThe 2018 Notes issued by the Company bear interest at the rate of 8.125% per annum, which is payable semiannually in arrears on March 15 andSeptember 15 of each year. The 2018 Notes mature on September 15, 2018, unless earlier redeemed or repurchased by the Company, and are subject to theterms and conditions set forth in the indenture governing the 2018 Notes dated as of September 22, 2010 (the "2018 Notes Indenture"). The Company mayredeem some or all of the 2018 Notes for cash at any time at the prices specified in the 2018 Notes Indenture.Upon the occurrence of a change of control (as defined in the 2018 Notes Indenture), the Company must make an offer to purchase the 2018 Notes ata purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. In addition, following anasset sale (as defined in the 2018 Notes Indenture) and subject to the limitations contained in the 2018 Notes Indenture, the Company must make an offer topurchase certain amounts of the 2018 Notes using the net cash proceeds from such asset sale to the extent such proceeds are not applied as set forth in the2018 Notes Indenture, at a purchase price equal to 100% of the principal amount of the 2018 Notes to be repurchased, plus accrued interest to the date ofrepurchase.The 2018 Notes are unsecured senior subordinated obligations of the Company and are subordinated to all of the Company's existing and futuresenior debt, rank equally with all of the Company's future senior subordinated debt and rank senior to all of the Company's future debt that is expresslysubordinated to the 2018 Notes. The 2018 Notes are guaranteed on an unsecured senior subordinated basis by all of the Company's wholly-owned U.S.subsidiaries (including SGI). The 2018 Notes are structurally subordinated to all of the liabilities of our non-guarantor subsidiaries.The 2018 Notes Indenture contains certain covenants that, among other things, limit the Company's ability, and the ability of certain of itssubsidiaries, to incur additional indebtedness, pay dividends or make distributions or certain other restricted payments, purchase or redeem capital stock,make investments or extend credit, engage in certain transactions with affiliates, engage in sale-leaseback transactions, consummate certain assets sales, effecta consolidation or merger, or sell, transfer, lease or otherwise dispose of all or substantially all assets, or create certain liens and other encumbrances on assets.The 2018 Notes Indenture contains events of default customary for agreements of its type (with customary grace periods, as applicable).2020 NotesThe 2020 Notes issued by SGI bear interest at the rate of 6.250% per annum, which is payable semiannually in arrears on March 1 and September 1of each year. The 2020 Notes mature on September 1, 2020, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in theindenture governing the 2020 Notes dated as of August 20, 2012 (the "2020 Notes Indenture").SGI may redeem some or all of the 2020 Notes at any time prior to September 1, 2015 at a price equal to 100% of the principal amount of the 2020Notes plus accrued and unpaid interest, if any, to the date of redemption plus a ''make-whole'' premium. SGI may redeem some or all of the 2020 Notes at anytime on or after September 1, 2015 at the prices specified in the 2020 Notes Indenture.Upon the occurrence of a change of control (as defined in the 2020 Notes Indenture), SGI must make an offer to purchase the 2020 Notes at apurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. In addition, following anasset sale (as defined in the 2020 Notes Indenture) and subject to the131SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)limitations contained in the 2020 Notes Indenture, SGI must make an offer to purchase certain amounts of the 2020 Notes using the net cash proceeds fromsuch asset sale to the extent such proceeds are not applied as set forth in the 2020 Notes Indenture, at a purchase price equal to 100% of the principal amountof the 2020 Notes to be repurchased, plus accrued interest to the date of repurchase.The 2020 Notes are unsecured senior subordinated obligations of SGI and are subordinated to all of SGI's existing and future senior debt, rankequally with all of SGI's existing and future senior subordinated debt and rank senior to all of SGI's future debt that is expressly subordinated to the 2020Notes. The 2020 Notes are guaranteed on an unsecured senior subordinated basis by the Company and all of its wholly owned U.S. subsidiaries (other thanSGI). The 2020 Notes are structurally subordinated to all of the liabilities of the Company’s non-guarantor subsidiaries.The 2020 Notes Indenture contains certain covenants that, among other things, limit the Company's ability, and the ability of certain of itssubsidiaries, including SGI, to incur additional indebtedness, pay dividends or make distributions or certain other restricted payments, purchase or redeemcapital stock, make investments or extend credit, engage in certain transactions with affiliates, engage in sale-leaseback transactions, consummate certainassets sales, effect a consolidation or merger, or sell, transfer, lease or otherwise dispose of all or substantially all assets, or create certain liens and otherencumbrances on assets. The 2020 Notes Indenture contains events of default customary for agreements of its type (with customary grace periods, asapplicable).2021 NotesOn June 4, 2014, SGI issued $350.0 million in aggregate principal amount of 2021 Notes at a price of 99.321% of the principal amount thereof in aprivate offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and topersons outside the United States under Regulation S under the Securities Act. The 2021 Notes were issued pursuant to an indenture dated as of June 4, 2014(the "2021 Notes Indenture").The 2021 Notes bear interest at the rate of 6.625% per annum, which accrues from June 4, 2014 and is payable semiannually in arrears on May 15and November 15 of each year. The 2021 Notes mature on May 15, 2021, unless earlier redeemed or repurchased, and are subject to the terms and conditionsset forth in the 2021 Notes Indenture. In connection with the issuance of the 2021 Notes, the Company capitalized financing costs of $7.3 million.SGI may redeem some or all of the 2021 Notes at any time prior to May 15, 2017 at a redemption price equal to 100% of the principal amount of the2021 Notes plus accrued and unpaid interest, if any, to the date of redemption plus a "make whole" premium. SGI may redeem some or all of the 2021 Notesat any time on or after May 15, 2017 at the prices specified in the 2021 Notes Indenture.Upon the occurrence of a change of control (as defined in the 2021 Notes Indenture), SGI must make an offer to purchase the 2021 Notes at apurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. In addition, following anasset sale (as defined in the 2021 Notes Indenture) and subject to the limitations contained in the 2021 Notes Indenture, SGI must make an offer to purchasecertain amounts of the 2021 Notes using the net cash proceeds from such asset sale to the extent such proceeds are not applied as set forth in the 2021 NotesIndenture, at a purchase price equal to 100% of the principal amount of the 2021 Notes to be repurchased, plus accrued interest to the date of repurchase.The 2021 Notes are unsecured senior subordinated obligations of SGI and are subordinated to all of SGI’s existing and future senior debt, rankequally with all of SGI's existing and future senior subordinated debt and rank senior to all of SGI's future debt that is expressly subordinated to the 2021Notes. The 2021 Notes are guaranteed on an unsecured senior subordinated basis by the Company and all of its wholly owned U.S. subsidiaries (other thanSGI). The 2021 Notes are structurally subordinated to all of the liabilities of the Company’s non-guarantor subsidiaries.The 2021 Notes Indenture contains certain covenants that, among other things, limit the Company’s ability, and the ability of certain of itssubsidiaries, including SGI, to incur additional indebtedness, pay dividends or make distributions or certain other restricted payments, purchase or redeemcapital stock, make investments or extend credit, engage in certain transactions with affiliates, consummate certain asset sales, effect a consolidation ormerger, or sell, transfer, lease or otherwise dispose of all or substantially all assets, or create certain liens and other encumbrances on assets. The 2021 NotesIndenture contains events of default customary for agreements of its type (with customary grace periods and maturity thresholds, as applicable).132SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)In connection with the issuance of the 2021 Notes, SGI, the Company, the subsidiary guarantors party thereto, and Merrill Lynch, Pierce, Fenner &Smith Incorporated, as representative for the initial purchasers listed therein, entered into a registration rights agreement, dated June 4, 2014 (the "2021 NotesRegistration Rights Agreement"). Under the 2021 Notes Registration Rights Agreement, SGI and the guarantors agreed, for the benefit of the holders of the2021 Notes, that they will file with the SEC, and use their commercially reasonable efforts to cause to become effective, a registration statement relating to anoffer to exchange the 2021 Notes for an issue of SEC-registered notes (the "2021 Exchange Notes") with terms identical to the 2021 Notes (except that the2021 Exchange Notes will not be subject to restrictions on transfer or to any increase in annual interest rate as described below).Under certain circumstances, including if applicable interpretations of the staff of the SEC do not permit SGI to effect the exchange offer, SGI andthe guarantors will use their commercially reasonable efforts to cause to become effective a shelf registration statement relating to resales of the 2021 Notesand to keep that shelf registration statement effective until the first anniversary of the date such shelf registration statement becomes effective, or such shorterperiod that will terminate when all 2021 Notes covered by the shelf registration statement have been sold. The obligation to complete the exchange offerand/or file a shelf registration statement will terminate on the second anniversary of the date of the 2021 Notes Registration Rights Agreement.If the exchange offer is not completed (or, if required, the shelf registration statement is not declared effective) on or before June 4, 2015 (subject tothe right of the Company to extend such date by up to 90 additional days under customary "blackout" provisions if the Company determines in good faiththat it is in possession of material, non-public information), the annual interest rate borne by the 2021 Notes will be increased by 0.25% per annum for thefirst 90-day period immediately following such date and by an additional 0.25% per annum with respect to each subsequent 90-day period, up to a maximumadditional rate of 1.00% per annum thereafter until the exchange offer is completed, the shelf registration statement is declared effective or the obligation tocomplete the exchange offer and/or file the shelf registration statement terminates, at which time the interest rate will revert to the original interest rate on thedate the 2021 Notes were originally issued.2019 NotesOn June 4, 2014, SGI completed a tender offer pursuant to which it purchased $140.6 million in aggregate principal amount of the 2019 Notes fortotal consideration of $1,051.25 for each $1,000.0 principal amount of the 2019 Notes tendered, plus accrued and unpaid interest to the redemption date.On June 4, 2014, SGI delivered a notice of redemption with respect to all $209.4 million of the remaining outstanding principal amount of the 2019Notes, and satisfied and discharged the indenture governing the 2019 Notes by depositing funds with the trustee sufficient to pay the redemption price of104.625% of the principal amount of the 2019 Notes, plus accrued and unpaid interest to the redemption date. In accordance with the notice of redemption,the 2019 Notes were redeemed on July 4, 2014 and the redemption payment was made on July 7, 2014.The purchase and redemption of the 2019 Notes were funded, in part, with the net proceeds from the issuance of the 2021 Notes. In connection withthe purchase and redemption of the 2019 Notes, we recorded a loss on early extinguishment of debt of $25.9 million comprised primarily of the tender andredemption premiums and the write-off of previously deferred financing costs.Senior NotesUnsecured NotesIn connection with the Bally acquisition, on November 21, 2014, Escrow Corp. issued $2,200.0 million in aggregate principal amount of theUnsecured Notes in a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside theUnited States under Regulation S under the Securities Act. The Unsecured Notes were issued pursuant to the Unsecured Notes Indenture. Promptly followingconsummation of the Bally acquisition, Escrow Corp. merged with and into SGI, with SGI continuing as the surviving corporation, and SGI assumed theobligations of Escrow Corp. under the Unsecured Notes and the Unsecured Notes Indenture.The Unsecured Notes bear interest at the rate of 10.00% per annum, which accrues from November 21, 2014 and is payable semiannually in arrearson June 1 and December 1 of each year, beginning on June 1, 2015. The Unsecured Notes mature on December 1, 2022, unless earlier redeemed orrepurchased, and are subject to the terms and conditions set forth in the Unsecured Notes Indenture. In connection with the issuance of the Unsecured Notes,the Company capitalized financing costs of $48.9 million.133SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)SGI may redeem some or all of the Unsecured Notes at any time prior to December 1, 2018 at a redemption price equal to 100% of the principalamount of the Unsecured Notes plus accrued and unpaid interest, if any, to the date of redemption plus a "make whole" premium. SGI may redeem some or allof the Unsecured Notes at any time on or after December 1, 2018 at the prices specified in the Unsecured Notes Indenture.Upon the occurrence of a change of control (as defined in the Unsecured Notes Indenture), SGI must make an offer to purchase the Unsecured Notesat a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. In addition, following anasset sale (as defined in the Unsecured Notes Indenture) and subject to the limitations contained in the Unsecured Notes Indenture, SGI must make an offer topurchase certain amounts of the Unsecured Notes using the net cash proceeds from such asset sale to the extent such proceeds are not applied as set forth inthe Unsecured Notes Indenture, at a purchase price equal to 100% of the principal amount of the Unsecured Notes to be repurchased, plus accrued interest tothe date of repurchase.The Unsecured Notes are senior unsecured obligations of SGI and rank equally to all of SGI’s existing and future senior debt and rank senior to all ofSGI's existing and future senior subordinated debt. The Unsecured Notes are guaranteed on a senior unsecured basis by the Company and all of its whollyowned U.S. subsidiaries (other than SGI). The Unsecured Notes are structurally subordinated to all of the liabilities of the Company’s non-guarantorsubsidiaries.The Unsecured Notes Indenture contains certain covenants that, among other things, limit the Company’s ability, and the ability of certain of itssubsidiaries, including SGI, to incur additional indebtedness, pay dividends or make distributions or certain other restricted payments, purchase or redeemcapital stock, make investments or extend credit, engage in certain transactions with affiliates, consummate certain asset sales, effect a consolidation ormerger, or sell, transfer, lease or otherwise dispose of all or substantially all assets, or create certain liens and other encumbrances on assets. The UnsecuredNotes Indenture contains events of default customary for agreements of its type (with customary grace periods and maturity thresholds, as applicable).In connection with the issuance of the Unsecured Notes, SGI, the Company, the subsidiary guarantors party thereto, and J.P. Morgan Securities LLC,Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., as representatives for the initial purchasers listed therein, entered intoa registration rights agreement, dated November 21, 2014 (the "Unsecured Notes Registration Rights Agreement"). Under the Unsecured Notes RegistrationRights Agreement, SGI and the guarantors agreed, for the benefit of the holders of the Unsecured Notes, that they will file with the SEC and use theircommercially reasonable efforts to cause to become effective, a registration statement relating to an offer to exchange the Unsecured Notes for an issue ofSEC-registered notes (the "Exchange Unsecured Notes") with terms identical to the Unsecured Notes (except that the Exchange Unsecured Notes will not besubject to restrictions on transfer or to any increase in annual interest rate as described below).Under certain circumstances, including if applicable interpretations of the staff of the SEC do not permit SGI to effect the exchange offer, SGI andthe guarantors will use their commercially reasonable efforts to cause to become effective a shelf registration statement relating to resales of the UnsecuredNotes and to keep that shelf registration statement effective until the first anniversary of the date such shelf registration statement becomes effective, or suchshorter period that will terminate when all Unsecured Notes covered by the shelf registration statement have been sold. The obligation to complete theexchange offer and/or file a shelf registration statement will terminate on the second anniversary of the date of the Unsecured Notes Registration RightsAgreement.If the exchange offer is not completed (or, if required, the shelf registration statement is not declared effective) on or before February 12, 2016(subject to the right of the Company to extend such date by up to 90 additional days under customary "blackout" provisions if the Company determines ingood faith that it is in possession of material, non-public information), the annual interest rate borne by the Unsecured Notes will be increased by 0.25% perannum for the first 90-day period immediately following such date and by an additional 0.25% per annum with respect to each subsequent 90-day period, upto a maximum additional rate of 1.00% per annum thereafter until the exchange offer is completed, the shelf registration statement is declared effective or theobligation to complete the exchange offer and/or file the shelf registration statement terminates, at which time the interest rate will revert to the originalinterest rate on the date the Unsecured Notes were originally issued.Secured NotesIn connection with the Bally acquisition, on November 21, 2014, Escrow Corp. issued $950.0 million in aggregate principal amount of the SecuredNotes in a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United Statesunder Regulation S under the Securities Act. The Secured Notes were issued pursuant to the Secured Notes Indenture. Promptly following consummation ofthe Bally acquisition, Escrow134SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Corp. merged with and into SGI, with SGI continuing as the surviving corporation, and SGI assumed the obligations of Escrow Corp. under the Secured Notesand the Secured Notes Indenture.The Secured Notes bear interest at the rate of 7.00% per annum, which accrues from November 21, 2014 and is payable semiannually in arrears onJanuary 1 and July 1 of each year, beginning on July 1, 2015. The Secured Notes mature on January 1, 2022, unless earlier redeemed or repurchased, and aresubject to the terms and conditions set forth in the Secured Notes Indenture. In connection with the issuance of the Secured Notes, the Company capitalizedfinancing costs of $19.5 million.SGI may redeem some or all of the Secured Notes at any time prior to January 1, 2018 at a redemption price equal to 100% of the principal amount ofthe Secured Notes plus accrued and unpaid interest, if any, to the date of redemption plus a "make whole" premium. SGI may redeem some or all of theSecured Notes at any time on or after January 1, 2018 at the prices specified in the Secured Notes Indenture.Upon the occurrence of a change of control (as defined in the Secured Notes Indenture), SGI must make an offer to purchase the Secured Notes at apurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. In addition, following anasset sale (as defined in the Secured Notes Indenture) and subject to the limitations contained in the Secured Notes Indenture, SGI must make an offer topurchase certain amounts of the Secured Notes using the net cash proceeds from such asset sale to the extent such proceeds are not applied as set forth in theSecured Notes Indenture, at a purchase price equal to 100% of the principal amount of the Secured Notes to be repurchased, plus accrued interest to the dateof repurchase.The Secured Notes are senior secured obligations of SGI, equally and ratably secured with SGI’s obligations under the credit agreement. The SecuredNotes rank equally to all of SGI’s existing and future senior debt and rank senior to all of SGI's existing and future senior subordinated debt. The SecuredNotes are guaranteed on a senior secured basis by the Company and all of its wholly-owned U.S. subsidiaries (other than SGI). The Secured Notes arestructurally subordinated to all of the liabilities of the Company’s non-guarantor subsidiaries. The Secured Notes Indenture contains certain covenants that, among other things, limit the Company’s ability, and the ability of certain of itssubsidiaries, including SGI, to incur additional indebtedness, pay dividends or make distributions or certain other restricted payments, purchase or redeemcapital stock, make investments or extend credit, engage in certain transactions with affiliates, consummate certain asset sales, effect a consolidation ormerger, or sell, transfer, lease or otherwise dispose of all or substantially all assets, or create certain liens and other encumbrances on assets. The Secured NotesIndenture contains events of default customary for agreements of its type (with customary grace periods and maturity thresholds, as applicable).Covenant Compliance We were in compliance with the covenants under our debt agreements as of December 31, 2014.Other DebtDuring 2014, we repaid in full our $7.4 million China Loan with cash on hand.Capital LeasesOn March 31, 2014, we entered into a new leasing arrangement with ITL for the lease of gaming machines in connection with a long-term servicescontract with a customer. We completed the placement of the new gaming machines under this contract during the three months ended June 30, 2014 andrecorded a capital lease asset and minimum lease liability of $42.8 million. The terms of this leasing arrangement provide for repayment over five years withan interest rate of 3.9%. No additional capital leases were entered into during the year and our remaining capital lease obligation at December 31, 2014 was$35.3 million.(16) Fair Value MeasurementsFair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset and liability in an orderly transaction between market participants at the measurement date. The Company estimates thefair value of its assets and liabilities utilizing an established three-level hierarchy. The hierarchy is based upon the transparency of inputs to the valuation ofan asset or liability as of the measurement date as follows:135SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)Level 1. Quoted prices in active markets for identical assets or liabilities.Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficientvolume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derivedprincipally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include non-bindingmarket consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.Level 3. Unobservable inputs to the valuation methodology, which are significant to the measurement of the fair value of assets or liabilities. Level 3inputs also include non-binding market consensus prices or non-binding broker quotes that are unable to be corroborated with observable market data.The fair value of our financial assets and liabilities is determined by reference to market data and other valuation techniques as appropriate. We believethe fair value of our financial instruments, which are principally cash and cash equivalents, accounts receivable, other current assets, accounts payable andaccrued liabilities, approximates their recorded values. Our assets and liabilities measured at fair value on a recurring basis are described below.Interest rate swaption contractIn January 2014, we entered into a swaption contract with an aggregate notional value of $150.0 million. The swaption gives us the right, but notthe obligation, to enter into a swap under which we would pay a fixed rate of 2.151% and receive interest on the notional amount based on a floating three-month LIBOR rate. We paid a premium of $0.9 million at the time we entered into the swaption and have no additional payment obligations. The cashsettlement value depends on the extent to which the prevailing three-month LIBOR swap rate exceeds the fixed rate under the swaption. To the extent theprevailing swap rate on the expiration date (April 15, 2015) exceeds the swaption fixed rate a payment would be due to us, which would effectively reduceour future interest costs. To the extent the prevailing swap rate is at or below the swaption fixed rate, we would not exercise the swaption and it would expirewith no further cash payment from us or the counterparty.The swaption is highly effective in offsetting our exposure to the variability of the three-month LIBOR rate associated with our variable rate debt.The effectiveness of the swaption is measured quarterly on a retrospective basis by comparing the cumulative change in the hedging instrument's fair value tothe change in the underlying hedged transaction's fair value. In accordance with ASC 815, Derivatives and Hedging (“ASC 815”), we have designated theintrinsic value associated with the swaption as a qualifying hedge. We have elected to exclude the time value, inclusive of premium paid, from our qualifyinghedging relationship. As a result, the time value of the swaption will be amortized over the period of the contract and recognized as interest expense in ourConsolidated Statements of Operations and Comprehensive Loss. We will recognize all gains and losses associated with the intrinsic value of the swaption inother comprehensive income (loss) in our Consolidated Statements of Operations and Comprehensive Loss until its expiration date. Realized gains, if any,owed by the counterparty at expiration will be recognized as a reduction to interest expense in our Consolidated Statements of Operations andComprehensive Loss by applying the effective interest method for the applicable periods.As valuations for comparable swaptions are not publicly available, we categorized the swaption as Level 3 in the fair value hierarchy. We believethe estimated fair value for the swaption we hold is based on the most accurate information available for these types of derivative contracts. For the yearended December 31, 2014, there was no change in fair value associated with the intrinsic value of the swaption. The fair value of the swaption as of December31, 2014 was $0.2 million, which is recorded in other current assets in our Consolidated Balance Sheets.Interest rate swap contractsIn August 2013, we entered into forward starting interest rate swap contracts with an aggregate notional value of $500.0 million. In October 2013,we entered into additional forward starting interest rate swap contracts with an aggregate notional value of $200.0 million. These hedges become effective inApril 2015 and mature in January 2018. We entered into the forward starting interest rate swap contracts, which are designated as cash flow hedges of thefuture interest payment transactions in accordance with ASC 815, in order to eliminate the variability of cash flows attributable to the LIBOR component ofinterest expense to be paid on our variable rate debt. Under these hedges, we will pay interest on the notional amount of debt at a weighted-average fixed rateof 2.151% and receive interest on the notional amount at the greater of 1% or the then prevailing three-month LIBOR rate beginning in April 2015.These hedges are highly effective in offsetting changes in our future expected cash flows due to fluctuation in the three-month LIBOR rateassociated with our variable rate debt. The effectiveness of these hedges is measured quarterly on a136SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)retrospective basis by comparing the cumulative change in the hedging instrument's fair value to the change in the hedged transaction's fair value. To theextent these hedges have no ineffectiveness, all gains and losses from these hedges are recorded in other comprehensive income (loss) until the futureunderlying interest payment transactions occur. Any realized gains or losses resulting from the hedges will be recognized (together with the hedgedtransaction) as interest expense in our Consolidated Statements of Operations and Comprehensive Loss beginning in June 2015. For the years endedDecember 31, 2014 and 2013, we recorded a loss, net of tax, representing the change in fair value associated with these hedges of $5.0 million and $1.0million, respectively, in other comprehensive income (loss) in our Consolidated Statements of Operations and Comprehensive Loss. The fair value of thesehedges as of December 31, 2014 was $9.5 million recorded in other long-term liabilities in our Consolidated Balance Sheets. The fair value of these hedges asof December 31, 2013 was $0.4 million recorded in other assets and $1.9 million recorded in other long-term liabilities in our Consolidated Balance Sheets.Foreign currency forward contractsDuring 2012, we entered into foreign currency forward contracts for the sale of Euros for U.S. dollars at a weighted-average rate of 1.319 to hedge aportion of the net investment in one of our subsidiaries that is denominated in Euros. Some of these foreign currency forward contracts settled in 2012. InMay 2013, we settled the remaining €20.0 million in aggregate notional amount of the foreign currency forward contracts, which had a weighted-average rateof 1.269%.We designated the forward contracts as qualified hedges in accordance with ASC 815. Gains and losses from the foreign currency forward contractswere recorded in other comprehensive income (loss) in our Consolidated Balance Sheets until the investment is liquidated.OtherIn accordance with ASC 323, we record our share of a derivative instrument held by LNS, an entity in which we have a 20% equity investment.Changes in the fair value of the derivative instrument are recorded by LNS in other comprehensive income in LNS's statement of comprehensive income. Asof December 31, 2014 and 2013, we recorded a loss associated with our share of this derivative instrument of $0.5 million and $0.1 million, respectively, inother comprehensive income (loss) in our Consolidated Statements of Operations and Comprehensive Loss and in equity investments in our ConsolidatedBalance Sheet.Notes ReceivableThe fair value of notes receivable is estimated by discounting expected future cash flows using current interest rates at which similar loans would bemade to borrowers with similar credit ratings and remaining maturities. At December 31, 2014 and 2013, the fair value of the notes receivable, net,approximated the carrying value.DebtWe believe that the fair value of our fixed interest rate debt approximated $3,652.3 million and $963.0 million as of December 31, 2014 and 2013,respectively, based on quoted market prices for our securities. We believe that the fair value of our variable interest rate debt approximated $4,378.2 millionas of December 31, 2014, based on quoted market prices for our securities. We believe that the fair value of our variable interest rate debt as of December 31,2013 approximated its carrying value, based on quoted market prices for our securities.Assets and Liabilities Measured at Fair Value on a Non-recurring BasisSet forth below are the classes of assets and liabilities measured at fair value on a non-recurring basis at December 31, 2014:137SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) Level 1 Level 2 Level 3 Total atDecember 31,2014 TotalLoss ValuationTechnique Weighted-AverageDiscount Rate Property and Equipment -Maryland contract $— $— $6.4 $3.3 $(3.1) Discounted CashFlow 9% Property and Equipment -Waukegan facility $— $— $30.5 $21.1 $(9.4) Market Approach n/a Equity Investment in NorthstarIllinois $— $— $19.7 $— $(19.7) Discounted CashFlow n/a Intangibles - Trade Names $— $— $57.0 $51.0 $(6.0) Royalty SavingsMethod 8.5% In accordance with ASC 360, Property, Plant, and Equipment ("ASC 360"), machinery, equipment and deferred installation costs with a carryingamount of $6.4 million were written down to a fair value of $3.3 million, resulting in an impairment charge of $3.1 million, which is included in D&A in ourConsolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2014.In accordance with ASC 360, property costs with a carrying amount of $30.5 million were written down to a fair value of $21.1 million, resulting inan impairment charge of $9.4 million, which is included in D&A in our Consolidated Statements of Operations and Comprehensive Loss for the year endedDecember 31, 2014. During the third quarter of 2014, we concluded that indicators of impairment were present related to our investment in Northstar Illinois as weunderstand that the Governor’s office of the State of Illinois directed the Illinois Department of Lottery to end the PMA with Northstar Illinois. We recordedan impairment charge of $19.7 million in the third quarter of 2014, which is reflected in earnings (loss) from equity investments in our ConsolidatedStatements of Operations and Comprehensive Loss.In accordance with ASC 350, we assess the recoverability of our intangible assets with indefinite useful lives whenever events or changes incircumstances indicate that the carrying value of the asset may not be recoverable. Trade names with a carrying amount of $57.0 million were written down toa fair value of $51.0 million, resulting in an impairment charge of $6.0 million, which is included in D&A in our Consolidated Statements of Operations andComprehensive Loss for the year ended December 31, 2014.Set forth below are the classes of assets and liabilities measured at fair value on a non-recurring basis at December 31, 2013: Level 1 Level 2 Level 3 Total atDecember31, 2013 TotalLoss ValuationTechnique Weighted-AverageDiscount Rate Property and Equipment $— $— $10.0 $7.5 $(2.5) Discounted CashFlow 9% Equity Investment in GLB $— $— $38.3 $31.9 $(6.4) Discounted CashFlow/MarketApproach 10%138SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)In accordance with ASC 360, machinery, equipment and deferred installation costs with a carrying amount of $10.0 million were written down to afair value of $7.5 million, resulting in an impairment charge of $2.5 million, which is included in D&A in our Consolidated Statements of Operations andComprehensive Loss for the year ended December 31, 2013.During the fourth quarter of 2013, we concluded that indicators of potential impairment were present related to our investment in GLB based oncontinued declines in the operating performance and future projections of its business. To measure the recoverability of the investment, we estimated the fairvalue of the investment using both a discounted cash flow analysis and a market approach. Based on our valuation, we determined the decline in fair value ofour investment in GLB to be other than temporary and that the carrying value of the investment in GLB exceeded its fair value by $6.4 million. We recordedan impairment charge of $6.4 million in the fourth quarter of 2013, which is reflected in earnings (loss) from equity investments in our ConsolidatedStatements of Operations and Comprehensive Loss.There were no other assets or liabilities that were measured at fair value on a non-recurring basis as of December 31, 2014.(17) Stockholders' EquityThe following table sets forth the change in the number of shares of Class A common stock outstanding during the fiscal years ended December 31,2014 and 2013: December 31, 2014 2013Shares outstanding as of beginning of period 85.2 84.4Shares issued as part of equity-based compensation plans and the ESPP, net of shares surrendered 1.9 1.1Shares repurchased into treasury stock (2.0) (0.3)Shares outstanding as of end of period 85.1 85.2Treasury StockIn December 2014, our existing stock repurchase program, which was originally announced in May 2010, expired and was not renewed. Under theprogram, we were authorized to repurchase, from time to time through open market purchases or otherwise, shares of our outstanding common stock in anaggregate amount up $200.0 million. During the first quarter of 2014, we repurchased 2.0 million shares at an aggregate cost of $29.5 million. Purchasesmade during 2014 were funded by cash flows from operations, borrowings or a combination thereof. As of the program’s expiration on December 31, 2014,we had $75.0 million remaining available for potential repurchases under the program which expired.During 2013, we repurchased approximately 0.1 million shares under the repurchase program at an aggregate cost of $0.8 million. As ofDecember 31, 2013, we had $104.5 million available for potential repurchases under the program. Purchases made during 2013 were funded by cash flowsfrom operations, borrowings, or a combination thereof.(18) Stock-Based and Other Incentive CompensationWe offer stock-based compensation through the use of stock options and RSUs. We also offer an ESPP.We grant stock options to employees and directors under our equity-based compensation plans with exercise prices that are not less than the fairmarket value of our common stock on the date of grant. The terms of the stock option and RSU awards, including the vesting schedule of such awards, aredetermined at our discretion subject to the terms of the applicable equity-based compensation plan. Options granted over the last several years have generallybecome exercisable in four or five equal installments beginning on the first anniversary of the date of grant with a maximum term of ten years or when certainperformance targets are determined to have been met. RSUs typically vest in four or five equal installments beginning on the first anniversary of the date ofgrant or when certain performance targets are determined to have been met. We record compensation cost for all stock options and RSUs based on the fairvalue at the grant date.Our ESPP allows for a total of up to 1.0 million shares of Class A common stock to be purchased by eligible employees under offerings made eachJanuary 1 and July 1. Employees participate through payroll deductions up to a maximum of 15% of eligible compensation. The term of each offering periodis six months and shares are purchased on the last day of the offering period at a 15% discount to the stock's market value. For offering periods in 2014, 2013and 2012, we issued a total of 170 thousand, 58 thousand and 85 thousand shares, respectively, of common stock at an average price of $10.01,139SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)$11.62 and $7.32 per share, respectively. As of December 31, 2014, we had approximately 128 thousand shares of the 1.0 million authorized shares ofcommon stock available to be granted under the ESPP.The Company may grant certain awards the vesting of which is contingent upon the Company achieving certain performance targets. Upondetermining that the performance target is probable, the fair value of the award is recognized over the service period, subject to potential adjustment.When we acquired WMS in October 2013, we assumed the WMS Incentive Plan, renaming it the Scientific Games Corporation Incentive Plan (2013Restatement) (the "Legacy WMS Plan"). WMS stockholders had approved the Legacy WMS Plan and the number of shares reserved for issuance thereunder.As contemplated by our merger agreement with WMS, most WMS equity awards outstanding at the time of the WMS acquisition were settled by payment ofcash, but certain of the more recently granted WMS awards were assumed and adjusted (using a customary exchange ratio based on the stock prices of WMSand the Company at the time of the acquisition) to become awards relating to our common stock. In addition, as permitted by applicable stock exchangerules, at the time of the acquisition (after applying the customary exchange ratio), we assumed shares available for equity awards under the WMS Legacy Planthat totaled (after adjustment using the customary exchange ratio) approximately 5.6 million shares of our common stock.At our annual meeting of stockholders on June 11, 2014, our stockholders approved an amendment and restatement of the Company’s 2003Incentive Compensation Plan (the "2003 Plan"). Under the amended and restated 2003 Plan, the Legacy WMS Plan was merged into the 2003 Plan. As aresult, the shares reserved and available under the two plans were combined into a single share pool, with such shares available for equity awards to anyemployee, non-employee director or other eligible service provider of the Company or its subsidiaries, including WMS. In order to account for a sharecounting rule under the Legacy WMS Plan under which each share delivered in settlement of a “full-value” award (e.g., an RSU) was counted as 1.8 sharesagainst the shares reserved under the Legacy WMS Plan, only 55.55% of the shares that nominally would be available for future grants under the LegacyWMS Plan were included in the combined share pool in the merger of the two plans.As a result of merging the Legacy WMS Plan and the Legacy Bally Plan into the 2003 Plan, as of December 31, 2014, we had approximately 21.3million shares of common stock authorized for awards under the 2003 Plan (plus available shares from a pre-existing equity-based compensation plan). As ofDecember 31, 2014, we had approximately 8.9 million shares available for grants of equity awards to our employees under our amended and restated 2003Plan plus available shares from the pre-existing equity-based compensation plans (excluding 0.1 million shares available under our ESPP). We haveoutstanding stock options granted as part of inducement stock option awards that were not approved by our stockholders, as permitted by applicable stockexchange rules.Under the share counting rules of the 2003 Plan, awards may be outstanding relating to a greater number of shares than the aggregate remainingavailable under our 2003 Plan so long as awards will not result in delivery and vesting of shares in excess of the number then available under the plan. Shares available for future issuance do not include shares expected to be withheld in connection with outstanding awards to satisfy tax withholdingobligations, which may be deemed to be available for awards under the 2003 Plan as permitted under the applicable share counting rules. Stock OptionsA summary of the changes in stock options outstanding under our equity-based compensation plans during 2014 is presented below: Number ofOptions WeightedAverageRemainingContractTerm (Years) WeightedAverageExercisePrice AggregateIntrinsicValueOptions outstanding as of December 31, 2013 2.6 4.2 $10.46 $17.8Granted 0.6 $13.98 —Exercised (0.2) $9.11 $0.6Cancelled (1.4) $10.86 —Options outstanding as of December 31, 2014 1.6 6.3 $11.61 $4.0Options exercisable as of December 31, 2014 0.9 4.7 $10.74 $2.7Options expected to vest after December 31, 2014 0.7 8.5 $12.69 $1.2140SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)The weighted-average grant date fair value of options granted during 2014, 2013 and 2012 was $7.69, $10.16 and $4.65, respectively. Theaggregate intrinsic value of the options exercised during the years ended December 31, 2013 and 2012 was approximately $0.6 million and $0.5 million,respectively.The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The weighted-averageassumptions used in the model are outlined in the following table: 2014 2013 2012Assumptions: Expected volatility 57% 60% 56%Risk-free interest rate 2.3% 2.2% 1.3%Dividend yield — — —Expected life (in years) 6 6 6The computation of the expected volatility is based on historical daily stock prices over a period commensurate with the expected life of the option.Expected life is based on annual historical employee exercise behavior of option grants with similar vesting periods and option expiration data. The risk-freeinterest rate is based on the yield of zero-coupon U.S. Treasury securities of comparable terms. We do not anticipate paying dividends in the foreseeablefuture.For the years ended December 31, 2014, 2013 and 2012, we recognized stock-based compensation expense of $2.2 million, $2.0 million and $4.3million, respectively, and the related tax benefit of $0.8 million, $0.7 million and $1.7 million, respectively, related to the vesting of stock options. AtDecember 31, 2014, we had $3.4 million of unrecognized stock-based compensation expense relating to unvested stock options that will be amortized over aweighted-average period of approximately two years. During the year ended December 31, 2014, we received $1.7 million in cash from the exercise of stockoptions. The actual tax benefit realized for the tax deductions from the exercise of stock options totaled $0.7 million for the year ended December 31, 2014.Restricted Stock UnitsA summary of the changes in RSUs outstanding under our equity-based compensation plans during 2013 is presented below: Number ofRestrictedStockUnits WeightedAverageGrant DateFair ValueUnvested RSUs as of December 31, 2013 5.2 $11.93Granted 3.2 $13.86Vested (2.6) $11.53Cancelled (0.8) $13.82Unvested RSUs as of December 31, 2014 5.0 $13.12The weighted-average grant date fair value of RSUs granted during 2013 and 2012 was $12.49 and $12.23, respectively. The fair value of each RSUgrant is based on the market value of our common stock at the time of grant. During the years ended December 31, 2014, 2013 and 2012, we recognizedstock-based compensation expense of $21.5 million, $19.7 million and $19.7 million, respectively, and the related tax benefits of $7.8 million, $7.2 millionand $7.4 million, respectively, related to the vesting of RSUs. At December 31, 2014, we had $51.4 million of unrecognized stock-based compensationrelating to unvested RSUs that will be amortized over a weighted-average period of approximately two years. The fair value at vesting date of RSUs vestedduring the years ended December 31, 2014, 2013 and 2012 was $35.2 million, $11.0 million and $14.3 million, respectively.Other Incentive CompensationIn December 2010, the Company adopted a performance-based incentive compensation plan relating to our Asia-Pacific business. The purpose ofthe Asia-Pacific Plan is to provide an equitable and competitive compensation opportunity to certain key employees and consultants of the Company whoare involved in the Company's Asia-Pacific Business and to promote the creation of long-term value for our stockholders by directly linking Asia-Pacific Planparticipants' compensation141SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)under the plan to the appreciation in value of such business. Each participant will be eligible to receive a cash payment following the end of 2014 equal to apre-determined share of an Asia-Pacific Business incentive compensation pool. The incentive compensation pool will equal a certain percentage of thegrowth in the value of the Asia-Pacific Business over four years, calculated in the manner provided under the Asia-Pacific Plan and subject to a cap of (1)$35.0 million, in the event an Asia-Pacific Business liquidity event does not occur by December 31, 2014 or (2) $50.0 million, in the event an Asia-PacificBusiness liquidity event occurs by December 31, 2014. An "Asia-Pacific Business liquidity event" means an initial public offering of at least 20% of theAsia-Pacific Business or a strategic investment by a third-party to acquire at least 20% of the Asia-Pacific Business, in each case, that is approved by theCompany. Our accrual recorded in other long-term liabilities related to the Asia-Pacific Plan was $0.8 million and $1.9 million as of December 31, 2014 and2013, respectively.(19) Pension and Other Post-Retirement PlansWe have defined benefit pension plans for our U.K.-based union employees (the "U.K. Plan") and certain Canadian-based employees (the "CanadianPlan"). Retirement benefits under the U.K. Plan are generally based on an employee's average compensation over the two years preceding retirement.Retirement benefits under the Canadian Plan are generally based on the number of years of credited service. Our policy is to fund the minimum contributionpermissible by the applicable authorities. We estimate that $2.1 million will be contributed to the pension plans in fiscal year 2015.Our pension benefit costs are calculated using various actuarial assumptions and methodologies. These assumptions include discount rates,inflation, compensation increase rates, expected returns on plan assets, mortality rates and other factors. The assumptions utilized in recording the obligationsunder our plans represent our best estimates, and we believe that they are reasonable, based on information as to historical experience and performance aswell as other factors that might cause future expectations to differ from past trends. Differences in actual experience or changes in assumptions may affect ourpension obligations and future expense. The primary factors contributing to actuarial gains and losses each year are (1) changes in the discount rate used tovalue pension benefit obligations as of the measurement date and (2) differences between the expected and the actual return on plan assets.The following table sets forth the combined funded status of the pension plans and their reconciliation with the related amounts recognized in ourConsolidated Financial Statements at our December 31 measurement dates:142SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) December 31, 2014 2013Change in benefit obligation: Benefit obligation at beginning of year $113.3 $105.9Service cost 2.2 2.5Interest cost 4.9 4.7Prior service cost — —Participant contributions 1.0 1.2Curtailments 0.2 0.2Actuarial loss 15.5 3.5Benefits paid (2.7) (2.8)Settlement payments — —Other, principally foreign exchange (7.8) (1.9)Benefit obligation at end of year $126.6 $113.3Change in plan assets: Fair value of plan assets at beginning of year $103.3 $88.0Business sale — —Actual gain on plan assets 9.9 14.9Employer contributions 2.1 3.3Participant contributions 1.0 1.2Benefits paid (2.7) (2.8)Settlement payments — —Other, principally foreign exchange (7.2) (1.3)Fair value of assets at end of year $106.4 $103.3Amounts recognized in the consolidated balance sheets: Funded status (current) $— $—Funded status (non-current) (20.2) (10.0)Accumulated other comprehensive income (pre-tax): — —Unrecognized actuarial loss 23.3 12.6Unrecognized prior service cost (2.5) (3.0)Net amount recognized $0.6 $(0.4)The following table presents the components of our net periodic pension cost: December 31, 2014 2013 2012Components of net periodic pension benefit cost: Service cost $2.2 $2.5 $2.1Interest cost 4.9 4.7 4.7Expected return on plan assets (6.6) (5.5) (5.2)Amortization of actuarial gains/losses 0.6 1.0 0.8Curtailments 0.1 0.1 —Amortization of unrecognized prior service cost (0.2) (0.3) (0.2)Net periodic cost $1.0 $2.5 $2.2The accumulated benefit obligation for all defined benefit pension plans was $124.9 million and $112.4 million as of December 31, 2014 and 2013,respectively. The underfunded status of our defined benefit pension plans recorded as a liability in our Consolidated Balance Sheets as of December 31, 2014and 2013 was $20.2 million and $10.0 million, respectively.143SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)The amounts included in accumulated other comprehensive (loss) income as of December 31, 2014 expected to be recognized as components of netperiodic pension cost during the fiscal year ending December 31, 2015 are presented below: Net (gain) or loss $1.1Net prior service cost (0.2)Net amount expected to be recognized $0.9U.K. PlanIn the third quarter of 2012, we remeasured the U.K. Plan valuation as a result of a plan amendment, which resulted in a decrease to our pensionbenefit obligation of $5.8 million. As a result of the amendment, the U.K. Plan is closed to new participants and pensionable earnings used to calculateretirement benefits are limited to a 2% annual increase while the plan is less than 100% funded.The U.K. Plan investment policy is to maximize long-term financial return commensurate with security and minimizing risk. This is achieved byholding a portfolio of marketable investments that avoids over-concentration of investment and spreads assets both over industries and geographies. Insetting investment strategy, the trustees considered the lowest risk strategy that they could adopt in relation to the U.K. Plan's liabilities and designed an assetallocation to achieve a higher return while maintaining a cautious approach to meeting the plan's liabilities. The trustees undertook a review of investmentstrategy and took advice from their investment advisors. They considered a full range of asset classes, the risks and rewards of a range of alternative assetallocation strategies, the suitability of each asset class and the need for appropriate diversification. The current strategy is to hold approximately 35% in aglobal return fund, approximately 20% in U.K. equities, approximately 15% in non-U.K. equities, approximately 15% in long lease property, approximately10% in corporate bonds and approximately 5% in real estate.The fair value of the U.K. Plan assets at December 31, 2014 by asset category is presented below:Asset Category MarketValue atDecember 31,2014 QuotedPrices inActiveMarkets forIdenticalAssets (Level 1) SignificantObservableInputs (Level 2) SignificantUnobservableInputs (Level 3)Equity securities in U.K. companies (a) $15.2 $— $15.2 $—Equity securities in non-U.K. companies (a) 10.3 — 10.3 —Global return fund (a) 19.3 — 19.3 —Corporate bonds (a) 6.1 — 6.1 —Real estate 12.5 — — 12.5Cash (b) 0.3 0.3 — —Total pension assets $63.7 $0.3 $50.9 $12.5_______________________________________________________________________________(a)The assets are invested through managed funds that are valued using inputs derived principally from quoted prices in active markets for the underlying assets in the fund.(b)The fair value of cash equals its book value.The change in fair value of the pension assets during 2014 valued using significant unobservable inputs (Level 3) is presented below:144SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) General AccountBeginning balance at December 31, 2013$11.8Purchases0.1Unrealized gain on asset still held at December 31, 20140.6 Ending balance at December 31, 2014$12.5 The fair value of the U.K. Plan assets at December 31, 2013 by asset category is presented below:Asset Category MarketValue atDecember 31,2013 QuotedPrices inActiveMarkets forIdenticalAssets (Level 1) SignificantObservableInputs (Level 2) SignificantUnobservableInputs (Level 3)Equity securities in U.K. companies (a) $16.0 $— $16.0 $—Equity securities in non-U.K. companies (a) 9.6 — 9.6 —Global return fund (a) 19.4 — 19.4 —Corporate bonds (a) 5.4 — 5.4 —Real estate 11.8 — — 11.8Cash (b) 0.4 0.4 — —Total pension assets $62.6 $0.4 $50.4 $11.8_______________________________________________________________________________(a)The assets are invested through managed funds that are valued using inputs derived principally from quoted prices in active markets for the underlying assets in the fund.(b)The fair value of cash equals its book value.The change in fair value of the pension assets during 2013 valued using significant unobservable inputs (Level 3) is presented below: General AccountBeginning balance at December 31, 2012$10.4Purchases0.1Unrealized gain on asset still held at December 31, 20131.3 Ending balance at December 31, 2013$11.8Canadian PlanThe Canadian Plan investment policy is to maximize long-term financial return commensurate with security and minimizing risk. This is achievedby holding a portfolio of marketable investments that avoids over-concentration of investment and spreads assets both over industries and geographies. Insetting investment strategy, the Company considered the lowest risk strategy that it could adopt in relation to the Canadian Plan's liabilities and designed theasset allocation to achieve a higher return while maintaining a cautious approach to meeting the plan's liabilities. The Company considered a full range ofasset classes, the risks and rewards of a range of alternative asset allocation strategies, the suitability of each asset class and the need for appropriatediversification. The current strategy is to hold approximately 20% in Canadian equities, approximately 40% in non-Canadian equities and approximately40% in bonds.145SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)The fair value of the Canadian Plan assets at December 31, 2014 by asset category is presented below:Asset Category MarketValue atDecember 31,2014 QuotedPrices inActiveMarkets forIdenticalAssets (Level 1) SignificantObservableInputs (Level 2) SignificantUnobservableInputs (Level 3)Equity securities in Canadian companies (a) $7.9 $7.3 $0.6 $—Equity securities in non-Canadiancompanies (a) 18.7 18.7 — —Government bonds 6.5 — 6.5 —Corporate bonds 9.1 — 9.1 —Corporate bonds in non-Canadiancompanies — — — —Other short-term investment (b) 0.4 0.4 — Cash and cash equivalents (c) 0.3 0.3 — —Total pension assets $42.9 $26.7 $16.2 $—_______________________________________________________________________________(a)Direct investments in equity securities are valued at quoted prices in active markets for identical assets. Equity securities invested through pooled funds are valued usinginputs derived principally from the quoted prices in active markets for the underlying assets in the pool.(b)Other short-term investments are investments in pooled money market funds that are valued using inputs derived principally from the quoted prices in active markets for theunderlying assets in the pool.(c)The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments.The fair value of the Canadian Plan assets at December 31, 2013 by asset category is presented below:Asset Category MarketValue atDecember 31,2013 QuotedPrices inActiveMarkets forIdenticalAssets (Level 1) SignificantObservableInputs (Level 2) SignificantUnobservableInputs (Level 3)Equity securities in Canadian companies(a) $8.0 $8.0 $— $—Equity securities in non-Canadiancompanies (a) 18.2 18.2 — —Government bonds 5.8 — 5.8 —Corporate bonds 8.0 — 8.0 —Corporate bonds in non-Canadiancompanies — — — —Other short-term investment (b) 0.6 0.6 — Cash and cash equivalents (c) 0.2 0.2 — —Total pension assets $40.8 $27.0 $13.8 $—_______________________________________________________________________________(a)Direct investments in equity securities are valued at quoted prices in active markets for identical assets. Equity securities invested through pooled funds are valued usinginputs derived principally from the quoted prices in active markets for the underlying assets in the pool.(b)Other short-term investments are investments in pooled money market funds that are valued using inputs derived principally from the quoted prices in active markets for theunderlying assets in the pool.(c)The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments.146SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)The table below presents the weighted-average actuarial assumptions used to determine the benefit obligation and net periodic benefit cost for theU.K. Plan and the Canadian Plan. U.K. Plan Canadian Plan 2014 2013 2012 2014 2013 2012Discount rates: Benefit obligation 3.70% 4.40% 4.50% 4.00% 5.00% 4.50%Net periodic pension cost 4.40% 4.50% 4.80% 5.00% 4.50% 5.30%Rate of compensation increase 2.00% 2.00% 2.00% 3.00% 3.00% 3.25%Expected return on assets 7.50% 6.70% 6.80% 6.50% 6.50% 6.50%The overall expected long-term rate of return on assets assumption for the U.K. Plan has been determined as a weighted-average of the expectedreturns on the above asset classes for the U.K. Plan. The expected return on bonds is taken as the current redemption yield on the appropriate index. Theexpected return on equities and property is determined by assuming a measure of outperformance over the gilt-yield. The expected return on cash is related tothe Bank of England base rate. Returns so determined are reduced to allow for investment manager expenses.The overall expected long-term rate of return on assets assumption for the Canadian Plan has been determined by consideration of the current levelof expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes inwhich the portfolio is invested and the expectations for future returns of each asset class. Since our investment policy is to actively manage certain assetclasses where the potential exists to outperform the broader market, the expected returns for those asset classes were adjusted to reflect the expectedadditional returns. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate ofreturn on assets assumption for the portfolio. Finally, we have adjusted the expected long-term rate of return on assets to allow for investment andadministration expenses paid from the pension fund.The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:Year U.K.Plan CanadianPlan2015 $1.0 $1.42016 $1.0 $1.52017 $1.0 $1.62018 $1.0 $1.72019 $1.1 $1.92020 - 2024 $5.7 $12.7U.S. PlanWe have a 401(k) plan for U.S.-based employees. Those employees who participate in our 401(k) plan are eligible to receive matching contributionsfrom us for the first 6% of participant contributions. We match contributions of 37.5% of any participant's contributions, up to the first 6% of theircompensation (as defined in the plan document). Contribution expense for the years ended December 31, 2014, 2013 and 2012 amounted to $1.9 million,$1.8 million and $1.7 million, respectively. In connection with the WMS acquisition, we assumed WMS' existing 401(k) plan. The plan covers full-timeemployees of WMS and provides for contributions of up to 4.5% of covered employees’ compensation as defined in the plan. Contribution expense for theyear ended December 31, 2014 and the 74 days subsequent to the acquisition in 2013 were $5.0 million and $0.2 million, respectively. In connection withthe Bally acquisition, we assumed Bally's existing 401(k) plan. The plan was adopted for domestic employees of Bally Technologies, Inc. and all its domesticsubsidiaries and matches 50% of any participant's contributions, up to the first 6% of their compensation (as defined in the plan document). Contributionexpense for the 40 days subsequent to the acquisition was $0.2 million.(20) Accumulated Other Comprehensive (Loss) IncomeThe accumulated balances for each classification of comprehensive (loss) income are presented below:147SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) ForeignCurrencyItems DerivativeFinancialInstruments (1) Unrecognizedpensionbenefit costs,net of taxes (2) AccumulatedOtherComprehensive(Loss) IncomeBalance at January 1, 2012 $(20.7) 0.4 (12.5) (32.8)Change during period 30.5 0.9 (0.8) 30.6Change in LNS derivative financial instrument — (0.5) — (0.5)Reclassified into operations — — (0.3) (0.3)Balance at December 31, 2012 $9.8 0.8 (13.6) (3.0)Change during period 18.2 (2.1) 5.5 21.6Change in LNS derivative financial instrument — (0.1) — (0.1)Reclassified into operations — — (0.2) (0.2)Balance at December 31, 2013 $28.0 (1.4) (8.3) 18.3Change during period (97.4) (6.1) (8.5) (112.0)Change in LNS derivative financial instrument — (0.5) — (0.5)Reclassified into operations — — (0.2) (0.2)Balance at December 31, 2014 $(69.4) (8.0) (17.0) (94.4)_______________________________________________________________________________(1)The change during the period is net of income taxes of $0.0 million, $(1.0) million and $0.5 million in 2014, 2013 and 2012, respectively. We have recorded $0.5 millionrepresenting our share of the derivative instrument held by LNS.(2)The change during the period is net of income taxes of $(2.6) million, $(2.0) million and $0.3 million in 2014, 2013 and 2012, respectively.(21) Income Tax ExpenseThe components of net loss from continuing operations before income tax expense are presented below: Years Ended December 31, 2014 2013 2012United States $(595.1) $(170.3) $(98.2)Foreign 100.2 27.0 75.0Net loss from continuing operations before income tax expense $(494.9) $(143.3) $(23.2)The components of income tax (benefit) expense are presented below: Years Ended December 31, 2014 2013 2012Current U.S. Federal$(14.4)$—$(0.1)U.S. State0.3(0.6)(0.1)Foreign17.813.616.0Total3.713.015.8Deferred U.S. Federal(234.6)(119.1)3.2U.S. State(21.2)(9.4)0.7Foreign(8.5)(2.2)1.0Total(264.3)(130.7)4.9Total income tax (benefit) expense$(260.6)$(117.7)$20.7148SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)The reconciliation of the U.S. federal statutory tax rate to the actual tax rate is presented below: Years Ended December 31, 2014 2013 2012Statutory U.S. federal income tax rate35.0 %35.0 %35.0 %U.S. state income taxes, net of federal benefit4.3 %6.9 %14.8 %Federal benefit of R&D and AMT credits, net2.0 %0.5 %9.9 %Foreign earnings at lower rates than U.S. federal rate(0.5)%(1.4)%39.7 %Federal (benefit) U.S. permanent differences(3.2)%(8.8)%(116.1)%Federal valuation allowance adjustments13.2 %47.7 %(72.7)%Other1.8 %2.2 %0.2 %Effective income tax rate52.6 %82.1 % (89.2)%The effective income tax rates for the years ended December 31, 2014 and 2013 were 52.6% and 82.1% respectively. After considering the netdeferred tax liabilities resulting from the Bally acquisition, the Company recorded a net release of the valuation allowance related to its net U.S. deferred taxassets in the amount of $79.1 million. Our 2014 effective income tax rate on foreign earnings is impacted by the mix of income and the statutory tax rates inour foreign jurisdictions, which range from a low of 0% to a high of 35%. The foreign jurisdictions that had the most impact on our foreign income taxexpense (benefit) in 2014 included Austria, Bermuda, Canada, Ireland, Mexico and the U.K.Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes.The deferred income tax balances are established using the enacted statutory tax rates and are adjusted for changes in such rates in the period ofchange.149SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) December 31, 2014 2013Deferred tax assets: Inventory valuation$25.2$19.1Reserves and other accrued expenses70.134.2Compensation not currently deductible15.217.1Employee pension benefit included in other comprehensive (loss) income5.63.3Unrealized losses and income from derivative financial instruments included in othercomprehensive (loss) income0.60.9Share-based compensation10.511.1Net operating loss carry forwards403.3236.6Tax credit carry forwards40.435.5Valuation allowance(107.3)(178.7)Realizable deferred tax assets463.6179.1Deferred tax liabilities: Deferred costs and prepaid expenses(41.1)(5.1)Differences in financial reporting and tax basis for: Property and equipment(84.3)(34.1)Identifiable intangible assets(880.1)(220.2)Total deferred tax liabilities(1,005.5)(259.4)Net deferred tax liabilities on balance sheet(541.9)(80.3)Reported As: Current deferred tax assets72.835.1Non-current deferred tax assets18.622.6Current deferred tax liabilities(4.5)—Non-current deferred tax liabilities(628.8)(138.0)Net deferred tax liabilities on the balance sheet$(541.9)$(80.3)In accordance with ASC 740, Income Taxes ("ASC 740"), the current and non-current components of our deferred tax balances are generally based onthe balance sheet classification of the asset or liability creating the temporary difference. If the deferred tax asset or liability is not related to a component ofour balance sheet, such as our net operating loss ("NOL") carry forwards, the classification is presented based on the expected reversal date of the temporarydifference. Our valuation allowance has been classified as current or non-current based on the percentage of current and non-current deferred tax assets tototal deferred tax assets.At December 31, 2014, we had NOL carry forwards (tax-effected) for federal, state and foreign income tax purposes of $279.3 million, $57.0 millionand $67.0 million, respectively. If not utilized, the federal and state tax loss carry forwards will expire through 2034. Certain of our federal NOL carryforwards are limited due to prior-year changes in ownership. The foreign NOL carry forwards of $67.0 million can be carried forward for periods that vary fromten years to indefinitely.As a result of certain realization requirements of ASC 718, Compensation—Stock Compensation, the deferred tax asset for the NOL in the table ofdeferred tax assets and liabilities above does not include tax deductions related to equity compensation that are greater than the compensation recognized forfinancial reporting. Equity will increase by $8.4 million if and when such deferred tax assets are ultimately realized. We use ASC 740 ordering whendetermining when excess tax benefits have been realized.We have foreign tax credit carry forwards of $17.2 million which if unutilized will expire through 2023, R&D tax credit carry forwards of $18.8million which if unutilized will expire through 2034, alternative minimum tax credit carry forwards of $2.1 million which can be carried forward indefinitelyand state tax credits of $2.3 million which if unutilized will expire through 2023.150SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)At December 31, 2014 and 2013, we had a valuation allowance of $107.3 million and $178.7 million, respectively, against the U.S. and foreigndeferred tax assets that, in the judgment of management, are more likely than not to expire before they can be utilized. In assessing the recoverability of ourdeferred tax assets, we analyzed all evidence, both positive and negative. We considered, among other things, our deferred tax liabilities, our historicalearnings and losses, projections of future income, and tax-planning strategies available to us in the relevant jurisdiction.At December 31, 2014 and 2013, we had valuation allowances of $10.4 million and $74.7 million, respectively, against the benefit of U.S. federaldeferred tax assets related to capital assets and valuation allowances of $36.5 million and $33.8 million, respectively, against the benefit of state deferred taxassets.At December 31, 2014 and 2013, we had valuation allowances of $11.2 million and $18.2 million, respectively, against the benefit of the deferredtax assets related to the U.S. foreign tax credit carry forwards.At December 31, 2014 and 2013, we had valuation allowances of $49.2 million and $51.9 million, respectively, against the benefit of the deferredtax assets related to foreign NOL carry forwards to measure them at their expected realizable value.The net decrease in the Company's total U.S. and foreign valuation allowances for 2014 was $71.4 million and the net decrease for 2013 was $62.5million.We have certain foreign subsidiaries in which the cumulative amount of earnings is expected to be permanently invested and other foreignsubsidiaries in which the earnings are not expected to be permanently invested. Deferred taxes have not been provided on the excess of book basis over taxbasis in the shares of certain foreign subsidiaries because these basis differences are not expected to reverse in the foreseeable future and are essentiallypermanent in duration. Our intention is to continue to reinvest the earnings of those foreign subsidiaries indefinitely. The estimated cumulative amount ofearnings from foreign subsidiaries that are treated as permanently invested outside of the U.S. was $338.3 million as of December 31, 2014. We do not believeit is practicable to estimate with reasonable accuracy the hypothetical amount of the unrecognized deferred tax liability on our undistributed foreign earningsgiven the large number of tax jurisdictions involved and the many factors and assumptions required to estimate the amount of the U.S. federal income tax onthe undistributed earnings.Unrecognized Tax BenefitsThe Company applies a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return. The Company recognizes the impact of a tax position in the financial statements when the position is morelikely than not of being sustained on audit based on the technical merits of the position.The total amount of unrecognized tax benefits as of December 31, 2014 was $13.9 million. Of this amount, $13.9 million, if recognized, would beincluded in our Consolidated Statements of Operations and Comprehensive Loss and have an impact on our effective tax rate. The Company does notanticipate a material reduction of its liability for unrecognized tax benefits before December 31, 2015.We recognize interest accrued for unrecognized tax benefits in interest expense and recognize penalties in income tax expense. The amountrecognized for interest and penalties during the years ended December 31, 2014, 2013 and 2012 was not material. We had $1.0 million and $0.4 million forthe payment of interest and penalties accrued at December 31, 2014 and 2013, respectively.We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With few exceptions, weare no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2010.The Company had the following activity for unrecognized tax benefits:151SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) Year Ended December 31, 2014 2013 2012Balance at beginning of period$8.1$1.8$1.9Tax positions related to current year additions0.5——Additions for tax positions of prior years—7.20.1Tax positions related to prior years reductions(3.5)(0.8)—Reductions due to lapse of statute of limitations on tax positions—(0.1)—Current year acquisitions 9.8 — —Settlements(1.0)—(0.2)Balance at end of period$13.9$8.1$1.8(22) LitigationThe Company is involved in various legal proceedings, including those discussed below. We record an accrual for legal contingencies when it isboth probable that a liability will be incurred and the amount or range of the loss can be reasonably estimated (although, as discussed below, there may be anexposure to loss in excess of the accrued liability). We evaluate our accruals for legal contingencies at least quarterly and, as appropriate, establish newaccruals 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 ofmanagement. Legal costs associated with our legal proceedings are expensed as incurred. We had accrued liabilities of $47.3 million and $25.9 million for allof our legal matters that were contingencies as of December 31, 2014 and 2013, respectively.Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or themeasurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies couldresult 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 the Companyor its subsidiaries, even when the amount of damages claimed against the Company or its subsidiaries is stated because, among other things: (1) the claimedamount 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 beuncertainty 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 ormotions; (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 progressedsufficiently that we are able to estimate a range of possible loss. For those legal contingencies disclosed below 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 currentestimated range is up to approximately $14.5 million in excess of the accrued liabilities (if any) related to those legal contingencies. This aggregate rangerepresents management’s estimate of additional possible loss in excess of the accrued liabilities (if any) with respect to these matters based on currentlyavailable information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherentuncertainties. For example, at the time of making an estimate, management may have only preliminary, incomplete, or inaccurate information about the factsunderlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverseparties, 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 ofstatistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that management had not accounted for in its estimatebecause it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which the Companyis 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 and financial condition. The legal proceedings underlying theestimated range will change from time to time, and actual results may vary significantly from the current estimate.Colombia LitigationOur subsidiary, SGI, owned a minority interest in Wintech de Colombia S.A., or Wintech (now liquidated), which formerly operated the Colombiannational lottery under a contract with Empresa Colombiana de Recursos para la Salud, S.A. (together with its successors, "Ecosalud"), an agency of theColombian government. The contract provided for a penalty against Wintech, SGI and the other shareholders of Wintech of up to $5.0 million if certainlevels of lottery sales were not achieved. In152SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)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 inColombia but, due to difficulties beyond its control, including, among other factors, social and political unrest in Colombia, frequently interrupted telephoneservice and power outages, and competition from another lottery being operated in a province of Colombia that we believe was in violation of Wintech’sexclusive 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 claimsfor 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 contractdefault resolution, which decision was notified to us in August 2012. In October 2013, the Council of State upheld the liquidation resolution, which decisionwas 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 claimsasserted 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 May2013, the Tribunal denied SGI’s merit defenses to the collection proceeding and issued an order of payment of approximately 90 billion Colombian pesos(approximately $36 million based on the current exchange rate) plus default interest (potentially accrued since 1994). SGI has filed an appeal to the Councilof State, which appeal has stayed the payment order.SGI believes it has various defenses, including on the merits, against Ecosalud’s claims. Although we believe these claims will not result in amaterial adverse effect on our consolidated results of operations, cash flows or financial position, it is not feasible to predict the final outcome, and there canbe no assurance that these claims will not ultimately be resolved adversely to us or result in material liability.SNAI LitigationOn April 16, 2012, certain VLTs operated by SNAI in Italy and supplied by Barcrest erroneously printed what appeared to be winning jackpot andother tickets with a face amount in excess of €400.0 million. SNAI has stated, and system data confirms, that no jackpots were actually won on that day. Theterminals have been deactivated by the Italian regulatory authority. Following the incident, we understand that the Italian regulatory authority revoked thecertification of the version of the gaming system that Barcrest provided to SNAI and fined SNAI €1.5 million, but determined to not revoke SNAI’sconcession to operate VLTs in Italy.In October 2012, SNAI filed a lawsuit in the Court of First Instance of Rome in Italy against Barcrest and Global Draw, our subsidiary which acquiredBarcrest from IGT‑UK Group Limited, a subsidiary of IGT, claiming liability based on breach of contract and tort. The lawsuit sought to terminate SNAI’sagreement with Barcrest and damages arising from the deactivation of the terminals, including among other things, lost profits, expenses and costs, potentialawards to players who have sought to enforce what appeared to be winning jackpot and other tickets, compensation for lost profits sought by managers of thegaming locations where SNAI VLTs supplied by Barcrest were installed, damages to commercial reputation and any future damages arising from SNAI’spotential loss of its concession or inability to obtain a new concession. In June 2013, Barcrest and Global Draw filed a counterclaim based on SNAI’s allegedbreach of contract.In September 2013, Global Draw brought an action against IGT‑UK Group Limited and IGT in the High Court of Justice (Commercial Court) inLondon, England seeking relief under the indemnification and warranty provisions contained in the agreement pursuant to which Barcrest was acquired fromIGT‑UK Group, including in connection with the April 2012 incident and a number of ancillary matters. In November 2013, IGT‑UK Group Limited filed adefense in which it denied Global Draw’s claims and counterclaimed based on Global Draw’s alleged breach of contract in connection with another ancillarymatter. In September 2014, Global Draw’s motion for summary judgment was granted in respect of one of the ancillary matters but denied in respect of theApril 2012 incident. Accordingly, the parties are scheduled to proceed to trial relating to the April 2012 incident and the other remaining issues in May2015.153SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)In February 2015, we entered into a settlement agreement with SNAI that provides, among other things, for us to make a €25.0 million upfrontpayment to SNAI and to indemnify SNAI against certain potential future losses. In connection with the settlement, the parties’ pending claims in the Court ofFirst Instance of Rome were dismissed on February 19, 2015. We are continuing to pursue recovery from third party sources in connection with this matter,including IGT and our insurance carriers; however, there can be no assurance that any amounts will ultimately be recovered.WMS Merger LitigationComplaints challenging the WMS merger were filed in early 2013 in the Delaware Court of Chancery, the Circuit Court of Cook County, Illinoisand the Circuit Court of Lake County, Illinois. The actions are putative class actions filed on behalf of WMS stockholders. The complaints generally allegethat the WMS directors breached their fiduciary duties in connection with their consideration and approval of the merger and in connection with their publicdisclosures concerning the merger. The complaints allege that other defendants, including WMS, Scientific Games Corporation and certain affiliates ofScientific Games Corporation, aided and abetted those alleged breaches. The plaintiffs sought equitable relief, including to enjoin the acquisition, to rescindthe acquisition if not enjoined, damages, attorneys’ fees and other costs.The Delaware actions have been consolidated under the caption In re WMS Stockholders Litigation (C.A. No. 8279‑VCP). The plaintiffs in theconsolidated Delaware actions submitted to the Delaware Court of Chancery a letter advising that they had conferred with the plaintiffs in the Illinois actionsand agreed to stay the consolidated Delaware action.The Lake County, Illinois actions were transferred to Cook County. All of the Illinois actions were consolidated in Cook County with Gardner v.WMS Industries Inc., et al. (No. 2013 CH 3540).In April 2013, the plaintiffs in the Gardner action filed a motion for preliminary injunction to enjoin the WMS stockholder vote on the merger.Following that, in April 2013, lead counsel in the Gardner action, on behalf of counsel for plaintiffs in all actions in Delaware and Illinois, agreed to withdrawthe motion for preliminary injunction and not to seek to enjoin the WMS stockholder vote in return for WMS’ agreement to make certain supplementaldisclosures related to the merger. WMS made those supplemental disclosures in a Current Report on Form 8‑K filed with the SEC on April 29, 2013.In January 2014, the plaintiffs in the Illinois action filed an amended complaint seeking damages for the alleged breach of fiduciary duties by theindividual defendants and the alleged aiding and abetting of those breaches by WMS and Scientific Games Corporation. In February 2014, WMS andScientific Games Corporation filed motions to dismiss the amended complaint. In September 2014, the plaintiffs’ claims in the Illinois action were dismissedwith prejudice. The plaintiffs in the Illinois action have filed a claim for attorney fees of $0.9 million, which we have opposed. A ruling on this matter isanticipated in March 2015.The Company believes the claims in the consolidated Delaware action are without merit.Bally Merger LitigationComplaints challenging the Bally merger were filed in August 2014 in the District Court of Clark County, Nevada. The actions are putative classactions filed on behalf of the public stockholders of Bally and name as defendants Bally, its directors, Scientific Games Corporation and certain of itsaffiliates. The complaints generally allege that the Bally directors breached their fiduciary duties in connection with their consideration and approval of themerger and that we aided and abetted those alleged breaches. The plaintiffs seek equitable relief, including to enjoin the merger, to rescind the merger if notenjoined, damages, attorneys’ fees and other costs.All of the actions have been consolidated under the caption In re Bally Technologies, Inc. Shareholders Litigation (C.A. No. A‑14‑ 705012‑B) (the"Nevada Action"). In October 2014, plaintiffs filed a motion for limited expedited discovery in connection with an anticipated motion to enjoin the proposedtransaction. Following that, in October 2014, Bally and its directors filed a motion to dismiss the consolidated complaint and Scientific Games Corporationand its affiliates filed a motion to dismiss the count of the consolidated complaint alleging wrongdoing by Scientific Games Corporation and its affiliates.Following that, the plaintiffs withdrew their motion for expedited discovery and the parties entered into preliminary settlement discussions.On October 17, 2014, following arm’s‑length negotiations, the parties to the Nevada Action entered into a Memorandum of Understanding ("MOU")under which they agreed in principle to settle all of the claims asserted in the Nevada Action on a class‑wide basis, subject to certain conditions, includingconfirmatory discovery by the plaintiffs in the Nevada Action and preliminary and final approval of the Nevada court, which will consider the fairness,reasonableness and adequacy of the settlement. Bally, Scientific Games and the other named defendants entered into the MOU solely to avoid the costs, risks154SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)and uncertainties inherent in litigation and without admitting any liability or wrongdoing, and vigorously denied, and continue to vigorously deny, theclaims alleged in the Nevada Action.On November 18, 2014, Bally's stockholders approved the Bally acquisition and the Bally acquisition was consummated on November 21, 2014. Since entering into the MOU, the plaintiffs have completed confirmatory discovery and have concluded that the settlement contemplated by the MOU is fair,reasonable and adequate, and is in the best interests of the Bally public stockholders. The parties are in the process of negotiating final versions of thedefinitive settlement documents to be submitted to the Nevada court for approval.There can be no assurance that the parties will ultimately enter into a definitive settlement agreement or that the Nevada court will approve thesettlement. In such event, the proposed settlement will be null and void and of no force and effect. Payments made in connection with the settlement, whichare subject to court approval, are not expected to be material.Oregon State Lottery matterOn December 31, 2014, a representative of a purported class of persons alleged to have been financially harmed by relying on the "auto hold" featureof various manufacturers' video lottery terminals played in Oregon, filed suit in the Circuit Court of Multnomah County, Oregon, against the Oregon StateLottery and various manufacturers, including WMS Gaming Inc. The suit alleges that the auto hold feature of video poker games is perceived by players asproviding the best possible playing strategy that will maximize the odds of the player winning, when such auto hold feature does not maximize the players'odds of winning. The plaintiffs are seeking in excess of $134.0 million in monetary damages. We filed a motion to dismiss in March 2015 and intend tovigorously defend against the claims asserted in this lawsuit.(23) Supplemental Disclosure of Cash Flow InformationAdditional cash flow information is as follows: Year ended December 31, 2014 2013 2012Interest paid$185.3 $101.8 $85.9Income taxes (received)/paid$(24.7) $14.9 $7.5Year ended December 31, 2014 On March 31, 2014, we entered into a new leasing arrangement with ITL for the lease of gaming machines in connection with a long-term servicescontract with a customer and recorded a non-cash capital lease asset and minimum lease liability of $42.8 million during the three months ended June 30,2014. We recorded no additional non-cash capital lease assets during the year and our remaining capital lease obligation at December 31, 2014 was $35.3million.During the year ended December 31, 2014 we recorded approximately $116.3 million of non-cash other assets and related long-term liabilities forlicense agreements with minimum guaranteed obligations entered into during the year.During the year ended December 31, 2014 we made a non-cash capital contribution of $10.8 million to Northstar Illinois. We recorded no additionalnon-cash capital contributions during the year ended December 31, 2014.There were no other significant non-cash investing or financing activities for the year ended December 31, 2014.Year ended December 31, 2013During the year ended December 31, 2013 we recorded approximately $27.6 million of non-cash other assets and related long-term liabilities relatedto license agreements with minimum guaranteed obligations entered into during the year.There were no other significant non-cash investing or financing activities for the year ended December 31, 2013.(24) Financial Information for Guarantor Subsidiaries and Non-Guarantor SubsidiariesWe conduct substantially all of our business through our U.S. and foreign subsidiaries. SGI’s obligations under the Credit Agreement, the 2020Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes are fully and unconditionally and jointly and severally guaranteed by Scientific GamesCorporation (the "Parent Company") and substantially all of our155SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)100%-owned U.S. subsidiaries other than SGI (the "Guarantor Subsidiaries"). Our 2018 Notes, which were issued by the Parent Company, are fully andunconditionally and jointly and severally guaranteed by substantially all of our wholly-owned U.S. subsidiaries, including SGI. The guarantees of our 2018Notes, 2020 Notes, 2021 Notes, Secured Notes and Unsecured Notes will terminate under following customary circumstances: (1) the sale or disposition ofthe capital stock of the guarantor (including by consolidation or merger of the guarantor into another person); (2) the liquidation or dissolution of theguarantor; (3) the defeasance or satisfaction and discharge of the notes; (4) the release of the guarantor from any guarantees of indebtedness of the ParentCompany and SGI (or, in the case of the 2018 Notes, the release of the guarantor from any guarantees of indebtedness of the Parent Company); and (5) in thecase of the 2020 Notes, the 2021 Notes and the Secured Notes and the Unsecured Notes, the proper designation of the guarantor as an unrestricted subsidiarypursuant to the indenture governing the respective Notes.Presented below is condensed consolidated financial information for (1) the Parent Company, (2) SGI, (3) the Guarantor Subsidiaries and (4) our U.S.subsidiaries that are not Guarantor Subsidiaries and our foreign subsidiaries (collectively, the "Non-Guarantor Subsidiaries") as of December 31, 2014 andDecember 31, 2013 and for the years ended December 31, 2014, 2013 and 2012. The condensed consolidating financial information has been presented toshow the nature of assets held, results of operations and cash flows of the Parent Company, SGI, the Guarantor Subsidiaries and the Non-GuarantorSubsidiaries assuming the guarantee structures of the Credit Agreement, the 2016 Notes, the 2018 Notes, the 2019 Notes, the 2020 Notes, the 2021 Notes, theSecured Notes and the Unsecured Notes were in effect at the beginning of the periods presented. The condensed consolidated financial information reflects the investments of the Parent Company in the Guarantor Subsidiaries and Non-GuarantorSubsidiaries using the equity method of accounting. Corporate interest and administrative expenses have not been allocated to the subsidiaries. Net changesin intercompany due from/due to accounts are reported in the accompanying Supplemental Condensed Consolidating Statements of Cash Flows as investingactivities if the applicable entities have a net investment (asset) in intercompany accounts and as a financing activity if the applicable entities have a netintercompany borrowing (liability) balance.156SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETDecember 31, 2014 ParentCompany SGI GuarantorSubsidiaries Non-GuarantorSubsidiaries EliminatingEntries ConsolidatedAssets Cash and cash equivalents $37.9 $0.1 $28.8 $105.0 $— $171.8Restricted cash — — 27.1 0.1 — 27.2Accounts receivable, net — 61.8 212.9 193.7 — 468.4Notes receivable, net — — 136.6 52.1 — 188.7Inventories — 35.2 106.0 124.4 — 265.6Other current assets 65.4 20.2 114.7 56.0 — 256.3Property and equipment, net 0.5 119.5 651.1 241.7 — 1,012.8Investment in subsidiaries 4,730.7 953.4 — — (5,684.1) —Goodwill — 253.6 3,247.9 606.8 — 4,108.3Intangible assets 162.0 42.2 1,761.8 285.6 — 2,251.6Intercompany balances — 6,580.0 — — (6,580.0) —Software, net 15.6 32.9 467.3 76.9 — 592.7Other assets 2.8 255.4 96.8 296.8 — 651.8Total assets $5,014.9 $8,354.3 $6,851.0 $2,039.1 $(12,264.1) $9,995.2Liabilities and stockholders’ equity Current installments of long-term debt $— $43.0 $— $7.6 $— $50.6Other current liabilities 68.9 119.8 247.2 173.8 — 609.7Long-term debt, excluding currentinstallments 250.0 8,187.7 — 27.7 — 8,465.4Other non-current liabilities 136.2 74.0 593.7 61.7 — 865.6Intercompany balances 4,555.9 (0.1) 1,637.9 386.3 (6,580.0) —Stockholders’ equity 3.9 (70.1) 4,372.2 1,382.0 (5,684.1) 3.9Total liabilities and stockholders’equity $5,014.9 $8,354.3 $6,851.0 $2,039.1 $(12,264.1) $9,995.2157SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETDecember 31, 2013 ParentCompany SGI GuarantorSubsidiaries Non-GuarantorSubsidiaries EliminatingEntries ConsolidatedAssets Cash and cash equivalents $57.3 $— $26.8 $69.6 $— $153.7Restricted cash — — 10.9 — — 10.9Accounts receivable, net — 66.9 135.4 143.7 — 346.0Notes receivable — — 90.9 67.8 — 158.7Inventories — 28.2 59.6 50.0 — 137.8Other current assets 13.9 10.5 95.0 30.9 — 150.3Property and equipment, net 1.1 137.3 441.8 192.9 — 773.1Investment in subsidiaries 1,962.5 796.5 — — (2,759.0) —Goodwill — 251.7 465.4 466.0 — 1,183.1Intangible assets 1.9 42.0 340.6 26.6 — 411.1Intercompany balances — 1,430.1 296.3 — (1,726.4) —Other assets 15.4 179.4 293.6 423.3 — 911.7Total assets $2,052.1 $2,942.6 $2,256.3 $1,470.8 $(4,485.4) $4,236.4Liabilities and stockholders’ equity Current installments of long-term debt $— $23.0 $— $7.4 $— $30.4Other current liabilities 30.4 63.2 176.2 151.4 — 421.2Long-term debt, excluding currentinstallments 250.0 2,912.2 — — — 3,162.2Other non-current liabilities 20.8 37.8 121.2 67.8 — 247.6Intercompany balances 1,375.9 — 2.4 348.1 (1,726.4) —Stockholders’ equity 375.0 (93.6) 1,956.5 896.1 (2,759.0) 375.0Total liabilities and stockholders’equity $2,052.1 $2,942.6 $2,256.3 $1,470.8 $(4,485.4) $4,236.4158SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OFOPERATIONS AND COMPREHENSIVE LOSSYear Ended December 31, 2014 ParentCompany SGI GuarantorSubsidiaries Non-GuarantorSubsidiaries EliminatingEntries ConsolidatedRevenue $— $432.0 $725.4 $629.0 $— $1,786.4Cost of instant games, cost of servicesand cost of product sales (1) — 133.6 370.1 345.7 — 849.4Selling, general and administrative 86.7 67.0 234.2 119.8 — 507.7Research and development — 4.0 95.0 18.0 — 117.0Employee termination and restructuring 3.5 1.8 17.5 7.9 — 30.7Depreciation and amortization 7.9 46.9 303.3 96.2 — 454.3Operating (loss) income (98.1) 178.7 (294.7) 41.4 — (172.7)Interest expense (2.8) (146.7) (156.9) (0.8) — (307.2)Other income (expense), net (57.9) (187.6) 177.7 52.8 — (15.0)Net (loss) income before equity inincome of subsidiaries and incometaxes (158.8) (155.6) (273.9) 93.4 — (494.9)Equity in (loss) income of subsidiaries (330.3) 55.9 — — 274.4 —Income tax benefit (expense) 254.8 (0.3) 19.7 (13.6) 260.6Net (loss) income from continuingoperations $(234.3) $(100.0) $(254.2) $79.8 $274.4 $(234.3) Net loss from discontinued operations — — — — — — Net (loss) income (234.3) (100.0) (254.2) 79.8 274.4 (234.3) Other comprehensive income (loss) (112.7) (7.5) 6.5 (111.2) 112.2 (112.7)Comprehensive (loss) income $(347.0) $(107.5) $(247.7) $(31.4) $386.6 $(347.0)_______________________________________________________________________________(1)Exclusive of depreciation and amortization.159SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OFOPERATIONS AND COMPREHENSIVE LOSSYear Ended December 31, 2013 ParentCompany SGI GuarantorSubsidiaries Non-GuarantorSubsidiaries EliminatingEntries ConsolidatedRevenue $— $413.1 $164.9 $516.8 $(3.9) $1,090.9Cost of instant games, cost of servicesand cost of product sales (1) — 129.1 183.8 287.3 (8.5) 591.7Selling, general and administrative 77.2 52.7 50.3 87.8 (1.6) 266.4Research and development — 4.6 17.4 4.0 — 26.0Employee termination andrestructuring 8.9 2.8 3.5 7.5 — 22.7Depreciation and amortization 1.2 46.1 61.4 93.7 202.4Operating (loss) income (87.3) 177.8 (151.5) 36.5 6.2 (18.3)Interest expense (21.3) (97.2) (0.2) (0.8) — (119.5)Other (expense) income, net 16.3 (190.5) 181.2 (6.3) (6.2) (5.5)Net (loss) income before equity inincome of subsidiaries and incometaxes (92.3) (109.9) 29.5 29.4 — (143.3)Equity in (loss) income of subsidiaries (61.8) 29.4 — — 32.4 —Income tax benefit (expense) 128.5 (0.3) — (10.5) — 117.7Net (loss) income from continuingoperations (25.6) (80.8) 29.5 18.9 32.4 (25.6) Net loss from discontinued operations (4.6) — — (4.6) 4.6 (4.6) Net (loss) income (30.2) (80.8) 29.5 14.3 37.0 (30.2) Other comprehensive (loss) income 21.3 (1.8) — 1.1 0.7 21.3Comprehensive (loss) income $(8.9) $(82.6) $29.5 $15.4 $37.7 $(8.9)_______________________________________________________________________________(1)Exclusive of depreciation and amortization.160SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OFOPERATIONS AND COMPREHENSIVE LOSSYear Ended December 31, 2012 ParentCompany SGI GuarantorSubsidiaries Non-GuarantorSubsidiaries EliminatingEntries ConsolidatedRevenue $— $421.9 $45.0 $466.2 $(4.5) $928.6Cost of instant games, cost of servicesand cost of product sales (1) — 136.2 138.5 252.4 (8.8) 518.3Selling, general and administrative 65.0 51.9 11.7 54.0 (3.2) 179.4Research and development — 4.1 0.4 2.1 — 6.6Employee termination andrestructuring — — — 10.6 — 10.6Depreciation and amortization 0.6 36.6 24.0 89.6 — 150.8Operating (loss) income (65.6) 193.1 (129.6) 57.5 7.5 62.9Interest expense (21.2) (77.6) — (1.2) — (100.0)Other expense (income), net 29.0 (193.0) 170.2 15.2 (7.5) 13.9Net (loss) income before equity inincome of subsidiaries and incometaxes (57.8) (77.5) 40.6 71.5 — (23.2)Equity in income (loss) of subsidiaries (41.8) 40.0 — — 1.8 —Income tax benefit (expense) 55.7 (58.3) — (18.1) — (20.7)Net (loss) income from continuingoperations (43.9) (95.8) 40.6 53.4 1.8 (43.9) Net loss from discontinued operations (18.7) (18.7) 18.7 (18.7) Net (loss) income (62.6) (95.8) 40.6 34.7 20.5 (62.6) Other comprehensive (loss) income 29.8 1.0 — 28.7 (29.7) 29.8Comprehensive (loss) income $(32.8) $(94.8) $40.6 $63.4 $(9.2) $(32.8)_______________________________________________________________________________(1)Exclusive of depreciation and amortization.161SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSYear Ended December 31, 2014 ParentCompany SGI GuarantorSubsidiaries Non-GuarantorSubsidiaries EliminatingEntries ConsolidatedNet (loss) income $(234.3) $(100.0) $(254.2) $79.8 $274.4 $(234.3)Depreciation and amortization 7.9 46.9 303.3 96.2 — 454.3Change in deferred income taxes (14.1) 24.5 (144.5) (130.2) — (264.3)Equity in income of subsidiaries 330.3 (55.9) — — (274.4) —Non-cash interest expense 0.7 18.7 — — — 19.4Earnings (loss) from equity investments — 37.6 (4.3) (25.7) — 7.6Distributed earnings from equityinvestments — 0.8 4.3 23.4 — 28.5Stock-based compensation 24.0 — — 0.1 — 24.1Early extinguishment of debt — 25.9 — — — 25.9Gain of sale of equity — — — (14.5) — (14.5)Changes in working capital and other (4.0) 36.8 105.7 18.3 — 156.8Net cash provided by (used in) operatingactivities 110.5 35.3 10.3 47.4 — 203.5Cash flows from investing activities: Capital and wagering systems expenditures (12.9) (30.1) (156.4) (38.9) — (238.3)Investments in subsidiaries — — — — — —Equity method investments — (7.6) — (40.6) — (48.2)Distribution of capital on equityinvestments — 1.6 — 47.2 — 48.8Proceeds on sale of equity interest — — — 44.9 — 44.9Restricted cash — — (0.4) — — (0.4)Proceeds from sale of Racing Business — — — — — —Business acquisitions, net of cashacquired — — (3,140.6) — — (3,140.6)Other assets and investments (3,210.2) 29.3 4.3 49.3 3,128.2 0.9Other, principally change in intercompanyinvesting activities — (5,155.1) 296.3 — 4,858.8 —Net cash provided by (used in) investingactivities (3,223.1) (5,161.9) (2,996.8) 61.9 7,987.0 (3,332.9)Cash flows from financing activities: Net proceeds/payments on long-term debt — 5,289.2 (1,882.9) (11.1) — 3,395.2Excess tax benefit from equity-basedcompensation plans — — — 0.3 — 0.3Payments of financing fees — (163.1) — — — (163.1)Net proceeds from stock issue (18.7) — 3,195.4 (67.2) (3,128.2) (18.7)Common stock purchases (29.5) — — — — (29.5)Contingent earnout payment — — (10.0) (3.2) — (13.2)Payment on license obligations — — (13.6) — — (13.6)Other, principally change in intercompanyfinancing activities 3,141.4 — 1,699.2 18.2 (4,858.8) —Net cash provided by (used in) financingactivities 3,093.2 5,126.1 2,988.1 (63.0) (7,987.0) 3,157.4Effect of exchange rate changes on cash — 0.6 0.4 (10.9) — (9.9)Increase (decrease) in cash and cashequivalents (19.4) 0.1 2.0 35.4 — 18.1Cash and cash equivalents, beginning ofperiod 57.3 — 26.8 69.6 — 153.7Cash and cash equivalents, end of year $37.9 $0.1 $28.8 $105.0 $— $171.8162SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSYear Ended December 31, 2013ParentCompanySGIGuarantorSubsidiariesNon-GuarantorSubsidiariesEliminatingEntriesConsolidatedNet (loss) income $(30.2) $(80.8) $29.5 $14.3 $37.0 $(30.2)Depreciation and amortization 1.2 46.1 61.4 94.3 — 203.0Change in deferred income taxes 1.0 9.6 (116.5) (1.9) — (107.8)Equity in income of subsidiaries 66.4 (29.4) — — (37.0) —Non-cash interest expense 0.7 8.0 — — — 8.7Earnings (loss) from equityinvestments — 4.6 (3.2) (2.9) — (1.5)Distributed earnings from equityinvestments — 1.0 3.2 25.3 — 29.5Stock-based compensation 21.7 0.1 — 0.5 — 22.3Early extinguishment of debt — 5.9 — — — 5.9Allowance for doubtful accounts — 0.9 6.5 0.5 — 7.9Changes in working capital and other (0.4) (9.3) 40.4 2.7 — 33.4Net cash provided by (used in) operatingactivities 60.4 (43.3) 21.3 132.8 — 171.2Cash flows from investing activities: Capital and wagering systemsexpenditures (6.9) (30.3) (49.8) (78.8) — (165.8)Investments in subsidiaries (1,485.9) 35.9 — 28.5 1,421.5 —Equity method investments — (40.3) — (25.1) — (65.4)Restricted cash — — (0.7) 30.8 — 30.1Proceeds from sale of Racing Business 10.0 — — — — 10.0Business acquisitions, net of cashacquired — — (1,489.1) 16.2 — (1,472.9)Other assets and investments — — (0.3) (0.4) — (0.7)Other, principally change inintercompany investing activities 79.7 (1,430.1) 166.5 — 1,183.9 —Net cash provided by (used in) investingactivities (1,403.1) (1,464.8) (1,373.4) (28.8) 2,605.4 (1,664.7)Cash flows from financing activities: Net proceeds/payments on long-termdebt — 1,728.7 (100.0) (5.4) — 1,623.3Excess tax benefit from equity-basedcompensation plans — — — 0.9 — 0.9Payments of financing fees — (82.6) — — — (82.6)Net proceeds from stock issue (2.1) — 1,476.5 (55.0) (1,421.5) (2.1)Purchase of treasury stock (0.8) — — — — (0.8)Other, principally change inintercompany financing activities 1,375.8 (138.7) — (53.2) (1,183.9) —Net cash provided by (used in) financingactivities 1,372.9 1,507.4 1,376.5 (112.7) (2,605.4) 1,538.7Effect of exchange rate changes on cash — 0.3 — (0.8) — (0.5)Increase (decrease) in cash and cashequivalents 30.2 (0.4) 24.4 (9.5) — 44.7Cash and cash equivalents, beginning ofperiod 27.1 0.4 2.4 79.1 — 109.0Cash and cash equivalents, end of year $57.3 $— $26.8 $69.6 $— $153.7163SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)SUPPLEMENTALCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSYear Ended December 31, 2012 ParentCompany SGI GuarantorSubsidiaries Non-GuarantorSubsidiaries EliminatingEntries ConsolidatedNet (loss) income $(62.6) $(95.8) $40.6 $34.7 $20.5 $(62.6)Depreciation and amortization 0.6 36.7 24.0 112.1 — 173.4Change in deferred income taxes (46.4) 61.7 (9.3) 1.9 — 7.9Equity in income of subsidiaries 60.5 (40.0) — — (20.5) —Non-cash interest expense 0.7 7.1 — — — 7.8Undistributed earnings from equityinvestments — 2.6 5.2 (2.2) 4.4 10.0Stock-based compensation 24.2 — — — — 24.2Early extinguishment of debt — 15.5 — — — 15.5Allowance for doubtful accounts — (0.3) — 6.2 — 5.9Changes in working capital and other 2.5 (9.4) 6.5 (20.5) (4.4) (25.3)Net cash provided by (used in) operatingactivities (20.5) (21.9) 67.0 132.2 — 156.8Cash flows from investing activities: Capital and wagering systemsexpenditures (2.8) (30.2) (17.1) (61.3) — (111.4)Investments in subsidiaries — (37.1) — 85.3 (48.2) —Equity method investments — 1.0 0.2 23.7 — 24.9Restricted cash — — — (29.4) — (29.4)Proceeds from sale of Racing Business — — — — — —Business acquisitions, net of cashacquired — (1.0) — (23.8) — (24.8)Other assets and investments (0.5) (0.1) — (0.6) — (1.2)Other, principally change inintercompany investing activities 100.1 (50.1) (50.0) —Net cash provided by (used in) investingactivities 96.8 (67.4) (67.0) (6.1) (98.2) (141.9)Cash flows from financing activities: Net proceeds/payments on long-termdebt — 93.7 — (17.0) — 76.7Excess tax benefit from equity-basedcompensation plans — — — 0.4 — 0.4Payments of financing fees — (14.0) — — — (14.0)Net proceeds from stock issue (4.7) — — (48.2) 48.2 (4.7)Purchase of treasury stock (68.5) — — — — (68.5)Other, principally change inintercompany financing activities — 9.9 — (59.9) 50.0 —Net cash provided by (used in) financingactivities (73.2) 89.6 — (124.7) 98.2 (10.1)Effect of exchange rate changes on cash — — — (0.2) — (0.2)Increase in cash and cash equivalents 3.1 0.3 — 1.2 — 4.6Cash and cash equivalents, beginning ofperiod 24.0 0.1 2.4 77.9 — 104.4Cash and cash equivalents, end of year $27.1 $0.4 $2.4 $79.1 $— $109.0164SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts)(25) Selected Quarterly Financial Data, Unaudited Quarter Ended 2014 March 31 (a) June 30 (b) September 30 (c) December 31 (d)Total operating revenues $388.1 $416.9 $415.6 $565.8Total cost of instant games, services and product sales revenue 182.8 192.4 199.2 275.0Selling, general and administrative 91.8 95.2 95.6 225.1Research and development 25.9 24.8 26.3 40.0Employee termination and restructuring 5.6 4.9 1.9 18.3Depreciation and amortization 94.1 96.0 100.4 163.8Operating income (loss) (12.1) 3.6 (7.8) (156.4)Net loss from continuing operations $(45.0) $(72.4) $(69.8) $(47.1)Net loss from discontinued operations — — — —Net loss $(45.0) $(72.4) $(69.8) $(47.1) Basic and diluted earnings per share: Basic from continuing operations $(0.53) $(0.86) $(0.82) $(0.55)Basic from discontinued operations — — — —Total basic net loss per share $(0.53) $(0.86) $(0.82) $(0.55) Diluted from continuing operations $(0.53) $(0.86) $(0.82) $(0.55)Diluted from discontinued operations — — — —Total diluted net loss per share $(0.53) $(0.86) $(0.82) $(0.55) Weighted average number of shares used in per share calculations: Basic shares 84.3 84.4 84.7 84.9Diluted shares 84.3 84.4 84.7 84.9(a)Includes $14.5 million gain from the sale of our 20% equity interest in Sportech.(b)Includes $25.9 million loss on early extinguishment of debt primarily related to the tender and redemption premiums and the write-off of deferred financing costs inconnection with the purchase and redemption of our 2019 Notes. Also includes $8.0 million charge we recorded related to our share of an estimated net shortfall paymentaccrued by Northstar Illinois.(c)Includes $17.4 million decrease in earnings from equity investments primarily due to the $19.7 million non-cash impairment charge we recorded to write down ourNorthstar Illinois equity investment.(d)Reflects operating results of Bally from the acquisition date to December 31, 2014 including $151.6 million of revenue, $52.9 million of costs of services and product sales,$81.2 million of SG&A, $13.0 million of R&D, $3.9 million of employee termination and restructuring costs, and $36.9 million of D&A. Results for the three months endedDecember 31, 2014 also included an additional $13.6 million of employee termination and restructuring costs which are described in Note 4 (Employee Termination andRestructuring Plans), $6.2 million of impairment charges associated with the MMC game, $5.2 million of impairment charges related to inventory obsolescence, $4.0 millionwrite-down of certain receivables from international customers and an incremental $3.1 million charge in earnings (loss) from equity investments related to the additionalshortfall payment booked by the Northstar Illinois joint venture for the lottery's fiscal year ended June 30, 2014.165SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) Quarter Ended 2013 March 31 (a)June 30 (b)September 30 (c)December 31 (d)Total operating revenues$219.6$235.0$234.4$401.9Total cost of instant games, services andproduct sales revenue124.7133.4126.5207.1Selling, general and administrative48.844.745.6127.3Research and development 1.9 1.4 1.4 21.3Employee termination and restructuring0.3——22.4Depreciation and amortization32.843.135.291.3Operating income (loss)11.112.425.7(67.5)Net loss from continuing operations $(12.3) $(12.4) $(0.4) $(0.5)Net loss from discontinued operations (0.9) (0.6) (0.1) (3.0)Net loss$(13.2) $(13.0) $(0.5) $(3.5) Basic and diluted earnings per share: Basic from continuing operations $(0.15) $(0.14) $(0.01) $(0.01)Basic from discontinued operations (0.01) (0.01) 0.00 (0.03)Total basic net loss per share $(0.16) $(0.15) $(0.01) $(0.04) Diluted from continuing operations $(0.15) $(0.14) $(0.01) $(0.01)Diluted from discontinued operations (0.01) (0.01) 0.00 (0.03)Total diluted net loss per share$(0.16)$(0.15)$(0.01)$(0.04) Weighted average number of shares usedin per share calculations: Basic shares84.685.085.185.2Diluted shares84.685.085.185.2_______________________________________________________________________________(a)Includes $4.4 million of acquisition-related fees and expenses.(b)Includes $2.7 million of acquisition-related fees and expenses and $8.7 million of depreciation related to a write-down of used gaming machines and accelerateddepreciation related to our change in the estimated useful lives of our gaming machine fixed assets.(c)Includes $2.8 million of acquisition-related fees and expenses.(d)Reflects operating results of WMS from the acquisition date to December 31, 2013 including $144.7 million of revenue, $63.8 million of costs of services and product sales,$47.5 million of SG&A, $19.1 million of R&D, $5.3 million of employee termination and restructuring costs, and $40.1 million of D&A. Results for the three months endedDecember 31, 2013 also included an additional $17.1 million of employee termination and restructuring costs, which are described in Note 4 (Employee Termination andRestructuring Plans). D&A also includes $4.6 million of accelerated amortization related to obsolete gaming machine software and $3.1 million of accelerated depreciationrelated to the exit from our instant lottery game operations in Mexico. SG&A also includes $11.1 million acquisition-related fees and expenses.166SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table amounts are presented in millions, except per share amounts) Quarter Ended 2012 March 31 (a) June 30 (b) September 30 (c) December 31 (d)Total operating revenues $231.2 $226.0 $224.6 $246.8Total cost of instant games, services andproduct sales revenue 130.2 125.6 126.9 135.6Selling, general and administrative 43.6 44.7 42.2 48.9Research and development 1.7 1.8 1.6 1.5Employee termination and restructuring 2.3 5.7 1.8 0.8Depreciation and amortization 28.5 36.8 35.6 49.9Operating income 24.9 11.4 16.5 10.1Net income (loss) from continuing operations $3.9 $(10.9) $(24.5) (12.4)Net loss from discontinued operations $(2.1) $(1.7) $(2.6) (12.3)Net income (loss) $1.8 $(12.6) $(27.1) $(24.7) Basic and diluted earnings per share: Basic from continuing operations $0.04 $(0.12) $(0.27) $(0.15)Basic from discontinued operations (0.02) (0.02) (0.03) (0.14)Total basic net income (loss) per share $0.02 $(0.14) $(0.30) $(0.29) Diluted from continuing operations 0.04 (0.12) (0.27) (0.15)Diluted from discontinued operations (0.02) (0.02) (0.03) (0.14)Total diluted net income (loss) per share $0.02 $(0.14) $(0.30) $(0.29) Weighted average number of shares used in pershare calculations: Basic shares 92.5 92.8 90.0 84.9Diluted shares 94.2 92.8 90.0 84.9 _______________________________________________________________________________(a)Includes $2.9 million employee termination and restructuring costs due to our exit from the amusement with prize (“AWP”) business and the reorganization of our pubbusiness.(b)Includes $6.0 million employee termination and restructuring costs due to our exit from the Barcrest AWP business and the reorganization of our pub business and thereorganization of our Australia printing operations. Includes $5.8 million of accelerated depreciation related to a write-down of certain development costs and obsoletegaming machines, $2.4 million of incremental depreciation from the acquisition of Barcrest and $1.5 million of accelerated depreciation of equipment related to thereorganization of our Australia printing operations.(c)Includes $1.8 million employee termination and restructuring costs due to our exit from the Barcrest AWP business and the reorganization of our pub business and thereorganization of our Australia printing operations. Includes $6.7 million of accelerated depreciation related to a write-down of gaming machines, $1.9 million ofaccelerated depreciation of equipment related to reorganization of our Australia printing operations and $1.6 million of incremental depreciation from the acquisition ofBarcrest. Includes a loss on early extinguishment of debt due to the redemption of the 2016 Notes resulting in a charge of $15.5 million comprised primarily of theredemption premium and the write-off of previously deferred financing costs.(d)Includes $0.8 million employee termination and restructuring costs due to our exit from the Barcrest AWP business and the reorganization of our pub business and thereorganization of our Australia printing operations. Includes $24.0 million of accelerated depreciation related to a write-down of gaming machines and software in ourgaming business and certain development costs in our licensed properties business and $5.8 million of impairment charges related to underperforming Lottery contracts.167SCHEDULE IISCIENTIFIC GAMES CORPORATION AND SUBSIDIARIESValuation and Qualifying AccountsYears Ended December 31, 2014, 2013 and 2012(in millions)Allowance for doubtful accounts Balance atBeginning ofPeriod Charged toCosts andExpenses Other (1) Deductions (2) Balance at Endof PeriodYear ended December 31, 2014 $20.0 6.4 (0.4) (9.0) $17.0Year ended December 31, 2013 $11.2 9.3 (0.2) (0.3) $20.0Year ended December 31, 2012 $4.8 6.5 0.6 (0.7) $11.2Tax-related valuation allowance Balance atBeginning ofPeriod Charged toTax (Benefit)Expense Other (3) Balance at Endof PeriodYear ended December 31, 2014 $178.7 (71.4) — $107.3Year ended December 31, 2013 $241.2 (62.5) — $178.7Year ended December 31, 2012 $236.3 18.8 (13.9) $241.2_______________________________________________________________________________(1)Includes the impact of the acquisition of Barcrest and Provoloto(2)Amounts written off and related impact of foreign currency exchange.(3)Amount written off due to our election to convert previously claimed foreign tax credits into deductions on our 2008 and 2009 federal tax returns.168SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. March 16, 2015 SCIENTIFIC GAMES CORPORATION By: /s/ Scott D. SchweinfurthScott D. Schweinfurth,Chief Financial Officer By: /s/ Jeffrey B. JohnsonJeffrey B. Johnson,Chief Accounting OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of theRegistrant and in the capacities indicated on March 16, 2015. Signature Title /s/ Ronald O. Perelman Chairman of the BoardRonald O. Perelman /s/ M. Gavin Isaacs President and Chief Executive Officer (principal executive officer)M. Gavin Isaacs /s/ Scott D. Schweinfurth Executive Vice President and Chief Financial Officer (principal financialofficer)Scott D. Schweinfurth /s/ Jeffrey B. Johnson Vice President, Finance, and Chief Accounting Officer (principalaccounting officer)Jeffrey B. Johnson /s/ David L. Kennedy Vice Chairman of the BoardDavid L. Kennedy /s/ Peter A. Cohen Vice Chairman of the BoardPeter A. Cohen /s/ Richard M. Haddrill Executive Vice Chairman of the BoardRichard M. Haddrill 169 Signature Title /s/ Gerald J. Ford DirectorGerald J. Ford /s/ Barry F. Schwartz DirectorBarry F. Schwartz /s/ Michael J. Regan DirectorMichael J. Regan /s/ Frances F. Townsend DirectorFrances F. Townsend /s/ Paul M. Meister DirectorPaul M. Meister /s/ Debra G. Perelman DirectorDebra G. Perelman /s/ Gabrielle K. McDonald DirectorGabrielle K. McDonald 170(3). Exhibits.EXHIBIT INDEXExhibitNumberDescription2.1Agreement and Plan of Merger, dated as of January 30, 2013, entered into by and among Scientific Games Corporation,Scientific Games International, Inc., SG California Merger Sub, Inc. and WMS Industries Inc. (incorporated by referenceto Exhibit 2.1 to Scientific Games Corporation's Current Report on Form 8-K filed on February 5, 2013). 2.2Agreement and Plan of Merger, dated as of August 1, 2014, by and among the Scientific Games Corporation, ScientificGames International, Inc., Scientific Games Nevada, Inc. and Bally Technologies, Inc. (incorporated by reference toExhibit 2.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on August 4, 2014). 3.1(a)Restated Certificate of Incorporation of Scientific Games Corporation, filed with the Secretary of State of the State ofDelaware on March 20, 2003 (incorporated by reference to Exhibit 3.1 to Scientific Games Corporation’s Annual Reporton Form 10-K for the fiscal year ended December 31, 2002). 3.1(b)Certificate of Amendment of the Restated Certificate of Incorporation of Scientific Games Corporation, filed with theSecretary of State of the State of Delaware on June 7, 2007 (incorporated by reference to Exhibit 3.1(b) to ScientificGames Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007). 3.2Amended and Restated Bylaws of Scientific Games Corporation (incorporated by reference to Exhibit 3.1 to ScientificGames Corporation's Current Report on Form 8-K filed on November 1, 2010). 4.1Indenture, dated as of September 22, 2010, among Scientific Games Corporation, as issuer, the guarantors party theretoand The Bank of Nova Scotia Trust Company of New York, as trustee, relating to the 8.125% Senior Subordinated Notesdue 2018 (incorporated by reference to Exhibit 4.1 to Scientific Games Corporation's Current Report on Form 8-K filedon September 23, 2010). 4.2Form of 8.125% Senior Subordinated Notes due 2018 (incorporated by reference to Exhibits 4.3(a) and 4.3(b) toScientific Games Corporation's Registration Statement on Form S-4 (No. 333-172600) filed on March 3, 2011 andincluded in Exhibit 4.1 above). 4.3Supplemental Indenture, dated as of August 20, 2012, among Scientific Games Corporation, as issuer, Sciplay Inc. andthe other guarantors party thereto, and The Bank of Nova Scotia Trust Company of New York, as trustee, relating to theIndenture, dated as of September 22, 2010, by and among Scientific Games Corporation, as issuer, the guarantors partythereto and The Bank of Nova Scotia Trust Company of New York, as trustee, relating to the 8.125% SeniorSubordinated Notes due 2018 (incorporated by reference to Exhibit 4.2 to Scientific Games Corporation's QuarterlyReport on Form 10-Q for the quarter ended March 31, 2013). 4.4Supplemental Indenture, dated as of April 16, 2013, among Scientific Games Corporation, as issuer, SG CaliforniaMerger Sub, Inc., Scientific Games New Jersey, LLC and the other guarantors party thereto, and The Bank of NovaScotia Trust Company of New York, as trustee, relating to the Indenture, dated as of September 22, 2010, by and amongScientific Games Corporation, as issuer, the guarantors party thereto and The Bank of Nova Scotia Trust Company ofNew York, as trustee, relating to the 8.125% Senior Subordinated Notes due 2018 (incorporated by reference to Exhibit4.3 to Scientific Games Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013). 1714.5Supplemental Indenture, dated as of October 18, 2013, among Scientific Games Corporation, as issuer, WMS IndustriesInc., WMS Gaming Inc., WMS International Holdings Inc., Phantom EFX, LLC, Lenc-Smith Inc., Williams ElectronicsGames, Inc., WMS Finance Inc., Lenc Software Holdings LLC, Williams Interactive LLC and the other guarantors partythereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of September 22,2010, by and among Scientific Games Corporation, as issuer, the guarantors party thereto and The Bank of Nova ScotiaTrust Company of New York, as trustee, relating to the 8.125% Senior Subordinated Notes due 2018 (incorporated byreference to Exhibit 4.2 to Scientific Games Corporation's Current Report on Form 8-K filed on October 18, 2013). 4.6Supplemental Indenture, dated as of September 15, 2014, among Scientific Games Corporation, as issuer, ScientificGames Productions, LLC, Scientific Games Distribution, LLC and the other guarantors party thereto, and Deutsche BankTrust Company Americas, as successor trustee, relating to the Indenture, dated as of September 22, 2010, by and amongScientific Games Corporation, as issuer, the guarantors party thereto and Deutsche Bank Trust Company Americas, assuccessor trustee, relating to the 8.125% Senior Subordinated Notes due 2018 (incorporated by reference to Exhibit 4.1 toScientific Games Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2014). 4.7Supplemental Indenture, dated as of November 21, 2014, among Scientific Games Corporation, as issuer, BallyTechnologies, Inc., Casino Electronics, Inc., Alliance Holding Company, Bally Gaming International, Inc., Bally Gaming,Inc., Bally Gaming GP, LLC, Bally Gaming LP, LLC, Bally Properties East, LLC, Bally Properties West, LLC,Compudigm Services, Inc., SHFL Properties, LLC, Sierra Design Group, Arcade Planet, Inc. and the other guarantorsparty thereto, and Deutsche Bank Trust Company Americas, as successor trustee, relating to the Indenture, dated as ofSeptember 22, 2010, by and among Scientific Games Corporation, as issuer, the guarantors party thereto and DeutscheBank Trust Company Americas, as successor trustee, relating to the 8.125% Senior Subordinated Notes due 2018(incorporated by reference to Exhibit 4.6 to Scientific Games Corporation's Current Report on Form 8-K filed onNovember 26, 2014). 4.8Indenture, dated as of August 20, 2012, among Scientific Games International, Inc., as issuer, Scientific GamesCorporation and the other guarantor party thereto and The Bank of Nova Scotia Trust Company of New York, as trustee,relating to the 6.250% Senior Subordinated Notes due 2020 (incorporated by reference to Exhibit 4.1 to Scientific GamesCorporation's Current Report on Form 8-K filed on August 21, 2012). 4.9Form of 6.250% Senior Subordinated Notes due 2020 (incorporated by reference to Exhibits 4.3(a) and 4.3(b) toScientific Games Corporation's Registration Statement on Form S-4 (No. 333-184835) filed on November 8, 2012 andincluded in Exhibit 4.8 above). 4.10Supplemental Indenture, dated as of April 16, 2013, among Scientific Games International, Inc., as issuer, ScientificGames Corporation, SG California Merger Sub, Inc., Scientific Games New Jersey, LLC and the other guarantors partythereto, and The Bank of Nova Scotia Trust Company of New York, as trustee, relating to the Indenture, dated as ofAugust 20, 2012, among Scientific Games International, Inc., as issuer, Scientific Games Corporation and the otherguarantors party thereto and The Bank of Nova Scotia Trust Company of New York, as trustee, relating to the 6.250%Senior Subordinated Notes due 2020 (incorporated by reference to Exhibit 4.5 to Scientific Games Corporation'sQuarterly Report on Form 10-Q for the quarter ended March 31, 2013). 4.11Supplemental Indenture, dated as of October 18 2013, among Scientific Games International, Inc., as issuer, ScientificGames Corporation, WMS Industries Inc., WMS Gaming Inc., WMS International Holdings Inc., Phantom EFX, LLC,Lenc-Smith Inc., Williams Electronics Games, Inc., WMS Finance Inc., Lenc Software Holdings LLC, WilliamsInteractive LLC and the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, relatingto the Indenture, dated as of August 20, 2012, among Scientific Games International, Inc., as issuer, Scientific GamesCorporation and the other guarantors party thereto and The Bank of Nova Scotia Trust Company of New York, as trustee,relating to the 6.250% Senior Subordinated Notes due 2020 (incorporated by reference to Exhibit 4.3 to Scientific GamesCorporation's Current Report on Form 8-K filed on October 18, 2013). 1724.12Supplemental Indenture, dated as of September 15, 2014, among Scientific Games International, Inc., as issuer, ScientificGames Corporation, Scientific Games Productions, LLC, Scientific Games Distribution, LLC and the other guarantorsparty thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of August 20,2012, by and among Scientific Games International, Inc., as issuer, Scientific Games Corporation and the otherguarantors party thereto and Deutsche Bank Trust Company Americas, as successor trustee, relating to the 6.250% SeniorSubordinated Notes due 2020 (incorporated by reference to Exhibit 4.2 to Scientific Games Corporation's QuarterlyReport on Form 10-Q for the quarter ended September 30, 2014). 4.13Supplemental Indenture, dated as of November 21, 2014, among Scientific Games International, Inc., as issuer, ScientificGames Corporation, Bally Technologies, Inc., Casino Electronics, Inc., Alliance Holding Company, Bally GamingInternational, Inc., Bally Gaming, Inc., Bally Gaming GP, LLC, Bally Gaming LP, LLC, Bally Properties East, LLC, BallyProperties West, LLC, Compudigm Services, Inc., SHFL Properties, LLC, Sierra Design Group, Arcade Planet, Inc. andthe other guarantors party thereto, and Deutsche Bank Trust Company Americas, as successor trustee, relating to theIndenture, dated as of August 20, 2012, by and among Scientific Games International, Inc., as issuer, Scientific GamesCorporation and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as successor trustee,relating to the 6.250% Senior Subordinated Notes due 2020 (incorporated by reference to Exhibit 4.7 to Scientific GamesCorporation's Current Report on Form 8-K filed on November 26, 2014). 4.14Indenture, dated as of June 4, 2014, among Scientific Games International, Inc., as issuer, Scientific Games Corporationand the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating to the 6.625%Senior Subordinated Notes due 2021 (incorporated by reference to Exhibit 4.1 to Scientific Games Corporation's CurrentReport on Form 8-K filed on June 6, 2014). 4.15Registration Rights Agreement, dated as of June 4, 2014, among SGI, Scientific Games Corporation, the other guarantorsparty thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative for the initial purchasers listedtherein, relating to the 6.625% Senior Subordinated Notes due 2021 (incorporated by reference to Exhibit 4.2 to ScientificGames Corporation's Current Report on Form 8-K filed on June 6, 2014). 4.16Supplemental Indenture, dated as of September 15, 2014, among Scientific Games International, Inc., as issuer, ScientificGames Corporation, Scientific Games Productions, LLC, Scientific Games Distribution, LLC and the other guarantorsparty thereto, and Deutsche Bank Trust Company Americas, as trustee, relating to the Indenture, dated as of June 4,2014, by and among Scientific Games International, Inc., as issuer, Scientific Games Corporation and the otherguarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating to the 6.625% SeniorSubordinated Notes due 2021 (incorporated by reference to Exhibit 4.3 to Scientific Games Corporation's QuarterlyReport on Form 10-Q for the quarter ended September 30, 2014). 4.17Supplemental Indenture, dated as of November 21, 2014, among Scientific Games International, Inc., as issuer, ScientificGames Corporation, Bally Technologies, Inc., Casino Electronics, Inc., Alliance Holding Company, Bally GamingInternational, Inc., Bally Gaming, Inc., Bally Gaming GP, LLC, Bally Gaming LP, LLC, Bally Properties East, LLC, BallyProperties West, LLC, Compudigm Services, Inc., SHFL Properties, LLC, Sierra Design Group, Arcade Planet, Inc. andthe other guarantors party thereto, and Deutsche Bank Trust Company Americas, as successor trustee, relating to theIndenture, dated as of June 4, 2014, by and among Scientific Games International, Inc., as issuer, Scientific GamesCorporation and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating tothe 6.625% Senior Subordinated Notes due 2021 (incorporated by reference to Exhibit 4.8 to Scientific GamesCorporation's Current Report on Form 8-K filed on November 26, 2014). 4.18Indenture, dated as of November 21, 2014, between SGMS Escrow Corp., as issuer, and Deutsche Bank Trust CompanyAmericas, as trustee, relating to the 10.000% Senior Unsecured Notes due 2022 (incorporated by reference to Exhibit 4.1to Scientific Games Corporation's Current Report on Form 8-K filed on November 26, 2014).173 4.19Supplemental Indenture, dated as of November 21, 2014, among Scientific Games International, Inc., as issuer, ScientificGames Corporation and the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee,relating to the Indenture, dated as of November 21, 2014, between SGMS Escrow Corp., as issuer, and Deutsche BankTrust Company Americas, as trustee, relating to the 10.000% Senior Unsecured Notes due 2022 (incorporated byreference to Exhibit 4.2 to Scientific Games Corporation's Current Report on Form 8-K filed on November 26, 2014). 4.20Registration Rights Agreement, dated November 21, 2014, among SGMS Escrow Corp. (and, by a joinder agreement,Scientific Games International, Inc., Scientific Games Corporation and the guarantors party thereto) and J.P. MorganSecurities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., as representativesfor the initial purchasers listed therein, relating to the 10.000% Senior Unsecured Notes due 2022 (incorporated byreference to Exhibit 4.5 to Scientific Games Corporation's Current Report on Form 8-K filed on November 26, 2014). 4.21Indenture, dated as of November 21, 2014, between SGMS Escrow Corp., as issuer, and Deutsche Bank Trust CompanyAmericas, as collateral agent and trustee, related to the 7.000% Senior Secured Notes due 2022 (incorporated byreference to Exhibit 4.3 to Scientific Games Corporation's Current Report on Form 8-K filed on November 26, 2014). 4.22Supplemental Indenture, dated as of November 21, 2014, among Scientific Games International, Inc., as issuer, ScientificGames Corporation, as a guarantor, the subsidiary guarantors party thereto and Deutsche Bank Trust Company Americas,as collateral agent and trustee, related to the 7.000% Senior Secured Notes due 2022 (incorporated by reference toExhibit 4.4 to Scientific Games Corporation's Current Report on Form 8-K filed on November 26, 2014). 10.1Credit Agreement, dated as of October 18, 2013, by and among Scientific Games International, Inc., as the borrower,Scientific Games Corporation, the lenders party thereto from time to time, Bank of America, N.A., as administrativeagent, collateral agent, issuing lender and swingline lender, JPMorgan Chase Bank, N.A., as issuing lender, Bank ofAmerica, N.A., Credit Suisse Securities (USA) LLC and UBS Securities LLC, as joint lead arrangers, Bank of America,N.A., Credit Suisse Securities (USA) LLC, UBS Securities LLC, J.P. Morgan Securities LLC, RBS Securities Inc.,Deutsche Bank Securities Inc., Goldman Sachs Bank USA and HSBC Securities (USA) Inc., as joint bookrunners, CreditSuisse Securities (USA) LLC and UBS Securities LLC, as co-syndication agents, and J.P. Morgan Securities LLC, TheRoyal Bank of Scotland plc, Deutsche Bank Securities Inc., Goldman Sachs Bank USA and HSBC Securities (USA) Inc.,as co-documentation agents (incorporated by reference to Exhibit 10.1 to Scientific Games Corporation's Current Reporton Form 8-K filed on October 18, 2013). 10.2Amendment No. 1 to Credit Agreement, dated as of October 1, 2014, by and among Scientific Games International, Inc.,as the borrower, Scientific Games Corporation, the lenders and other agents from time to time party thereto, and Bank ofAmerica, N.A., as administrative agent, collateral agent, issuing lender and swingline lender, which amended and restatedthe Credit Agreement, dated as of October 18, 2013 among such parties, as set forth in Exhibit A and Exhibit B to suchAmendment No. 1. to Credit Agreement (incorporated by reference to Exhibit 10.1 to Scientific Games Corporation'sCurrent Report on Form 8-K filed on October 7, 2014). 10.3Escrow Credit Agreement, dated as of October 1, 2014, by and among SGMS Escrow Corp., the lenders and other agentsfrom time to time party thereto, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit10.2 to Scientific Games Corporation's Current Report on Form 8-K filed on October 7, 2014). 10.4Guarantee and Collateral Agreement, dated as of October 18, 2013, by and among Scientific Games Corporation,Scientific Games International, Inc., the guarantor parties named therein and Bank of America, N.A. (incorporated byreference to Exhibit 10.2 to Scientific Games Corporation's Current Report on Form 8-K filed on October 18, 2013). 17410.5Collateral Agreement, dated as of November 21, 2014, among Scientific Games International, Inc., as issuer, ScientificGames Corporation, as guarantor, the subsidiary guarantors party thereto and Deutsche Bank Trust Company Americas,as collateral agent, related to the 7.000% Senior Secured Notes due 2022 (incorporated by reference to Exhibit 10.1 toScientific Games Corporation's Current Report on Form 8-K filed on November 26, 2014). 10.6Stockholders' Agreement, dated September 6, 2000, among Scientific Games Corporation, MacAndrews & ForbesHoldings Inc. (formerly known as Mafco Holdings Inc.) ("MacAndrews") (as successor-in-interest under the agreement toCirmatica Gaming S.A.) and Ramius Securities, LLC (incorporated by reference to Exhibit 10.38 to Scientific GamesCorporation's Quarterly Report on Form 10-Q for the quarter ended July 31, 2000). 10.7Supplemental Stockholders' Agreement, dated June 26, 2002, among Scientific Games Corporation and MacAndrews (assuccessor-in-interest to Cirmatica Gaming S.A.) (incorporated by reference to Exhibit 4.2 to Scientific GamesCorporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002). 10.8Letter Agreement, dated as of October 10, 2003, by and between Scientific Games Corporation and MacAndrews furthersupplementing the Stockholders' Agreement (incorporated by reference to Exhibit 3 to the Schedule 13D jointly filed byMacAndrews and SGMS Acquisition Corporation on November 26, 2003). 10.9Letter Agreement dated February 15, 2007 between Scientific Games Corporation and MacAndrews (incorporated byreference to Exhibit 10.1 to Scientific Games Corporation's Current Report on Form 8-K filed on February 16, 2007). 10.10Share Purchase Agreement, dated as of April 26, 2011, by and among Scientific Games Corporation, Global DrawLimited, IGT-UK Group Limited, Cyberview International, Inc. and International Game Technology (incorporated byreference to Exhibit 10.1 to Scientific Games Corporation's Quarterly Report on Form 10-Q for the quarter ended June30, 2011). 10.11TITO Game Manufacturer Cashless License Agreement dated as of June 13, 2014 (incorporated by reference to Exhibit10.1 to Scientific Games Corporation's Current Report Form 8-K filed on June 19, 2014). Portions of this exhibit havebeen omitted under a request for confidential treatment filed separately with the SEC. 10.122003 Incentive Compensation Plan, as amended and restated (incorporated by reference to Exhibit 4.4 to ScientificGames Corporation's Registration Statement on Form S-8 (No. 333-200463) filed on November 24, 2014).* 10.131995 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.14 to Scientific Games Corporation’sAnnual Report on Form 10-K for the fiscal year ended October 31, 1997).* 10.142002 Employee Stock Purchase Plan, as amended and restated (incorporated by reference to Exhibit 10.14 to ScientificGames Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2005).* 10.15Scientific Games Corporation Nonqualified Deferred Compensation Plan, as amended and restated.*(†) 10.16Asia-Pacific Business Incentive Compensation Program (incorporated by reference to Exhibit 10.4 to Scientific GamesCorporation's Current Report on Form 8-K filed on December 3, 2010).* 17510.17Employment Agreement, dated as of June 9, 2014, by and between Scientific Games Corporation and M. Gavin Isaacs(incorporated by reference to Exhibit 10.1 to Scientific Games Corporation's Current Report on Form 8-K filed on June10, 2014).* 10.18Form of Inducement Equity Award Agreement between Scientific Games Corporation and M. Gavin Isaacs (incorporatedby reference to Exhibit 4.4 to Scientific Games Corporation's Registration Statement on Form S-8 (No. 333-197948) filedon August 7, 2014).* 10.19Amended and Restated Executive Employment Agreement, dated April 1, 2014, by and between Scientific GamesCorporation and Scott D. Schweinfurth (incorporated by reference to Exhibit 10.1 to Scientific Games Corporation'sQuarterly Report on Form 10-Q for the quarter ended March 31, 2014).* 10.20Employment Agreement dated as of December 18, 2012 (effective as of January 1, 2013) by and between ScientificGames International, Inc. and James C. Kennedy.*(†) 10.21Employment Agreement dated as of August 28, 2014 between Scientific Games Corporation and Steven W. Beason(incorporated by reference to Exhibit 10.7 to Scientific Games Corporation's Quarterly Report on Form 10-Q for thequarter ended September 30, 2014).* 10.22Employment Agreement dated as of January 1, 2006 by and between Scientific Games Corporation and Larry A. Potts(executed on August 2, 2006) (incorporated by reference to Exhibit 10.4 to Scientific Games Corporation's QuarterlyReport on Form 10-Q for the quarter ended September 30, 2006).* 10.23Letter Agreement dated as of October 2, 2008 by and between Scientific Games Corporation and Larry A. Potts, whichamended Mr. Potts' Employment Agreement dated as of January 1, 2006 (incorporated by reference to Exhibit 10.36 toScientific Games Corporation's Annual Report on Form 10-K for the year ended December 31, 2008).* 10.24Amendment to Employment Agreement dated as of December 30, 2008 by and between Scientific Games Corporationand Larry A. Potts, which amended Mr. Potts' Employment Agreement dated as of January 1, 2006, as amended by theLetter Agreement dated as of October 2, 2008 (incorporated by reference to Exhibit 10.37 to Scientific GamesCorporation's Annual Report on Form 10-K for the year ended December 31, 2008).* 10.25Letter Agreement, dated as of September 28, 2011, by and between Scientific Games Corporation and Larry A. Potts,which amended Mr. Potts' Employment Agreement dated as of January 1, 2006, as amended by the Letter Agreementdated as of October 2, 2008 and the Amendment dated as of December 30, 2008 (incorporated by reference to Exhibit10.2 to Scientific Games Corporation's Current Report on Form 8-K filed on October 3, 2011).* 10.26Letter Agreement, dated as of April 30, 2014, by and between Scientific Games Corporation and Larry A. Potts, whichamended Mr. Potts' Employment Agreement dated as of January 1, 2006, as amended by the Letter Agreement dated asof October 2, 2008, the Amendment dated as of December 30, 2008 and the Letter Agreement dated as of September 28,2011.*(†) 10.27Employment Agreement made as of August 1, 2011 by and between Scientific Games Corporation and Jeffrey Johnson(incorporated by reference to Exhibit 10.1 to Scientific Games Corporation's Current Report on Form 8-K filed onJuly 26, 2011).* 10.28Employment Agreement dated as of January 5, 2015 by and between Scientific Games Corporation and Derik Mooberry.*(†) 10.29Employment Agreement dated as of December 8, 2014 between Scientific Games Corporation and Richard Haddrill.*(†)176 10.30Employment Agreement dated as of December 22, 2010 by and between Scientific Games International, Inc. and WilliamJ. Huntley (incorporated by reference to Exhibit 10.56 to Scientific Games Corporation's Annual Report on Form 10-Kfor the fiscal year ended December 31, 2010).* 10.31Amendment to Employment Agreement, dated as of December 20, 2012 (but effective as of January 1, 2013), by andbetween Scientific Games International, Inc. and William J. Huntley (incorporated by reference to Exhibit 10.1 toScientific Games Corporation's Current Report on Form 8-K filed on December 26, 2012).* 10.32Agreement and General Release dated as of December 30, 2014 between Scientific Games Corporation and William J.Huntley.* (†) 10.33Employment Agreement dated as of November 22, 2013 by and between Scientific Games Corporation and Andrew E.Tomback (incorporated by reference to Exhibit 10.42 to Scientific Games Corporation's Annual Report on Form 10-K forthe year ended December 31, 2013).* 10.34Agreement and General Release dated as of September 30, 2014 between Scientific Games Corporation and Andrew E.Tomback (incorporated by reference to Exhibit 10.4 to Scientific Games Corporation's Quarterly Report on Form 10-Qfor the quarter ended September 30, 2014).* 10.35Employment Agreement dated as of December 5, 2013 by and between Scientific Games Corporation and David L.Kennedy (incorporated by reference to Exhibit 10.43 to Scientific Games Corporation's Annual Report on Form 10-K forthe year ended December 31, 2013).* 10.36Employment Agreement, dated as of June 9, 2014, by and between Scientific Games Corporation and David L. Kennedy(incorporated by reference to Exhibit 10.2 to Scientific Games Corporation's Current Report on Form 8-K filed on June10, 2014).* 10.37Letter Agreement dated as of July 31, 2014 between Scientific Games Corporation and David L. Kennedy (incorporatedby reference to Exhibit 10.3 to Scientific Games Corporation's Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2014).* 10.38Amended and Restated Employment Agreement dated as of April 26, 2012 by and between Scientific Games Corporationand Jeffrey S. Lipkin (incorporated by reference to Exhibit 10.1 to Scientific Games Corporation's Current Report onForm 8-K filed on April 26, 2012).* 10.39Employment Agreement dated as of January 1, 2006 by and between Scientific Games Corporation and A. Lorne Weil(executed on August 8, 2006) (incorporated by reference to Exhibit 10.1 to Scientific Games Corporation's QuarterlyReport on Form 10-Q for the quarter ended September 30, 2006).* 10.40Letter dated August 2, 2007 between A. Lorne Weil and Scientific Games Corporation with respect to payment of Mr.Weil's deferred compensation upon a termination of employment under Mr. Weil's Employment Agreement dated as ofJanuary 1, 2006 (incorporated by reference to Exhibit 10.1 to Scientific Games Corporation's Quarterly Report on Form10-Q for the quarter ended September 30, 2007).* 10.41Amendment to Employment Agreement dated as of May 1, 2008 by and between Scientific Games Corporation and A.Lorne Weil (executed on May 12, 2008), which amended Mr. Weil's Employment Agreement dated as of January 1,2006, as amended by the Letter dated August 2, 2007 (incorporated by reference to Exhibit 10.2 to Scientific GamesCorporation's Current Report on Form 8-K filed on May 14, 2008).* 17710.42Amendment to Employment Agreement dated as of December 30, 2008 by and between Scientific Games Corporationand A. Lorne Weil, which amended Mr. Weil's Employment Agreement dated as of January 1, 2006, as amended by theLetter dated August 2, 2007 and the Amendment dated as of May 1, 2008 (incorporated by reference to Exhibit 10.20 toScientific Games Corporation's Annual Report on Form 10-K for the year ended December 31, 2008).* 10.43Third Amendment to Employment Agreement dated as of May 29, 2009 by and between Scientific Games Corporationand A. Lorne Weil, which amended Mr. Weil's Employment Agreement dated as of January 1, 2006, as amended by theLetter dated August 2, 2007 and the Amendments dated as of May 1, 2008 and December 30, 2008 (incorporated byreference to Exhibit 10.1 to Scientific Games Corporation's Current Report on Form 8-K filed on June 2, 2009).* 10.44Amendment to Employment Agreement dated as of December 2, 2010 by and between Scientific Games Corporation andA. Lorne Weil, which amended Mr. Weil's Employment Agreement dated as of January 1, 2006, as amended by theLetter dated August 2, 2007 and the Amendments dated as of May 1, 2008, December 30, 2008 and May 29, 2009(incorporated by reference to Exhibit 10.1 to Scientific Games Corporation's Current Report on Form 8-K filed onDecember 3, 2010).* 10.45Amendment to Employment Agreement dated as of August 18, 2011 by and between A. Lorne Weil and ScientificGames Corporation, which amended Mr. Weil's Employment Agreement dated as of January 1, 2006, as amended by theLetter dated August 2, 2007 and the Amendments dated as of May 1, 2008, December 30, 2008, May 29, 2009 andDecember 2, 2010 (incorporated by reference to Exhibit 10.1 to Scientific Games Corporation's Current Report on Form8-K filed on August 18, 2011).* 10.46Agreement and General Release dated as of December 30, 2013 by and between A. Lorne Weil and Scientific GamesCorporation (incorporated by reference to Exhibit 10.17 to Scientific Games Corporation's Annual Report on Form 10-Kfor the year ended December 31, 2013).* 12Computation of Ratio of Earnings to Fixed Charges.(†) 21List of Subsidiaries.(†) 23.1Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.(†) 23.2Consent of Reconta Ernst & Young S.p.A., Independent Registered Public Accounting Firm.(†) 31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.(†) 31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.(†) 32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.(†) 32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.(†) 99.1Report of Reconta Ernst & Young S.p.A., Independent Registered Public Accounting Firm.(†) 99.2Financial Statements of Lotterie Nazionali S.r.l.(†) 17899.3Form of Equity Awards Notice-RSUs-Employees under the Scientific Games Corporation 2003 Incentive CompensationPlan (incorporated by reference to Exhibit 99.(d)(2) to Scientific Games Corporation's Schedule TO filed on July 19,2011).* 99.4Form of Equity Awards Notice-RSUs-Non-Employee Directors under the Scientific Games Corporation 2003 IncentiveCompensation Plan (incorporated by reference to Exhibit 99.(d)(3) to Scientific Games Corporation's Schedule TO filedon July 19, 2011).* 99.5Terms and Conditions of Equity Awards to Key Employees under the Scientific Games Corporation 2003 IncentiveCompensation Plan (incorporated by reference to Exhibit 99.(d)(4) to Scientific Games Corporation's Schedule TO filedon July 19, 2011).* 99.6Terms and Conditions of Equity Awards to Non-Employee Directors under the Scientific Games Corporation 2003Incentive Compensation Plan (incorporated by reference to Exhibit 99.(d)(5) to Scientific Games Corporation's ScheduleTO filed on July 19, 2011).* 99.7Terms and Conditions of Special Performance-Conditioned Restricted Stock Units under the Scientific GamesCorporation 2003 Incentive Compensation Plan (incorporated by reference to Exhibit 99.8 to Scientific GamesCorporation's Annual Report on Form 10-K for the year ended December 31, 2012).* 99.8Form of Equity Awards Notice (Stock Options, Restricted Stock Units and Performance-Conditioned Restricted StockUnits) under the Scientific Games Corporation 2003 Incentive Compensation Plan (as amended and restated June 11,2014).*(†) 99.9Terms and Conditions of Equity Awards to Employees under the Scientific Games Corporation 2003 IncentiveCompensation Plan (as amended and restated June 11, 2014).*(†) 99.10Terms and Conditions of Equity Awards to Non-Employee Directors under the Scientific Games Corporation 2003Incentive Compensation Plan (as amended and restated June 11, 2014).*(†) 99.11Terms and Conditions of Equity Awards to Consultants under the Scientific Games Corporation 2003 IncentiveCompensation Plan (as amended and restated June 11, 2014).*(†) 99.12Gaming Regulations.(†) 101.INSXBRL Instance Document 101.SCHXBRL Taxonomy Extension Schema 101.CALXBRL Taxonomy Extension Calculation Linkbase 101.DEFXBRL Taxonomy Definition Label Linkbase 101.LABXBRL Taxonomy Extension Label Linkbase 101.PREXBRL Taxonomy Extension Presentation Linkbase* Management contracts and compensation plans and arrangements.(†) Filed herewith.179Exhibit 10.15SCIENTIFIC GAMES CORPORATIONNONQUALIFIED DEFERRED COMPENSATION PLAN(As Amended and Restated Effective January 1, 2015) CONTENTSARTICLE IINTRODUCTION1ARTICLE IIDEFINITIONS2ARTICLE III5ARTICLE IVDEFERRAL OF COMPENSATION6ARTICLE VACCOUNTS AND VESTING7ARTICLE VITIMING AND FORM OF BENEFIT PAYMENTS8ARTICLE VIIADMINISTRATION10ARTICLE VIIIAMENDMENT AND TERMINATION13ARTICLE IXMISCELLANEOUS14ARTICLE I INTRODUCTION1.1. Name and Purpose. WMS Industries Inc. ( “WMS”) established the WMS Industries Inc. Nonqualified DeferredCompensation Plan (the “Plan”), effective December 1, 2003, for the benefit of Eligible Employees. The Plan was amended andrestated in its entirety effective as of December 9, 2004, March 1, 2007, January 1, 2009 (including to reflect the requirements of CodeSection 409A and the final regulations issued thereunder), and January 1, 2010. The Plan was also amended, effective January 1,2014, to remove Company matching contributions. The Plan is hereby amended and restated effective January 1, 2015 to rename thePlan the Scientific Games Corporation Deferred Compensation Plan and to substitute Scientific Games Corporation, the ultimate parentof WMS, as the Plan’s sponsor.The purpose of the Plan is to provide Eligible Employees with the opportunity to defer compensation on a pre-tax basis. ThePlan is intended to be a deferred compensation plan for a select group of management and highly compensated employees, asdescribed in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Company intends that the Plan (and any grantor trust describedin Article VI) shall be treated as unfunded for tax purposes and for purposes of Title I of ERISA. An Employer’s obligationshereunder, if any, to a Participant (or to a Participant’s Beneficiary) shall be unsecured and shall be a mere promise by the Company tomake payments hereunder in the future. A Participant (or the Participant’s Beneficiary) shall be treated as a general, unsecured creditorof the Company. The Plan is not intended to be qualified under Section 401(a) of the Code.1.2. Effective Date and Plan Year. The Effective Date of the amended and restated Plan is January 1, 2015. The Plan willbe administered on the basis of a Plan Year, which is the calendar year.ARTICLE II DEFINITIONS2.1. “Account” means the recordkeeping account maintained by the Committee to record a Participant’s accrued benefitunder the Plan.2.2. “Accounting Date” means each date that the New York Stock Exchange is open for business.2.3. “Base Salary” means the base salary payable to a Participant during a calendar year.2.4. “Beneficiary” means any person or entity, or any combination thereof, who is named by the Participant in a ParticipationAgreement as his or her beneficiary to receive benefits under this Plan in the event of the Participant’s death, or in the absence of anysuch designation, the Participant’s estate. A Participant may amend his or her Participation Agreement to name a new Beneficiary atany time.2.5. “Board” means the Board of Directors of the Company.2.6. “Bonus” means any cash compensation, other than Base Salary, relating to services performed in a calendar year,whether or not paid in such calendar year or included in the Participant’s Federal Income Tax Form W-2 for such calendar year,payable to a Participant under any Employer’s annual bonus plan.2.7. “Change in Control” means that any of the following have occurred:(i)a complete dissolution or liquidation of the Company, or similar occurrence;(ii)the consummation of a merger, consolidation, acquisition, reorganization, or similar occurrence, whereCompany is not the surviving entity;(iii)a transfer of substantially all of the assets of the Company or more than 80% of the outstanding common stock ofCompany in a single transaction; or(iv)during any twelve-month period, individuals who constitute a majority of the Board are replaced by directorswhose appointment or election is not endorsed by two-thirds of the individuals who constitute the Board beforethe date of the appointment or election.Notwithstanding the foregoing definition of “Change in Control,” a Change in Control shall be deemed to have occurred onlyif the event giving rise to the Change in Control constitutes a “Change in Control Event” within the meaning of final regulations issuedby the Department of the Treasury under Code Section 409A.2.8. “Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.2.9. “Committee” means the Scientific Games Corporation Benefits Committee.2.10. “Company” means Scientific Games Corporation, a Delaware corporation, and its successors.2.11. “Deferral Credits” means the portion of an Eligible Employee’s Base Salary and/or Bonus, if any, that he or she electsto defer under Article IV.2.12. “Deferral Election” means an election by an Eligible Employee to defer Bonus Salary and/or Bonus in accordancewith the provisions of Article IV.2.13. “Distribution Date” means the date elected by a Participant for distribution of his or her Account pursuant to Section6.1.2.14. “Earnings” means the amount of earnings or losses credited or debited to each Participant’s Account pursuant toSection 5.2 of the Plan.2.15. “Effective Date” means January 1, 2015.2.16. “Eligible Employee” means an employee of an Employer who is eligible to participate in the Plan in accordance withSection 3.1.2.17. “Employer” means the Company and any subsidiary or affiliate of the Company that, with the consent of theCompany, adopts the Plan for the benefit of its Eligible Employees.2.18. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations issuedthereunder.2.19. “Participant” means an Eligible Employee who has executed a Participation Agreement.2.20. “Participation Agreement” means the agreement executed by an Eligible Employee that includes provisions for theEligible Employee’s Deferral Election, the Eligible Employee’s Beneficiary designation, and the Eligible Employee’s investmentdesignation.2.21. “Plan Year” means the calendar year.2.22. “Service Agreement” means the agreement between the Employer and Trustee regarding the arrangement between theparties for recordkeeping services with respect to the Plan.2.23. “Trust” means the trust created by the Company.2.24. “Trust Agreement” means the agreement between the Company and the Trustee, as set forth in a separate agreement,under which assets are held, administered, and managed subject to the claims of the Company’s general creditors in the event of theCompany’s insolvency, until paid to Plan Participants and their Beneficiaries as specified in the Plan.2.25. “Trust Fund” means the property held in the Trust by the Trustee.2.26. “Trustee” means the corporation or individual(s) appointed by the Company to administer the Trust in accordance withthe Trust Agreement.2.27. ARTICLE III ELIGIBILITY AND PARTICIPATION3.1. Eligibility. Any employee on the U.S. payroll of an Employer who, as of November 1 of the calendar year prior to thePlan Year of participation, has (i) a Salary of at least $200,000 and has a title equivalent to Executive Director or above, is eligible toparticipate in the Plan. In addition, before the beginning of each Plan Year, the Committee may designate other employees of anEmployer as eligible to participate in the Plan during such Plan Year. An Eligible Employee’s eligibility to make a Deferral Election inany given Plan Year does not guarantee that individual the right to make a Deferral Election in any subsequent Plan Year.3.2. Participation and Cessation of Participation. An Eligible Employee for any Plan Year may make a Deferral Electionon a timely basis as described in Article IV, and if the Eligible Employee makes such a Deferral Election, he or she shall become aParticipant and shall remain a Participant until he or she has received a distribution of his or her entire Account. A Participant in thePlan who separates from service with the Company and all of its subsidiaries and affiliates for any reason will cease to be eligible tomake Deferral Credits under this Plan and will become entitled to distributions in accordance with Article VII.ARTICLE IV DEFERRAL OF COMPENSATION4.1. Deferral of Compensation. An Eligible Employee may elect to defer not less than 2% and not more than 50% of his orher Base Salary for a Plan Year, and not less than 2% and not more than 100% of his or her Bonus, by filing a Deferral Election inaccordance with Section 4.2.Each Deferral Election made by an Eligible Employee shall include an election of the date on which the amount of suchdeferral (together with related Earnings) will be distributed and the form of distribution, pursuant to the provisions of Article VI. Suchdate shall be no earlier than January 15 of the third Plan Year following the Plan Year to which the election to defer relates.4.2. Deferral Elections. A Participant’s Deferral Election shall be in writing or electronic, and shall be filed with theCommittee at such time and in such manner as the Committee shall provide, subject to the following:(a)Subject to paragraphs (b) and (c) below, a Deferral Election must be made during the election period established by theCommittee which period shall end no later than the day preceding the first day of the Plan Year in which such Compensationwould otherwise be earned.(b)If a Bonus constitutes “performance-based compensation,” within the meaning of Code Section 409A, the election periodestablished by the Committee with respect to elections to defer such Bonus may extend to the date that is six months before theend of the performance period to which such Bonus relates.(c)If an individual first becomes an Eligible Employee during a Plan Year, and the Committee permits mid-year participation bysuch individual, such individual may make a Deferral Election for such Plan Year within thirty (30) days of first becoming anEligible Employee.(d)All Deferral Elections shall become irrevocable as of the end of the election period, subject only to the re-deferral provisions ofSection 6.2.4.3. Additional Limitation on Deferral Elections. Notwithstanding anything in this Plan to the contrary, the Committee maylimit a Participant’s Deferral Election if, as a result of any election, a Participant’s Compensation would be insufficient to allow theParticipant to make all 401(k) deferrals permitted under an applicable Company tax-qualified defined contribution pension plan or tocover taxes and withholding applicable to the Participant.ARTICLE V ACCOUNTS AND VESTING5.1. Accounts. The Committee shall maintain an Account for each Participant. Accounts shall be credited with the amount ofa Participant’s Deferral Credits and Earnings gains, and shall be debited with Earnings losses and any distribution made pursuant toArticle VI. Deferral Credits shall be credited to a Participant’s Account as soon as practicable following the date the Base Salary andBonuses would otherwise have been paid to the Participant but for his or her Deferral Election. Company A Participant’s Accountshall be nonforfeitable at all times.5.2. Investment of Accounts. A Participant may direct the deemed investment of his or her Account among investmentalternatives determined by the Committee in accordance with the Service Agreement from time to time (collectively, the “MeasurementFunds”). Investment elections may be changed by the Participant (but only among such Measurement Funds) on such date and in suchmanner as determined by the Committee in its sole discretion. A Participant’s Account shall be credited or debited daily based on theperformance of each Measurement Fund selected by the Participant, as though (i) the Deferral Credits were invested in theMeasurement Fund(s) as of the date that they are credited to the Participant’s Account; and (ii) any distributions made to the Participantthat decrease the Participant’s Account balance ceased being invested in the Measurement Fund(s) on the date the distribution is made.Thereafter, the Measurement Funds that the Participant elects will be revalued daily based on the value of such funds on that date, andthe percentages in which the Participant is invested in each of the Measurement Funds. If the Participant has provided no or insufficientinvestment directions for any part of his or her Account, that portion of the Account shall be invested as determined by the Committee.Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Fund(s) are to beused for measurement purposes only, and the allocation of Participant’s Account to such Measurement Fund(s), and the calculation ofamounts to be credited or debited to a Participant’s Account, shall not be considered or construed in any manner as an actualinvestment of the Participant’s Account in any such Measurement Fund(s). 5.3. Adjustment of Participants’ Account. As of the close of each Accounting Date, the Committee shall: (a)First, charge to the proper Accounts all payments or distributions made since the last preceding Accounting Date.(b)Next, credit each Participant’s Account with any Deferral Credits made since the last preceding Accounting Date;(c)Next, adjust each Participant’s Account for applicable Earnings since the last preceding Accounting Date.5.4. Contributions to Trust Fund. The Company may make such contributions to the Trust Fund as required or permittedby the terms of the Trust Agreement.ARTICLE VI TIMING AND FORM OF BENEFIT PAYMENTS6.1. Timing of Distribution. Distribution of a Participant’s Account shall be made or shall commence after the earliest of:(a)The deferred distribution date indicated on the Participant’s Participation Agreement in accordance with Section 4.1;(b)The date that the Participant incurs a separation from service (within the meaning of Code Section 409A(a)(2)(A)(i))with the Company and its subsidiaries;(c)The date that a Change in Control occurs; and(d)The date the Company terminates the Plan, to the extent permitted by Code Section 409A.Distributions described in Sections 6.1 (a), (c) and (d) above shall be made within ninety (90) days following such date, anddistributions described in Section 6.1(b) above shall be made on the 15th of the first month following the date that is six (6) monthsafter the date of such Participant’s separation from service.6.2. One-time Redeferral Election. A Participant may make a one-time election to defer payment on commencement of anyportion of a distribution under Section 6.1(a) for a period of not less than five (5) years, provided that such election must be made atleast twelve (12) months in advance of the initially elected distribution date and may not take effect for at least twelve (12) months afterthe date the new election is made.6.3. Form of Distribution. Distributions from the Plan will be made in a single lump sum payment or in a series of up to tenannual installments, as elected by the Participant at the time he or she files the Participation Agreement for that Plan Year. If annualinstallments are elected by the Participant, the first installment will be paid at the time set forth in Section 6.1 and the remaininginstallments shall be paid on each anniversary of the date of payment of the initial installment. Notwithstanding the foregoing, if (i) onthe date commencement of benefits the value of a Participant’s Account is less than twenty thousand dollars ($20,000.00), or (ii) thedistribution is being made on account of a Change in Control, the Participant’s Account shall be paid in the form of a single lump sumpayment, regardless of whether the Participant has elected installment payments. If a Participant fails to elect the form of payment, hisor her Account will be distributed in the form of a single lump sum distribution.6.4. Beneficiaries. A Participant may designate his or her primary Beneficiary or Beneficiaries to receive the amounts asprovided herein after his or her death in accordance with the Beneficiary Designation provisions of the Participation Agreement. AParticipant also may designate his or her contingent Beneficiary or Beneficiaries to receive amounts as provided herein if all primaryBeneficiaries predecease the Participant or have ceased to exist on the date of the Participant’s death. Any Beneficiary designation shallapply to the Participant’s entire Account balance and shall revoke all prior designations. In the absence of such a Beneficiarydesignation, the Company shall pay any such amount to the Participant’s estate.6.5. Unforeseeable Emergency Withdrawals. Notwithstanding any provision of the Plan to the contrary, any portion of aParticipant’s Account not yet distributable under Section 7.1 may be distributed to the Participant upon his or her request if theParticipant incurs an unforeseeable emergency. An unforeseeable emergency is a severe financial hardship resulting from a sudden andunexpected illness or accident of the Participant or his or her spouse or dependent (as defined in Section 152(a) of the Code), loss ofthe Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of eventsbeyond the control of the Participant, as determined by the Committee in its sole discretion. The amounts distributed pursuant to anunforeseeable emergency may not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxesreasonably anticipated as a result of the distribution, after taking into account the extent to which the hardship is or may be relievedthrough reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent theliquidation of such assets would not itself cause severe financial hardship). Withdrawals made pursuant to this paragraph shall be paidas soon as practicable following approval by the Committee.6.6. Prohibition on Acceleration of Distribution. Except as may be permitted under Code Section 409A(a)(3), noacceleration of any distribution hereunder shall be permitted.ARTICLE VII ADMINISTRATION7.1. Committee. The Plan shall be administered by the Committee, which shall be a committee of one or more personsappointed by the Board from time to time. If the Board shall fail to appoint the Committee, the Committee shall be the CompensationCommittee of the Board.7.2. Committee’s Rights, Duties and Powers. The Committee shall have all the powers necessary and appropriate todischarge its duties under the Plan, which powers shall be exercised in the sole and absolute discretion of the Committee, including, butnot limited to, the power:(a)To construe and interpret the provisions of the Plan and to make factual determinations thereunder, including thepower to determine the rights or eligibility under the Plan and amounts of benefits (if any) under the Plan,and to remedy ambiguities, inconsistencies or omissions, and such determinations by the Committee shallbe binding on all parties.(b)To adopt such rules of procedure and regulations as in its opinion may be necessary for the proper and efficientadministration of the Plan and as are consistent with the Plan and trust agreement, if any.(c)To direct the payment of distributions in accordance with the provisions of the Plan. (d)To employ agents, attorneys, accountants, actuaries or other persons (who also may be employed by the Company)and to delegate to them such powers, rights and duties as the Committee may consider necessary oradvisable to carry out the administration of the Plan.(e)To appoint an investment manager to manage (with power to acquire and dispose of) the assets of the Company thatmay be used to satisfy benefit obligations under the Plan, and to delegate to any such investment managerall of the powers, authorities and discretions granted to the Committee hereunder or to the trustee of anyunder Trust established to pay benefits under the Plan.7.3. Interested Committee Member. If a member of the Committee is also a Participant in the Plan, such Committee membermay not decide or determine any matter or question concerning his or her participation in the Plan, unless such decision ordetermination could be made by the Committee member under the Plan if the Committee member were not serving on the Committee.7.4. Expenses. All costs, charges and expenses reasonably incurred by the Committee will be paid by the Company. Nocompensation will be paid to a member of the Committee as such.7.5. Claims. Claims for benefits under the Plan shall be made in writing to the Committee or its duly authorized delegate. Ifthe Committee or such delegate wholly or partially denies a claim for benefits, the Committee or, if applicable, its delegate shall, withina reasonable period of time, but no later than ninety (90) days after receipt of the claim, notify the claimant in writing or electronicallyof the adverse benefit determination. Notice of an adverse benefit determination shall be written in a manner calculated to beunderstood by the claimant and shall contain:(a) the specific reason or reasons for the adverse benefit determination,(b)a specific reference to the pertinent Plan provisions upon which the adverse benefit determination is based,(c)a description of any additional material or information necessary for the claimant to perfect the claim, together withan explanation of why such material or information is necessary, and(d)an explanation of the Plan’s review procedure and the time limits applicable to such procedure including a statementof the claimant’s right to bring a civil action under section 502(a) of ERISA following an adverse benefitdetermination.If the Committee or its delegate determines that an extension of time is necessary for processing the claim, theCommittee or its delegate shall notify the claimant in writing of such extension, the special circumstances requiring the extension andthe date by which the Committee expects to render the benefit determination. In no event shall the extension exceed a period of ninety(90) days from the end of the initial ninety (90) day period. If notice of the denial of a claim is not furnished in accordance with thisparagraph (a) within ninety (90) days after the Committee or its duly authorized delegate receives it (or within one hundred and eighty(180) days after such receipt if the Committee or its delegate determines an extension is necessary), the claim shall be deemed deniedand the claimant shall be permitted to proceed to the review stage described below.Within sixty (60) days after the claimant receives the written or electronic notice of an adverse benefit determination, or the datethe claim is deemed denied pursuant to the preceding paragraph, or such later time as shall be deemed reasonable in the sole discretionof the Committee taking into account the nature of the benefit subject to the claim and other attendant circumstances, the claimant mayfile a written request with the Committee that it conduct a full and fair review of the adverse benefit determination, including theholding of a hearing, if deemed necessary by the Committee. In connection with the claimant’s appeal of the adverse benefitdetermination, the claimant may review pertinent documents and may submit issues and comments in writing. The Committee shallrender a decision on the appeal promptly, but not later than sixty (60) days after the receipt of the claimant’s request for review, unlessspecial circumstances (such as the need to hold a hearing, if necessary) require an extension of time for processing, in which case thesixty (60) day period may be extended to one hundred and twenty (120) days. The Committee shall notify the claimant in writing ofany such extension, the special circumstances requiring the extension, and the date by which the Committee expects to render thedetermination on review. The claimant shall be notified of the Committee’s decision in writing or electronically. In the case of anadverse determination, such notice shall:(a) include specific reasons for the adverse determination,(b) be written in a manner calculated to be understood by the claimant,(c)contain specific references to the pertinent Plan provisions upon which the benefit determination is based,(d)contain a statement that the claimant is entitled to receive upon request and free of charge, reasonable access to, andcopies of, all documents, records, and other information relevant to the claimant’s claim for benefits, and(e)contain a statement of the claimant’s right to bring an action under section 502(a) of ERISA.7.6. Reports. The Committee shall provide the Participant with a statement reflecting the amount of the Participant’s Accountat least quarterly.7.7. No Liability. No employee, agent, officer, trustee, member, volunteer or director of the Company shall, in any event, beliable to any person for any action taken or omitted to be taken in connection with the interpretation, construction or administration ofthis Plan, so long as such action or omission to act be made in good faith.ARTICLE VIII AMENDMENT AND TERMINATION The Committee may amend, alter, modify or terminate this Plan at any time, provided that no such amendment, alteration,modification or termination shall reduce the balance in any Participant’s Account in whole or in part. Upon termination of the Plan,Accounts may, at the discretion of the Committee, be distributed to Participants if the Committee determines that such distributions willnot violate the provisions of Code Section 409A.ARTICLE IX MISCELLANEOUS9.1. Unfunded Plan. The Plan shall at all times be entirely unfunded and, except as provided in the following paragraph, noprovision of this Plan shall at any time be made with respect to segregating any assets of the Company or any other Employer forpayment of any benefits hereunder. Participants and Beneficiaries shall at all times have the status of general unsecured creditors of theEmployers, and neither Participants nor Beneficiaries shall have any rights in or against any specific assets of the Employers. The Planconstitutes a mere promise by the Employers to make benefit payments in the future.The Company may establish a reserve of assets to provide funds for the payment of benefits under the Plan. Such reserve maybe through the Trust and such reserve shall, at all times, be subject to the claims of general creditors of the Employers and shallotherwise be on such terms and conditions as shall prevent taxation to Participants and Beneficiaries of any amounts held in the reserveor credited to an account prior to the time payments are made. No Participant or Beneficiary shall have any ownership rights in or toany reserve.9.2. Non-Assignability of Benefits. Neither any Participant nor any Beneficiary under this Plan shall have any power or rightto transfer, assign, anticipate, hypothecate or otherwise encumber any part or all of the amounts payable hereunder. Such amounts shallnot be subject to seizure by any creditor of a Participant or any Beneficiary hereunder, by a proceeding at law or in equity, nortransferable by operation of law in the event of the bankruptcy or insolvency of any Participant or any Beneficiary hereunder. Anysuch attempted assignment or transfer shall be void and shall terminate the Participant’s participation in this Plan, and the Companythen may pay the benefits hereunder as if the Participant had terminated employment.9.3. Impact on Other Benefits. Except as otherwise required by the Code or any other applicable law, this Plan and thebenefits provided herein are in addition to all other benefits which may be provided by the Company to the Participants from time totime, and shall not reduce, replace or otherwise cause any reduction, in any manner, with regard to any of such other benefits.9.4. Notices. Any notice, consent or demand required or permitted to be given under the provisions of this Plan by theCompany or any Participant or Beneficiary shall be in writing, and shall be signed by the person or entity giving or making the same. Ifsuch notice, consent or demand is mailed, it shall be sent by United States certified mail, postage prepaid, addressed to the principaloffice of the Company, or if to a Participant or Beneficiary to such individual or entity’s last known address as shown on the records ofthe Company. The date of such mailing shall be deemed the date of notice, consent or demand.9.5. Tax Withholding. The Company shall have the right to deduct from all deferrals, credits and payments made under thisPlan any federal, state or local taxes required by law to be withheld with respect to such deferrals, credits and payments.9.6. Successors and Assigns. The rights, privileges, benefits and obligations under the Plan are intended to be, and shall betreated as, legal obligations of and binding upon the Employers and their successors and assigns, including successors by merger,consolidation, reorganization or otherwise.9.7. Governing Law. This Plan shall be governed by and construed in accordance with the internal laws of the State ofNevada, to the extent not preempted by the laws of the United States.IN WITNESS WHEREOF, the authorized representative of the Company has executed and adopted this Plan as of theEffective Date.SCIENTIFIC GAMES CORPORATIONBy :/s/ Peter A. ManiIts: Vice President & Chief HR Officer Exhibit 10.20Employment AgreementThis Employment Agreement (this “Agreement”) is made as of December 18, 2012 by and between Scientific GamesInternational, Inc., a Delaware corporation (the “Company”), and James C. Kennedy (“Executive”).WHEREAS, the Company and Executive previously entered into an Employment Agreement dated as of January 1, 2007, andamended on December 30, 2008 and May 7, 2009 (as so amended and together with any prior employment agreement, the “PriorEmployment Agreement”), which Prior Employment Agreement is hereby terminated and superseded in its entirety; andWHEREAS, the Company and Executive wish to enter into this Agreement;NOW, THEREFORE, in consideration of the premises and mutual benefits to be derived herefrom and other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged by the Company and Executive, the parties agree asfollows.1.Employment; Term. The Company hereby agrees to employ Executive, and Executive hereby accepts employment withthe Company, in accordance with and subject to the terms and conditions set forth in this Agreement. This term of employment ofExecutive under this Agreement (the “Term”) shall be the period commencing on January 1, 2013 (the “Effective Date”) and ending onDecember 31, 2015, as may be extended in accordance with this Section 1 and subject to earlier termination in accordance with Section4. The Term shall be extended automatically without further action by either party by one (1) additional year (added to the end of theTerm), and then on each succeeding annual anniversary thereafter, unless either party shall have given written notice to the other partyprior to the date which is sixty (60) days prior to the date upon which such extension would otherwise have become effective electingnot to further extend the Term, in which case Executive’s employment shall terminate on the date upon which such extension wouldotherwise have become effective, unless earlier terminated in accordance with Section 4.2. Position and Duties. During the Term, Executive will serve as President, Printed Products, of the Company and ChiefMarketing Officer of Scientific Games Corporation (“SGC”), the parent company of the Company, and as an officer or director of anysubsidiary or affiliate of the Company if elected to any such position by the stockholders or by the board of directors of any suchsubsidiary or affiliate, as the case may be. In such capacities, Executive shall perform such duties and shall have such responsibilities asare normally associated with such positions, and as otherwise may be assigned to Executive from time to time by the Chief ExecutiveOfficer of SGC or the Company or upon the authority of the board of directors of SGC (the “Board”) or the Company. Subject toSection 4(e), Executive’s functions, duties and responsibilities are subject to reasonable changes as the Company or SGC may in goodfaith determine from time to time. Executive hereby agrees to accept such employment and to serve the Company and its subsidiariesand affiliates to the best of Executive’s ability in such capacities, devoting all of Executive’s business time to such employment.3. Compensation.(a) Base Salary. During the Term, Executive will receive a base salary of five hundred sixty thousand U.S. dollars(US$560,000) per annum (pro-rated for any partial year), payable in accordance with the Company’s regular payroll practices andsubject to such deductions or amounts to be withheld as1required by applicable law and regulations or as may be agreed to by Executive. In the event that the Company, in its sole discretion,from time to time determines to increase Executive’s base salary, such increased amount shall, from and after the effective date of suchincrease, constitute the “base salary” of Executive for purposes of this Agreement.(b) Incentive Compensation. Executive shall have the opportunity annually to earn incentive compensation in amountsdetermined by the Compensation Committee of the Board (the “Compensation Committee”) in accordance with the applicable incentivecompensation plan of the Company or SGC as in effect from time to time (“Incentive Compensation”). Under such plan, Executiveshall have the opportunity annually to earn up to 66.7% of Executive’s base salary as Incentive Compensation at “target opportunity”(“Target Bonus”) and up to 133% of Executive’s base salary as Incentive Compensation at “maximum opportunity” on the terms andsubject to the conditions of such plan (any such Incentive Compensation to be subject to such deductions or amounts to be withheld asrequired by applicable law and regulations or as may be agreed to by Executive).(c) Eligibility for Annual Equity Awards. Executive shall be eligible to receive an annual grant of stock options,restricted stock units or other equity awards in the sole discretion of the Compensation Committee and in accordance with theapplicable plans and programs for senior executives of the Company and subject to the Company’s right to at any time amend orterminate any such plan or program, so long as any such change does not adversely affect any accrued or vested interest of Executiveunder any such plan or program.(d) Expense Reimbursement. Subject to Section 3(g), the Company shall reimburse Executive for all reasonable andnecessary travel, business entertainment and other business expenses incurred by Executive in connection with the performance ofExecutive’s duties under this Agreement, on a timely basis upon timely submission by Executive of vouchers therefor in accordancewith the Company’s standard policies and procedures.(e) Health and Welfare Benefits. Executive shall be entitled to participate, without discrimination or duplication, in anyand all medical insurance, group health, disability, life insurance, accidental death and dismemberment insurance, 401(k) or otherretirement, deferred compensation, stock ownership and such other plans and programs which are made generally available by theCompany to similarly situated executives in accordance with the terms of such plans and programs and subject to the right of theCompany (or its applicable affiliate) to at any time amend or terminate any such plan or program. Executive shall be entitled to paidvacation, holidays and any other time off in accordance with the Company’s policies in effect from time to time.(f) Sign-On Award. Executive will be granted on the Effective Date thirty thousand (30,000) restricted stock units (the“Sign-On Award”) under the SGC 2003 Incentive Compensation Plan, as amended and restated (or any successor plan) (the “Plan”),pursuant to an equity award agreement to be provided by the Company and entered into by and between SGC and Executive (the“Equity Award Agreement”). The Equity Award Agreement shall provide that the Sign-On Award shall vest with respect to twenty-fivepercent (25%) of the shares of SGC common stock subject to such Sign-On Award on each of the first four anniversaries of the date ofgrant of the Sign-On Award, subject to any applicable provisions relating to accelerated vesting and forfeiture as described in thisAgreement, the Equity Award Agreement or the Plan.(g) Taxes and Internal Revenue Code 409A. Payment of all compensation and benefits to Executive specified in thisSection 3 and in Section 4 of this Agreement shall be subject to all legally2required and customary withholdings. The Company makes no representations regarding the tax implications of the compensation andbenefits to be paid to Executive under this Agreement, including, without limitation, under Section 409A of the Internal Revenue Codeof 1986, as amended (the “Code”), and applicable administrative guidance and regulations (“Section 409A”). Section 409A governsplans and arrangements that provide “nonqualified deferred compensation” (as defined under the Code) which may include, amongothers, nonqualified retirement plans, bonus plans, stock option plans, employment agreements and severance agreements. TheCompany reserves the right to provide compensation and benefits under any plan or arrangement in amounts, at times and in a mannerthat minimizes taxes, interest or penalties as a result of Section 409A. In addition, in the event any benefits or amounts paid hereunderare deemed to be subject to Section 409A, including payments under Section 4 of this Agreement, Executive consents to the Companyadopting such conforming amendments as the Company deems necessary, in its reasonable discretion, to comply with Section 409A(including, but not limited to, delaying payment until six (6) months following termination of employment). Notwithstanding anythingherein to the contrary, if (i) at the time of Executive’s “separation from service” (as defined in Treas. Reg. Section 1.409A-1(h)) withthe Company other than as a result of Executive’s death, (ii) Executive is a “specified employee” (as defined in Section 409A(a)(2)(B)(i) of the Code), (iii) one or more of the payments or benefits received or to be received by Executive pursuant to this Agreement wouldconstitute deferred compensation subject to Section 409A, and (iv) the deferral of the commencement of any such payments or benefitsotherwise payable hereunder as a result of such separation of service is necessary in order to prevent any accelerated or additional taxunder Section 409A, then the Company will defer the commencement of the payment of any such payments or benefits hereunder tothe extent necessary (without any reduction in such payments or benefits ultimately paid or provided to Executive) until the date that issix (6) months following Executive’s separation from service with the Company (or the earliest date as is permitted under Section409A). Any remaining payments or benefits shall be made as otherwise scheduled hereunder. Furthermore, to the extent any paymentsof money or other benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section409A, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section409A, or otherwise such payments or other benefits shall be restructured, to the extent possible, in a manner determined by theCompany that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due toExecutive under this Agreement constitute deferred compensation under Section 409A, any such reimbursements or in-kind benefitsshall be paid to Executive in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under thisAgreement shall be designated as a “separate payment” within the meaning of Section 409A.4. Termination of Employment. Executive’s employment may be terminated at any time prior to the end of the Term under theterms described in this Section 4.(a) Termination by Executive for Other than Good Reason. Executive may terminate Executive’s employmenthereunder for any reason or no reason upon 60 days’ prior written notice to the Company referring to this Section 4(a); provided,however, that a termination by Executive for “Good Reason” (as defined below) shall not constitute a termination by Executive forother than Good Reason pursuant to this Section 4(a). In the event Executive terminates Executive’s employment for other than GoodReason, Executive shall be entitled only to the following compensation and benefits (collectively, the “Standard TerminationPayments”):(i) any accrued but unpaid base salary for services rendered by Executive to the date of such termination,payable in accordance with the Company’s regular payroll practices and subject to such deductions or amounts to be withheldas required by applicable law and regulations or as may be agreed to by Executive;3(ii) any vested non-forfeitable amounts owing or accrued at the date of such termination under benefit plans,programs and arrangements set forth or referred to in Section 3(e) in which Executive participated during the Term will be paidunder the terms and conditions of such plans, programs, and arrangements (and agreements and documents thereunder);(iii) except as provided in Section 5.6, all stock options, restricted stock units and other equity-based awardswill be governed by the terms of the plans and programs under which such options, restricted stock units or other awards weregranted; and(iv) reasonable business expenses and disbursements incurred by Executive prior to such termination will bereimbursed in accordance with Section 3(d).(b) Termination By Reason of Death. If Executive dies during the Term, the last beneficiary designated by Executiveby written notice to the Company (or, in the absence of such designation, Executive’s estate) shall be entitled only to the StandardTermination Payments (including, if applicable, any benefits that may be payable under any life insurance benefit of Executive forwhich the Company pays premiums, in accordance with the terms of any such benefit and subject to the right of the Company (or itsapplicable affiliate) to at any time amend or terminate any such benefit).(c) Termination By Reason of Total Disability. The Company may terminate Executive’s employment in the event ofExecutive’s “Total Disability.” For purposes of this Agreement, “Total Disability” shall mean Executive’s (1) becoming eligible toreceive benefits under any long-term disability insurance program of the Company or (2) failure to perform the duties andresponsibilities contemplated under this Agreement for a period of more than 180 days during any consecutive 12-month period due tophysical or mental incapacity or impairment. In the event that Executive’s employment is terminated by the Company by reason ofTotal Disability, the Company shall pay the following amounts, and make the following other benefits available, to Executive:(i) the Standard Termination Payments; and(ii) an amount equal to Executive’s annual base salary, payable over a period of twelve (12) months after suchtermination in accordance with Section 4(h); provided that such amount shall be reduced by any disability payments to whichExecutive may be entitled as a result of any disability plan sponsored or maintained by the Company or any of its affiliatesproviding benefits to Executive.(d) Termination by the Company for Cause. The Company may terminate the employment of Executive at any time for“Cause.” For purposes of this Agreement, “Cause” shall mean: (i) gross neglect by Executive of Executive’s duties hereunder; (ii)Executive’s conviction (including conviction on a nolo contendere plea) of a felony or any non-felony crime or offense involving theproperty of the Company or any of its subsidiaries or affiliates or evidencing moral turpitude; (iii) willful misconduct by Executive inconnection with the performance of Executive’s duties hereunder; (iv) intentional breach by Executive of any material provision of thisAgreement; (v) material violation by Executive of a material provision of the Company’s Code of Business Conduct; or (vi) any otherwillful or grossly negligent conduct of Executive that would make the continued employment of Executive by the Company materiallyprejudicial to the best interests of the Company. In the event Executive’s employment is terminated for “Cause,” Executive shall not beentitled to receive any compensation or benefits under this Agreement except for the Standard Termination Payments.4(e) Termination by the Company without Cause or by Executive for Good Reason. The Company may terminateExecutive’s employment at any time without Cause, for any reason or no reason, and Executive may terminate Executive’s employmentfor “Good Reason.” For purposes of this Agreement “Good Reason” shall mean that, without Executive’s prior written consent, any ofthe following shall have occurred: (i) a material change, adverse to Executive, in Executive’s positions, titles, offices, or duties asprovided in Section 2, except, in such case, in connection with the termination of Executive’s employment for Cause or due to TotalDisability, death or expiration of the Term; (ii) an assignment of any significant duties to Executive which are materially inconsistentwith Executive’s positions or offices held under Section 2 and adverse to Executive; (iii) a material decrease in base salary or materialdecrease in Executive’s incentive compensation opportunities provided under this Agreement; or (iv) any other material failure by theCompany to perform any material obligation under, or material breach by the Company of any material provision of, this Agreement;provided, however, that a termination by Executive for Good Reason under any of clauses (i) through (iv) of this Section 4(e) shall notbe considered effective unless Executive shall have provided the Company with written notice of the specific reasons for suchtermination within thirty (30) days after he has knowledge of the event or circumstance constituting Good Reason and the Companyshall have failed to cure the event or condition allegedly constituting Good Reason within thirty (30) days after such notice has beengiven to the Company. In the event that Executive’s employment is terminated by the Company without Cause or by Executive forGood Reason (and not, for the avoidance of doubt, in the event of a termination pursuant to Section 4(a), (b), (c) or (d) or due to orupon the expiration of the Term), the Company shall pay the following amounts, and make the following other benefits available, toExecutive.(i) the Standard Termination Payments;(ii) an amount equal to the sum of (A) Executive’s base salary and (B) an amount equal to the highest annualIncentive Compensation paid to Executive in respect of the two (2) most recent fiscal years of the Company but not more thanExecutive’s Target Bonus for the-then current fiscal year (such amount under this sub-clause (B), the “Severance BonusAmount”), such amount under this clause (ii) payable over a period of 12 months after such termination in accordance withSection 4(h);(iii) no later than March 15 following the end of the year in which such termination occurs, in lieu of anyIncentive Compensation for the year in which such termination occurs, payment of an amount equal to (A) the IncentiveCompensation which would have been payable to Executive had Executive remained in employment with the Company duringthe entire year in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of daysExecutive was employed in the year in which such termination occurs and the denominator of which is the total number of daysin the year in which such termination occurs; and(iv) if Executive elects to continue medical coverage under the Company’s group health plan in accordancewith COBRA, the monthly premiums for such coverage for a period of twelve (12) months; and(v) subject to Section 5.6 and except to the extent otherwise provided at the time of grant under the terms ofany equity award made to Executive, any unvested stock options and any unvested restricted stock units will become fullyvested (and, in the case of any such stock options, exercisable) (provided that any such stock options (together with any othervested stock options) held by Executive will cease being exercisable upon the earlier of three (3) months after such terminationand the scheduled expiration date of such stock options), and, in all other respects,5all stock options, restricted stock units and other equity-based awards held by Executive shall be governed by the plans andprograms and the agreements and other documents pursuant to which the awards were granted; provided, however, that in theevent such termination occurs prior to the Compensation Committee’s determination as to the satisfaction of any performancecriteria to which any such stock options and/or restricted stock units is subject, such stock options and/or restricted stock units(as the case may be) will not vest (and, in the case of any such stock options, will not become exercisable) unless and until adetermination is or has been made by the Compensation Committee that such criteria have been satisfied, at which time suchstock options and/or restricted stock units will vest (and, in the case of any such stock options, will become exercisable) to theextent contemplated by the terms of such award (it being understood and agreed, for the avoidance of doubt, that such stockoptions or restricted stock units will immediately be forfeited to the extent contemplated by the terms of such award in the eventthat such criteria are determined not to have been satisfied); provided, further, however, if necessary to comply with Section409A, settlement of any such equity-based awards shall be made on the date that is six (6) months plus one (1) day followingexpiration of the Term.(f) Termination by the Company without Cause or by Executive for Good Reason in connection with a Change inControl. In the event Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason pursuantto Section 4(e) and such termination occurs upon, or within one (1) year immediately following, a “Change in Control” (as definedbelow), Executive shall be entitled (without duplication) to the payments and benefits described in Section 4(e), except that, solely inthe case of an amount otherwise payable under Section 4(e)(ii), such amount shall be multiplied by two (2) (i.e., an amount equal to two(2) multiplied by the sum of Executive’s base salary and the Severance Bonus Amount, without duplication) and such amount shall bepayable over a period of 24 months after termination in accordance with Section 4(h) of this Agreement; provided, however, to theextent that such amount under Section 4(e)(ii) is exempt from Section 409A and/or if such Change in Control constitutes a change inownership, change in effective control or a change in ownership of a substantial portion of the assets of SGC under Regulation Section1.409A-3(i)(5), such amount otherwise payable under Section 4(e)(ii) shall be paid in a lump sum in accordance with Section 4(h) ofthis Agreement. Notwithstanding the foregoing, payments pursuant to this Section 4(f) shall be reduced by the amount necessary, ifany, to ensure that the aggregate compensation to be received by the Executive in connection with such Change in Control does notconstitute a “parachute payment,” as such term is defined in 26 U.S.C. § 280G.For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if: (i) any “person” as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as used in Sections 13(d) and 14(d) thereof,including a “group” as defined in Section 13(d) of the Exchange Act but excluding SGC and any subsidiary or affiliate and anyemployee benefit plan sponsored or maintained by SGC or any subsidiary or affiliate (including any trustee of such plan acting astrustee) or any current stockholder of 20% or more of the outstanding common stock of SGC, directly or indirectly, becomes the“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of SGC representing at least 40% of the combinedvoting power of the SGC’s then-outstanding securities; (ii) the stockholders of SGC approve a merger, consolidation, recapitalization, orreorganization of SGC, or a reverse stock split of any class of voting securities of SGC, or the consummation of any such transaction ifstockholder approval is not obtained, other than any such transaction that would result in at least 60% of the total voting powerrepresented by the voting securities of SGC or the surviving entity outstanding immediately after such transaction being beneficiallyowned by persons who together beneficially owned at least 80% of the combined voting power of the voting securities of SGCoutstanding immediately prior to such transaction; provided that, for purposes of this Section 4(f), such continuity of ownership (andpreservation of relative voting power) shall be deemed to be satisfied if the failure to meet such 60% threshold is due solely to the6acquisition of voting securities by an employee benefit plan of SGC or such surviving entity or of any subsidiary of SGC or suchsurviving entity; (iii) the stockholders of SGC approve a plan of complete liquidation of SGC, an agreement for the sale or dispositionby SGC of all or substantially all of its assets (or any transaction having a similar effect); or (iv) during any period of two (2)consecutive years, individuals who at the beginning of such period constitute the Board, together with any new director (other than adirector designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (ii)or (iii) above) whose election by the Board or nomination for election by SGC’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nominationfor election was previously so approved, cease for any reason to constitute at least a majority of the Board.(g) Expiration of Term of Agreement. In the event that Executive’s employment is terminated at the end of the Term,Executive shall not be entitled to receive any compensation or benefits under this Agreement except for the Standard TerminationPayments; provided, however, that:(i) subject to Section 5.6 and except to the extent otherwise provided at the time of grant under the terms of anyequity award made to Executive, any unvested stock options, restricted stock units or other equity awards granted on orafter the Effective Date and held by Executive upon the termination of Executive at the end of the Term will continue tovest in accordance with the original vesting schedule applicable to such equity awards (i.e., without regard to theexpiration of this Agreement), and any stock options (A) that were vested as of such termination will cease beingexercisable upon the earlier of three (3) months after such termination and the scheduled expiration date of such optionsand (B) that become vested following such termination in accordance with the original vesting schedule will cease beingexercisable upon the earlier of three (3) months after such termination and the scheduled expiration date of such stockoptions; provided that, in all other respects, all such awards shall be governed by the plans and programs and theagreements and other documents pursuant to which the awards were granted; provided, however, that, for the avoidanceof doubt, in the event such termination occurs prior to the Compensation Committee’s determination as to thesatisfaction of any performance criteria to which any such awards is subject, such awards will not vest (and, in the caseof any such stock options, will not become exercisable) unless and until a determination is or has been made by theCompensation Committee that such criteria have been satisfied, at which time such awards will vest (and, in the case ofany such stock options, will become exercisable) to the extent contemplated by the terms of such award (it beingunderstood and agreed, for the avoidance of doubt, that such awards will immediately be forfeited to the extentcontemplated by the terms of such award in the event that such criteria are determined not to have been satisfied);provided, further, however, if necessary to comply with Section 409A, settlement of any such awards shall be made onthe date that is six (6) months plus one (1) day following expiration of the Term; and(ii) subject to Section 5.6 and except to the extent otherwise provided at the time of grant under the terms ofany equity award made to Executive, any unvested stock options granted prior to the Effective Date and any unvestedrestricted stock units granted prior to the Effective Date will become fully vested (and, in the case of any such stockoptions, exercisable) (provided that any stock options held by Executive will cease being exercisable upon the earlier ofthree (3) months after such termination and the scheduled expiration date of such stock options), and in all otherrespects, all such awards shall be7governed by the plans and programs and the agreements and other documents pursuant to which the awards weregranted; provided, however, that in the event such termination occurs prior to the Compensation Committee’sdetermination as to the satisfaction of any performance criteria to which any such stock options and/or restricted stockunits is subject, such stock options and/or restricted stock units (as the case may be) will not vest (and, in the case of anysuch stock options, will not become exercisable) unless and until a determination is or has been made by theCompensation Committee that such criteria have been satisfied, at which time such stock options and/or restricted stockunits will vest (and, in the case of any such stock options, will become exercisable) to the extent contemplated by theterms of such award (it being understood and agreed, for the avoidance of doubt, that such stock options or restrictedstock units will immediately be forfeited to the extent contemplated by the terms of such award in the event that suchcriteria are determined not to have been satisfied); provided, further, however, if necessary to comply with Section409A, settlement of any such equity-based awards shall be made on the date that is six (6) months plus one (1) dayfollowing expiration of the Term.(h) Timing of Certain Payments under Section 4. Payments pursuant to Sections 4(c)(ii), 4(e)(ii) and 4(f) (solely withrespect to the amount determined by reference to Section 4(e)(ii) and subject to the proviso in the first sentence of Section 4(f)), if any,shall be payable in equal installments in accordance with the Company’s standard payroll practices over the applicable period ofmonths contemplated by such Sections following the date of termination (subject to such deductions or amounts to be withheld asrequired by applicable law and regulations); provided, however, that if and to the extent necessary to prevent any acceleration oradditional tax under Section 409A, such payments shall be made as follows: (i) no payments shall be made for a six-month periodfollowing the date of Executive’s separation of service (as defined in Section 409A(a)(2)(B)(i) of the Code) with the Company; (ii) anamount equal to the aggregate sum that would have been otherwise payable during the initial six-month period shall be paid in a lumpsum six (6) months following the date of Executive’s separation of service with the Company (subject to such deductions or amounts tobe withheld as required by applicable law and regulations); and (iii) during the period beginning six (6) months following Executive’sseparation of service with the Company through the remainder of the applicable period, payment of the remaining amount due shall bepayable in equal installments in accordance with the Company’s standard payroll practices (subject to such deductions or amounts to bewithheld as required by applicable law and regulations). In addition, notwithstanding any other provision with respect to the timing ofpayments under this Agreement, if and to the extent necessary to comply with Section 409A, any amounts payable followingtermination of employment in a lump sum, including pursuant to Section 4(e)(iii) of this Agreement, shall instead be paid six (6) monthsfollowing the date of Executive’s separation of service (subject to such deductions or amounts to be withheld as required by applicablelaw and regulations).(i) No Obligation to Mitigate. Executive shall have no obligation to mitigate damages pursuant to this Section 4, butshall be obligated to promptly advise the Company regarding obtaining other employment providing health insurance benefits withrespect to services provided to another employer during any period of continued payments pursuant to this Section 4. The Company’sobligation to make continued insurance payments to or on behalf of Executive shall be reduced by any insurance coverage obtained byExecutive during the severance period through employment by another entity (without regard to when such coverage is paid).(j) Set-Off. To the fullest extent permitted by law and provided an acceleration of income or the imposition of anadditional tax under Section 409A would not result, any amounts otherwise8due to Executive hereunder (including, without limitation, any payments pursuant to this Section 4) shall be subject to set-off withrespect to any amounts Executive otherwise owes the Company or any subsidiary or affiliate thereof.(k) No Other Benefits or Compensation. Except as may be provided under this Agreement, under any other writtenagreement between Executive and the Company, or under the terms of any plan or policy applicable to Executive, Executive shall haveno right to receive any other compensation from the Company or any subsidiary or affiliate thereof, or to participate in any other plan,arrangement or benefit provided by the Company or any subsidiary or affiliate thereof, with respect to any future period after suchtermination or resignation. This Agreement supersedes the Prior Employment Agreement in all respects, which is hereby terminated.Except for any benefits Executive has vested in pursuant to Executive’s participation in SGC’s 401(k) Plan, which benefits shall besubject to the terms and conditions set forth in such plan, Executive acknowledges and agrees that he has received all salary,consulting, incentive compensation, severance or similar payments, equity-based awards and other compensation and benefits to whichhe may have been entitled to from the Company or any of its subsidiaries or affiliates as of the date of this Agreement (including anypayments and benefits under the Prior Employment Agreement), and Executive acknowledges and agrees that he is entitled to no othercompensation or benefits from the Company or any of its subsidiaries or affiliates of any kind or nature whatsoever in respect ofperiods prior to the date of this Agreement.(l) Release of Employment Claims; Compliance with Section 5. Executive agrees, as a condition to receipt of anytermination payments and benefits provided for in this Section 4 (other than the Standard Termination Payments), that Executive willexecute a general release agreement, in a form reasonably satisfactory to the Company, releasing any and all claims arising out ofExecutive’s employment and the termination of such employment (other than enforcement of this Agreement). The Company shallprovide Executive with the proposed form of general release agreement referred to in the immediately preceding sentence no later thantwo (2) days following the date of termination. Executive shall thereupon have 21 days to consider such general release agreement and,if he executes such general release agreement, shall have seven (7) days after execution of such general release agreement to revokesuch general release agreement. Absent such revocation, such general release agreement shall become binding on Executive. IfExecutive does not revoke such general release agreement, payments contingent on such general release agreement that constitutedeferred compensation under Section 409A (if any) shall be paid on the later of 60th day after the date of termination or the date suchpayments are otherwise scheduled to be paid pursuant to this Agreement. The Company’s obligation to make any termination paymentsand benefits provided for in this Section 4 (other than the Standard Termination Payments) shall immediately cease if Executivewillfully and materially breaches Section 5.1, 5.2 , 5.3, 5.4, or 5.8.5. Noncompetition; Non-solicitation; Nondisclosure; etc.5.1 Noncompetition; Non-solicitation.(a) Executive acknowledges the highly competitive nature of the Company’s business and that access to theCompany’s confidential records and proprietary information renders Executive special and unique within the Company’s industry. Inconsideration of the amounts that may hereafter be paid to Executive pursuant to this Agreement (including, without limitation, Sections3 and 4), Executive agrees that during the Term (including any extensions thereof) and during the Covered Time (as defined in Section5.1(e)), Executive, alone or with others, will not, directly or indirectly, engage (as owner, investor, partner, stockholder, employer,employee, consultant, advisor, director or otherwise) in any Competing Business. For purposes of this Section 5, “Competing Business”shall mean any business: (i) involving: the design and9production of instant lottery tickets and/or the management of related marketing and distribution programs; the manufacture, sale,operation or management of on-line lottery systems (draw games), video gaming, including fixed odds or server-based betting terminalsand video lottery terminals; the development and commercialization of licensed and other proprietary game entertainment for anylottery product channels; the provision of wagering (whether pari-mutuel (pooled) or otherwise) or venue management services forracetracks and off-track betting facilities; the production and sale of prepaid cellular phone cards; and/or any other business in whichthe Company or any of its affiliates is then or was within the previous eighteen (18) months engaged or in which the Company, toExecutive’s knowledge, intends to engage during the Term or the Covered Time; (ii) in which Executive was engaged or involved(whether in an executive or supervisory capacity or otherwise) on behalf of the Company or with respect to which Executive hasobtained proprietary or confidential information; and (iii) which was conducted anywhere in the United States or in any othergeographic area in which such business was conducted or planned to be conducted by the Company.(b) In further consideration of the amounts that may hereafter be paid to Executive pursuant to this Agreement(including, without limitation, Sections 3 and 4), Executive agrees that, during the Term (including any extensions thereof) and duringthe Covered Time, Executive shall not, directly or indirectly: (i) solicit or attempt to induce any of the employees, agents, consultants orrepresentatives of the Company to terminate his, her, or its relationship with the Company; (ii) solicit or attempt to induce any of theemployees, agents, consultants or representatives of the Company to become employees, agents, consultants or representatives of anyother person or entity; (iii) solicit or attempt to induce any customer, vendor or distributor of the Company to curtail or cancel anybusiness with the Company; or (iv) hire any person who, to Executive’s actual knowledge, is, or was within 180 days prior to suchhiring, an employee of the Company.(c) During the Term (including any extensions thereof) and during the Covered Time, Executive agrees that upon theearlier of Executive’s (i) negotiating with any Competitor (as defined below) concerning the possible employment of Executive by theCompetitor, (ii) responding to (other than for the purpose of declining) an offer of employment from a Competitor, or (iii) becomingemployed by a Competitor, (A) Executive will provide copies of Section 5 of this Agreement to the Competitor, and (B) in the case ofany circumstance described in (iii) above occurring during the Covered Time, and in the case of any circumstance described in (i) or (ii)above occurring during the Term or during the Covered Time, Executive will promptly provide notice to the Company of suchcircumstances. Executive further agrees that the Company may provide notice to a Competitor of Executive’s obligations under thisAgreement. For purposes of this Agreement, “Competitor” shall mean any person or entity (other than the Company, its subsidiaries oraffiliates) that engages, directly or indirectly, in the United States in any Competing Business.(d) Executive understands that the restrictions in this Section 5.1 may limit Executive’s ability to earn a livelihood in abusiness similar to the business of the Company but nevertheless agrees and acknowledges that the consideration provided under thisAgreement (including, without limitation, Sections 3 and 4) is sufficient to justify such restrictions. In consideration thereof and in lightof Executive’s education, skills and abilities, Executive agrees that Executive will not assert in any forum that such restrictions preventExecutive from earning a living or otherwise should be held void or unenforceable.(e) For purposes of this Section 5.1, “Covered Time” shall mean the period beginning on the date of termination ofExecutive’s employment (the “Date of Termination”) and ending eighteen (18) months after the Date of Termination.5.2 Proprietary Information; Inventions.10(a)Executive acknowledges that, during the course of Executive’s employment with the Company, Executivenecessarily will have (and during any employment by, or affiliation with, the Company prior to the Term has had) access to and makeuse of proprietary information and confidential records of the Company. Executive covenants that Executive shall not during the Termor at any time thereafter, directly or indirectly, use for Executive’s own purpose or for the benefit of any person or entity other than theCompany, nor otherwise disclose to any person or entity, any such proprietary information, unless and to the extent such disclosure hasbeen authorized in writing by the Company or is otherwise required by law. The term “proprietary information” means: (i) the softwareproducts, programs, applications, and processes utilized by the Company; (ii) the name and/or address of any customer or vendor of theCompany or any information concerning the transactions or relations of any customer or vendor of the Company with the Company;(iii) any information concerning any product, technology, or procedure employed by the Company but not generally known to itscustomers or vendors or competitors, or under development by or being tested by the Company but not at the time offered generally tocustomers or vendors; (iv) any information relating to the Company’s computer software, computer systems, pricing or marketingmethods, sales margins, cost of goods, cost of material, capital structure, operating results, borrowing arrangements or business plans;(v) any information identified as confidential or proprietary in any line of business engaged in by the Company; (vi) any informationthat, to Executive’s actual knowledge, the Company ordinarily maintains as confidential or proprietary; (vii) any business plans,budgets, advertising or marketing plans; (viii) any information contained in any of the Company’s written or oral policies andprocedures or manuals; (ix) any information belonging to customers, vendors or any other person or entity which the Company, toExecutive’s actual knowledge, has agreed to hold in confidence; and (x) all written, graphic, electronic data and other materialcontaining any of the foregoing. Executive acknowledges that information that is not novel or copyrighted or patented may nonethelessbe proprietary information. The term “proprietary information” shall not include information generally known or available to the publicor information that becomes available to Executive on an unrestricted, non-confidential basis from a source other than the Company orany of its directors, officers, employees, agents or other representatives (without breach of any obligation of confidentiality of whichExecutive has knowledge, after reasonable inquiry, at the time of the relevant disclosure by Executive). Notwithstanding the foregoingand Section 5.3, Executive may disclose or use proprietary information or confidential records solely to the extent (A) such disclosureor use may be required or appropriate in the performance of his duties as a director or employee of the Company, (B) required to do soby a court of law, by any governmental agency having supervisory authority over the business of the Company or by anyadministrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or makeaccessible such information (provided that in such case Executive shall first give the Company prompt written notice of any such legalrequirement, disclose no more information than is so required and cooperate fully with all efforts by the Company to obtain a protectiveorder or similar confidentiality treatment for such information), (C) such information or records becomes generally known to the publicwithout his violation of this Agreement, or (D) disclosed to Executive’s spouse, attorney and/or his personal tax and financial advisorsto the extent reasonably necessary to advance Executive’s tax, financial and other personal planning (each an “Exempt Person”);provided, however, that any disclosure or use of any proprietary information or confidential records by an Exempt Person shall bedeemed to be a breach of this Section 5.2 or Section 5.3 by Executive.(a) Executive agrees that all processes, technologies and inventions (collectively, “Inventions”), including newcontributions, improvements, ideas and discoveries, whether patentable or not, conceived, developed, invented or made by Executiveduring the Term (and during any employment by, or affiliation with, the Company prior to the Term) shall belong to the Company,provided that such Inventions grew out of Executive’s work with the Company or any of its subsidiaries or affiliates, are related in anymanner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made onthe Company’s time or with the use of the Company’s facilities or materials.11Executive shall further: (i) promptly disclose such Inventions to the Company; (ii) assign to the Company, without additionalcompensation, all patent and other rights to such Inventions for the United States and foreign countries; (iii) sign all papers necessary tocarry out the foregoing; and (iv) give testimony in support of Executive’s inventorship. If any Invention is described in a patentapplication or is disclosed to third parties, directly or indirectly, by Executive within two (2) years after the termination of Executive’semployment with the Company, it is to be presumed that the Invention was conceived or made during the Term. Executive agrees thatExecutive will not assert any rights to any Invention as having been made or acquired by Executive prior to the date of this Agreement,except for Inventions, if any, disclosed in Exhibit A to this Agreement.125.3 Confidentiality and Surrender of Records. Executive shall not, during the Term or at any time thereafter(irrespective of the circumstances under which Executive’s employment by the Company terminates), except to the extent required bylaw, directly or indirectly publish, make known or in any fashion disclose any confidential records to, or permit any inspection orcopying of confidential records by, any person or entity other than in the course of such person’s or entity’s employment or retentionby the Company, nor shall Executive retain, and will deliver promptly to the Company, any of the same following termination ofExecutive’s employment hereunder for any reason or upon request by the Company. For purposes hereof, “confidential records” meansthose portions of correspondence, memoranda, files, manuals, books, lists, financial, operating or marketing records, magnetic tape, orelectronic or other media or equipment of any kind in Executive’s possession or under Executive’s control or accessible to Executivewhich contain any proprietary information. All confidential records shall be and remain the sole property of the Company during theTerm and thereafter.5.4 Non-disparagement. Executive shall not, during the Term and thereafter, disparage in any material respect theCompany, any affiliate of the Company, any of their respective businesses, any of their respective officers, directors or employees, orthe reputation of any of the foregoing persons or entities. Notwithstanding the foregoing, nothing in this Agreement shall precludeExecutive from making truthful statements that are required by applicable law, regulation or legal process.5.5 No Other Obligations. Executive represents that Executive is not precluded or limited in Executive’s ability toundertake or perform the duties described herein by any contract, agreement or restrictive covenant. Executive covenants thatExecutive shall not employ the trade secrets or proprietary information of any other person in connection with Executive’s employmentby the Company without such person’s authorization.5.6 Forfeiture of Outstanding Equity Awards; “Clawback” Policies. The provisions of Section 4 notwithstanding, ifExecutive willfully and materially fails to comply with Section 5.1, 5.2, 5.3, 5.4, or 5.8, all options to purchase common stock,restricted stock units and other equity-based awards granted by the Company or any of its affiliates (whether prior to, contemporaneouswith, or subsequent to the date hereof) and held by Executive or a transferee of Executive shall be immediately forfeited and cancelled.Executive acknowledges and agrees that, notwithstanding anything contained in this Agreement or any other agreement, plan orprogram, any incentive-based compensation or benefits contemplated under this Agreement (including Incentive Compensation andequity-based awards) shall be subject to recovery by the Company under any compensation recovery or “clawback” policy, generallyapplicable to senior executives of the Company or SGC, that the Company or SGC may adopt from time to time, including withoutlimitation any policy which the Company or SGC may be required to adopt under Section 954 of the Dodd-Frank Wall Street Reformand Consumer Protection Act and the rules and regulations of the Securities and Exchange Commission thereunder or the requirementsof any national securities exchange on which the Company’s or SGC’s common stock may be listed.5.7 Enforcement. Executive acknowledges and agrees that, by virtue of Executive’s position, services and access toand use of confidential records and proprietary information, any violation by Executive of any of the undertakings contained in thisSection 5 would cause the Company immediate, substantial and irreparable injury for which it has no adequate remedy at law.Accordingly, Executive agrees and consents to the entry of an injunction or other equitable relief by a court of competent jurisdictionrestraining any violation or threatened violation of any undertaking contained in this Section 5. Executive waives posting of any bondotherwise necessary to secure such injunction or other equitable relief. Rights and remedies provided for in this Section 5 arecumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any other agreement orapplicable law.135.8 Cooperation with Regard to Litigation. Executive agrees to cooperate reasonably with the Company, during theTerm and thereafter (including following Executive’s termination of employment for any reason), by being available to testify on behalfof the Company in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative. In addition, except to theextent that Executive has or intends to assert in good faith an interest or position adverse to or inconsistent with the interest or positionof the Company, Executive agrees to cooperate reasonably with the Company, during the Term and thereafter (including followingExecutive’s termination of employment for any reason), to assist the Company in any such action, suit, or proceeding by providinginformation and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company,in each case, as reasonably requested by the Company. The Company agrees to pay (or reimburse, if already paid by Executive) allreasonable expenses actually incurred in connection with Executive’s cooperation and assistance including, without limitation,reasonable fees and disbursements of counsel, if any, chosen by Executive if Executive reasonably determines in good faith, on theadvice of counsel, that the Company’s counsel may not ethically represent Executive in connection with such action, suit or proceedingdue to actual or potential conflicts of interests.5.9 Survival. The provisions of this Section 5 shall survive the termination of the Term and any termination orexpiration of this Agreement.5.10 Company. For purposes of this Section 5, references to the “Company” shall include the Company and eachsubsidiary and/or affiliate of the Company (and each of their respective joint ventures and equity method investees).5.11 Subsequent Agreement. Notwithstanding the foregoing, in the event that the Company and Executive separatelyagree in writing after the date hereof (including, without limitation, in any equity award agreement) to restrictive covenants, includingcovenants relating to non-competition, non-solicitation and/or confidentiality, such covenants will automatically (without any furtheraction by the parties) supersede and replace the corresponding covenants set forth in this Section 5, except to the extent otherwisespecifically provided otherwise in such separate agreement.6. Code of Conduct. Executive acknowledges that he has read SGC’s Code of Business Conduct and agrees to abide by suchCode of Business Conduct, as amended or supplemented from time to time, and other policies applicable to employees and executivesof SGC or the Company.7. Indemnification. The Company shall indemnify Executive to the full extent permitted under the Company’s Certificate ofIncorporation or By-Laws and pursuant to any other agreements or policies in effect from time to time in connection with any action,suit or proceeding to which Executive may be made a party by reason of Executive being an officer, director or employee of theCompany or of any subsidiary or affiliate of the Company.8. Assignability; Binding Effect. Neither this Agreement nor the rights or obligations hereunder of the parties shall betransferable or assignable by Executive, except in accordance with the laws of descent and distribution and as specified below. TheCompany may assign this Agreement and the Company’s rights and obligations hereunder to any affiliate of the Company, providedthat upon any such assignment the Company shall remain liable for the obligations to Executive hereunder. This Agreement shall bebinding upon and inure to the benefit of Executive, Executive’s heirs, executors, administrators, and beneficiaries, and shall be bindingupon and inure to the benefit of the Company and its successors and assigns.149. Complete Understanding; Amendment; Waiver. This Agreement constitutes the complete understanding between the partieswith respect to the employment of Executive and supersedes all other prior agreements and understandings, both written and oral,between the parties with respect to the subject matter hereof, and no statement, representation, warranty or covenant has been made byeither party with respect thereto except as expressly set forth herein. Except as contemplated by Section 3(g), this Agreement shall notbe modified, amended or terminated except by a written instrument signed by each of the parties. Any waiver of any term or provisionhereof, or of the application of any such term or provision to any circumstances, shall be in writing signed by the party charged withgiving such waiver. Waiver by either party of any breach hereunder by the other party shall not operate as a waiver of any other breach,whether similar to or different from the breach waived. No delay by either party in the exercise of any rights or remedies shall operateas a waiver thereof, and no single or partial exercise by either party of any such right or remedy shall preclude other or further exercisethereof.10. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstancesshall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of thisAgreement, or the application of such provision to such person or circumstances other than those to which it is so determined to beinvalid or unenforceable, shall not be affected thereby, and each provision hereof shall be enforced to the fullest extent permitted bylaw. If any provision of this Agreement, or any part thereof, is held to be invalid or unenforceable because of the scope or duration ofor the area covered by such provision, the parties agree that the court making such determination shall reduce the scope, durationand/or area of such provision (and shall substitute appropriate provisions for any such invalid or unenforceable provisions) in order tomake such provision enforceable to the fullest extent permitted by law and/or shall delete specific words and phrases, and suchmodified provision shall then be enforceable and shall be enforced. The parties recognize that if, in any judicial proceeding, a courtshall refuse to enforce any of the separate covenants contained in this Agreement, then that invalid or unenforceable covenantcontained in this Agreement shall be deemed eliminated from these provisions to the extent necessary to permit the remaining separatecovenants to be enforced. In the event that any court determines that the time period or the area, or both, are unreasonable and that anyof the covenants is to that extent invalid or unenforceable, the parties agree that such covenants will remain in full force and effect, first,for the greatest time period, and second, in the greatest geographical area that would not render them unenforceable.11. Survivability. The provisions of this Agreement which by their terms call for performance subsequent to termination ofExecutive’s employment hereunder, or of this Agreement, shall so survive such termination, whether or not such provisions expresslystate that they shall so survive.12. Governing Law; Arbitration.(a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State ofGeorgia applicable to agreements made and to be wholly performed within that State, without regard to its conflict of laws provisions.(b) Arbitration. (i) Executive and the Company agree that, except for claims for workers’ compensation, unemploymentcompensation, and any other claim that is non-arbitrable under applicable law, final and binding arbitration shall be theexclusive forum for any dispute or controversy between them, including, without limitation, disputes arising under or inconnection with this Agreement, Executive’s employment, and/or termination of employment, with the15Company; provided, however, that the Company shall be entitled to commence an action in any court of competent jurisdictionfor injunctive relief in connection with any alleged actual or threatened violation of any provision of Section 5. Judgment maybe entered on the arbitrators’ award in any court having jurisdiction. For purposes of entering such judgment or seekinginjunctive relief with regard to Section 5, the Company and Executive hereby consent to the jurisdiction of any or all of thefollowing courts: (i) the United States District Court for the Northern District of Georgia; (ii) the Superior Court of ForsythCounty, Georgia; or (iii) any other court having jurisdiction; provided that damages for any alleged violation of Section 5, aswell as any claim, counterclaim or cross-claim brought by Executive or any third-party in response to, or in connection with anycourt action commenced by the Company seeking said injunctive relief shall remain exclusively subject to final and bindingarbitration as provided for herein. The Company and Executive hereby waive, to the fullest extent permitted by applicable law,any objection which either may now or hereafter have to such jurisdiction, venue and any defense of inconvenient forum. Thus, except for the claims carved out above, this Agreement includes all common-law and statutory claims (whether arisingunder federal state or local law), including, but not limited to, any claim for breach of contract, fraud, fraud in the inducement,unpaid wages, wrongful termination, and gender, age, national origin, sexual orientation, marital status, disability, or any other protected status.Any arbitration under this Agreement shall be filed exclusively with, and administered by, the American Arbitration Associationin Atlanta, Georgia before three arbitrators, in accordance with the National Rules for the Resolution of Employment Disputes ofthe American Arbitration Association in effect at the time of submission to arbitration. The Company and Executive herebyagree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgmentor in any other manner provided by law. The Company shall pay all costs uniquely attributable to arbitration, including theadministrative fees and costs of the arbitrators. Each party shall pay that party’s own costs and attorney fees, if any, unless thearbitrators rule otherwise. Executive understands that he is giving up no substantive rights, and this Agreement simply governsforum. The arbitrators shall apply the same standards a court would apply to award any damages, attorney fees or costs.Executive shall not be required to pay any fee or cost that he would not otherwise be required to pay in a court action, unless soordered by the arbitrators.EXECUTIVE INITIALS: JK COMPANY INITIALS: PB(c) WAIVER OF JURY TRIAL. BY SIGNING THIS AGREEMENT, EXECUTIVE AND THE COMPANYACKNOWLEDGE THAT THE RIGHT TO A COURT TRIAL AND TRIAL BY JURY IS OF VALUE, ANDKNOWINGLY AND VOLUNTARILY WAIVE THAT RIGHT FOR ANY DISPUTE SUBJECT TO THE TERMS OFTHIS ARBITRATION PROVISION.13. Titles and Captions. All paragraph titles or captions in this Agreement are for convenience only and in no way define,limit, extend or describe the scope or intent of any provision hereof.14. Joint Drafting. In recognition of the fact that the parties had an equal opportunity to negotiate the language of, and draft,this Agreement, the parties acknowledge and agree that there is no single drafter of this Agreement and, therefore, the general rule thatambiguities are to be construed against the drafter is, and shall be, inapplicable. If any language in this Agreement is found or claimedto be ambiguous, each16party shall have the same opportunity to present evidence as to the actual intent of the parties with respect to any such ambiguouslanguage without any inference or presumption being drawn against any party hereto.15. Notices. All notices and other communications to be given or to otherwise be made to any party to this Agreement shall bedeemed to be sufficient if contained in a written instrument delivered in person or duly sent by certified mail or by a recognizednational courier service, postage or charges prepaid, (a) to Scientific Games International, Inc., c/o Scientific Games Corporation, Attn:Legal Department, at 750 Lexington Avenue, 25th Floor, New York, NY 10022, (b) to Executive, at the last address shown in theCompany’s records, or (c) to such other replacement address as may be designated in writing by the addressee to the addressor.16. Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of thisAgreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shallbe deemed to be followed by the words “without limitation,” unless the context otherwise indicates. When a reference in thisAgreement is made to a “party” or “parties,” such reference shall be to a party or parties to this Agreement unless otherwise indicated orthe context requires otherwise. Unless the context requires otherwise, the terms “hereof,” “herein,” “hereby,” “hereto”, “hereunder” andderivative or similar words in this Agreement refer to this entire Agreement. Unless the context requires otherwise, words in thisAgreement using the singular or plural number also include the plural or singular number, respectively, and the use of any genderherein shall be deemed to include the other genders. References in this Agreement to “dollars” or “$” are to U.S. dollars. When areference is made in this Agreement to a law, statute or legislation, such reference shall be to such law, statute or legislation as it may beamended, modified, extended or re-enacted from time to time (including any successor law, statute or legislation) and shall include anyregulations promulgated thereunder from time to time. The headings used herein are for reference only and shall not affect theconstruction of this Agreement.[remainder of page intentionally left blank]17IN WITNESS WHEREOF, each of the parties has duly executed this Agreement as of the date above written. SCIENTIFIC GAMES INTERNATIONAL, INC. By: /s/ Philip J. BauerName: Philip J. BauerTitle: Vice President and Corporate Counsel EXECUTIVE /s/ James C. KennedyName: James C. Kennedy18Exhibit AInventionsNone19Exhibit 10.26April 30, 2014Larry PottsVice President, Chief Compliance Officer & Director Corporate SecurityScientific Games Corporation750 Lexington Avenue, 25th FloorNew York, New YorkDear Larry:With regard to your Employment Agreement dated as of January 1, 2006 (executed August 2, 2006), and as amended by a letteragreement dated October 2, 2008, an amendment to the Employment Agreement dated as of December 30, 2008, and a letteragreement dated September 28, 2011 (as so amended, the “Agreement”), we are pleased to confirm the following changes to theAgreement.With regard to Section 2 of the Agreement, the term will be extended from December 31, 2013 to December 31, 2015. The renewalterms contained in Section 2 remain intact.With regard to Section 4(a) of the Agreement, effective January 1, 2014, your base salary is five-hundred thousand dollars ($500,000)per annum.If these changes are agreeable, please sign an acknowledgement copy and return to me.Scientific Games CorporationBy: /s/ Peter A. ManiName: Peter A. ManiTitle: Vice President and Chief Human Resources OfficerAcknowledged this 5th day of May, 2014/s/ Larry PottsLarry PottsExhibit 10.28Employment AgreementThis Employment Agreement (this “Agreement”) is made as of January 5, 2015 (the “Effective Date”) by and betweenScientific Games Corporation, a Delaware corporation (the “Company”), and Derik Mooberry (“Executive”).WHEREAS, the Company and Executive wish to enter into this Agreement, which shall terminate and supersede the Executive’scurrent Employment Agreement with Bally Technologies, Inc. (“Bally”), dated December 6, 2011 (as amended hereby, the “PriorEmployment Agreement”), but not, for the avoidance of doubt, Executive’s Retention Agreement with Bally, dated September 10, 2014(the “Retention Agreement”).NOW, THEREFORE, in consideration of the premises and mutual benefits to be derived herefrom and other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged by the Company and Executive, the parties agree asfollows.1.Employment; Term. The Company hereby agrees to employ Executive, and Executive hereby accepts employment withthe Company, in accordance with and subject to the terms and conditions set forth in this Agreement. This term of employment ofExecutive under this Agreement (the “Term”) shall be the period commencing on the Effective Date and ending on December 31,2016, as may be extended in accordance with this Section 1 and subject to earlier termination in accordance with Section 4. The Termshall be extended automatically without further action by either party by one (1) additional year (added to the end of the Term), andthen on each succeeding annual anniversary thereafter, unless either party shall have given written notice to the other party prior to thedate which is sixty (60) days prior to the date upon which such extension would otherwise have become effective electing not to furtherextend the Term, in which case Executive’s employment shall terminate on the date upon which such extension would otherwise havebecome effective, unless earlier terminated in accordance with Section 4.2. Position and Duties. During the Term, Executive will serve as Executive Vice President and Group Chief Executive, Gamingof the Company and as an officer or director of any subsidiary or affiliate of the Company if elected or appointed to such positions, asapplicable, during the Term. In such capacities, Executive shall perform such duties and shall have such responsibilities as are normallyassociated with such positions, and as otherwise may be assigned to Executive from time to time by the Company’s President and ChiefExecutive Officer or upon the authority of the board of directors of the Company (the “Board”). Subject to Section 4(e), Executive’sfunctions, duties and responsibilities are subject to reasonable changes as the Company may in good faith determine from time to time.Executive hereby agrees to accept such employment and to serve the Company and its subsidiaries and affiliates to the best ofExecutive’s ability in such capacities, devoting all of Executive’s business time to such employment.3. Compensation.(a) Base Salary. During the Term, Executive will receive a base salary of five hundred fifty five thousand U.S. dollars(US$550,000) per annum (pro-rated for any partial year), payable in accordance with the Company’s regular payroll practices andsubject to such deductions or amounts to be withheld as required by applicable law and regulations or as may be agreed to byExecutive. In the event that the Company, in its sole discretion, from time to time determines to increase Executive’s base salary, such increased amount shall, from and after the effective date of such increase, constitute the “base salary” of Executive for purposes ofthis Agreement.(b) Incentive Compensation. Executive shall have the opportunity annually to earn incentive compensation (“IncentiveCompensation”) during the Term in amounts determined by the Compensation Committee of the Board (the “CompensationCommittee”) in its sole discretion in accordance with the applicable incentive compensation plan of the Company as in effect from timeto time (the “Incentive Compensation Plan”). Under such Incentive Compensation Plan, Executive shall have the opportunity annually(beginning with the 2015 performance period) to earn up to 75% of Executive’s base salary as Incentive Compensation at “targetopportunity” (“Target Bonus”) on the terms and subject to the conditions of such Incentive Compensation Plan (any such IncentiveCompensation to be subject to such deductions or amounts to be withheld as required by applicable law and regulations or as may beagreed to by Executive).(c) Eligibility for Annual Equity Awards. During the Term, Executive shall be eligible (beginning in 2015) to receivean annual grant of stock options, restricted stock units or other equity awards in the sole discretion of the Compensation Committee andin accordance with the applicable plans and programs of the Company for executives of the Company and subject to the Company’sright to at any time amend or terminate any such plan or program, so long as any such change does not adversely affect any accrued orvested interest of Executive under any such plan or program.(d) Expense Reimbursement. Subject to Section 3(f), during the Term the Company shall reimburse Executive for allreasonable and necessary travel and other business expenses incurred by Executive in connection with the performance of Executive’sduties under this Agreement, on a timely basis upon timely submission by Executive of vouchers therefor in accordance with theCompany’s standard policies and procedures.(e) Employee Benefits. During the Term, Executive shall be entitled to participate, without discrimination orduplication, in any and all medical insurance, group health, disability, life insurance, accidental death and dismemberment insurance,401(k) or other retirement, deferred compensation, stock ownership and such other plans and programs which are made generallyavailable by the Company to similarly situated executives of the Company in accordance with the terms of such plans and programsand subject to the right of the Company (or its applicable affiliate) to at any time amend or terminate any such plan or program.Executive shall be entitled to paid vacation, holidays and any other time off in accordance with the Company’s policies in effect fromtime to time.(f) Taxes and Internal Revenue Code 409A. Payment of all compensation and benefits to Executive under thisAgreement shall be subject to all legally required and customary withholdings. The Company makes no representations regarding thetax implications of the compensation and benefits to be paid to Executive under this Agreement, including, without limitation, underSection 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable administrative guidance and regulations(“Section 409A”). Section 409A governs plans and arrangements that provide “nonqualified deferred compensation” (as defined underthe Code) which may include, among others, nonqualified retirement plans, bonus plans, stock option plans, employment agreementsand severance agreements. The Company reserves the right to provide compensation and benefits under any plan or arrangement inamounts, at times and in a manner that minimizes taxes, interest or penalties as a result of Section 409A. In addition, in the event anybenefits or amounts paid to Executive hereunder are deemed to be subject to Section 409A, Executive consents to the Companyadopting such conforming amendments as the Company deems necessary, in its reasonable discretion, to comply with Section 409A(including, but not limited to, delaying payment until six (6) months following termination of employment). Notwithstanding anythingherein to the contrary, if2(i) at the time of Executive’s “separation from service” (as defined in Treas. Reg. Section 1.409A-1(h)) with the Company other than asa result of Executive’s death, (ii) Executive is a “specified employee” (as defined in Section 409A(a)(2)(B)(i) of the Code), (iii) one ormore of the payments or benefits received or to be received by Executive pursuant to this Agreement would constitute deferredcompensation subject to Section 409A, and (iv) the deferral of the commencement of any such payments or benefits otherwise payablehereunder as a result of such separation of service is necessary in order to prevent any accelerated or additional tax under Section409A, then the Company will defer the commencement of the payment of any such payments or benefits hereunder to the extentnecessary (without any reduction in such payments or benefits ultimately paid or provided to Executive) until the date that is six (6)months following Executive’s separation from service with the Company (or the earliest date as is permitted under Section 409A). Anyremaining payments or benefits shall be made as otherwise scheduled hereunder. Furthermore, to the extent any payments of money orother benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section 409A, suchpayments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A, orotherwise such payments or other benefits shall be restructured, to the extent permissible under Section 409A, in a manner determinedby the Company that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due toExecutive under this Agreement constitute deferred compensation under Section 409A, any such reimbursements or in-kind benefitsshall be paid to Executive in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under thisAgreement shall be designated as a “separate payment” within the meaning of Section 409A.4. Termination of Employment. Executive’s employment may be terminated at any time prior to the end of the Term under theterms described in this Section 4, and the Term shall automatically terminate upon any termination of Executive’s employment. Forpurposes of clarification, except as provided in Section 5.6, all stock options, restricted stock units and other equity-based awards willbe governed by the terms of the plans, grant agreements and programs under which such options, restricted stock units or other awardswere granted on any termination of the Term and Executive’s employment with the Company.(a) Termination by Executive for Other than Good Reason. Executive may terminate Executive’s employmenthereunder for any reason or no reason upon 60 days’ prior written notice to the Company referring to this Section 4(a); provided,however, that a termination by Executive for “Good Reason” (as defined below) shall not constitute a termination by Executive forother than Good Reason pursuant to this Section 4(a). In the event Executive terminates Executive’s employment for other than GoodReason, Executive shall be entitled only to the following compensation and benefits (the payments set forth in Sections 4(a)(i) – 4(a)(iii), collectively, the “Standard Termination Payments”):(i) any accrued but unpaid base salary for services rendered by Executive to the date of such termination,payable in accordance with the Company’s regular payroll practices and subject to such deductions or amounts to be withheldas required by applicable law and regulations or as may be agreed to by Executive;(ii) any vested non-forfeitable amounts owing or accrued at the date of such termination under benefit plans,programs and arrangements set forth or referred to in Section 3(e) in which Executive participated during the Term (which willbe paid under the terms and conditions of such plans, programs, and arrangements (and agreements and documentsthereunder)); and(iii) reasonable business expenses and disbursements incurred by Executive prior to such termination will bereimbursed in accordance with Section 3(d).3(b) Termination By Reason of Death. If Executive dies during the Term, the last beneficiary designated by Executiveby written notice to the Company (or, in the absence of such designation, Executive’s estate) shall be entitled only to the StandardTermination Payments, including any benefits that may be payable under any life insurance benefit of Executive for which theCompany pays premiums, in accordance with the terms of any such benefit and subject to the right of the Company (or its applicableaffiliate) to at any time amend or terminate any such benefit.(c) Termination By Reason of Total Disability. The Company may terminate Executive’s employment in the event ofExecutive’s “Total Disability.” For purposes of this Agreement, “Total Disability” shall mean Executive’s (1) becoming eligible toreceive benefits under any long-term disability insurance program of the Company or (2) failure to perform the duties andresponsibilities contemplated under this Agreement for a period of more than 180 days during any consecutive 12-month period due tophysical or mental incapacity or impairment. In the event that Executive’s employment is terminated by the Company by reason ofTotal Disability, Executive shall not be entitled to receive any compensation or benefits under this Agreement except for the StandardTermination Payments; provided, however, that the Executive may separately be entitled to disability payments pursuant to a disabilityplan sponsored or maintained by the Company or any of its affiliates providing benefits to Executive.(d) Termination by the Company for Cause. The Company may terminate the employment of Executive at any time for“Cause.” For purposes of this Agreement, “Cause” shall mean: (i) gross neglect by Executive of Executive’s duties hereunder; (ii)Executive’s indictment for or conviction of a felony, or any non-felony crime or offense involving the property of the Company or anyof its subsidiaries or affiliates or evidencing moral turpitude; (iii) willful misconduct by Executive in connection with the performanceof Executive’s duties hereunder; (iv) intentional breach by Executive of any material provision of this Agreement; (v) material violationby Executive of a material provision of the Company’s Code of Business Conduct; or (vi) any other willful or grossly negligent conductof Executive that would make the continued employment of Executive by the Company materially prejudicial to the best interests of theCompany. In the event Executive’s employment is terminated for “Cause,” Executive shall not be entitled to receive any compensationor benefits under this Agreement except for the Standard Termination Payments.(e) Termination by the Company without Cause or by Executive for Good Reason. The Company may terminateExecutive’s employment at any time without Cause, for any reason or no reason, and Executive may terminate Executive’s employmentfor “Good Reason.” For purposes of this Agreement “Good Reason” shall mean that, without Executive’s prior written consent, any ofthe following shall have occurred: (A) a material adverse change to Executive’s positions, titles, offices, or duties following theEffective Date from those set forth in Section 2, except, in such case, in connection with the termination of Executive’s employment forCause or due to Total Disability, death or expiration of the Term; (B) a material decrease in base salary or material decrease inExecutive’s Incentive Compensation opportunity provided under this Agreement; or (C) any other material failure by the Company toperform any material obligation under, or material breach by the Company of any material provision of, this Agreement; provided,however, that a termination by Executive for Good Reason under any of clauses (A) through (C) of this Section 4(e) shall not beconsidered effective unless Executive shall have provided the Company with written notice of the specific reasons for such terminationwithin thirty (30) days after Executive has knowledge of the event or circumstance constituting Good Reason and the Company shallhave failed to cure the event or condition allegedly constituting Good Reason within thirty (30) days after such notice has been given tothe Company and Executive actually terminates his employment within one (1) year following the initial occurrence of the event givingrise to Good Reason. In the event that Executive’s employment is terminated by the Company without Cause or by Executive for GoodReason (and not, for the avoidance of doubt, in the event of a4termination pursuant to Section 4(a), (b), (c) or (d) or due to or upon the expiration of the Term), the Company shall pay or provide thefollowing amounts to Executive:(i) the Standard Termination Payments; and(ii) an amount equal to the sum of (A) Executive’s base salary and (B) an amount equal to the highest annualIncentive Compensation paid to Executive (if any) in respect of the two (2) most recent fiscal years of the Company butnot more than Executive’s Target Bonus for the-then current fiscal year (provided if such termination occurs during2015 or 2016, such amount shall be Executive’s Target Bonus for the-then current fiscal year), such amount under thisclause (ii) payable in accordance with the Company’s normal payroll practices over a period of twelve (12) months aftersuch termination in accordance with Section 4(g); and(iii) no later than March 15 following the end of the year in which such termination occurs, in lieu of anyIncentive Compensation for the year in which such termination occurs, payment of an amount equal to (A) the IncentiveCompensation (if any) which would have been payable to Executive had Executive remained in employment with theCompany during the entire year in which such termination occurred, multiplied by (B) a fraction the numerator of whichis the number of days Executive was employed in the year in which such termination occurs and the denominator ofwhich is the total number of days in the year in which such termination occurs; and(iv) if Executive elects to continue medical coverage under the Company’s group health plan in accordancewith COBRA, the monthly premiums for such coverage for a period of twelve (12) months.(f) Expiration of Term of Agreement. In the event Executive’s employment is terminated at the end of the Term,Executive shall receive an amount equal to Executive’s base salary, payable in accordance with the Company’s normal payrollpractices over a period of twelve (12) months after such termination in accordance with Section 4(g).(g) Timing of Certain Payments under Section 4. For purposes of Section 409A, references herein to the Executive’s“termination of employment” shall refer to Executive’s separation of services with the Company within the meaning of Treas. Reg.Section 1.409A-1(h). If at the time of Executive’s separation of service with the Company other than as a result of Executive’s death, (i)Executive is a “specified employee” (as defined in Section 409A(a)(2)(B)(i) of the Code), (ii) one or more of the payments or benefitsreceived or to be received by Executive pursuant to this Agreement would constitute deferred compensation subject to Section 409A,and (iv) the deferral of the commencement of any such payments or benefits otherwise payable hereunder as a result of such separationof service is necessary in order to prevent any accelerated or additional tax under Section 409A, such payments may be made asfollows: (i) no payments for a six-month period following the date of Executive’s separation of service with the Company; (ii) anamount equal to the aggregate sum that would have been otherwise payable during the initial six-month period paid in a lump sum onthe first payroll date following six (6) months following the date of Executive’s separation of service with the Company (subject to suchdeductions or amounts to be withheld as required by applicable law and regulations); and (iii) during the period beginning six (6)months following Executive’s separation of service with the Company through the remainder of the applicable period, payment of theremaining amount due in equal installments in accordance with the Company’s standard5payroll practices (subject to such deductions or amounts to be withheld as required by applicable law and regulations).(h) Mitigation. In the event the Executive’s employment is terminated in accordance with Section 4(e) or (f) andExecutive is employed by or otherwise engaged to provide services to another person or entity at any time prior to the end of anyperiod of payments to or on behalf of Executive contemplated by this Section 4, Executive shall immediately advise the Company ofsuch employment or engagement and his compensation therefor and the Company’s obligation to make payments pursuant to Section4(e)(ii) or (f) shall be reduced by any base compensation payable to Executive during the applicable period through such otheremployment or engagement.(i) Set-Off. To the fullest extent permitted by law and provided an acceleration of income or the imposition of anadditional tax under Section 409A would not result, any amounts otherwise due to Executive hereunder (including any paymentspursuant to this Section 4) shall be subject to set-off with respect to any amounts Executive otherwise owes the Company or anysubsidiary or affiliate thereof.(j) No Other Benefits or Compensation. Except as may be specifically provided under this Agreement, under any othereffective written agreement between Executive and the Company, or under the terms of any plan or policy applicable to Executive,Executive shall have no right to receive any other compensation from the Company or any subsidiary or affiliate thereof, or toparticipate in any other plan, arrangement or benefit provided by the Company or any subsidiary or affiliate thereof, with respect to anyfuture period after such termination or resignation. Executive acknowledges and agrees that Executive is entitled to no compensation orbenefits from the Company or any of its subsidiaries or affiliates of any kind or nature whatsoever in respect of periods prior to the dateof this Agreement.(k) Release of Employment Claims; Compliance with Section 5. Executive agrees, as a condition to receipt of anytermination payments provided for in this Section 4 (otr than the Standard Termination Payments), that Executive will execute a generalrelease agreement, in a form reasonably satisfactory to the Company, releasing any and all claims arising out of Executive’semployment and the termination of such employment. The Company shall provide Executive with the proposed form of general releaseagreement referred to in the immediately preceding sentence no later than five (5) days following the date of termination. Executiveshall thereupon have at least 21 days to consider such general release agreement and, if Executive executes such general releaseagreement, shall have seven (7) days after execution of such general release agreement to revoke such general release agreement.Absent such revocation, such general release agreement shall become binding on Executive. If Executive does not revoke such generalrelease agreement, payments contingent on such general release agreement that constitute deferred compensation under Section 409A(if any) shall be paid on the later of 60th day after the date of termination or the date such payments are otherwise scheduled to be paidpursuant to this Agreement. The Company’s obligation to make any termination payments and benefits provided for in this Section 4(other than the Standard Termination Payments) shall immediately cease if Executive willfully and materially breaches Section 5.1, 5.2 ,5.3, 5.4, or 5.8.5. Noncompetition; Non-solicitation; Nondisclosure; etc.5.1 Noncompetition; Non-solicitation.(a) Executive acknowledges the highly competitive nature of the Company’s business and that access to theCompany’s confidential records and proprietary information renders Executive special and unique within the Company’s industries. Inaddition to the protection of confidential records and6proprietary information covered in Section 5.2, the provisions set forth in this Section 5.1 are necessary in order to protect the goodwillof the Company and the relationships developed by the Company with employees, customers and suppliers. In consideration of theamounts that may hereafter be paid to Executive pursuant to this Agreement (including, without limitation, Sections 3 and 4), Executiveagrees that during the Term (including any extensions thereof) and during the Covered Time (as defined in Section 5.1(e)), Executive,alone or with others, will not, directly or indirectly, on behalf of a Competing Business (defined below), perform job duties of the typeconducted, authorized, offered, or provided by Executive within two (2) years prior to the date of termination of Executive’semployment. Executive acknowledges that Company has gaming and lottery customers in almost every single state as well as theDistrict of Columbia and Puerto Rico and Executive has nationwide responsibilities. Therefore, this restriction covers the Unites States,including the District of Columbia and Puerto Rico. For purposes of this Section 5, “Competing Business” shall mean any business oroperations that competes with the Company: (i) related to (A) design, development, manufacturing, production, sales, leasing, licensing,provisioning, operational or management activities (as the case may be) related to the (1) lottery industry, (2) the land-based gamingindustry, (3) the interactive gaming industry, and (4) the social gaming industry; or (B) in which the Company is then or was within theprevious 12 months engaged, or in which the Company, to Executive’s knowledge, contemplates to engage in during the Term or theCovered Time, (ii) in which Executive was engaged or involved on behalf of the Company or with respect to which Executive hasobtained proprietary or confidential information; and (iii) which were conducted anywhere in the United States or in any othergeographic area in which such business was conducted or the Company contemplates conducting such business. Notwithstanding theforegoing, it is understood and agreed that Executive may have a beneficial ownership of not more than one (1) percent of theoutstanding shares of a corporation with capital stock listed on any national or regional securities exchange or quoted in the daily listingof over-the-counter market securities and in which Executive does not undertake a management, operational, or advisory role.(b) In further consideration of the amounts that may hereafter be paid to Executive pursuant to this Agreement(including, without limitation, Sections 3 and 4), Executive agrees that, during the Term (including any extensions thereof) and duringthe Covered Time, Executive shall not, directly or indirectly: (i) solicit or attempt to induce any of the employees, agents, consultants orrepresentatives of the Company to terminate his, her, or its relationship with the Company; (ii) solicit or attempt to induce any of theemployees, agents, consultants or representatives of the Company to become employees, agents, consultants or representatives of anyother person or entity; or (iii) solicit or attempt to induce any customer, vendor or distributor of the Company to curtail or cancel anybusiness with the Company; or (iv) hire any person who, to Executive’s actual knowledge, is, or was within 180 days prior to suchhiring, an employee of the Company. Sections (i) and (ii) are limited to employees, agents, consultants and representatives with whomExecutive had material contact for the purpose of performing Executive’s job duties or about whom Executive obtained confidentialinformation during Executive’s employment. Section (iii) is limited to customers, vendors and distributors with whom Executive hadmaterial contact for the purpose of performing his or her job duties, or about whom Executive obtained confidential information duringhis or her employment.(c) During the Term (including any extensions thereof) and during the Covered Time, Executive agrees that upon theearlier of Executive’s (i) negotiating with any Competitor (as defined below) concerning the possible employment of Executive by theCompetitor, (ii) responding to (other than for the purpose of declining) an offer of employment from a Competitor, or (iii) becomingemployed by a Competitor, (A) Executive will provide copies of Section 5 of this Agreement to the Competitor, and (B) in the case ofany circumstance described in (iii) above occurring during the Covered Time, and in the case of any circumstance described in (i) or (ii)above occurring during the Term or during the Covered Time, Executive will promptly provide notice to the Company of suchcircumstances. Executive further agrees that the7Company may provide notice to a Competitor of Executive’s obligations under this Agreement. For purposes of this Agreement,“Competitor” shall mean any person or entity (other than the Company, its subsidiaries or affiliates) that engages, directly or indirectly,in the United States or any other geographic area in any Competing Business.(d) Despite the restrictions in this Section 5.1, Executive acknowledges that Executive is not precluded frommeaningful opportunities for employment where Executive’s skills can be utilized gainfully and Executive acknowledges that theconsideration provided under this Agreement (including, without limitation, Sections 3 and 4) is sufficient to justify such restrictions. Inconsideration thereof and in light of Executive’s education, skills and abilities, Executive agrees that Executive will not assert in anyforum that such restrictions prevent Executive from earning a living or otherwise should be held void or unenforceable.(e) For purposes of this Section 5.1, “Covered Time” shall mean the period beginning on the date of termination ofExecutive’s employment and ending twelve (12) months thereafter.(f) In the event that a court of competent jurisdiction or arbitrator(s), as the case may be, determine that the provisionsof this Section 5.1 are unenforceable for any reason, the parties acknowledge and agree that the court or arbitrator(s) is expresslyempowered to reform any provision of this Section so as to make them enforceable as described in Section 10 below.5.2 Proprietary Information; Inventions.(a)Executive acknowledges that, during the course of Executive’s employment with the Company, Executivenecessarily will have (and during any employment by, or affiliation with, the Company prior to the Term has had) access to and makeuse of proprietary information and confidential records of the Company. Executive covenants that Executive shall not during the Termor at any time thereafter, directly or indirectly, use for Executive’s own purpose or for the benefit of any person or entity other than theCompany, nor otherwise disclose to any person or entity, any such proprietary information, unless and to the extent such disclosure hasbeen authorized in writing by the Company or is otherwise required by law. The term “proprietary information” means: (i) the softwareproducts, programs, applications, and processes utilized by the Company; (ii) the name and/or address of any customer or vendor of theCompany or any information concerning the transactions or relations of any customer or vendor of the Company with the Company;(iii) any information concerning any product, technology, or procedure employed by the Company but not generally known to itscustomers or vendors or competitors, or under development by or being tested by the Company but not at the time offered generally tocustomers or vendors; (iv) any information relating to the Company’s computer software, computer systems, pricing or marketingmethods, sales margins, cost of goods, cost of material, capital structure, operating results, borrowing arrangements or business plans;(v) any information identified as confidential or proprietary in any line of business engaged in by the Company; (vi) any informationthat, to Executive’s actual knowledge, the Company ordinarily maintains as confidential or proprietary; (vii) any business plans,budgets, advertising or marketing plans; (viii) any information contained in any of the Company’s written or oral policies andprocedures or manuals; (ix) any information belonging to customers, vendors or any other person or entity which the Company, toExecutive’s actual knowledge, has agreed to hold in confidence; and (x) all written, graphic, electronic data and other materialcontaining any of the foregoing. Executive acknowledges that information that is not novel or copyrighted or patented may nonethelessbe proprietary information. The term “proprietary information” shall not include information generally known or available to the public,information that becomes available to Executive on an unrestricted, non-confidential basis from a source other than the Company orany of its directors, officers, employees, agents or other representatives (without8breach of any obligation of confidentiality of which Executive has knowledge, after reasonable inquiry, at the time of the relevantdisclosure by Executive), or general lottery, land-based gaming, interactive gaming or social gaming industry information to the extentnot particularly related or proprietary to the Company that was already known to Executive at the time Executive commences hisemployment by the Company that is not subject to nondisclosure by virtue of Executive’s prior employment or otherwise.Notwithstanding the foregoing and Section 5.3, Executive may disclose or use proprietary information or confidential records solely tothe extent (A) such disclosure or use may be required or appropriate in the performance of his duties as a director or employee of theCompany, (B) required to do so by a court of law, by any governmental agency having supervisory authority over the business of theCompany or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him todivulge, disclose or make accessible such information (provided that in such case Executive shall first give the Company promptwritten notice of any such legal requirement, disclose no more information than is so required and cooperate fully with all efforts by theCompany to obtain a protective order or similar confidentiality treatment for such information), (C) such information or recordsbecomes generally known to the public without his violation of this Agreement, or (D) disclosed to Executive’s spouse, attorney and/orhis personal tax and financial advisors to the extent reasonably necessary to advance Executive’s tax, financial and other personalplanning (each an “Exempt Person”); provided, however, that any disclosure or use of any proprietary information or confidentialrecords by an Exempt Person shall be deemed to be a breach of this Section 5.2 or Section 5.3 by Executive.(a) Executive agrees that all processes, technologies and inventions (collectively, “Inventions”), including newcontributions, improvements, ideas and discoveries, whether patentable or not, conceived, developed, invented or made by Executiveduring the Term (and during any employment by, or affiliation with, the Company prior to the Term) shall belong to the Company,provided that such Inventions grew out of Executive’s work with the Company or any of its subsidiaries or affiliates, are related in anymanner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made onthe Company’s time or with the use of the Company’s facilities or materials. Executive shall further: (i) promptly disclose suchInventions to the Company; (ii) assign to the Company, without additional compensation, all patent and other rights to such Inventionsfor the United States and foreign countries; (iii) sign all papers necessary to carry out the foregoing; and (iv) give testimony in supportof Executive’s inventorship. If any Invention is described in a patent application or is disclosed to third parties, directly or indirectly, byExecutive within two (2) years after the termination of Executive’s employment with the Company, it is to be presumed that theInvention was conceived or made during the Term. Executive agrees that Executive will not assert any rights to any Invention as havingbeen made or acquired by Executive prior to the date of this Agreement, except for Inventions, if any, disclosed in Exhibit A to thisAgreement.5.3 Confidentiality and Surrender of Records. Executive shall not, during the Term or at any time thereafter(irrespective of the circumstances under which Executive’s employment by the Company terminates), except to the extent required bylaw, directly or indirectly publish, make known or in any fashion disclose any confidential records to, or permit any inspection orcopying of confidential records by, any person or entity other than in the course of such person’s or entity’s employment or retentionby the Company, nor shall Executive retain, and will deliver promptly to the Company, any of the same following termination ofExecutive’s employment hereunder for any reason or upon request by the Company. For purposes hereof, “confidential records” meansthose portions of correspondence, memoranda, files, manuals, books, lists, financial, operating or marketing records, magnetic tape, orelectronic or other media or equipment of any kind in Executive’s possession or under Executive’s control or accessible to Executivewhich contain any proprietary information. All confidential records shall be and remain the sole property of the Company during theTerm and thereafter.95.4 Non-disparagement. Executive shall not, during the Term and thereafter, disparage in any material respect theCompany, any affiliate of the Company, any of their respective businesses, any of their respective officers, directors or employees, orthe reputation of any of the foregoing persons or entities. Notwithstanding the foregoing, nothing in this Agreement shall precludeExecutive from making truthful statements that are required by applicable law, regulation or legal process.5.5 No Other Obligations. Executive represents that Executive is not precluded or limited in Executive’s ability toundertake or perform the duties described herein by any contract, agreement or restrictive covenant. Executive covenants thatExecutive shall not employ the trade secrets or proprietary information of any other person in connection with Executive’s employmentby the Company without such person’s authorization.5.6 Forfeiture of Outstanding Equity Awards; “Clawback” Policies. The other provisions of this Agreementnotwithstanding, if Executive willfully and materially fails to comply with Section 5.1, 5.2, 5.3, 5.4, or 5.8, all options to purchasecommon stock, restricted stock units and other equity-based awards granted by the Company or any of its affiliates (whether prior to,contemporaneous with, or subsequent to the date hereof) and held by Executive or a transferee of Executive shall be immediatelyforfeited and cancelled. Executive acknowledges and agrees that, notwithstanding anything contained in this Agreement or any otheragreement, plan or program, any incentive-based compensation or benefits contemplated under this Agreement (including, withoutlimitation, Incentive Compensation and equity-based awards) shall be subject to recovery by the Company under any compensationrecovery or “clawback” policy, generally applicable to executives of the Company, that the Company may adopt from time to time,including any policy which the Company may be required to adopt under Section 954 of the Dodd-Frank Wall Street Reform andConsumer Protection Act and the rules and regulations of the Securities and Exchange Commission thereunder or the requirements ofany national securities exchange on which the Company’s common stock may be listed.5.7 Enforcement. Executive acknowledges and agrees that, by virtue of Executive’s position, services and access toand use of confidential records and proprietary information, any violation by Executive of any of the undertakings contained in thisSection 5 would cause the Company immediate, substantial and irreparable injury for which it has no adequate remedy at law.Accordingly, Executive agrees and consents to the entry of an injunction or other equitable relief by a court of competent jurisdictionrestraining any violation or threatened violation of any undertaking contained in this Section 5. Executive waives posting of any bondotherwise necessary to secure such injunction or other equitable relief. Rights and remedies provided for in this Section 5 arecumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any other agreement orapplicable law.105.8 Cooperation with Regard to Litigation. Executive agrees to cooperate reasonably with the Company, during theTerm and thereafter (including following Executive’s termination of employment for any reason), by being available to testify on behalfof the Company in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative. In addition, except to theextent that Executive has or intends to assert in good faith an interest or position adverse to or inconsistent with the interest or positionof the Company, Executive agrees to cooperate reasonably with the Company, during the Term and thereafter (including followingExecutive’s termination of employment for any reason), to assist the Company in any such action, suit, or proceeding by providinginformation and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company,in each case, as reasonably requested by the Company. The Company agrees to pay (or reimburse, if already paid by Executive) allreasonable expenses actually incurred in connection with Executive’s cooperation and assistance including reasonable fees anddisbursements of counsel, if any, chosen by Executive if Executive reasonably determines in good faith, on the advice of counsel, thatthe Company’s counsel may not ethically represent Executive in connection with such action, suit or proceeding due to actual orpotential conflicts of interests.5.9 Survival. The provisions of this Section 5 shall survive the termination of the Term and any termination orexpiration of this Agreement.5.10 Company. For purposes of this Section 5, references to the “Company” shall include the Company and eachsubsidiary and/or affiliate of the Company (and each of their respective joint ventures and equity method investees).6. Code of Conduct. Executive acknowledges that Executive has read the Company’s Code of Business Conduct and agrees toabide by such Code of Business Conduct, as amended or supplemented from time to time, and other policies applicable to employeesand executives of the Company.7. Indemnification. The Company shall indemnify Executive to the full extent permitted under the Company’s Certificate ofIncorporation or By-Laws and pursuant to any other agreements or policies in effect from time to time in connection with any action,suit or proceeding to which Executive may be made a party by reason of Executive being an officer, director or employee of theCompany or of any subsidiary or affiliate of the Company.8. Assignability; Binding Effect. Neither this Agreement nor the rights or obligations hereunder of the parties shall betransferable or assignable by Executive, except in accordance with the laws of descent and distribution and as specified below. TheCompany may assign this Agreement and the Company’s rights and obligations hereunder to any affiliate of the Company, providedthat upon any such assignment the Company shall remain liable for the obligations to Executive hereunder. This Agreement shall bebinding upon and inure to the benefit of Executive, Executive’s heirs, executors, administrators, and beneficiaries, and shall be bindingupon and inure to the benefit of the Company and its successors and assigns.9. Complete Understanding; Amendment; Waiver. This Agreement constitutes the complete understanding between the partieswith respect to the employment of Executive and supersedes all other prior agreements and understandings, both written and oral,between the parties with respect to the subject matter hereof, including, without limitation, superseding any entitlements to benefits orpayments pursuant to any severance plan, policy, practice or arrangement maintained by the Company or any affiliate thereof as of theEffective Date, and no statement, representation, warranty or covenant has been made by either party with respect thereto except asexpressly set forth herein. Executive’s Prior Employment Agreement,11but not the Retention Agreement, shall terminate and be of no further force or effect as of the Effective Date. Except as contemplated bySections 3(f), 5.1(f) and 10, this Agreement shall not be modified, amended or terminated except by a written instrument signed byeach of the parties. Any waiver of any term or provision hereof, or of the application of any such term or provision to anycircumstances, shall be in writing signed by the party charged with giving such waiver. Waiver by either party of any breach hereunderby the other party shall not operate as a waiver of any other breach, whether similar to or different from the breach waived. No delay byeither party in the exercise of any rights or remedies shall operate as a waiver thereof, and no single or partial exercise by either party ofany such right or remedy shall preclude other or further exercise thereof.10. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstancesshall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of thisAgreement, or the application of such provision to such person or circumstances other than those to which it is so determined to beinvalid or unenforceable, shall not be affected thereby, and each provision hereof shall be enforced to the fullest extent permitted bylaw. If any provision of this Agreement, or any part thereof, is held to be invalid or unenforceable because of the scope or duration ofor the area covered by such provision, the parties agree that the court making such determination shall reduce the scope, durationand/or area of such provision (and shall substitute appropriate provisions for any such invalid or unenforceable provisions) in order tomake such provision enforceable to the fullest extent permitted by law and/or shall delete specific words and phrases, and suchmodified provision shall then be enforceable and shall be enforced. The parties recognize that if, in any judicial proceeding, a courtshall refuse to enforce any of the separate covenants contained in this Agreement, then that invalid or unenforceable covenantcontained in this Agreement shall be deemed eliminated from these provisions to the extent necessary to permit the remaining separatecovenants to be enforced. In the event that any court determines that the time period or the area, or both, are unreasonable and that anyof the covenants is to that extent invalid or unenforceable, the parties agree that such covenants will remain in full force and effect, first,for the greatest time period, and second, in the greatest geographical area that would not render them unenforceable.11. Survivability. The provisions of this Agreement which by their terms call for performance subsequent to termination ofExecutive’s employment hereunder, or of this Agreement, shall so survive such termination, whether or not such provisions expresslystate that they shall so survive.12. Governing Law; Arbitration.(a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State ofNevada applicable to agreements made and to be wholly performed within that State, without regard to its conflict of laws provisions.(b) Arbitration. (i) Executive and the Company agree that, except for claims for workers’ compensation, unemploymentcompensation, and any other claim that is non-arbitrable under applicable law, final and binding arbitration shall be theexclusive forum for any dispute or controversy between them, including, without limitation, disputes arising under or inconnection with this Agreement, Executive’s employment, and/or termination of employment, with the Company; provided,however, that the Company shall be entitled to commence an action in any court of competent jurisdiction for injunctive reliefin connection with any alleged actual or threatened violation of any provision of Section 5. For purposes of entering judgmenton an arbitrators12award or seeking injunctive relief with regard to Section 5, the Company and Executive hereby consent to the exclusivepersonal jurisdiction in the state and federal courts located in Las Vegas, Nevada; provided that damages for any allegedviolation of Section 5, as well as any claim, counterclaim or cross-claim brought by Executive or any third-party in response to,or in connection with any court action commenced by the Company seeking said injunctive relief shall remain exclusivelysubject to final and binding arbitration as provided for herein. The Company and Executive hereby waive, to the fullest extentpermitted by applicable law, any objection which either may now or hereafter have to such jurisdiction, venue and any defenseof inconvenient forum. Thus, except for the claims carved out above, this Agreement includes all common-law and statutoryclaims (whether arising under federal state or local law), including any claim for breach of contract, fraud, fraud in theinducement, unpaid wages, wrongful termination, and gender, age, national origin, sexual orientation, marital status, disability,or any other protected status.(ii) Any arbitration under this Agreement shall be filed exclusively with, and administered by, the AmericanArbitration Association in Las Vegas, Nevada before three arbitrators, in accordance with the National Rules for the Resolutionof Employment Disputes of the American Arbitration Association in effect at the time of submission to arbitration. TheCompany and Executive hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in otherjurisdictions by suit on the judgment or in any other manner provided by law. The Company shall pay all costs uniquelyattributable to arbitration, including the administrative fees and costs of the arbitrators. Each party shall pay that party’s owncosts and attorney fees, if any, unless the arbitrators rule otherwise. Executive understands that Executive is giving up nosubstantive rights, and this Agreement simply governs forum. The arbitrators shall apply the same standards a court wouldapply to award any damages, attorney fees or costs. Executive shall not be required to pay any fee or cost that Executive wouldnot otherwise be required to pay in a court action, unless so ordered by the arbitrators.EXECUTIVE INITIALS: DM COMPANY INITIALS: GM(c) WAIVER OF JURY TRIAL. BY SIGNING THIS AGREEMENT, EXECUTIVE AND THE COMPANYACKNOWLEDGE THAT THE RIGHT TO A COURT TRIAL AND TRIAL BY JURY IS OF VALUE, ANDKNOWINGLY AND VOLUNTARILY WAIVE THAT RIGHT FOR ANY DISPUTE SUBJECT TO THE TERMS OFTHIS ARBITRATION PROVISION.13. Titles and Captions. All paragraph titles or captions in this Agreement are for convenience only and in no way define,limit, extend or describe the scope or intent of any provision hereof.14. Joint Drafting. In recognition of the fact that the parties had an equal opportunity to negotiate the language of, and draft,this Agreement, the parties acknowledge and agree that there is no single drafter of this Agreement and, therefore, the general rule thatambiguities are to be construed against the drafter is, and shall be, inapplicable. If any language in this Agreement is found or claimedto be ambiguous, each party shall have the same opportunity to present evidence as to the actual intent of the parties with respect to anysuch ambiguous language without any inference or presumption being drawn against any party hereto.15. Notices. All notices and other communications to be given or to otherwise be made to any party to this Agreement shall bedeemed to be sufficient if contained in a written instrument delivered in person or duly sent by certified mail or by a recognizednational courier service, postage or charges prepaid, (a) to Scientific Games Corporation, Attn: Legal Department, 6650 S. El CaminoRoad, Las Vegas, NV1389118, (b) to Executive, at the last address shown in the Company’s records, or (c) to such other replacement address as may bedesignated in writing by the addressee to the addressor.16. Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of thisAgreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shallbe deemed to be followed by the words “without limitation,” unless the context otherwise indicates. When a reference in thisAgreement is made to a “party” or “parties,” such reference shall be to a party or parties to this Agreement unless otherwise indicated orthe context requires otherwise. Unless the context requires otherwise, the terms “hereof,” “herein,” “hereby,” “hereto”, “hereunder” andderivative or similar words in this Agreement refer to this entire Agreement. Unless the context requires otherwise, words in thisAgreement using the singular or plural number also include the plural or singular number, respectively, and the use of any genderherein shall be deemed to include the other genders. References in this Agreement to “dollars” or “$” are to U.S. dollars. When areference is made in this Agreement to a law, statute or legislation, such reference shall be to such law, statute or legislation as it may beamended, modified, extended or re-enacted from time to time (including any successor law, statute or legislation) and shall include anyregulations promulgated thereunder from time to time. The headings used herein are for reference only and shall not affect theconstruction of this Agreement.[remainder of page intentionally left blank]14IN WITNESS WHEREOF, each of the parties has duly executed this Agreement as of the date above written. SCIENTIFIC GAMES CORPORATION By: /s/ Gary L. Melampy Vice President Corporate Human Resources EXECUTIVE /s/ Derik Mooberry _____________________________Name: Derik Mooberry15Exhibit AInventionsNone16Exhibit 10.29Employment AgreementThis Employment Agreement (this “Agreement”) is made as of December 8, 2014 (the “Effective Date”) by and betweenScientific Games Corporation, a Delaware corporation (the “Company”), and Richard Haddrill (“Executive”).WHEREAS, the Company, Bally Technologies, Inc. and Executive are parties to a confidential Agreement and Release, datedNovember 21, 2014 (the “Settlement Agreement”); andWHEREAS, subject to the Settlement Agreement becoming final and irrevocable, the Companyand Executive wish to enter into this Agreement.NOW, THEREFORE, in consideration of the premises and mutual benefits to be derived herefrom and other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged by the Company and Executive, the parties agree asfollows.1.Employment; Term. The Company hereby agrees to employ Executive, and Executive hereby accepts employment withthe Company, in accordance with and subject to the terms and conditions set forth in this Agreement. This term of employment ofExecutive under this Agreement (the “Term”) shall be the period commencing on the Effective Date and ending on December 31,2017, as may be extended in accordance with this Section 1 and subject to earlier termination in accordance with Section 4. The Termshall be extended automatically without further action by either party by one (1) additional year (added to the end of the Term), andthen on each succeeding annual anniversary thereafter, unless either party shall have given written notice to the other party prior to thedate which is sixty (60) days prior to the date upon which such extension would otherwise have become effective electing not to furtherextend the Term, in which case Executive’s employment shall terminate on the date upon which such extension would otherwise havebecome effective, unless earlier terminated in accordance with Section 4. Notwithstanding the forgoing, for the avoidance of doubt, theTerm shall end upon Executive’s termination of employment with the Company.2. Position and Duties. During the Term, Executive will serve as Executive Vice Chairman of the Company and as a director ofthe Company or an officer or director of any subsidiary or affiliate of the Company if elected or appointed to such positions, asapplicable, during the Term. In such capacities, Executive shall perform such duties and shall have such responsibilities as are normallyassociated with such positions, and as otherwise may be assigned to Executive from time to time by upon the authority of the Board.Subject to Section 4(e), Executive’s functions, duties and responsibilities are subject to reasonable changes as the Company may ingood faith determine from time to time. Executive hereby agrees to accept such employment and to serve the Company and itssubsidiaries and affiliates to the best of Executive’s ability in such capacities, devoting all of Executive’s business time, as agreed byand between Executive and the Company’s Chief Executive and Board of Directors, to such employment.3. Compensation.(a) Base Salary. During the Term, Executive will receive a base salary of one million five hundred thousand U.S.dollars (US$1,500,000) per annum (pro-rated for any partial year), payable in accordance with the Company’s regular payroll practicesand subject to such deductions or amounts to be withheld as required by applicable law and regulations or as may be agreed to byExecutive. In the event that the Company, in its sole discretion, from time to time determines to increase Executive’s base salary, such increased amount shall,from and after the effective date of such increase, constitute the “base salary” of Executive for purposes of this Agreement. Executiveacknowledges and agrees that he shall not receive any fees or other compensation (including equity compensation) for Board service.(b) Eligibility for Equity Awards. Upon commencement of the Term, Executive shall receive an award of restrictedstock units with a Fair Market Value (as defined in the Company’s 2003 Incentive Compensation Plan, as amended (“Incentive Plan”))of four hundred fifty thousand dollars ($450,000) (the “Sign-On Award”), subject to the terms and conditions of the Incentive Plan,vesting in equal installments on each of the first four anniversaries of the grant date in accordance with the Company’s standard form ofaward agreement (as modified by Section 4(e)(iv)). In addition, as of January 1, 2015, the Company will grant Executive restrictedstock units with a Fair Market Value of four million five hundred thousand U.S. dollars ($4,500,000), subject to the terms andconditions of the Incentive Plan and the award agreement.(c) Expense Reimbursement. Subject to Section 3(e), during the Term the Company shall reimburse Executive for allreasonable and necessary travel and other business expenses incurred by Executive in connection with the performance of Executive’sduties under this Agreement, on a timely basis upon timely submission by Executive of vouchers therefor in accordance with theCompany’s standard policies and procedures.(d) Employee Benefits. During the Term, Executive shall be entitled to participate, without discrimination orduplication, in any and all medical insurance, group health, disability, life insurance, accidental death and dismemberment insurance,401(k) or other retirement, deferred compensation, stock ownership and such other plans and programs which are made generallyavailable by the Company to similarly situated executives of the Company in accordance with the terms of such plans and programsand subject to the right of the Company (or its applicable affiliate) to at any time amend or terminate any such plan or program.Executive shall be entitled to paid vacation, holidays and any other time off in accordance with the Company’s policies in effect fromtime to time.(e) Taxes and Internal Revenue Code 409A. Payment of all compensation and benefits to Executive under thisAgreement shall be subject to all legally required and customary withholdings. The Company makes no representations regarding thetax implications of the compensation and benefits to be paid to Executive under this Agreement, including, without limitation, underSection 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable administrative guidance and regulations(“Section 409A”). Section 409A governs plans and arrangements that provide “nonqualified deferred compensation” (as defined underthe Code) which may include, among others, nonqualified retirement plans, bonus plans, stock option plans, employment agreementsand severance agreements. The Company reserves the right to provide compensation and benefits under any plan or arrangement inamounts, at times and in a manner that minimizes taxes, interest or penalties as a result of Section 409A. In addition, in the event anybenefits or amounts paid to Executive hereunder are deemed to be subject to Section 409A, Executive consents to the Companyadopting such conforming amendments as the Company deems necessary, in its reasonable discretion, to comply with Section 409A(including, but not limited to, delaying payment until six (6) months following termination of employment). Notwithstanding anythingherein to the contrary, if (i) at the time of Executive’s “separation from service” (as defined in Treas. Reg. Section 1.409A-1(h)) withthe Company other than as a result of Executive’s death, (ii) Executive is a “specified employee” (as defined in Section 409A(a)(2)(B)(i) of the Code), (iii) one or more of the payments or benefits received or to be received by Executive pursuant to this Agreement wouldconstitute deferred compensation subject to Section 409A, and (iv) the deferral of the commencement of any such payments or benefitsotherwise payable2hereunder as a result of such separation of service is necessary in order to prevent any accelerated or additional tax under Section409A, then the Company will defer the commencement of the payment of any such payments or benefits hereunder to the extentnecessary (without any reduction in such payments or benefits ultimately paid or provided to Executive) until the date that is six (6)months following Executive’s separation from service with the Company (or the earliest date as is permitted under Section 409A). Anyremaining payments or benefits shall be made as otherwise scheduled hereunder. Furthermore, to the extent any payments of money orother benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section 409A, suchpayments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A, orotherwise such payments or other benefits shall be restructured, to the extent permissible under Section 409A, in a manner determinedby the Company that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due toExecutive under this Agreement constitute deferred compensation under Section 409A, any such reimbursements or in-kind benefitsshall be paid to Executive in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under thisAgreement shall be designated as a “separate payment” within the meaning of Section 409A.4. Termination of Employment. Executive’s employment may be terminated at any time prior to the end of the Term under theterms described in this Section 4, and the Term shall automatically terminate upon any termination of Executive’s employment. Forpurposes of clarification, except as provided in this Section 4 and Section 5.6, all stock options, restricted stock units and other equity-based awards will be governed by the terms of the plans, grant agreements and programs under which such options, restricted stockunits or other awards were granted on any termination of the Term and Executive’s employment with the Company.(a) Termination by Executive for Other than Good Reason. Executive may terminate Executive’s employmenthereunder for any reason or no reason upon 60 days’ prior written notice to the Company referring to this Section 4(a); provided,however, that a termination by Executive for “Good Reason” (as defined below) shall not constitute a termination by Executive forother than Good Reason pursuant to this Section 4(a). In the event Executive terminates Executive’s employment for other than GoodReason, Executive shall be entitled only to the following compensation and benefits (the payments set forth in Sections 4(a)(i) – 4(a)(iii), collectively, the “Standard Termination Payments”):(i) any accrued but unpaid base salary for services rendered by Executive to the date of such termination,payable in accordance with the Company’s regular payroll practices and subject to such deductions or amounts to be withheldas required by applicable law and regulations or as may be agreed to by Executive;(ii) any vested non-forfeitable amounts owing or accrued at the date of such termination under benefit plans,programs and arrangements set forth or referred to in Section 3(d) in which Executive participated during the Term (which willbe paid under the terms and conditions of such plans, programs, and arrangements (and agreements and documentsthereunder)); and(iii) reasonable business expenses and disbursements incurred by Executive prior to such termination will bereimbursed in accordance with Section 3(c).(b) Termination By Reason of Death. If Executive dies during the Term, the last beneficiary designated by Executiveby written notice to the Company (or, in the absence of such designation, Executive’s estate) shall be entitled only to the StandardTermination Payments, including any benefits that may be payable under any life insurance benefit of Executive for which theCompany pays premiums, in3accordance with the terms of any such benefit and subject to the right of the Company (or its applicable affiliate) to at any time amendor terminate any such benefit.(c) Termination By Reason of Total Disability. The Company may terminate Executive’s employment in the event ofExecutive’s “Total Disability.” For purposes of this Agreement, “Total Disability” shall mean Executive’s (1) becoming eligible toreceive benefits under any long-term disability insurance program of the Company or (2) failure to perform the duties andresponsibilities contemplated under this Agreement for a period of more than 180 days during any consecutive 12-month period due tophysical or mental incapacity or impairment. In the event that Executive’s employment is terminated by the Company by reason ofTotal Disability, Executive shall not be entitled to receive any compensation or benefits under this Agreement except for the StandardTermination Payments; provided, however, that the Executive may separately be entitled to disability payments pursuant to a disabilityplan sponsored or maintained by the Company or any of its affiliates providing benefits to Executive.(d) Termination by the Company for Cause. The Company may terminate the employment of Executive at any time for“Cause.” For purposes of this Agreement, “Cause” shall mean: (i) gross neglect by Executive of Executive’s duties hereunder; (ii)Executive’s indictment for or conviction of a felony, or any non-felony crime or offense involving the property of the Company or anyof its subsidiaries or affiliates or evidencing moral turpitude; (iii) willful misconduct by Executive in connection with the performanceof Executive’s duties hereunder; (iv) intentional breach by Executive of any material provision of this Agreement; (v) material violationby Executive of a material provision of the Company’s Code of Business Conduct; or (vi) any other willful or grossly negligent conductof Executive that would make the continued employment of Executive by the Company materially prejudicial to the best interests of theCompany. In the event Executive’s employment is terminated for “Cause,” Executive shall not be entitled to receive any compensationor benefits under this Agreement except for the Standard Termination Payments.(e) Termination by the Company without Cause or by Executive for Good Reason. The Company may terminateExecutive’s employment at any time without Cause, for any reason or no reason, and Executive may terminate Executive’s employmentfor “Good Reason.” For purposes of this Agreement “Good Reason” shall mean that, without Executive’s prior written consent, any ofthe following shall have occurred: (A) a material adverse change to Executive’s positions, titles, offices, or duties following theEffective Date from those set forth in Section 2, except, in such case, in connection with the termination of Executive’s employment forCause or due to Total Disability, death or expiration of the Term;; or (B) any other material failure by the Company to perform anymaterial obligation under, or material breach by the Company of any material provision of, this Agreement; provided, however, that atermination by Executive for Good Reason under any of clauses (A) or (B) of this Section 4(e) shall not be considered effective unlessExecutive shall have provided the Company with written notice of the specific reasons for such termination within thirty (30) days afterExecutive has knowledge of the event or circumstance constituting Good Reason and the Company shall have failed to cure the eventor condition allegedly constituting Good Reason within thirty (30) days after such notice has been given to the Company and Executiveactually terminates his employment within one (1) year following the initial occurrence of the event giving rise to Good Reason. In theevent that Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason (and not, for theavoidance of doubt, in the event of a termination pursuant to Section 4(a), (b), (c) or (d) or due to or upon the expiration of the Term),the Company shall pay or provide the following amounts to Executive:(i) the Standard Termination Payments; and4(ii) an amount equal to the sum of Executive’s base salary payable in accordance with the Company’s normalpayroll practices over a period of twelve (12) months after such termination in accordance with Section 4(g); and(iii) if Executive elects to continue medical coverage under the Company’s group health plan in accordancewith COBRA, the monthly premiums for such coverage for a period of twelve (12) months; and(iv) subject to Section 5.6 and except to the extent otherwise expressly provided at the time of grant under theterms of any equity award made to Executive, any unvested portion of the Sign-On Award held by Executive on thedate of Executive’s termination of employment with the Company will continue to vest in accordance with the originalvesting schedule applicable to such awards during the twelve (12) month period immediately following such terminationdate; provided, that in all other respects, all such awards shall be governed by the applicable plans, award agreementsand other documents pursuant to which the awards were granted; provided, that if necessary to comply with Section409A, settlement of any such equity-based awards shall be made on the date that is six (6) months plus one (1) dayfollowing the date of the Executive’s termination of employment with the Company.(f) Expiration of Term of Agreement. In the event Executive’s employment is terminated by the Company at the end ofthe Term, Executive shall receive the Standard Termination Payments and, subject to Section 5.6, full vesting of any unvested portionof the Sign-On Award; provided, that in all other respects, the Sign-On Award shall be governed by the terms and conditions of theapplicable award agreement and notice and the Incentive Plan; provided, further, that if necessary to comply with Section 409A,settlement such portion of the Sign-On Award shall be made on the date that is six (6) months plus one (1) day following the date of theExecutive’s termination of employment with the Company.(g) Timing of Certain Payments under Section 4. For purposes of Section 409A, references herein to the Executive’s“termination of employment” shall refer to Executive’s separation of services with the Company within the meaning of Treas. Reg.Section 1.409A-1(h). If at the time of Executive’s separation of service with the Company other than as a result of Executive’s death, (i)Executive is a “specified employee” (as defined in Section 409A(a)(2)(B)(i) of the Code), (ii) one or more of the payments or benefitsreceived or to be received by Executive pursuant to this Agreement would constitute deferred compensation subject to Section 409A,and (iv) the deferral of the commencement of any such payments or benefits otherwise payable hereunder as a result of such separationof service is necessary in order to prevent any accelerated or additional tax under Section 409A, such payments may be made asfollows: (i) no payments for a six-month period following the date of Executive’s separation of service with the Company; (ii) anamount equal to the aggregate sum that would have been otherwise payable during the initial six-month period paid in a lump sum onthe first payroll date following six (6) months following the date of Executive’s separation of service with the Company (subject to suchdeductions or amounts to be withheld as required by applicable law and regulations); and (iii) during the period beginning six (6)months following Executive’s separation of service with the Company through the remainder of the applicable period, payment of theremaining amount due in equal installments in accordance with the Company’s standard payroll practices (subject to such deductions oramounts to be withheld as required by applicable law and regulations).(h) Mitigation. In the event the Executive’s employment is terminated in accordance with Section 4(e) and Executive isemployed by or otherwise engaged to provide services to another person5or entity at any time prior to the end of any period of payments to or on behalf of Executive contemplated by this Section 4, Executiveshall immediately advise the Company of such employment or engagement and his compensation therefor and the Company’sobligation to make payments pursuant to Section 4(e)(ii) shall be reduced by any base compensation payable to Executive during theapplicable period through such other employment or engagement.(i) Set-Off. To the fullest extent permitted by law and provided an acceleration of income or the imposition of anadditional tax under Section 409A would not result, any amounts otherwise due to Executive hereunder (including any paymentspursuant to this Section 4) shall be subject to set-off with respect to any amounts Executive otherwise owes the Company or anysubsidiary or affiliate thereof.(j) No Other Benefits or Compensation. Except as may be specifically provided under this Agreement, under any othereffective written agreement between Executive and the Company, or under the terms of any plan or policy applicable to Executive,Executive shall have no right to receive any other compensation from the Company or any subsidiary or affiliate thereof, or toparticipate in any other plan, arrangement or benefit provided by the Company or any subsidiary or affiliate thereof, with respect to anyfuture period after such termination or resignation. Executive acknowledges and agrees that Executive is entitled to no compensation orbenefits from the Company or any of its subsidiaries or affiliates of any kind or nature whatsoever in respect of periods prior to the dateof this Agreement.(k) Release of Employment Claims; Compliance with Section 5. Executive agrees, as a condition to receipt of anytermination payments provided for in this Section 4 (other than the Standard Termination Payments), that Executive will execute ageneral release agreement, in a form reasonably satisfactory to the Company, releasing any and all claims arising out of Executive’semployment and the termination of such employment. The Company shall provide Executive with the proposed form of general releaseagreement referred to in the immediately preceding sentence no later than five (5) days following the date of termination. Executiveshall thereupon have at least 21 days to consider such general release agreement and, if Executive executes such general releaseagreement, shall have seven (7) days after execution of such general release agreement to revoke such general release agreement.Absent such revocation, such general release agreement shall become binding on Executive. If Executive does not revoke such generalrelease agreement, payments contingent on such general release agreement that constitute deferred compensation under Section 409A(if any) shall be paid on the later of 60th day after the date of termination or the date such payments are otherwise scheduled to be paidpursuant to this Agreement. The Company’s obligation to make any termination payments and benefits provided for in this Section 4(other than the Standard Termination Payments) shall immediately cease if Executive willfully and materially breaches Section 5.1, 5.2 ,5.3, 5.4, or 5.8.5. Noncompetition; Non-solicitation; Nondisclosure; etc.5.1 Noncompetition; Non-solicitation.(a) Executive acknowledges the highly competitive nature of the Company’s business and that access to theCompany’s confidential records and proprietary information renders Executive special and unique within the Company’s industries. Inaddition to the protection of confidential records and proprietary information covered in Section 5.2, the provisions set forth in thisSection 5.1 are necessary in order to protect the goodwill of the Company and the relationships developed by the Company withemployees, customers and suppliers. In consideration of the amounts that may hereafter be paid to Executive pursuant to thisAgreement (including, without limitation, Sections 3 and 4), Executive agrees that during the Term (including any extensions thereof)and during the Covered Time (as defined in Section 5.1(e)),6Executive, alone or with others, will not, directly or indirectly, on behalf of a Competing Business (defined below), perform job dutiesof the type conducted, authorized, offered, or provided by Executive within two (2) years prior to the date of termination of Executive’semployment. Executive acknowledges that Company has gaming and lottery customers in almost every single state as well as theDistrict of Columbia and Puerto Rico and Executive has nationwide responsibilities. Therefore, this restriction covers the Unites States,including the District of Columbia and Puerto Rico. For purposes of this Section 5, “Competing Business” shall mean any business oroperations that competes with the Company: (i) related to (A) design, development, manufacturing, production, sales, leasing, licensing,provisioning, operational or management activities (as the case may be) related to the (1) lottery industry, (2) the land-based gamingindustry, (3) the interactive gaming industry, and (4) the social gaming industry; or (B) in which the Company is then or was within theprevious 12 months engaged, or in which the Company, to Executive’s knowledge, contemplates to engage in during the Term or theCovered Time, (ii) in which Executive was engaged or involved on behalf of the Company or with respect to which Executive hasobtained proprietary or confidential information; and (iii) which were conducted anywhere in the United States or in any othergeographic area in which such business was conducted or the Company contemplates conducting such business. Notwithstanding theforegoing, it is understood and agreed that Executive may have a beneficial ownership of not more than one (1) percent of theoutstanding shares of a corporation with capital stock listed on any national or regional securities exchange or quoted in the daily listingof over-the-counter market securities and in which Executive does not undertake a management, operational, or advisory role.(b) In further consideration of the amounts that may hereafter be paid to Executive pursuant to this Agreement(including, without limitation, Sections 3 and 4), Executive agrees that, during the Term (including any extensions thereof) and duringthe Covered Time, Executive shall not, directly or indirectly: (i) solicit or attempt to induce any of the employees, agents, consultants orrepresentatives of the Company to terminate his, her, or its relationship with the Company; (ii) solicit or attempt to induce any of theemployees, agents, consultants or representatives of the Company to become employees, agents, consultants or representatives of anyother person or entity; or (iii) solicit or attempt to induce any customer, vendor or distributor of the Company to curtail or cancel anybusiness with the Company; or (iv) hire any person who, to Executive’s actual knowledge, is, or was within 180 days prior to suchhiring, an employee of the Company. Sections (i) and (ii) are limited to employees, agents, consultants and representatives with whomExecutive had material contact for the purpose of performing Executive’s job duties or about whom Executive obtained confidentialinformation during Executive’s employment. Section (iii) is limited to customers, vendors and distributors with whom Executive hadmaterial contact for the purpose of performing his or her job duties, or about whom Executive obtained confidential information duringhis or her employment.(c) During the Term (including any extensions thereof) and during the Covered Time, Executive agrees that upon theearlier of Executive’s (i) negotiating with any Competitor (as defined below) concerning the possible employment of Executive by theCompetitor, (ii) responding to (other than for the purpose of declining) an offer of employment from a Competitor, or (iii) becomingemployed by a Competitor, (A) Executive will provide copies of Section 5 of this Agreement to the Competitor, and (B) in the case ofany circumstance described in (iii) above occurring during the Covered Time, and in the case of any circumstance described in (i) or (ii)above occurring during the Term or during the Covered Time, Executive will promptly provide notice to the Company of suchcircumstances. Executive further agrees that the Company may provide notice to a Competitor of Executive’s obligations under thisAgreement. For purposes of this Agreement, “Competitor” shall mean any person or entity (other than the Company, its subsidiaries oraffiliates) that engages, directly or indirectly, in the United States or any other geographic area in any Competing Business.7(d) Despite the restrictions in this Section 5.1, Executive acknowledges that Executive is not precluded frommeaningful opportunities for employment where Executive’s skills can be utilized gainfully and Executive acknowledges that theconsideration provided under this Agreement (including, without limitation, Sections 3 and 4) is sufficient to justify such restrictions. Inconsideration thereof and in light of Executive’s education, skills and abilities, Executive agrees that Executive will not assert in anyforum that such restrictions prevent Executive from earning a living or otherwise should be held void or unenforceable.(e) For purposes of this Section 5.1, “Covered Time” shall mean the period beginning on the date of termination ofExecutive’s employment and ending twelve (12) months thereafter.(f) In the event that a court of competent jurisdiction or arbitrator(s), as the case may be, determine that the provisionsof this Section 5.1 are unenforceable for any reason, the parties acknowledge and agree that the court or arbitrator(s) is expresslyempowered to reform any provision of this Section so as to make them enforceable as described in Section 10 below.5.2 Proprietary Information; Inventions.(a)Executive acknowledges that, during the course of Executive’s employment with the Company, Executivenecessarily will have (and during any employment by, or affiliation with, the Company prior to the Term has had) access to and makeuse of proprietary information and confidential records of the Company. Executive covenants that Executive shall not during the Termor at any time thereafter, directly or indirectly, use for Executive’s own purpose or for the benefit of any person or entity other than theCompany, nor otherwise disclose to any person or entity, any such proprietary information, unless and to the extent such disclosure hasbeen authorized in writing by the Company or is otherwise required by law. The term “proprietary information” means: (i) the softwareproducts, programs, applications, and processes utilized by the Company; (ii) the name and/or address of any customer or vendor of theCompany or any information concerning the transactions or relations of any customer or vendor of the Company with the Company;(iii) any information concerning any product, technology, or procedure employed by the Company but not generally known to itscustomers or vendors or competitors, or under development by or being tested by the Company but not at the time offered generally tocustomers or vendors; (iv) any information relating to the Company’s computer software, computer systems, pricing or marketingmethods, sales margins, cost of goods, cost of material, capital structure, operating results, borrowing arrangements or business plans;(v) any information identified as confidential or proprietary in any line of business engaged in by the Company; (vi) any informationthat, to Executive’s actual knowledge, the Company ordinarily maintains as confidential or proprietary; (vii) any business plans,budgets, advertising or marketing plans; (viii) any information contained in any of the Company’s written or oral policies andprocedures or manuals; (ix) any information belonging to customers, vendors or any other person or entity which the Company, toExecutive’s actual knowledge, has agreed to hold in confidence; and (x) all written, graphic, electronic data and other materialcontaining any of the foregoing. Executive acknowledges that information that is not novel or copyrighted or patented may nonethelessbe proprietary information. The term “proprietary information” shall not include information generally known or available to the public,information that becomes available to Executive on an unrestricted, non-confidential basis from a source other than the Company orany of its directors, officers, employees, agents or other representatives (without breach of any obligation of confidentiality of whichExecutive has knowledge, after reasonable inquiry, at the time of the relevant disclosure by Executive), or general lottery, land-basedgaming, interactive gaming or social gaming industry information to the extent not particularly related or proprietary to the Companythat was already known to Executive at the time Executive commences his employment by the Company that is not subject tonondisclosure by virtue of Executive’s prior employment or otherwise. Notwithstanding8the foregoing and Section 5.3, Executive may disclose or use proprietary information or confidential records solely to the extent(A) such disclosure or use may be required or appropriate in the performance of his duties as a director or employee of the Company,(B) required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company orby any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose ormake accessible such information (provided that in such case Executive shall first give the Company prompt written notice of any suchlegal requirement, disclose no more information than is so required and cooperate fully with all efforts by the Company to obtain aprotective order or similar confidentiality treatment for such information), (C) such information or records becomes generally known tothe public without his violation of this Agreement, or (D) disclosed to Executive’s spouse, attorney and/or his personal tax and financialadvisors to the extent reasonably necessary to advance Executive’s tax, financial and other personal planning (each an “ExemptPerson”); provided, however, that any disclosure or use of any proprietary information or confidential records by an Exempt Personshall be deemed to be a breach of this Section 5.2 or Section 5.3 by Executive.(a) Executive agrees that all processes, technologies and inventions (collectively, “Inventions”), including newcontributions, improvements, ideas and discoveries, whether patentable or not, conceived, developed, invented or made by Executiveduring the Term (and during any employment by, or affiliation with, the Company prior to the Term) shall belong to the Company,provided that such Inventions grew out of Executive’s work with the Company or any of its subsidiaries or affiliates, are related in anymanner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made onthe Company’s time or with the use of the Company’s facilities or materials. Executive shall further: (i) promptly disclose suchInventions to the Company; (ii) assign to the Company, without additional compensation, all patent and other rights to such Inventionsfor the United States and foreign countries; (iii) sign all papers necessary to carry out the foregoing; and (iv) give testimony in supportof Executive’s inventorship. If any Invention is described in a patent application or is disclosed to third parties, directly or indirectly, byExecutive within two (2) years after the termination of Executive’s employment with the Company, it is to be presumed that theInvention was conceived or made during the Term. Executive agrees that Executive will not assert any rights to any Invention as havingbeen made or acquired by Executive prior to the date of this Agreement, except for Inventions, if any, disclosed in Exhibit A to thisAgreement.5.3 Confidentiality and Surrender of Records. Executive shall not, during the Term or at any time thereafter(irrespective of the circumstances under which Executive’s employment by the Company terminates), except to the extent required bylaw, directly or indirectly publish, make known or in any fashion disclose any confidential records to, or permit any inspection orcopying of confidential records by, any person or entity other than in the course of such person’s or entity’s employment or retentionby the Company, nor shall Executive retain, and will deliver promptly to the Company, any of the same following termination ofExecutive’s employment hereunder for any reason or upon request by the Company. For purposes hereof, “confidential records” meansthose portions of correspondence, memoranda, files, manuals, books, lists, financial, operating or marketing records, magnetic tape, orelectronic or other media or equipment of any kind in Executive’s possession or under Executive’s control or accessible to Executivewhich contain any proprietary information. All confidential records shall be and remain the sole property of the Company during theTerm and thereafter.95.4 Non-disparagement. Executive shall not, during the Term and thereafter, disparage in any material respect theCompany, any affiliate of the Company, any of their respective businesses, any of their respective officers, directors or employees, orthe reputation of any of the foregoing persons or entities. The Company agrees to instruct its executive officers and directors not todisparage in any material respect the reputation of the Executive. Notwithstanding the foregoing, nothing in this Agreement shallpreclude the parties from making truthful statements that are required by applicable law, regulation or legal process.5.5 No Other Obligations. Executive represents that Executive is not precluded or limited in Executive’s ability toundertake or perform the duties described herein by any contract, agreement or restrictive covenant. Executive covenants thatExecutive shall not employ the trade secrets or proprietary information of any other person in connection with Executive’s employmentby the Company without such person’s authorization.5.6 Forfeiture of Outstanding Equity Awards; “Clawback” Policies. The other provisions of this Agreementnotwithstanding, if Executive willfully and materially fails to comply with Section 5.1, 5.2, 5.3, 5.4, or 5.8, all options to purchasecommon stock, restricted stock units and other equity-based awards granted by the Company or any of its affiliates (whether prior to,contemporaneous with, or subsequent to the date hereof) and held by Executive or a transferee of Executive shall be immediatelyforfeited and cancelled. Executive acknowledges and agrees that, notwithstanding anything contained in this Agreement or any otheragreement, plan or program, any incentive-based compensation or benefits contemplated under this Agreement (including, withoutlimitation, Incentive Compensation and equity-based awards) shall be subject to recovery by the Company under any compensationrecovery or “clawback” policy, generally applicable to executives of the Company, that the Company may adopt from time to time,including any policy which the Company may be required to adopt under Section 954 of the Dodd-Frank Wall Street Reform andConsumer Protection Act and the rules and regulations of the Securities and Exchange Commission thereunder or the requirements ofany national securities exchange on which the Company’s common stock may be listed.5.7 Enforcement. Executive acknowledges and agrees that, by virtue of Executive’s position, services and access toand use of confidential records and proprietary information, any violation by Executive of any of the undertakings contained in thisSection 5 would cause the Company immediate, substantial and irreparable injury for which it has no adequate remedy at law.Accordingly, Executive agrees and consents to the entry of an injunction or other equitable relief by a court of competent jurisdictionrestraining any violation or threatened violation of any undertaking contained in this Section 5. Executive waives posting of any bondotherwise necessary to secure such injunction or other equitable relief. Rights and remedies provided for in this Section 5 arecumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any other agreement orapplicable law.105.8 Cooperation with Regard to Litigation. Executive agrees to cooperate reasonably with the Company, during theTerm and thereafter (including following Executive’s termination of employment for any reason), by being available to testify on behalfof the Company in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative. In addition, except to theextent that Executive has or intends to assert in good faith an interest or position adverse to or inconsistent with the interest or positionof the Company, Executive agrees to cooperate reasonably with the Company, during the Term and thereafter (including followingExecutive’s termination of employment for any reason), to assist the Company in any such action, suit, or proceeding by providinginformation and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company,in each case, as reasonably requested by the Company. The Company agrees to pay (or reimburse, if already paid by Executive) allreasonable expenses actually incurred in connection with Executive’s cooperation and assistance including reasonable fees anddisbursements of counsel, if any, chosen by Executive if Executive reasonably determines in good faith, on the advice of counsel, thatthe Company’s counsel may not ethically represent Executive in connection with such action, suit or proceeding due to actual orpotential conflicts of interests.5.9 Survival. The provisions of this Section 5 shall survive the termination of the Term and any termination orexpiration of this Agreement.5.10 Company. For purposes of this Section 5, references to the “Company” shall include the Company and eachsubsidiary and/or affiliate of the Company (and each of their respective joint ventures and equity method investees).6. Code of Conduct. Executive acknowledges that Executive has read the Company’s Code of Business Conduct and agrees toabide by such Code of Business Conduct, as amended or supplemented from time to time, and other policies applicable to employeesand executives of the Company.7. Indemnification. The Company shall indemnify Executive to the full extent permitted under the Company’s Certificate ofIncorporation or By-Laws and pursuant to any other agreements or policies in effect from time to time in connection with any action,suit or proceeding to which Executive may be made a party by reason of Executive being an officer, director or employee of theCompany or of any subsidiary or affiliate of the Company.8. Assignability; Binding Effect. Neither this Agreement nor the rights or obligations hereunder of the parties shall betransferable or assignable by Executive, except in accordance with the laws of descent and distribution and as specified below. TheCompany may assign this Agreement and the Company’s rights and obligations hereunder to any affiliate of the Company, providedthat upon any such assignment the Company shall remain liable for the obligations to Executive hereunder. This Agreement shall bebinding upon and inure to the benefit of Executive, Executive’s heirs, executors, administrators, and beneficiaries, and shall be bindingupon and inure to the benefit of the Company and its successors and assigns.9. Complete Understanding; Amendment; Waiver. This Agreement constitutes the complete understanding between the partieswith respect to the employment of Executive and supersedes all other prior agreements and understandings, both written and oral,between the parties with respect to the subject matter hereof, including, without limitation, superseding any entitlements to benefits orpayments pursuant to any severance plan, policy, practice or arrangement maintained by the Company or any affiliate thereof as of theEffective Date, and no statement, representation, warranty or covenant has been made by either party with respect thereto except asexpressly set forth herein. Executive’s Prior Employment Agreement11shall terminate and be of no further force or effect as of the Effective Date. Except as contemplated by Sections 3(f), 5.1(f) and 10, thisAgreement shall not be modified, amended or terminated except by a written instrument signed by each of the parties. Any waiver ofany term or provision hereof, or of the application of any such term or provision to any circumstances, shall be in writing signed by theparty charged with giving such waiver. Waiver by either party of any breach hereunder by the other party shall not operate as a waiverof any other breach, whether similar to or different from the breach waived. No delay by either party in the exercise of any rights orremedies shall operate as a waiver thereof, and no single or partial exercise by either party of any such right or remedy shall precludeother or further exercise thereof.10. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstancesshall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of thisAgreement, or the application of such provision to such person or circumstances other than those to which it is so determined to beinvalid or unenforceable, shall not be affected thereby, and each provision hereof shall be enforced to the fullest extent permitted bylaw. If any provision of this Agreement, or any part thereof, is held to be invalid or unenforceable because of the scope or duration ofor the area covered by such provision, the parties agree that the court making such determination shall reduce the scope, durationand/or area of such provision (and shall substitute appropriate provisions for any such invalid or unenforceable provisions) in order tomake such provision enforceable to the fullest extent permitted by law and/or shall delete specific words and phrases, and suchmodified provision shall then be enforceable and shall be enforced. The parties recognize that if, in any judicial proceeding, a courtshall refuse to enforce any of the separate covenants contained in this Agreement, then that invalid or unenforceable covenantcontained in this Agreement shall be deemed eliminated from these provisions to the extent necessary to permit the remaining separatecovenants to be enforced. In the event that any court determines that the time period or the area, or both, are unreasonable and that anyof the covenants is to that extent invalid or unenforceable, the parties agree that such covenants will remain in full force and effect, first,for the greatest time period, and second, in the greatest geographical area that would not render them unenforceable.11. Survivability. The provisions of this Agreement which by their terms call for performance subsequent to termination ofExecutive’s employment hereunder, or of this Agreement, shall so survive such termination, whether or not such provisions expresslystate that they shall so survive.12. Governing Law; Arbitration.(a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State ofNevada applicable to agreements made and to be wholly performed within that State, without regard to its conflict of laws provisions.(b) Arbitration. (i) Executive and the Company agree that, except for claims for workers’ compensation, unemploymentcompensation, and any other claim that is non-arbitrable under applicable law, final and binding arbitration shall be theexclusive forum for any dispute or controversy between them, including, without limitation, disputes arising under or inconnection with this Agreement, Executive’s employment, and/or termination of employment, with the Company; provided,however, that the Company shall be entitled to commence an action in any court of competent jurisdiction for injunctive reliefin connection with any alleged actual or threatened violation of any provision of Section 5. For purposes of entering judgmenton an arbitrators award or seeking injunctive relief with regard to Section 5, the Company and Executive hereby12consent to the exclusive personal jurisdiction in the state and federal courts located in Las Vegas, Nevada; provided thatdamages for any alleged violation of Section 5, as well as any claim, counterclaim or cross-claim brought by Executive or anythird-party in response to, or in connection with any court action commenced by the Company seeking said injunctive reliefshall remain exclusively subject to final and binding arbitration as provided for herein. The Company and Executive herebywaive, to the fullest extent permitted by applicable law, any objection which either may now or hereafter have to suchjurisdiction, venue and any defense of inconvenient forum. Thus, except for the claims carved out above, this Agreementincludes all common-law and statutory claims (whether arising under federal state or local law), including any claim for breachof contract, fraud, fraud in the inducement, unpaid wages, wrongful termination, and gender, age, national origin, sexualorientation, marital status, disability, or any other protected status.(ii) Any arbitration under this Agreement shall be filed exclusively with, and administered by, the AmericanArbitration Association in Las Vegas, Nevada before three arbitrators, in accordance with the National Rules for the Resolutionof Employment Disputes of the American Arbitration Association in effect at the time of submission to arbitration. TheCompany and Executive hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in otherjurisdictions by suit on the judgment or in any other manner provided by law. The Company shall pay all costs uniquelyattributable to arbitration, including the administrative fees and costs of the arbitrators. Each party shall pay that party’s owncosts and attorney fees, if any, unless the arbitrators rule otherwise. Executive understands that Executive is giving up nosubstantive rights, and this Agreement simply governs forum. The arbitrators shall apply the same standards a court wouldapply to award any damages, attorney fees or costs. Executive shall not be required to pay any fee or cost that Executive wouldnot otherwise be required to pay in a court action, unless so ordered by the arbitrators.EXECUTIVE INITIALS: RH COMPANY INITIALS: PM(c) WAIVER OF JURY TRIAL. BY SIGNING THIS AGREEMENT, EXECUTIVE AND THE COMPANYACKNOWLEDGE THAT THE RIGHT TO A COURT TRIAL AND TRIAL BY JURY IS OF VALUE, ANDKNOWINGLY AND VOLUNTARILY WAIVE THAT RIGHT FOR ANY DISPUTE SUBJECT TO THE TERMS OFTHIS ARBITRATION PROVISION.13. Titles and Captions. All paragraph titles or captions in this Agreement are for convenience only and in no way define,limit, extend or describe the scope or intent of any provision hereof.14. Joint Drafting. In recognition of the fact that the parties had an equal opportunity to negotiate the language of, and draft,this Agreement, the parties acknowledge and agree that there is no single drafter of this Agreement and, therefore, the general rule thatambiguities are to be construed against the drafter is, and shall be, inapplicable. If any language in this Agreement is found or claimedto be ambiguous, each party shall have the same opportunity to present evidence as to the actual intent of the parties with respect to anysuch ambiguous language without any inference or presumption being drawn against any party hereto.15. Notices. All notices and other communications to be given or to otherwise be made to any party to this Agreement shall bedeemed to be sufficient if contained in a written instrument delivered in person or duly sent by certified mail or by a recognizednational courier service, postage or charges prepaid, (a) to Scientific Games Corporation, Attn: Legal Department, 6650 S. El CaminoRoad, Las Vegas, NV1389118, (b) to Executive, at the last address shown in the Company’s records, or (c) to such other replacement address as may bedesignated in writing by the addressee to the addressor.16. Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of thisAgreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shallbe deemed to be followed by the words “without limitation,” unless the context otherwise indicates. When a reference in thisAgreement is made to a “party” or “parties,” such reference shall be to a party or parties to this Agreement unless otherwise indicated orthe context requires otherwise. Unless the context requires otherwise, the terms “hereof,” “herein,” “hereby,” “hereto”, “hereunder” andderivative or similar words in this Agreement refer to this entire Agreement. Unless the context requires otherwise, words in thisAgreement using the singular or plural number also include the plural or singular number, respectively, and the use of any genderherein shall be deemed to include the other genders. References in this Agreement to “dollars” or “$” are to U.S. dollars. When areference is made in this Agreement to a law, statute or legislation, such reference shall be to such law, statute or legislation as it may beamended, modified, extended or re-enacted from time to time (including any successor law, statute or legislation) and shall include anyregulations promulgated thereunder from time to time. The headings used herein are for reference only and shall not affect theconstruction of this Agreement.[remainder of page intentionally left blank]14IN WITNESS WHEREOF, each of the parties has duly executed this Agreement as of the date above written. SCIENTIFIC GAMES CORPORATION By: /s/ Peter A. ManiPeter A. Mani VP and Chief Human Resources Officer EXECUTIVE /s/ Richard HaddrillName: Richard Haddrill17. Exhibit AInventionsNone15Exhibit 10.32AGREEMENT AND GENERAL RELEASEThis Agreement and General Release (this “Agreement”) is made and entered into as of the Execution Date (as definedbelow), by and between William J. Huntley (“Executive”) and Scientific Games International, Inc. (the “Company”).WHEREAS, Executive has been employed as the Executive Vice President and Group Chief Executive, Gamingpursuant to an Executive Employment Agreement, dated as of December 22, 2010, as amended August 18, 2011, December 20, 2012and January 1, 2013, between Executive and the Company, (the “Employment Agreement”);WHEREAS, the Company and Executive desire to enter into this Agreement in connection with Executive’s separationfrom employment with the Company;NOW THEREFORE, in consideration of the recitals and the mutual promises, covenants and agreements set forth in thisAgreement, the parties hereby agree as follows:1.Separation. Executive’s last day of employment with the Company is December 31, 2014 (the “SeparationDate”). The Employment Agreement shall automatically terminate and be of no further force or effect as of the Separation Date, exceptthat Sections 5, 7 and 12 of the Employment (collectively, the “Surviving Provisions”) (and the Surviving Provisions are incorporatedherein by reference). Effective upon the Separation Date, Executive shall be deemed to have resigned from all officer, director,manager, and trustee positions of the Company and its subsidiaries and affiliates and, following the Separation Date, Executive shall notrepresent himself as being an employee, officer, director, manager, agent, or representative of the Company or any of its subsidiaries oraffiliates. The Separation Date shall be the termination date of Executive’s employment for all purposes, including participation in andcoverage under all benefit plans and programs sponsored by or through the Company and any of its subsidiaries or affiliates, except asotherwise specifically provided herein.2. Consideration to Executive. Except for any payments or benefits Executive has accrued or vested in pursuant toExecutive’s participation in the Company’s 401(k) or deferred compensation plans, as applicable, which shall be subject to the termsand conditions set forth in such plan and for the Surviving Provisions above, Executive acknowledges and agrees that the payments andbenefits set forth in this Section 2 fulfill any and all of the Company’s obligations due to Executive under any agreement or bonus,incentive compensation, severance or separation plan or allowance or any other compensation or benefit plan or arrangementmaintained by the Company, Scientific Games Corporation (“SGC”) or any of their affiliates (including the Employment Agreement),and Executive specifically acknowledges and agrees that Executive is entitled to no other compensation or benefits (of any kind ornature whatsoever) from the Company or any of its subsidiaries. In full consideration of Executive’s promises, covenants andagreements set forth in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, andsubject to this Agreement becoming irrevocable in accordance with Section 15, the Company shall provide the following payments andbenefits to Executive (subject to applicable withholdings and deductions):(a) any accrued but unpaid base salary of Executive for services rendered, and unpaid vacation accrued pursuant toCompany policy, prior to the Separation Date, payable on January 9, 2015;(b) reimbursement in accordance with the Company’s policies of any unpaid reasonable business expenses anddisbursements incurred by Executive prior to the Separation Date;(c) no later than March 15, 2015, payment of a lump sum equal to Executive’s 2014 Incentive Compensation (asdefined in the Employment Agreement);1(d) severance equal to one million fourteen thousand nine hundred sixty eight U.S. dollars ($1,014,968) payable overtwelve months, less required or authorized deductions and withholdings (the “Severance Payment”), which shall be paid in bi-weekly installments and on the Company’s regular pay days and in accordance with the Company’s regular payroll practices,commencing on January 9, 2015;(e) if Employee elects to continue COBRA coverage under the Company’s medical plan in accordance with COBRA,29 U.S.C. § 1161 et seq., from January 1, 2015 to December 31, 2015, the Company will pay on Executive’s premiums forsuch coverage during such period. Coverage provided during this period will count toward the maximum months of coverageprovided under COBRA. Employee will receive information on Employee’s opportunity to elect COBRA coverage underseparate cover; and(f) additional vesting of your outstanding equity awards as described in Attachment A hereto.In addition, for the avoidance of doubt, the Company shall assume all responsibility for, and the Executive shallhave no liability with respect to, Executive’s condominium in Chicago, Illinois as of the Separation Date.3. General Release of Claims.(a) In consideration of the Company’s promises, covenants and agreements set forth in this Agreement, whichExecutive hereby acknowledges are not otherwise owed to Executive but for Executive’s release of Claims (as defined below)set forth herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, Executive herebyknowingly, voluntarily and irrevocably releases, waives and forever discharges, to the fullest extent permitted by law, onExecutive’s own behalf and on behalf of Executive’s agents, assignees, attorneys, heirs, executors, administrators and anyoneelse claiming by or through Executive (collectively, the “Releasors”), the Company, SGC and each of their affiliates,subsidiaries, predecessors, successors and assigns, and each of its and their respective past or present stockholders, membersand other equity holders, and each of its and their respective past or present directors, managers, executives, officers, insurers,attorneys, employees, consultants, agents and employee benefits plans, and trustees, fiduciaries, and administrators of thoseplans (collectively, the “Released Parties”), of and from any and all claims, charges, complaints, liens, demands, causes ofaction, obligations, damages (including consequential, punitive or exemplary damages), liabilities or the like of whatever nature(including attorneys’ fees and costs), whether under local, state or federal law or equity or otherwise, whether known orunknown, and whether asserted and unasserted (collectively, “Claims”), that Executive and/or any of the other Releasors haveor may have against any of the Released Parties arising on or prior to the Effective Date or in any way relating to or arising outof any aspect of Executive’s employment with the Company, separation from employment with the Company or Executive’streatment by the Company while in the Company’s employ, including all Claims for or related to:(i) salary and other compensation or benefits, including overtime if applicable, incentive (cash or equity)compensation, bonuses, severance pay or vacation pay, or any benefits under the Employee Retirement Income SecurityAct of 1974, or any other local, state or federal law;(ii) discrimination, harassment or retaliation based upon race, color, national origin, ancestry, religion, maritalstatus, sex, sexual orientation, citizenship status, pregnancy or any pregnancy-related disability, family status, leave ofabsence (including the Family Medical Leave Act or any other federal, state or local leave laws), handicap (includingThe Rehabilitation Act of 1973), medical condition or disability, or any other characteristic covered by law under TitleVII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, Sections 1981through 1988 of the Civil Rights Act of 1866, and any other federal, state, or local law prohibiting discrimination inemployment, the Worker Adjustment and Retraining Notification2Act, or any other federal, state or local law concerning plant shutdowns, mass layoffs, reductions in force or otherbusiness restructuring;(iii) discrimination, harassment or retaliation based upon age under the Age Discrimination in Employment Actas amended by the Older Workers Benefit Protection Act of 1990 (the “ADEA”), or under any other federal, state, orlocal law prohibiting age discrimination;(iv) matters arising under the Sarbanes-Oxley Act of 2002 and any other federal, state or local whistleblowerlaws;(v) breach of implied or express contract (whether written or oral), breach of promise, misrepresentation, fraud,estoppel, waiver or breach of any covenant of good faith and fair dealing, including breach of any express or impliedcovenants of or under the Employment Agreement;(vi) defamation, negligence, infliction of emotional distress, violation of public policy, wrongful or constructivedischarge, or any employment-related tort recognized under any applicable local, state, or federal law;(vii) any violation of any Fair Employment Practices Act, Equal Rights Act, Civil Rights Act, Minimum FairWages Act, Payment of Wages Act or any comparable federal, state or local law;(viii) any violation of the Illinois Human Rights Act, 775 I.L.C.S. §§ 5/1-101 et seq., the Illinois Wage Paymentand Collection Law, 820 I.L.C.S. §§ 110/1 et seq., the Illinois Minimum Wage Law, 820 I.L.C.S. §§ 105/1 et seq., theCook County Human Rights Ordinance, Cook County Code, §§ 42-30 et seq. (if applicable), the Chicago Human RightsOrdinance, Chicago Code, §§ 2-160-010 et seq. (if applicable), or any comparable federal, state or local law and anyviolation of any statute, regulation, or law of any country or nation;(ix) costs, fees, or other expenses, including attorneys’ fees; and(x) any other Claim of any kind whatsoever, including any claim that this Agreement was induced or resultedfrom any fraud or misrepresentation by the Company.Notwithstanding the foregoing, Executive is not hereby releasing, waiving or discharging: (i) any Claims or rights to enforcethis Agreement against the Company; (ii) any Claim for indemnification by the Company pursuant to Section 7 of theEmployment Agreement or under the Company’s certificate of incorporation or bylaws, in each case, to the extent providedtherein; and (iii) any Claims that Executive cannot lawfully release. Notwithstanding the foregoing, Executive is also not herebyreleasing, waiving or discharging Executive’s right to file a charge with an administrative agency (including the EqualEmployment Opportunity Commission and the National Labor Relations Board) or participate in any agency investigation.Executive is, however, hereby releasing, waiving and forever discharging Executive’s right to recover money or other damagesin connection with any such charge or investigation. Executive is also hereby releasing, waiving and forever dischargingExecutive’s right to recover money in connection with a charge filed by any other individual or by the Equal EmploymentOpportunity Commission, National Labor Relations Board or any other federal, state or local agency.(b) BY AGREEING TO THE RELEASE CONTAINED IN THIS AGREEMENT EXECUTIVE HEREBYKNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES ANY RIGHTS (KNOWN OR UNKNOWN) TO BRING ORPROSECUTE A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST ANY OF THE RELEASED PARTIES WITHRESPECT TO ANY OF THE CLAIMS RELEASED, WAIVED OR DISCHARGED IN SECTION 3(a). Executive agrees that therelease set forth herein will bar all Claims of every kind, known or unknown, released, waived or discharged in Section 3 andfurther agrees that no3non-governmental person, organization or other entity acting on Executive’s behalf has in the past or will in the future file anylawsuit, arbitration or proceeding asserting any Claim that is released, waived or discharged under this Agreement. If Executiveinitiates, files or pursues a lawsuit, arbitration or other proceeding asserting any Claim released, waived or discharged under thisAgreement: (i) Executive will pay for all costs, including reasonable attorneys’ fees, incurred by any of the Released Parties indefending against such Claim (unless such Claim is a charge with the Equal Employment Opportunity Commission or theNational Labor Relations Board); (ii) Executive gives up any right to damages in connection with any administrative, arbitrationor court proceeding; and (iii) if Executive is awarded damages, Executive will assign to the Company Executive’s right, title andinterest in and to all such damages. Executive acknowledges that he has been advised that the Company has decided to makethe changes described on, and acknowledges receipt of, Attachment B hereto. Notwithstanding the foregoing, this Section 3(b)does not limit Executive’s right to challenge the validity of this Agreement in a legal proceeding under the Older WorkersBenefit Protection Act, 29 U.S.C. § 626(f), with respect to claims under the ADEA. This Section 3(b) also is not intended to andshall not limit the right of a court to determine, in its discretion, that the Company is entitled to restitution, recoupment or setoffof any payments made to Executive by the Company should this Agreement be found to be invalid as to the release of claimsunder the ADEA.(c) Executive agrees that Executive shall not solicit, encourage, assist or participate (directly or indirectly) in bringingany Claims against any of the Released Parties by other current or former employees, officers or other third parties, except ascompelled by subpoena or other court order or legal process, and only after providing the Company with prior notice of anysuch subpoena, order or legal process and an opportunity to timely contest such process.(d) Executive represents, warrants and agrees that Executive has not filed, instituted, prosecuted or maintained anyadministrative, judicial or other Claim, suit or legal or other proceeding against any of the Released Parties, and that Executivewill not file, institute, prosecute or maintain such a Claim, suit or proceeding at any time hereafter based on any events, actionsor omissions occurring on or prior to the Effective Date. Executive understands and agrees that this Agreement will be pleadedas a full and complete defense to any such Claim, suit or proceeding that is or may be filed, instituted, prosecuted or maintainedby Executive or any other Releasor.4. Affirmations. Executive hereby acknowledges and agrees that:(a) Executive has no known workplace injuries or occupational diseases that Executive has not reported to theCompany in writing and Executive either has been provided or Executive has not been denied any leave requested under theFamily and Medical Leave Act or under any applicable Company or SGC policy or any local, state, or federal law;(b) Executive has not been involved in, has not complained of, and Executive is not aware of: (i) any fraudulentactivity; (ii) any uncured failure of the Company’s or SGC’s books, records and accounts to accurately and fairly reflecttransactions and dispositions of assets; or (iii) any violations of any gaming, anti-money laundering, anti-corruption, bribery, orcompetition law, which would form the basis of a claim of fraudulent or illegal activity by the Company or any other ReleasedParty; and(c) If Executive breaches the provisions of this Agreement, then the Company will be entitled to an appropriate remedyagainst Executive, which may include injunctive relief and monetary damages, as well as the return of any payments,reimbursements or benefits Executive has received hereunder.45. Executive’s Cooperation.(a) Executive agrees that, except to the extent that Executive has or intends to assert in good faith an interest or positionadverse to or inconsistent with the interest or position of the Company, Executive will provide reasonable assistance to, and willcooperate with, the Company and its subsidiaries and affiliates with respect to matters or issues which took place or arose duringExecutive’s tenure with the Company, including any attorney retained by any of them or any other representative acting on theirbehalf, in connection with any pending or future internal investigation or judicial, administrative or regulatory matter,proceeding or investigation. The parties acknowledge and agree that such cooperation may include Executive making himselfavailable for meetings, interviews, statements, testimony or the signing of affidavits, and providing to the Company anydocuments or information in Executive’s possession or under Executive’s control relating to any such litigation, regulatorymatter or investigation, provided that any such meeting, interviews, statements or testimony do not unduly interfere withExecutive’s work schedule or other post-Company duties. The Company shall reimburse Executive promptly after Executivesubmits receipts or other documents reasonably acceptable to the Company for actual out-of-pocket expenses, and includingreasonable fees and disbursements of counsel, reasonably incurred by Executive and approved by the Company (whichapproval shall not be unreasonably withheld) in connection with Executive’s performance under this Section 5 and otherwise inaccordance with the Company’s reimbursement policy; provided, however, that, without limiting Executive’s rights underSection 7 of the Employment Agreement, Executive shall not be entitled hereunder to any expense reimbursement for areasonable amount of Executive’s time spent testifying or otherwise cooperating in any matter in which Executive is a defendantin the proceeding or a named subject or target of the litigation, regulatory matter, or investigation.(b) Executive represents and warrants that Executive has and will accurately, completely and truthfully disclose to theCompany any and all materials and information requested, including in connection with any pending or future internalinvestigation or judicial, administrative or regulatory matter, proceeding or investigation involving conduct in which Executivewas involved or had knowledge in connection with Executive’s employment with the Company. In the event of a materialbreach of this Section 5, Executive agrees that the Company may, in its sole discretion, require Executive to (and, if it sorequires, Executive shall) reimburse the Company in full any payments, reimbursements or benefits Executive has receivedunder any provision of this Agreement.6. Confidentiality of Agreement. The parties agree that it is a material condition of this Agreement that Executive shallkeep the terms of this Agreement strictly and completely confidential and that Executive will not directly or indirectly make or issue anyprivate statement, press release or public statement, or communicate or otherwise disclose to any executive or employee of theCompany, SGC or any of their subsidiaries or affiliates (past, present or future) or to a member of the general public, the negotiationsleading to, or the terms, amounts or facts of or underlying this Agreement, except as may be required by law or compulsory process;provided, however, that (a) Executive may disclose the terms of this Agreement to Executive’s immediate family, attorneys, andaccountants or other financial advisors so long as they agree to abide by the foregoing confidentiality restriction and (b) Executive maydisclose any information relating to this Agreement that the Company publicly discloses. For the avoidance of doubt, nothing hereinshall prohibit Executive from disclosing a copy of Section 5 of the Employment Agreement to the extent required thereby.7. Return of Company Property. Executive agrees that Executive has or will surrender to the Company by theSeparation Date all Company credit cards, parking cards, security badges, cell or “smart” phones, pagers, Blackberries, computerequipment (including tablet computers) and expense accounts, and that Executive will submit all outstanding travel vouchers, businessexpenses and the like no later than fourteen (14) days after the Separation Date. Executive further agrees that Executive has returned orwill return to the Company, on or before the Separation Date, and will not keep, maintain or permit any copy of, any other Companyproperty, including any documents, papers, files or records in any media (whether stored on Company or personal property), but notincluding5e-mail personally directed to Executive at the Company’s e-mail address, which may be in Executive’s possession, custody or control.8. Non-Admissions. The parties recognize that, by entering into this Agreement, neither the Company nor Executiveadmits, and each specifically denies, any violation of any local, state, federal, or other law, whether regulatory, common or statutory.9. Rights After Breach. Executive agrees that, in the event that Executive materially breaches any provision of thisAgreement or otherwise engages in (or, prior to the Execution Date, has engaged in) any other willful act or omission that has caused ormay reasonably be expected to cause injury to the interest or business reputation of the Company, in addition to rights otherwise setforth in this Agreement: (a) the Company shall have the right to (i) offset or reduce or discontinue any payments, reimbursements, orbenefits that he otherwise would be entitled to receive hereunder and (ii) demand repayment of or reimbursement for, and Executiveshall immediately repay or reimburse the Company upon demand, any or all payments, reimbursements, or benefits paid or provided toExecutive hereunder; and (b) the Released Parties shall be entitled to file counterclaim(s) against Executive in the event of Executive’sbreach of the covenant not to sue contemplated by this Agreement and may recover from Executive any repayment or reimbursementnot made to the Company, as well as any and all other resulting actual or consequential damages, including attorneys’ fees and costs.10. Waiver of Breach. One or more waivers of a breach of any covenant, term or provision of this Agreement by anyparty shall not be construed as a waiver of a subsequent breach of the same covenant, term or provision, nor shall it be considered awaiver of any other then existing or subsequent breach of a different covenant, term or provision.11. 409A. The Company makes no representations or warranties regarding the tax implications of the compensationand benefits to be paid to Executive under this Agreement, including under Section 409A of the Internal Revenue Code of 1986 (the“Code”), and applicable administrative guidance and regulations. Section 409A of the Code governs plans and arrangements thatprovide “nonqualified deferred compensation” (as defined under the Code) which may include, among others, nonqualified retirementplans, bonus plans, stock option plans, employment agreements and severance agreements. To the extent any payments of money orother benefits due to Executive under this Agreement could cause the application of an acceleration or additional tax under Section409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliantunder Section 409A of the Code, or otherwise such payments or other benefits shall be restructured, to the extent possible, in a mannerdetermined by the Company that does not cause such acceleration or additional tax. To the extent any reimbursements or in-kindbenefits due to Executive under this Agreement constitute deferred compensation under Section 409A of the Code, any suchreimbursements or in-kind benefits shall be paid to Executive in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Eachpayment made under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A of the Code. Inaddition, for the avoidance of doubt, the first five hundred twenty thousand ($520,000) of the of the severance payable to the Executivein accordance with Section 2(d) is intended to satisfy the “separation pay exception” under Section 409A.12. Enforcement and Arbitration.(a) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois applicableto agreements made and to be wholly performed within that State, without regard to its conflict of laws provisions. Executiveand the Company agree that, except for any claim that is non-arbitrable under applicable law, final and binding arbitration shallbe the exclusive forum for any dispute or controversy between them, including disputes arising under or in connection with thisAgreement or Executive’s employment with, or separation from, the Company; provided, however, that the Company shall beentitled to commence an action in any court of competent jurisdiction for, and shall be entitled to, injunctive relief in connectionwith any alleged actual or threatened violation of any Surviving Provision, Section 16 or any other restrictive covenants relatingto the Company to which Executive is subject following the6Separation Date. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. For purposes of enteringsuch judgment or seeking injunctive relief with regard to any Surviving Provision, Section 16 or any other restrictive covenantsrelating to the Company to which Executive is subject following the Separation Date, the Company and Executive herebyconsent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the Northern District ofIllinois; (ii) the Circuit Court of the State of Illinois, Cook County; or (iii) any other court having jurisdiction; provided, thatdamages for any alleged violation of any Surviving Provision, Section 16 or any other restrictive covenants relating to theCompany to which Executive is subject following the Separation Date, as well as any claim, counterclaim, or cross-claimbrought by the Executive or any third party in response to, or in connection with, any court action commenced by the Companyseeking injunctive relief, shall remain exclusively subject to final and binding arbitration as provided for herein. The Companyand Executive hereby waive, to the fullest extent permitted by applicable law, any objection that either may now or hereafterhave to such jurisdiction, venue, and any defense of inconvenient forum. Thus, except for the claims excluded above, thisSection 12 covers all common law and statutory claims (whether arising under federal state or local law), including any claimfor breach of contract, fraud, fraud in the inducement, unpaid wages, wrongful termination, or unlawful discrimination on thebasis of gender, age, national origin, sexual orientation, marital status, disability, or any other protected status.(b) Any arbitration under this Agreement shall be filed exclusively with the American Arbitration Association inChicago, Illinois before three arbitrators, in accordance with the National Rules for the Resolution of Employment Disputes ofthe American Arbitration Association in effect at the time of submission to arbitration. The Company and Executive herebyagree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgmentor in any other manner provided by law. The Company shall pay all costs uniquely attributable to arbitration, including theadministrative fees and costs of the arbitrators. Subject to the last sentence of this Section 12(b), each party shall pay thatparty’s own costs and attorney fees, if any, unless the arbitrators rule otherwise. Executive understands that he is giving up nosubstantive rights pursuant to this Section 12(b), and this Section 12(b) simply governs forum. Each party shall pay that party’sown costs and attorneys fees, in any dispute, controversy or claim arising out of or related to this Agreement (or the SurvivingProvisions), unless the arbitrators rule otherwise.(c) BY SIGNING THIS AGREEMENT, EXECUTIVE AND THE COMPANY ACKNOWLEDGE THAT THE RIGHTTO A COURT TRIAL AND TRIAL BY JURY IS OF VALUE, AND KNOWINGLY AND VOLUNTARILY WAIVE THATRIGHT FOR ANY DISPUTE SUBJECT TO THE TERMS OF THE ARBITRATION PROVISIONS SET FORTH IN THISSECTION 12.13. Severability. If any provision or term of this Agreement, other than the Executive’s release set forth herein, is heldto be illegal, invalid or unenforceable, then such provision or term shall be fully severable, this Agreement shall be construed andenforced as if such illegal, invalid or unenforceable provision had never constituted part of this Agreement, and the remainingprovisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceableprovision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid or unenforceable provision or term,there shall be added automatically as a part of this Agreement another provision or term as similar to the illegal, invalid orunenforceable provision, as may be possible and that is legal, valid and enforceable.14. Entire Agreement. This Agreement constitutes the entire Agreement of the parties, and supersedes all prior andcontemporaneous negotiations, prior drafts of this Agreement and other agreements, oral or written, including whatever rights, if any,Executive may have had under the Employment Agreement (it being understood and agreed that the Surviving Provisions and Section 8of the Employment Agreement shall survive the Separation Date as contemplated hereby and thereby and are incorporated herein byreference). No representations, oral or written, are being relied upon by either party in executing this Agreement other than the expressrepresentations set forth in this Agreement. This Agreement cannot be changed or terminated unless by express written agreement7of the parties. This Agreement may be executed by each party in separate counterparts, each of which shall be deemed an original andconstitute one document.15. Revocation and Effective Date. Executive may accept this Agreement by delivering to the Company’s ChiefHuman Resources Officer, 1500 Bluegrass Lakes Parkway, Alpharetta, GA 30004, a faxed or PDF copy of this Agreement executed byExecutive, no later than 5:00 p.m. Eastern Time on the date that is forty-five (45) days after this Agreement is initially delivered toExecutive, unless a later date and time is mutually agreed (the date, if any, on which Executive executes and delivers a copy of thisAgreement being the “Execution Date”), as long as Executive or his counsel delivers to the Company’s Chief Human Resources Officer(or such officer’s designee) within a reasonable time (but no more than three (3) business days) thereafter two originals of thisAgreement executed by Executive on or before the Effective Date. Executive acknowledges that if Executive does not accept thisAgreement in the manner described above, it will be withdrawn and of no effect. If Executive accepts this Agreement before the end ofthe forty-five (45) days permitted, Executive represents that Executive has done so voluntarily and with the advice of Executive’sattorney. Executive may revoke Executive’s acceptance of this Agreement within seven (7) days of the Execution Date by delivery ofwritten notice to the Company’s Chief Human Resources Officer, by 5:00 p.m. on the seventh (7th) day following the Execution Date.Executive acknowledges and agrees that, if Executive revokes Executive’s acceptance of this Agreement, Executive shall receive noneof the payments or benefits contemplated hereunder and this Agreement shall be null and void, having have no further force or effect,and that this Agreement will not be admissible as evidence in any judicial, administrative or arbitral proceeding or trial. Executivefurther acknowledges that if the Company’s Chief Human Resources Officer does not receive from Executive written notice ofExecutive’s revocation prior to the expiration of seven (7) days of the Execution Date, Executive shall have forever waived Executive’sright to revoke this Agreement, and it shall thereafter have full force and effect as of the eighth (8th) day after the Execution Date (the“Effective Date”).16. Non-Disparagement. At no time shall Executive knowingly make any statement (whether written or oral), orknowingly encourage any other person to make any statement, disparaging the performance, conduct, character or business reputationin any material respect of the Released Parties or any of them. Nothing contained herein shall preclude Executive from providingtruthful testimony or statements as required by law or legal process or in response to an investigation by a governmental, regulatory orself-regulatory body.17. Joint Drafting. In recognition of the fact that the parties had an opportunity to negotiate the language of, and draft,this Agreement, the parties acknowledge and agree that there is no single drafter of this Agreement and, therefore, the general rule thatambiguities are to be construed against the drafter is, and shall be, inapplicable. If any language in this Agreement is found or claimedto be ambiguous, each party shall have the same opportunity to present evidence as to the actual intent of the parties with respect to anysuch ambiguous language without any inference or presumption being drawn against either party.18. Interpretation. If any provision of this Agreement conflicts with any provision of the Employment Agreement, theprovision of this Agreement shall control and prevail. When a reference is made in this Agreement to any agreement, contract,document, instrument or other record, such reference shall be to such agreement, contract, document, instrument or other record as itmay be amended, modified, supplemented or restated from time to time. When a reference is made in this Agreement to any person,such reference shall be construed to include such person’s successors and permitted assigns. The word “will” in this Agreement shall beconstrued to have the same meaning and effect as the word “shall.” When a reference is made in this Agreement to a Section orAttachment, such reference shall be to a Section or Attachment of this Agreement unless otherwise indicated. Whenever the words“include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation,”unless the context otherwise indicates. When a reference in this Agreement is made to a “party” or “parties,” such reference shall be toa party or parties to this Agreement unless otherwise indicated. Unless the context requires otherwise, (a) the terms “hereof,” “herein,”“hereby,” “hereto”, “hereunder” and derivative or similar words in this Agreement refer to this entire Agreement, (b) the word “or” isdisjunctive but not exclusive and (c) words in this Agreement using the singular or plural number also include the plural or singularnumber, respectively, and the use of any gender herein shall be deemed to include the other genders.8References in this Agreement to “dollars” or “$” are to U.S. dollars. When a reference is made in this Agreement to a law, statute orlegislation, such reference shall be to such law, statute or legislation as it may be amended, modified, extended or re-enacted from timeto time (including any successor law, statute or legislation) and shall include any regulations promulgated thereunder from time to time.The headings used herein are for reference only and shall not affect the construction of this Agreement.19. Acknowledgment.(a) By executing this Agreement, Executive acknowledges receipt of Attachment B and that (i) Executive has had theopportunity to consider the terms of this Agreement for at least forty-five (45) days from the date this Agreement has beeninitially delivered to Executive, and has either considered this Agreement and its terms for that period or has knowingly andvoluntarily waived Executive’s right to do so; (ii) Executive has been advised by the Company pursuant to this Agreement toconsult with an attorney regarding the terms of this Agreement; (iii) Executive has consulted with an attorney or, in thealternative, waives Executive’s right to do so, regarding the terms of this Agreement; (iv) any and all questions regarding theterms of this Agreement have been asked and answered to Executive’s complete satisfaction; (v) Executive has read thisAgreement; (vi) the consideration provided for herein is good and valuable; and (vii) Executive is entering into this Agreementvoluntarily, of Executive’s own free will, and without any coercion, undue influence, threat or intimidation of any kind or typewhatsoever. Executive further acknowledges and agrees that any revisions to this Agreement made prior to the Effective Dateare not material and shall not be deemed to affect the amount of time Executive has to consider this Agreement, and Executivehereby voluntarily waives additional time for review, if any, with respect to any such revisions.(b) Executive hereby acknowledges and confirms that Executive has read this Agreement and hereby freely andvoluntarily assents to all the terms and conditions in this Agreement, and signs the same as Executive’s own free act with thefull intent of accepting the benefits contemplated hereby in return for releasing the Released Parties from all Claims to the extentcontemplated herein.[remainder of this page intentionally left blank]9IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on such party’s behalf as of thedate written below./s/ William J Huntley Date: 12/30/14William J. HuntleySCIENTIFIC GAMES CORPORATIONBy: /s/ Peter A. Mani Date: 1/06/15Peter A. ManiVP and Chief Human Resources Officer10ATTACHMENT AAs of December 31, 2014Stock Option Treatment DetailGrant DateStrike PriceGrantedExercisableUnvestedTreatment upon Separation3/22/2011$8.9039,98929,9919,998• Continued vesting through 2015 (9,998 unvestedoptions will vest on 3/22/2015), grant exercisablethrough the first 90 days of 20168/16/2011$9.98200,000150,00050,000• 50,000 unvested options receive accelerated vestingupon separation on 12/31/2014• All 200,000 vested stock options will be exercisablethrough the first 90 days of 20163/20/2014$16.0322,305022,305• Continued vesting per normal vesting schedule, grantexercisable for entire 10-year termRestricted Stock Unit (“RSU”) Treatment DetailGrant DateGrantedVestedUnvestedTreatment upon Separation2/22/201230,31115,15515,156• Continued vesting per normal vesting schedulethrough 2015 (7,578 RSUs) *• 7,578 RSUs accelerate on 12/31/20151/1/201350,00012,50037,500• Continued vesting per normal vesting schedule *3/25/201334,7888,69726,09112/20/201330,0007,50022,5003/14/20149,6852,4217,2643/20/201436,844036,844* Distribution of RSUs that are vesting per their normal vesting schedule during January through March of 2015 will be delayed to sixmonths and one day following the vesting date in accordance with Section 409A of the Internal Revenue Code of 1986, as amended.Note: 5,193 RSUs are also vested and pending distribution on March 22, 2015.11Exhibit 12 Ratio of Earnings to Fixed Charges (in millions) 20102011201220132014 Net loss before income tax expense and earnings from equityinvestments (54.2)(25.8)(75.7)(153.5)(507.1) Add fixed charges: Interest expense includingamortization of debt issuancecosts 101.6104.7100.0119.5307.2 Estimate of interest withinrental expense 5.85.35.45.614.8 Total fixed charges 107.4110.0105.4125.1322.0 Distributed earnings fromequity investments 34.435.238.129.528.5 Adjusted earnings 87.6119.467.81.1(156.6) Ratio of earnings to fixed charges (1) 0.81.10.6—(0.5) (1) The ratio of earnings to fixed charges is computed by dividing adjusted earnings by fixed charges. (1)The ratio of earnings to fixed charges is computed by dividing adjusted earnings by fixed charges. Earnings before fixed charges were inadequate tocover total fixed charges by $19.8 million, $37.6 million, $124.0 million and $478.6 million for years ended 2010, 2012, 2013 and 2014,respectively. The computation of adjusted earnings in years prior to 2011 in our disclosures of ratio of earnings to fixed charges did not include theaddition of distributed earnings from equity investments (which had the effect of increasing such ratio by 0.3 in 2010).Exhibit 21SCIENTIFIC GAMES CORPORATION SUBSIDIARIESAll subsidiaries are 100% owned unless otherwise stated.Scientific Games International, Inc. (Delaware)MDI Entertainment, LLC (Delaware)Scientific Games Products, Inc. (Delaware)Scientific Games SA, Inc. (Delaware)Sciplay Inc. (Delaware)SG Gaming North America, Inc. (Nevada)Scientific Games Australia Pty. Ltd. (Australia)Scientific Games Products Australia Pty Ltd (Australia)Scientific Games International GmbH (Austria)Scientific Games (Bermuda) Limited (Bermuda)Scientific Games Brasil Ltda. (Brazil)Happy Sun Technologies Ltd. (British Virgin Islands) (50%)Scientific Games Canada Inc. (Ottawa, Canada)Scientific Games Holdings (Canada) ULC (Nova Scotia, Canada)Scientific Games Products (Canada) ULC (Nova Scotia, Canada)Scientific Games Chile Limitada (Chile) (99.99%)Scientific Games Latino America SpA (Chile)Beijing Guard Libang Technology Co. Limited (China) (50%)Scientific Games (China) Company Limited (China)Shenzhen Leli (China) (50%)Success Trader SZ (China) (50%)Scientific Games Deutschland GmbH (Germany)Scientific Games Germany GmbH (Germany)Scientific Games Honsel GmbH (Germany)Success Trader Technologies Limited (Hong Kong) (50%)Scientific Games Kft. (Hungary)Scientific Connections India Private Limited (India)Interplay Gaming Ventures Ltd. (Ireland)Scientific Games Holdings Limited (Ireland)Scientific Games Worldwide Limited (Ireland)Scientific Games Global Gaming SARL (Luxembourg)Scientific Games Luxembourg Holdings SARL (Luxembourg)Scientific Games Italy Investments SRL (Italy)Scientific Connections SDN BHD (Malaysia)Scientific Games Global Mexico S. de R.L. de C.V. (Mexico)Scientific Games Mexico, S. de R.L. de C.V. (Mexico)Scientific Games del Peru, S.R.L. (Peru) (99.9%)Scientific Games Puerto Rico, LLC (Puerto Rico)Scientific Games International Inc.-Indra Sistemas S.A. Union Temporal De Empresas (Spain) (51%)Scientific Games Spain Services SRL (Spain)Scientific Games Sweden AB (Sweden)Games Media Limited (UK)Global Draw Limited (UK)Knightway Promotions Limited (UK)Scientific Connections Limited (UK)Scientific Games Global Plus Limited (UK)Scientific Games International Holdings LTD (UK)Scientific Games International Limited (UK)Scientific Games Europe SARL (Luxembourg)Scientific Games Asia Pacific Ltd. (Bermuda)Scientific Games China Holdings Ltd. (Bermuda)International Terminal Leasing (Bermuda) (50%)Scientific Games Dominican Republic, S.R.L. (Dominican Republic)Barcrest Group Limited (UK)SG Gaming (RGL) Limited (UK)Barcrest Development B.V. (Netherlands) (50%)Barcrest Group Technology Limited (UK)Scientific Games Services Italy S.R.L. (Italy)PPC hf (Iceland)Scientific Games (Gibraltar) Limited (Gibraltar)Scientific Games Taiwan Limited (Taiwan)SG Gaming Limited (UK)Technology and Gaming Limited (UK)Scientific Games New Jersey, LLC (Delaware)Scientific Games International, Inc. (Panama) (Panama)Scientific Games Asia Services Pte. Ltd. (Singapore)Scientific Games Ukraine LLC (Ukraine)WMS Industries Inc. (Delaware)WMS Gaming Inc. (Delaware)Lenc-Smith Inc. (Delaware)Williams Electronics Games, Inc. (Delaware)WMS International Holdings Inc. (Delaware)WMS Finance Inc. (Delaware)WMS Asia Holdings Inc. (Delaware)Williams Interactive LLC (Delaware)Lenc Software Holdings LLC (Delaware)Phantom EFX, LLC (Iowa)WMS Gaming Africa (Pty) Ltd. (South Africa)WMS Gaming Australia PTY Limited (Australia)WMSGaming Mexico, S. de R.L. de C.V. (Mexico)WMS Gaming (Canada) Ltd. (New Brunswick)WMS Gaming (UK) Limited (England)WMS Gaming International, S.L. (Spain)WMS Gaming Peru S.R.L. (Peru)WMS Alderney 1 Limited (Alderney)WMS Alderney 2 Ltd. (Alderney)Jadestone Group AB (Sweden)Jadestone Networks (Malta) Ltd. (Malta)WMS International (Macau) Limited (Macau)Williams Interactive (Canada) Ltd. (British Columbia)WMS Gaming Solutions India Private Limited (India)WMS Marketing UK Limited (UK)Williams Interactive (Gibraltar) Limited (Gibraltar)WMS Gaming Services Europe, S.L. (Spain)Scientific Games Productions, LLC (Nevada)Scientific Games Distribution, LLC (Nevada)Scientific Games Turkey Sans Oyunlari Anonim Sirketi (Turkey)SG Gaming Puerto Rico, LLC (Puerto Rico)WMS Gaming Colombia S.A.S. (Colombia)Shuffle Master International, Inc.(Nevada)Shuffle Master Australia Pty Ltd.(Australia)SHFL entertainment (Argentina) S.R.L.(Argentina)SHFL entertainment (Mexico), S. de R.L. de C.V. (Mexico)SHFL entertainment (Asia) Limited(Macau)SHFL entertainment (Servicios), S. de R.L. de C.V. (Mexico)BSHFL Holdings (Gibraltar) Limited (Gibraltar)Bally Technologies Australia I Pty Ltd (Australia)SHFL International, LLC (Nevada)Shuffle Master Holding GmbH(Austria)SHFL (Qingdao) Game Technology Company Limited (China)Gaming Products Pty., Ltd. (Australia)VIP Gaming Solutions Pty Limited (Australia)Bally Gaming (Singapore) Pte Ltd. (Singapore)SHFL entertainment (Austraslia) Holdings Pty Limited (Australia)Bally Technologies Australia II Pty Ltd (Australia)Shuffle Master Australasia Group Pty Ltd (Australia)Stargames Pty Ltd (Australia)Stargames Investments Pty Limited (Australia)Stargames Australia Pty Limited (Australia)Stargames Group Management Pty Limited (Australia)Stargames Holdings Pty Limited (Australia)Stargames Assets Pty Limited (Australia)Austalasian Gaming Industries Pty Limited (Australia)Bally Technologies ANZ Pty Limited (Australia)Precise Craft Pty Limited (Australia)SHFL entertainment (New Zealand) Pty Limited (New Zealand)SHFL entertainment (Australasia) Property Pty Limited (Australia)B.G.I. Australia Pty. Limited (Australia)Bally Technologies Australia Pty. Ltd.(Australia)SHFL entertainment (Gibraltar) Limited (Gibraltar)SHFL Resources (Gibraltar) Limited (Gibraltar)SHFL entertainment (Alderney) Limited (Alderney)Shuffle Master Management - Service GmbH (Austria)Shuffle Master GmbH (Austria)Shuffle Master GmbH & Co KG (Austria)Card Shuffle Master Investments (Proprietary) Limited (South Africa)Bally Technologies, Inc.(Nevada)Alliance Holding Company (Nevada)Casino Electronics, Inc. (Nevada)Bally Gaming International, Inc. (Delaware)Bally Gaming, Inc.(Nevada)Bally Technologies Malta Limited (Malta)Bally Gaming Africa (Proprietary) Ltd. (Republic of South Africa)Bally Technologies India Private Limited (India)Bally Gaming Canada Ltd. (New Brunswick)Bally Gaming de Puerto Rico, Inc.(Puerto Rico)Bally Gaming Hong Kong Limited (Hong Kong)Bally Properties East, LLC (Nevada)Bally Properties West, LLC (Nevada)B.G.I. Gaming & Systems, S. de R.L. de C.V. (Mexico)Bally Gaming GP, LLC (Nevada)Bally Gaming LP, LLC (Nevada)Bally Technologies Colombia SAS (Colombia)Bally Gaming and Systems UK Limited (United Kingdom)Compudigm Services, Inc. (Nevada)Bally Gaming and Systems, S.A.(Uruguay)SHFL Properties, LLC (Nevada)Sierra Design Group (Nevada)C.O.A.S. Company Ltd (Israel)Bally Gaming Services, LLC (Nevada)Bally Servicios, S. de R.L. de C.V. (Mexico)Customized Games Limited (United Kingdom)Arcade Planet, Inc.(California)Dragonplay Ltd (Israel)Bally Technologies Bermuda, L.P. (Bermuda)Bally Gaming Netherlands II B.V.(Netherlands)Bally Macau Limited (Macau)Bally Gaming International GmbH (Germany)Bally Gaming Netherlands I B.V.(Netherlands)Bally Gaming Netherlands III B.V.(Netherlands)Bally Gaming d.o.o.(Slovenia)Bally Gaming and Systems (France)Bally Technologies (Gibraltar) Limited (Gibraltar)Bally Technologies Italy S.R.L. Unipersonale (Italy)Bally Technologies New Zealand Limited (New Zealand)Bally Technologies Singapore Pte. Ltd (Singapore)Bally Technologies Spain, S.L.U.(Spain)Importadora Bally Technologies Limitada (Chile)Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 33-82612, 333-05811, 333-44983, 333-44979, 333-101725, 333-101729, 333-110141, 333-134043, 333-157638, 333-161232, 333-177148, 333-191817, 333-192716, 333-197948 and 333-200463 on Form S-8 and Registration Nos.333-84742, 333-74590, 333-110477, 333-112452, 333-124107, 333-141720, 333-155346 and 333-165743 on Form S-3 of our reports dated March 16,2015, relating to the consolidated financial statements and consolidated financial statement schedule of Scientific Games Corporation, and the effectivenessof Scientific Games Corporation's internal control over financial reporting, appearing in this Annual Report on Form 10-K of Scientific Games Corporationfor the year ended December 31, 2014./s/ DELOITTE & TOUCHE LLPAtlanta, GeorgiaMarch 16, 2015Exhibit 23.2Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in Registration Statement Nos. 33-82612, 333-05811, 333-44983, 333-44979, 333-101725, 333-101729, 333-110141, 333-134043, 333-157638, 333-161232, 333-177148, 333-191817, 333-192716, 333-197948 and 333-200463 of Scientific Games Corporation onForm S-8; Registration Statement Nos. 333-84742, 333-74590, 333-110477, 333-112452, 333-124107, 333-141720 and 333-165743 of Scientific GamesCorporation on Form S-3; and Registration Statement No. 333-155346 of Scientific Games International, Inc. on Form S-3; of our report dated February 27,2015, with respect to the financial statements of Lotterie Nazionali S.r.l. as of December 31, 2014, included in the Annual Report (Form 10-K) of ScientificGames Corporation for the year ended December 31, 2014./s/ Reconta Ernst & Young S.p.A.Rome, ItalyMarch 13, 2015Exhibit 31.1Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, M. Gavin Isaacs, certify that: 1. I have reviewed this Annual Report on Form 10-K of Scientific Games Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 16, 2015 /s/ M. Gavin IsaacsM. Gavin IsaacsChief Executive OfficerExhibit 31.2 Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Scott D. Schweinfurth, certify that: 1. I have reviewed this Annual Report on Form 10-K of Scientific Games Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 16, 2015 /s/ Scott D. SchweinfurthScott D. SchweinfurthChief Financial OfficerExhibit 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Scientific Games Corporation (the “Company”) on Form 10-K for the period ended December 31, 2014 as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), I, M. Gavin Isaacs, Chief Executive Officer of the Company, certify,pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request. /s/ M. Gavin IsaacsM. Gavin IsaacsChief Executive OfficerMarch 16, 2015Exhibit 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Scientific Games Corporation (the “Company”) on Form 10-K for the period ended December 31, 2014 asfiled with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott D. Schweinfurth, Chief Financial Officer of the Company,certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request. /s/ Scott D. SchweinfurthScott D. SchweinfurthChief Financial OfficerMarch 16, 2015Exhibit 99.1REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Equity holders ofLotterie Nazionali S.r.l.We have audited the accompanying statements of financial position of Lotterie Nazionali S.r.l. as of December 31, 2014 and 2013, andthe related statements of comprehensive income, changes in equity, and cash flows for each of the three years ended December 31,2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion onthese financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our auditincluded consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for ouropinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LotterieNazionali S.r.l. at December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in theperiod ended December 31, 2014, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board./s/ Reconta Ernst & Young S.p.A.Rome, ItalyFebruary 27, 2015Exhibit 99.2LOTTERIE NAZIONALI S.r.l.INDEX TO FINANCIAL STATEMENTS PageStatements of Financial Position as of December 31, 2014 and 2013 F- 2 Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013and 2012 F- 3 Statements of Changes in Equity for the Years Ended December 31, 2014, 2013 and 2012 F- 4 Cash Flow Statements for the Years Ended December 31, 2014, 2013 and 2012 F- 5 Notes to Financial Statements F- 6F-1LOTTERIE NAZIONALI S.r.l.STATEMENTS OF FINANCIAL POSITIONDecember 31, 2014 and 2013(In thousands of Euro) December 31, 20142013 Notes ASSETS Non-current assets Equipment, net3 5,2046,678Intangible assets, net4 426,400514,720Deferred income taxes15 1,8024,146Total non-current assets 433,406525,544 Current assets Inventories5 18,04216,285Trade and other receivables6 325,847462,692Current financial assets from parent company17/18 169,963—Foreign currency forward contracts18 1,645—Other current assets 2,176395Income taxes receivable7 3,149619Cash and cash equivalents8 1617Total current assets 520,839480,008 TOTAL ASSETS 954,2461,005,552 EQUITY AND LIABILITIES Equity Issued capital9 31,00031,000Legal reserve 6,2006,200Share premium reserve 438,597556,005Cash flow hedge reserve 791(1,204)Retained earnings 286—Net income for the period 65,20167,348Total equity 542,075659,349 Current liabilities Accounts payable10 363,485296,733Foreign currency forward contracts18 —2,215Current financial payables to parent company17/18 47,98940,288Other current liabilities11 6976,967Total current liabilities 412,171346,203 TOTAL EQUITY AND LIABILITIES 954,2461,005,552F-2LOTTERIE NAZIONALI S.r.l.STATEMENTS OF COMPREHENSIVE INCOMEYears ended December 31, 2014, 2013 and 2012(In thousands of Euro) For the year endedDecember 31, Notes2014 2013 2012 Service revenues12368,352 374,992 380,868Other revenue 1,671 2,300 1,301Total Revenue 370,023 377,292 382,169 Cost of tickets1752,814 57,433 56,883Service costs13126,098 119,378 121,591Depreciation, amortization and write-downs 94,545 94,688 94,931Other operating costs (5,922) 1,872 321Total Costs 267,536 273,371 273,726 Operating Income 102,488 103,921 108,443 Financial income14948 1,021 839Financial expenses14(6,130) (4,851) (6,958) Net income before income tax1597,306 100,091 102,324 Income tax expense1532,105 32,743 33,633Net income for the year 65,201 67,348 68,691 Other comprehensive income: Other comprehensive income to be reclassified toprofit or loss in subsequent periods Components of other comprehensive income182,961 (758) (3,107)Income tax relating to components of othercomprehensive income15(966) 299 855Net other comprehensive income to be reclassified toprofit or loss in subsequent periods 1,995 (459) (2,252) Total comprehensive income for the year 67,196 66,889 66,439F-3LOTTERIE NAZIONALI S.r.l.STATEMENTS OF CHANGES IN EQUITYYears ended December 31, 2014, 2013 and 2012(In thousands of Euro) Issued Legal Share Cash Flow Retained Net For the year ended December 31, 2014 Capital Reserve PremiumReserve HedgeReserve Earnings Income Total Balance at January 1, 2014 31,000 6,200 556,005 (1,204) — 67,348 659,349Net income for the year — — — — — 65,201 65,201Components of other comprehensive income — — — 252 — — 0.252Other comprehensive income/(loss) — — — 1,743 — — 1,743Total comprehensive income/(loss) — — — 1,995 — 65,201 67.196Share Premium Distribution — — (117,408) — — — (117,408)Dividend distribution — — — — — (67,062) (67,062)Retained Earnings — — — — 286 (286) —Balance at December 31, 2014 31,000 6,200 438,597 791 286 65,201 542,075 Issued Legal Share Cash Flow Retained Net For the year ended December 31, 2013 Capital Reserve PremiumReserve HedgeReserve Earnings Income Total Balance at January 1, 2013 31,000 6,200 617,680 (745) — 68,691 722,826Net income for the year — — — — — 67,348 67,348Components of other comprehensive income — — — 615 — — 0.615Other comprehensive income/(loss) — — — (1,074) — — (1,074)Total comprehensive income/(loss) — — — (459) — 67,348 66.889Share Premium Distribution — — (61,675) — — — (61,675)Dividend distribution — — — — — (68,691) (68,691)Balance at December 31, 2013 31,000 6,200 556,005 (1,204) — 67,348 659,349 Issued Legal Share Cash Flow Retained Net For the year ended December 31, 2012 Capital Reserve PremiumReserve HedgeReserve Earnings Income Total Balance at January 1, 2012 31,000 6,200 696,931 1,507 — 66,682 802,320Net income for the year — — — — — 68,691 68,691Components of other comprehensive income — — — (1,507) — — (1,507)Other comprehensive income/(loss) — — — (745) — — (745)Total comprehensive income/(loss) — — — (2,252) — 68,691 66.439Share Premium Distribution — — (79,251) — — — (79,251)Dividend distribution — — — — — (66,682) (66,682)Balance at December 31, 2012 31,000 6,200 617,680 (745) — 68,691 722,826F-4LOTTERIE NAZIONALI S.r.l.CASH FLOW STATEMENTSYears ended December 31, 2014, 2013 and 2012(In thousands of Euro) Year ended December 31, Notes 2014 2013 2012 Operating activities: Profit before income tax 15 97,306 100,091 102,324Adjustments to reconcile profit before income tax to net cash flow Depreciation 3 1,474 1,330 2,200Intangible asset amortization 4 90,195 89,538 89,564Interest income 18 (2) (5) (8)Interest on intercompany loan 18 — — (277)Total accrued interest income (2) (5) (285)Bank interest charges and commissions 18 34 23 27Other intercompany interest expense 18 502 505 194Interest expense on Factoring of trade receivables 18 3,731 3,628 6,051Interest expense to AAMS and other interest expense 18 101 10 285Total accrued interest expense 4,368 4,166 6,557Other non-monetary items: Unrealized foreign exchange (gains)/losses, net 423 (162) (255)Unrealized exchange (gains)/losses on derivatives, net 18 (246) (124) (223)Realized exchange (gains)/losses on derivatives, net (536) 390 (166)Realized foreign exchange (gains)/losses, net 1,174 (434) (285)Total non-monetary items 194,156 194,790 199,431Income taxes paid (33,351) (29,635) (67,319)Cash flows before changes in working capital 160,805 165,155 132,112Change in net working capital: Inventories (1,757) (1,823) (2,724)Foreign currency forward contracts (3,860) 898 3,754Trade and other receivables: - Trade and other receivables (1,527) (1,784) (3,114) - Receivables from PoS (retailers) 144,832 (164,506) (112,169) - Related party receivables (6,460) 6,851 (8,883)Accounts payable: - Payables to AAMS (45) 1,156 75,440 - Payables to others 62,212 30,192 (6,248) - Payables to suppliers including related parties 4,585 2,605 8,516Income taxes receivables 2,344 (786) 78Other tax receivables (2,530) 3,592 (4,211)VAT payables, taxes other than income taxes and other liabilities (6,262) (346) 123Cash flows from operating activities 352,336 41,204 82,674Investing activities: Purchase of equipment — — (571)Transfers of equipment — — —Purchase of intangible assets 4 (1,875) (1,962) (1,696)F-5Transfers/disposals of intangible assets — — 14Cash flows from investing activities (1,875) (1,962) (2,253)Financing activities Interest paid — (33) (312)Interest received — 5 8Dividends paid (67,062) (68,691) (66,682)Share premium reserve distribution (117,408) (61,675) (79,251)Net change in financial receivables from/payables to parent company (162,262) 94,781 71,868Interest expense paid on Factoring of trade receivables (3,731) (3,628) (6,051)Cash flows from financing activities (350,463) (39,241) (80,420)Net increase (decrease) in cash and cash equivalents (1) 1 1Cash and cash equivalents at the beginning of the period 17 16 15Cash and cash equivalents at the end of the period 8 16 17 16F-6LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)1. Corporate informationLotterie Nazionali S.r.l. (hereinafter “LN” or “the Company”) is a company established in May 2010 and organized under the laws ofthe Republic of Italy. The head office of the Company is located in Rome, Italy.The Company’s operations are entirely in the Republic of Italy. In the month of August 2010, the Italian Ministry of Economy andFinances granted to LN the exclusive concession to operate various national Traditional and Instant lotteries, including “Scratch andWin” (“S&W”) instant games. The concession granted to LN by the Ministry entity Amministrazione Autonoma dei Monopoli di Stato(hereinafter “AAMS”) has a nine year duration with respect to Traditional and Instant Lotteries which are available through variousvendors located throughout Italy, mainly at tobacco shops, cafès, bars, motorway restaurants and newspaper stands (collectively,“Points of Sale” or “PoS”).The Company’s deed of association assigns to all of its shareholders specific roles in the Company’s business activities as follows:•GTECH S.p.A., directly and indirectly through Scratch & Win Holding S.p.A., (the parent of the Company and formerlyLottomatica Group S.p.A.): its role includes the design and coordination of the Company’s overall operations includingmanagement of the marketing and accounting functions, collection of wagers from Points of Sales, administration of periodicdrawings, and procurement of software and hardware for Points of Sale;•Scientific Games International: its role includes design and production of instant lottery tickets;•Arianna 2001 S.p.A.: its role includes serving as the secure depository and manager of the instant lottery tickets inventory;•Servizi Base 2001 S.p.A.: its role includes management of the instant lottery ticket distribution to the Points of Sale.On December 1, 2014 the merger process of Scratch & Win Holding S.p.A. into GTECH S.p.A. was formally completed.2.1 Basis of preparationThe financial statements have been prepared on a historical cost basis, except as disclosed in the accounting policies below for certainderivative financial instruments which are measured at fair value. The financial statements are presented in thousands of Euro unlessotherwise indicated.The financial statements of the Company as of December 31, 2014 and for the year then ended were approved for issuance by theBoard of Directors in accordance with a resolution dated February 25, 2015.Statement of ComplianceThe financial statements of LN have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issuedby the International Accounting Standards Board (“IASB”).2.2 Adoption of new and revised International Financial Reporting StandardsThe Company’s accounting policies are consistent with those of the previous financial year except for the adoption of amendedInternational Financial Reporting Standards (IFRS) and International Accounting Standards Board (IASB) Standards as of January 1,2014 as described below. Adoption of these Standards did not have a material effect on the financial position or performance of theCompany.•IFRS 10, IFRS 12 and IAS 27 Investment Entities - Amendments to IFRS 10, IFRS 12 and IAS 27•IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32•IAS 36 Recoverable Amount Disclosures for Non-Financial Assets - Amendments to IAS 36•IAS 39 Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39F-7LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)•IFRIC 21 Levies•AIP IFRS 1 First-time Adoption of International Financial Reporting Standards - Meaning of ‘effective IFRSs’•AIP IFRS 13 Fair Value Measurement - Short-term receivables and payablesThe principal effects of these changes are as follows:IFRS 10, IFRS 12 and IAS 27 Investment Entities - Amendments to IFRS 10, IFRS 12 and IAS 27The investment entities amendments provide an exception to the consolidation requirement for entities that meet the definition of aninvestment entity. The key amendments include:•Investment entity is defined in IFRS 10 Consolidated Financial Statements;•An entity must meet all three elements of the definition and consider whether it has four typical characteristics, in order toqualify as an investment entity;•An entity must consider all facts and circumstances, including its purpose and design, in making its assessment;•An investment entity accounts for its investments in subsidiaries at fair value through profit or loss in;•accordance with IFRS 9 (or IAS 39, as applicable), except for investments in subsidiaries that provide services that relate to theinvestment entity’s investment activities, which must be consolidated;•An investment entity must measure its investment in another controlled investment entity at fair value;•A non-investment entity parent of an investment entity is not permitted to retain the fair value accounting that the investmententity subsidiary applies to its controlled investees;•For venture capital organisations, mutual funds, unit trusts and others that do not qualify as investment entities, the existingoption in IAS 28 Investments in Associates and Joint Ventures, to measure investments in associates and joint ventures at fairvalue through profit or loss, is retained.The amendments have no impact on the Company.IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32The amendments to IAS 32 Financial Instruments: Presentation clarify the meaning of “currently has a legally enforceable right to set-off”. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing housesystems), which apply gross settlementmechanisms that are not simultaneous. The amendments clarify that rights of set-off must not only belegally enforceable in the normal course of business, but must also be enforceable in the event of default and the event of bankruptcy orinsolvency of all of the counterparties to the contract, including the reporting entity itself. The amendments also clarify that rights of set-off must not be contingent on a future event.The amendment has no impact on the Company.IAS 36 Recoverable Amount Disclosures for Non-Financial Assets - Amendments to IAS 36The amendments to IAS 36 Impairment of Assets clarify the disclosure requirements in respect of fair value less costs of disposal. Theamendments remove the requirement to disclose the recoverable amount for each cash-generating unit for which the carrying amount ofgoodwill or intangible assets with indefinite useful lives allocated to that unit is significant.In addition, the IASB added two disclosure requirements:•Additional information about the fair value measurement of impaired assets when the recoverable amount is based on fair valueless costs of disposal.•Information about the discount rates that have been used when the recoverable amount is based on fair value less costs ofdisposal using a present value technique. The amendments harmonise disclosure requirements between value in use and fairvalue less costs of disposal.The amendment has no impact on the Company.IAS 39 Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39The amendments provide an exception to the requirement to discontinue hedge accounting in certain circumstances in which there is achange in counterparty to a hedging instrument in order to achieve clearing for that instrument. The amendments cover novations:•That arise as a consequence of laws or regulations, or the introduction of laws or regulationsF-8LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)•In which the parties to the hedging instrument agree that one or more clearing counterparties replace the original counterparty tobecome the new counterparty to each of the parties•That did not result in changes to the terms of the original derivative other than changes directly attributable to the change incounterparty to achieve clearingAll of the above criteria must be met to continue hedge accounting under this exception.The amendments cover novations to central counterparties, as well as to intermediaries such as clearing members, or clients of the latterthat are themselves intermediaries.For novations that do not meet the criteria for the exception, entities have to assess the changes to the hedging instrument against thederecognition criteria for financial instruments and the general conditions for continuation of hedge accounting. The amendments haveno impact on the Company.IFRIC 21 LeviesIFRIC 21 is applicable to all levies other than outflows that are within the scope of other standards (e.g., IAS 12 Income Taxes) andfines or other penalties for breaches of legislation. Levies are defined in the interpretation as outflows of resources embodyingeconomic benefits imposed by government on entities inaccordance with legislation. The interpretation clarifies that an entity recognises a liability for a levy when the activity that triggerspayment, as identified by the relevant legislation, occurs. It also clarifies that a levy liability is accrued progressively only if the activitythat triggers payment occurs over a period of time, in accordance with the relevant legislation. For a levy that is triggered upon reachinga minimum threshold, the interpretation clarifies that no liability is recognised before the specified minimum threshold is reached.The interpretation does not address the accounting for the debit side of the transaction that arises from recognising a liability to pay alevy. Entities look to other standards to decide whether the recognition of a liability to pay a levy would give rise to an asset or anexpense under the relevant standards. The standard has no impact on the Company.2.3 International Financial Reporting Standards to be adopted in 2015 and laterIFRS 9 Financial InstrumentsIn July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instrumentsproject and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standardintroduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annualperiods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparativeinformation is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initialapplication is before 1 February 2015. The adoption of IFRS 9 is not expected to have an effect on the classification and measurementof the Group’s financial assets, nor any impact on the classification and measurement of the Group’s financial liabilities.IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or JointVenture - Amendments to IFRS 10 and IAS 28The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold orcontributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assetsthat constitute a business, as defined in IFRS 3 Business Combinations, between an investor and its associate or joint venture, isrecognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, isrecognised only to the extent of unrelated investors’ interests in the associate or joint venture. The amendments are to be appliedretrospectively and not expected to impact the Company’s financial position or performance and become effective for annual periodbeginning on or after January 1, 2016. Early application is permitted and must be disclosed.IFRS 10, IFRS 12 and IAS 28 Investment Entities:Applying the Consolidation Exception - Amendments to IFRS 10, IFRS 12 and IAS28The amendments address issues that have arisen in applying the investment entities exception under IFRS 10. The amendments to IFRS10 clarify that the exemption (in IFRS 10.4) from presenting consolidated financial statements applies to a parent entity that is asubsidiary of an investment entity, when the investment entity measures all of itsF-9LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)subsidiaries at fair value. Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not aninvestment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of aninvestment entity are measured at fair value. The amendments to IAS 28 allow the investor, when applying the equity method, to retainthe fair value measurement applied by the investment entity associate or joint venture to its interests insubsidiaries. The amendments are to be applied retrospectively and not expected to impact the Company’s financial position orperformance and become effective for annual period beginning on or after January 1, 2016. Early application is permitted and must bedisclosed.IFRS 11 Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11The amendments require an entity acquiring an interest in a joint operation in which the activity of the joint operation constitutes abusiness to apply, to the extent of its share, all of the principles in IFRS 3, and other IFRSs, that do not conflict with the requirements ofIFRS 11. Furthermore, entities are required to disclose the information required in those IFRSs in relation to business combinations. Theamendments also apply to an entity on the formation of a joint operation if, and only if, an existing business is contributed by the entityto the joint operation on its formation. Furthermore, the amendments clarify that for the acquisition of an additional interest in a jointoperation in which the activity of the joint operation constitutes a business, previously held interests in the joint operation must not beremeasured if the joint operator retains joint control. The amendments are to be applied prospectively and not expected to impact theCompany’s financial position or performance and become effective for annual period beginning on or after January 1, 2016. Earlyapplication is permitted and must be disclosed.IFRS 14 Regulatory Deferral AccountsIFRS 14 allows an entity, whose activities are subject to rate regulation, to continue applying most of its existing accounting policies forregulatory deferral account balances upon its first time adoption of IFRS. The standard does not apply to existing IFRS preparers. Also,an entity whose current GAAP does not allow the recognition of rate-regulated assets and liabilities, or that has not adopted such policyunder its current GAAP, would not be allowed to recognise them on first-time application of IFRS. Entities that adopt IFRS 14 mustpresent the regulatory deferral accounts as separate line items on the statement of financial position and present movements in theseaccount balances as separate line items in the statement of profit or loss and other comprehensive income. The standard requiresdisclosures on the nature of, and risks associated with, the entity’s rate regulation and the effects of that rate regulation on its financialstatements. The standard is not expected to impact the Company’s financial position or performance and become effective for annualperiod beginning on or after January 1, 2016. Early application is permitted and must be disclosed.IFRS 15 Revenue from Contracts with CustomersIFRS 15 replaces all existing revenue requirements in IFRS (IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 CustomerLoyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC31 Revenue - Barter Transactions Involving Advertising Services) and applies to all revenue arising from contracts with customers. Italso provides a model for the recognition and measurement of disposal of certain non-financial assets including property, equipmentand intangible assets.The standard outlines the principles an entity must apply to measure and recognise revenue. The core principle is that an entity willrecognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferringgoods or services to a customer.The principles in IFRS 15 will be applied using a five-step model:1. Identify the contract(s) with a customer2. Identify the performance obligations in the contract3. Determine the transaction price4. Allocate the transaction price to the performance obligations in the contract5. Recognise revenue when (or as) the entity satisfies a performance obligationThe standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applyingeach step of the model to contracts with their customers.The standard also specifies how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling acontract. Application guidance is provided in IFRS 15 to assist entities in applying its requirementsF-10LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)to certain common arrangements, including licences, warranties, rights of return, principal-versusagent considerations, options foradditional goods or services and breakage.The standard is not expected to impact the Company’s financial position or performance and becomes effective for annual periodsbeginning on or after January 1, 2017. Entities can choose to apply the standard using either a full retrospective approach with somelimited relief provided, or a modified retrospective approach. Early application is permitted and must be disclosed.IAS 1 Disclosure Initiative - Amendments to IAS 1The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements.The amendments clarify•The materiality requirements in IAS 1•That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated•That entities have flexibility as to the order in which they present the notes to financial statements•That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in•aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit orloss.Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financialposition and the statement(s) of profit or loss and other comprehensive income.The amendments are not expected to impact the Company’s financial position or performance and become effective for annual periodbeginning on or after January 1, 2016. Early application is permitted and entities do not need to disclose that fact because the Boardconsiders these amendments to be clarifications that do not affect an entity’s accounting policies or accounting estimates.IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38The amendments clarify the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that revenue reflects apattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefitsthat are consumed through use of the asset. As a result, the ratio of revenue generated to total revenue expected to be generated cannotbe used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets.The amendments are not expected to impact the Company’s financial position or performance and become effective for annual periodbeginning on or after January 1, 2016. Early application is permitted and must be disclosed.IAS 16 and IAS 41 Agriculture: Bearer Plants - Amendments to IAS 16 and IAS 41The amendments to IAS 16 and IAS 41 Agriculture change the scope of IAS 16 to include biological assets that meet the definition ofbearer plants (e.g., fruit trees). Agricultural produce growing on bearer plants (e.g., fruit growing on a tree) will remain within the scopeof IAS 41. As a result of the amendments, bearer plants will be subject to all the recognition and measurement requirements in IAS 16including the choicebetween the cost model and revaluation model for subsequent measurement. In addition, government grants relating to bearer plantswill be accounted for in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, insteadof IAS 41.Entities may apply the amendments on a fully retrospective basis. Alternatively, an entity may choose to measure a bearer plant at itsfair value at the beginning of the earliest period presented.The amendments are not expected to impact the Company’s financial position or performance and become effective for annual periodbeginning on or after January 1, 2016. Earlier application is permitted and must be disclosed.IAS 19 Defined Benefit Plans: Employee Contributions - Amendments to IAS 19IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. IAS 19requires such contributions that are linked to service to be attributed to periods of service as a negative benefit. The amendments clarifythat, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise suchcontributions as a reduction in the service cost in the period in whichF-11LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)the service is rendered, instead of allocating the contributions to the periods of service. Examples of such contributions include thosethat are a fixed percentage of the employee’s salary, a fixed amount of contributions throughout the service period, or contributions thatdepend on the employee’s age. The amendments are to be applied retrospectively and not expected to impact the Company’s financialposition or performance and become effective for annual period beginning on or after July 1, 2014.IAS 27 Equity Method in Separate Financial Statements - Amendments to IAS 27The amendments to IAS 27 Separate Financial Statements allow an entity to use the equity method as described in IAS 28 to account forits investments in subsidiaries, joint ventures and associates in its separate financial statements. Therefore, an entity must account forthese investments either:At cost;In accordance with IFRS 9 (or IAS 39); orUsing the equity methodThe entity must apply the same accounting for each category of investments. A consequential amendment was also made to IFRS 1First-time Adoption of International Financial Reporting Standards. The amendment to IFRS 1 allows a first-time adopter accounting forinvestments in the separate financial statements using the equity method, to apply the IFRS 1 exemption for past business combinationsto the acquisition of the investment.The amendments are not expected to impact the Company’s financial position or performance and become effective for annual periodsbeginning on or after January 1, 2016. The amendments must be applied retrospectively. Early application is permitted and must bedisclosed.Annual Improvements to IFRSs issued in December 2013On 12 December 2013, the International Accounting Standards Board (IASB) issued two cycles of Annual Improvements to IFRSs -Cycles 2010-2012 and 2011-2013 - that contain 11 changes to nine standards One of the amendments to IFRS 13 and the amendmentto IFRS 1 only affect the Basis for Conclusions for the respective standards and, therefore, are effective immediately. The otheramendments are effective from 1 July 2014 either prospectively or retrospectively. The adoption of these amendments will not have amaterial effect on the financial position or performance of the Company:2010-2012 cycle•IFRS 2 Definitions relating to vesting conditions - This amendment clarifies various issues related to the definition ofperformance condition and service condition, including the following:◦A performance condition must contain a service condition◦A performance target must be met while the counterparty is rendering service◦A performance target may relate to the operations or activities of an entity, or to those of another entity in the same group◦A performance condition may be a market or non-market condition◦If the counterparty, regardless of the reason, ceases to provide service during the vesting period, the service condition is notsatisfied.The amendment is effective prospectively.•IFRS 3 Accounting for contingent consideration in a business combination - This amendment clarifies that contingentconsideration in a business acquisition that is not classified as equity is subsequently measured at fair value through profit orloss whether or not it falls within the scope of IFRS 9 Financial Instruments. The amendment is effective for businesscombinations prospectively.•IFRS 8 Aggregation of operating segments - This amendment clarifies that operating segments may be combined/aggregated ifthey are consistent with the core principle of the standard, if the segments have similar economic characteristics and if they aresimilar in other qualitative respects. If they are combined, the entity must disclose the economic characteristics (e.g., sales andgross margins) used to assess whether the segments are ‘similar’. The amendment is effective retrospectively.Another amendment relates to the reconciliation of the total of the reportable segment assets to the entity’s total assets. Thereconciliation of segment assets to total assets is only required to be disclosed if theF-12LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities. Theamendment is effective retrospectively.•IFRS 13 Short-term receivables and payables - The IASB clarified in the Basis for Conclusions that short-term receivables andpayables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial. Theamendment is effective immediately.•IAS 16 and IAS 38 Revaluation method proportionate restatement of accumulated depreciationThe amendment to IAS 16.35(a) and IAS 38.80(a) clarifiesthat revaluation can be performed, as follows:◦Adjust the gross carrying amount of the asset to market value; or◦Determine the market value of the carrying amount and adjust the gross carrying amount proportionately so that theresulting carrying amount equals the market valueThe IASB also clarified that accumulated depreciation/amortisation is the difference between the gross carrying amount and thecarrying amount of the asset (i.e., gross carrying amount - accumulated depreciation/amortisation = carrying amount). Theamendment to IAS 16.35(b) and IAS 38.80(b) clarifies that the accumulated depreciation/amortisation is eliminated so that thegross carrying amount and carrying amount equal the market value.The amendment is effective retrospectively.•IAS 24 Key management personnel - The amendment clarifies that a management entity - an entity that provides keymanagement personnel services - is a related party subject to the related party disclosures. In addition, an entity that uses amanagement entity is required to disclose the expenses incurred for management services. The amendment is effectiveretrospectively.2011-2013 cycle•IFRS 1 Meaning of effective IFRSs - The amendment clarifies that an entity may choose to apply either a current standard or anew standard that is not yet mandatory, but that permits early application, provided either standard is applied consistentlythroughout the periods presented in the entity’s first IFRS financial statements. The amendment is effective immediately.•IFRS 3 Scope exceptions for joint ventures - The amendment clarifies that:◦Joint arrangements are outside the scope of IFRS 3, not just joint ventures;◦The scope exception applies only to the accounting in the financial statements of the joint arrangement itself.The amendment is effective prospectively.•IFRS 13 Scope paragraph 52 (portfolio exception)The portfolio exception in IFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment iseffective prospectively.•IAS 40 Clarifying the interrelationship of IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property. - The amendment clarifies the description of ancillary services in IAS 40 differentiates between investmentproperty and owner-occupied property. IFRS 3 is used to determine if the transaction is the purchase of an asset or a businesscombination. The amendment is effective prospectively.Annual Improvements to IFRSs issued in September 2014On September 2014, the International Accounting Standards Board (IASB) issued a cycle of Annual Improvements to IFRSs - Cycle2012-2014. In the 2012-2014 annual improvements cycle, the IASB issued five amendments to four standards, summaries of which areprovidedbelow. The changes are effective 1 January 2016. Earlier application is permitted and must be disclosed. The adoption of theseamendments will not have a material effect on the financial position or performance of the Company:2012-2014 cycle•IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations - The amendment clarifies that:F-13LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)◦Assets (or disposal groups) are generally disposed of either through sale or distribution to owners. The amendment clarifiesthat changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is acontinuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5.◦The amendment must be applied prospectively.•IFRS 7 Financial Instruments: Disclosures - The amendment clarifies that:◦A servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess thenature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7.B30 and IFRS 7.42C inorder to assess whether the disclosures are required.◦The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, therequired disclosures would not need to be provided for any period beginning before the annual period in which the entityfirst applies the amendments.◦The offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosuresprovide a significant update to the information reported in the most recent annual report.◦The amendment must be applied prospectively.•IAS 19 Employee Benefits - The amendment clarifies that:◦The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which theobligation is denominated, rather than the country where the obligation is located. When there is no deep market for highquality corporate bonds in that currency, government bond rates must be used.◦The amendment must be applied prospectively.•IAS 34 Interim Financial Reporting - The amendment clarifies that:◦The amendment clarifies that the required interim disclosures must either be in the interim financial statements orincorporated by cross-reference between the interim financial statements and wherever they are included within the interimfinancial report (e.g., in the management commentary or risk report).◦The other information within the interim financial report must be available to users on the same terms as the interim financialstatements and at the same time.◦The amendment must be applied retrospectively.2.4 Significant accounting judgments, estimates and assumptionsThe preparation of the Company's financial statements requires management to make judgments, estimates and assumptions that affectthe reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date.However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to thecarrying amount of the asset or liability affected in the future.Estimates and assumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position datethat have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financialyear are discussed below.Deferred Tax AssetsDeferred tax assets are recognized to the extent that it is probable that taxable profit will be available in the future. Significantmanagement judgment is required to determine the amount of deferred tax assets that can be realized, based upon the likely timing andlevel of future taxable profits together with future tax planning strategies.InventoriesInventories are measured by taking into account write-downs to certain categories of tickets that are no longer salable to points of saleas of result of either AAMS decisions or management's assessment regarding the marketability of these tickets in future years.F-14Trade receivablesTrade receivables recoverability is assessed by taking into account the risk of default, the aging and historical losses on receivablesrecognized for similar types of accounts.2.5 Summary of significant accounting policiesEquipment, netEquipment is stated at cost less accumulated depreciation and/or impairment losses. Cost includes ancillary costs directly attributable tobringing the asset into operating condition. Depreciation is calculated on straight-line basis over the estimated useful life of the assets asfollows:Terminals and communication equipment 5 to 7 yearsMachinery and equipment 4 yearsFurniture and fittings 8 to 9 yearsThe carrying values of systems and equipment are reviewed for impairment when events or changes in circumstances indicate that thecarrying values may not be recoverable.All repairs and maintenance costs are recognised in profit or loss as incurred.A unit of equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gainor loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount ofthe asset) is included in profit or loss in the year the asset is derecognised.Intangible assets, netIntangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets arecarried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets areassessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed forimpairment whenever there is an indication that the intangible asset may be impaired. The estimated useful lives are as follows:Software 3 yearsLicenses 3 yearsS&W Concession 9 yearsOthers 2 to 5 yearsThe amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least annually at year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset isaccounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. Theamortization expense for intangible assets with finite lives is recognized in the income statement within the caption “Depreciation,amortization and write-downs”. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds andthe carrying amount of the asset and are recognized in profit or loss when the asset is derecognized.Deferred income taxesStarting from January 1, 2012, the company offset its current and deferred income taxes.F-15LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)Impairment of non-financial assetsThe Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists,or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. Anasset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use, and isdetermined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from otherassets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired andis written down to its recoverable amount. In assessing value in use, the estimated future cash flows take into account the risks specificto the asset and are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset.An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may nolonger exist or may have decreased. If such indication exists, the recoverable amount of the asset is estimated. A previously recognizedimpairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since thelast impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. Thatincrease is a reversal of an impairment loss. The increased carrying amount cannot exceed the carrying amount that would have beendetermined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized inprofit or loss. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount,less any residual value, on a systematic basis over its remaining useful life.At year end no impairment indicator were noted.InventoriesInventories are measured at the lower of cost or net realizable value. Cost is determined on a specific identification basis.Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale.Financial assetsFinancial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables,held-to-maturity investments, or available-for-sale financial assets, as appropriate. The Company only has financial assets classified asloans and receivables and fair value through profit and loss. When financial assets are recognized initially on the trade date, they aremeasured at fair value, plus, in the case of investments not recognized at fair value through profit or loss, directly attributabletransaction costs.The Company determines the classification of its financial assets on initial recognition.Trade receivables and other receivablesTrade accounts receivable are subsequently measured at amortized cost less impairment. Impairment provisions or allowances fordoubtful accounts are generally recorded when there is objective evidence that the Company will not be able to collect the relatedreceivables. Bad debts are written off when identified.Short-term receivables are not discounted because the effect of discounting cash flows is immaterial.Cash and cash equivalentsCash and cash equivalents in the balance sheet are comprised of cash at banks and on hand and short-term, highly liquid investmentswith an original maturity of three months or less at the date of purchase.Non-current assets held for saleThe Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principallythrough a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale aremeasured at the lower of their carrying amount and fair value less costs to sell.F-16LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group isavailable for immediate sale in its present condition. Management must be committed to the sale, which should be Financial liabilities.Discontinued operations are excluded from the results of continuing operations and are presented as a singleamount as profit or loss after tax from discontinued operations in the income statement. Property, plant and equipment and intangibleassets are not depreciated or amortised once classified as held for sale.Financial liabilities at amortized costAll loans and borrowings and trade accounts payable are initially recognized at fair value less directly attributable transaction costs.After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interestmethod. Short-term payables are not discounted because the effect of discounting cash flows is immaterial.Financial liabilities at fair value through profit or lossFinancial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designatedupon initial recognition as at fair value through profit or loss.Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives areclassified as held for trading unless they are designated as effective hedging instruments.Gains or losses on liabilities held for trading are recognized in profit or loss.Derivative financial instruments and hedgingThe Company uses derivative financial instruments such as foreign currency forward contracts to mitigate the risks associated withforeign currency related to the purchase of lottery tickets. Such derivative financial instruments are initially recognized at fair value onthe date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financialassets when the fair value is in a gain position and as financial liabilities when the fair value is in a loss position.Any gains or losses arising from changes in fair value on derivatives are taken directly to the income statement, except for the effectiveportion of cash flow hedges which is recognized in other comprehensive income until the hedged transaction affects profit or loss. Thefair value of such foreign currency forward contracts is calculated by reference to current forward exchange rates for contracts withsimilar maturity profiles.For the purpose of hedge accounting, the Company’s derivatives are classified as cash flow hedges, when hedging exposure tovariability in cash flows that is either attributable to a particular risk associated with a highly probable forecast transaction or the foreigncurrency risk in an unrecognized firm commitment. At the inception of a hedge relationship, the Company formally designates anddocuments the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy forundertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the natureof the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsettingthe exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to behighly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine that they actually havebeen highly effective throughout the financial reporting periods for which they were designated.Derivatives which meet the strict criteria for cash flow hedge accounting are accounted for as follows. The effective portion of the gainor loss on the hedging instrument is recognized directly as other comprehensive income in the net unrealized gain/(loss) reserve, whileany ineffective portion is recognized immediately in profit or loss. Amounts recognized as other comprehensive income are transferredto profit or loss when the hedged transaction affects profit or loss, such as when the forecast transaction occurs. Where the hedged itemis the cost of a non-financial asset or non-financial liability, the amounts recognized as other comprehensive income are transferred tothe initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected tooccur, the cumulative gain or loss previously recognized in equity is transferred to the income statement. If the hedgingF-17LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, anycumulative gain or loss previously recognized in other comprehensive income remains in other comprehensive income until theforecast transaction or firm commitment affects income or loss.Derecognition of financial assets and liabilitiesFinancial assetsA financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:•the rights to receive cash flows from the asset have expired;•the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full withoutmaterial delay to a third party under a ‘pass through’ arrangement; or•the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risksand rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but hastransferred control of the asset.Financial liabilitiesA financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. ProvisionsProvisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probablethat an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be madeof the amount of the obligation. Whenever the Company expects some or all of a provision to be reimbursed, for example under aninsurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. Theexpense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value ofmoney is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to theliability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a borrowing cost.Revenue recognitionRevenues are recognized to the extent that it is probable the economic benefits associated with the transaction will flow to the Companyand the amount of revenue can be reliably measured. Revenues are measured at the fair value of the consideration received, excludingdiscounts and taxes. Specific recognition criteria must also be met before revenue is recognized as discussed below.The Company’s revenues derive from operating contracts. Under operating contracts, the Company manages all of the activities alongthe lottery value chain including collecting wagers, paying out prizes, managing all accounting and other back-office functions, runningadvertising and promotions, operating data transmission networks and processing centers, training staff, providing retailers withassistance and supplying materials for the game. The operating contracts generally provide for a variable amount of monthly servicefees received through AAMS based on a percentage of instant and traditional lottery’s total wagers. Fees earned under operatingcontracts are recognized as revenue in the period earned and are classified as Service Revenue in the statement of comprehensiveincome when all of the following criteria are met:•Persuasive evidence of an arrangement exists, which is typically when a customer contract has been signed;•Services have been rendered;•The fee is deemed to be fixed or determinable and free of contingencies or significant uncertainties; and•Collectability is reasonably assured.Interest income and interest expenseInterest income and interest expense are recognized as interest accrues (using the effective interest rate, which is the rate that exactlydiscounts estimated future cash receipts or payments through the expected life of the financial instrument to the net carrying amount ofthe financial assets or liabilities).F-18LOTTERIE NAZIONALI S.r.l.NOTES TO FINANCIAL STATEMENTS(thousands of Euro)Foreign currency translationTransactions in foreign currencies are initially recorded at the functional currency spot rate at the date the transaction first qualifies forrecognition. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate ofexchange at the reporting date. All differences are taken to profit or loss.Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at thedates of the initial transactions.Income taxesCurrent income taxCurrent tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid tothe taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted bythe statement of financial position date.Deferred income taxDeferred income tax is provided using the liability method on temporary differences at the statement of financial position date betweenthe tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.Deferred income tax liabilities are recognized for all taxable temporary differences.Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unused taxlosses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and thecarry-forward of unused tax credits and unused tax losses, can be utilized.The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longerprobable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognizeddeferred income tax assets are reassessed at each statement of financial position date and are recognized to the extent that it has becomeprobable that future taxable profit will allow the deferred tax asset to be recovered.Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized orthe liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financialposition date.Income tax relating to items recognized directly in equity is recognized in equity and not in the statement of comprehensive income.3. Equipment, netEquipment, net include “Freely distributed assets” (“FDA”), which are defined as those tangible assets originally determined to betransferred free of charge to the Ministry of Finance at the expiration of the concession agreement. These assets primarily relate to theCompany’s equipment in use by third parties (points of sale) to carry out activities related to Instant and Traditional lotteries.F-19 Furniture Contract Freely Leasehold and Other in Distributed Balance at December 31, 2014Improvements Equipment Assets Progress Assets TotalGross Balance at January 1, 2014230 8,241 366 96 6,270 15,203Additions Disposal(122) (303) (425)Transfers 7 (7) — Balance at December 31, 2014108 7,945 366 89 6,270 14,778 Accumulated depreciation Balance at January 1, 2014(230) (5,785) (218) — (2,292) (8,525)Depreciation charge for the year (669) (26) (767) (1,462)Disposal122 303 425Depreciation (12) (12) Balance at December 31, 2014(108) (6,164) (244) — (3,059) (9,574) Net book value Balance at December 31, 2014— 1,782 122 89 3,211 5,204F-20 Furniture Contract Freely Leasehold and Other in Distributed Balance at December 31, 2013Improvements Equipment Assets Progress Assets TotalGross Balance at January 1, 2013230 7,805 366 678 6,270 15,349Additions— — — — — —Disposal— (146) — — — (146)Transfers— 582 — (582) — —Transfers to Non Current Assets classified as heldfor sale— — — — — —Balance at December 31, 2013230 8,241 366 96 6,270 15,203 Accumulated depreciation Balance at January 1, 2013(230) (5,300) (191) — (1,620) (7,341)Depreciation charge for the year— (631) (27) — (672) (1,330)Disposal— 146 — — — 146Transfers to Non Current Assets classified as heldfor sale— — — — — —Balance at December 31, 2013(230) (5,785) (218) — (2,292) (8,525) Net book value Balance at December 31, 2013— 2,456 148 96 3,978 6,6784. Intangible assets, netIntangible assets are mainly comprised of the upfront fee paid in 2010 for the S&W concession, which is being amortized over its nineyears useful life (i.e. the concession agreement duration period) starting October 2010 and the balance relation to certain computersoftware and licenses to operate such software that are being amortized on a straight-line basis over their estimated useful lives whichdo not exceed the expiration date of the concession agreement.F-21 Contract SW in Balance at December 31, 2014Software Licenses concession Progress TotalGross Balance at January 1, 20149,905 1,179 800,062 — 811,146Additions— — — 1,875 1,875Disposal— — — — —Transfers1,875 — — (1,875) —Balance at December 31, 201411,780 1,179 800,062 — 813,021 Accumulated depreciation Balance at January 1, 2014(6,519) (999) (288,908) — (296,426)Amortization for the year(692) (49) (88,896) — (89,637)Disposal— — — — —Depreciation(558) — — — (558)Balance at December 31, 2014(7,768) (1,048) (377,804) — (386,621) Net book value Balance at December 31, 20144,012 131 422,258 — 426,400 Contract SW in Balance at December 31, 2013Software Licenses concession Progress TotalGross Balance at January 1, 20137,981 1,141 800,062 — 809,184Additions— 38 — 1,924 1,962Disposal— — — — —Transfers1,924 — — (1,924) —Balance at December 31, 20139,905 1,179 800,062 — 811,146 Accumulated depreciation Balance at January 1, 2013(5,925) (951) (200,012) — (206,888)Amortization for the year(491) (48) (88,896) — (89,435)Disposal— — — — —Depreciation(103) (103)Balance at December 31, 2013(6,519) (999) (288,908) — (296,426) Net book value Balance at December 31, 20133,386 180 511,154 — 514,720F-225. Inventories December 31, 2014 2013 Instant Lottery Tickets (at cost)18,907 16,808Inventory Write-Down(865) (523) 18,042 16,285Inventories are comprised of instant lottery tickets held by the depositary and equity holder Arianna 2001 S.p.A.. The reduction in theinventory write down mainly due to the revised estimation of the amount to reserve in connection with lottery tickets that will bewithdrawn from the market shortly because of Lottery expiration.6. Trade and other receivables December 31, 2014 2013 Trade receivables36,691 35,164Receivables from retailers267,372 412,204Related party receivables21,784 15,324 325,847 462,692Trade receivables refer to the commission fees from AAMS and, as set forth in the concession agreement, are non-interest bearing andare generally due from 30 to 90 days. For further discussion regarding credit risk, see note 18.Receivables from retailers refer to the amounts due to LN from the retailers where lottery tickets are sold. The collection of thesemonthly remittances generally occurs between ten and twenty days after each month-end.The related party receivables relate to services rendered for the collection of lottery tickets and are generally due in 90days. Refer alsoto note 17.7. Income tax receivables December 31, 2014 2013 Income tax receivables3,149 619 3,149 619Income tax receivables mainly refers to IRES and IRAP Company’s tax pre-payments occurred throughout 2014 net of Income taxpayables accrued as of December, 31, 2014.8. Cash and cash equivalentsF-23 December 31, 2014 2013 Cash and cash equivalents16 17 16 17Cash and cash equivalents are measured at cost, which approximates fair value, and earn interest at market rates. The Companyparticipates in a cash pooling agreement with an equity holder, GTECH S.p.A., pursuant to which its funds are swept daily into variouscash pools managed by GTECH S.p.A. Amounts swept into the cash pools of GTECH S.p.A. are classified as “current financial assetsfrom parent company”. For comments on related party balances and transactions, see further disclosure in Notes 17 and 18.9. EquityOn March 12, 2014, at the annual meeting, general equity holders’ declared, and the Company subsequently paid, Euro 67,062 individends.The equity holders and issued capital attributed to them are as follows at December 31, 2014:Equity holdersPercent of issuedcapitalIssued capitalGTECH S.p.A.64%19,840Scientific Games Italy Investments Srl19%5,890Arianna 2001 S.p.A.15%4,650Scientific Games International Inc.1%310Servizi Base 2001 S.p.A.1%310 Total100%31,00010. Accounts payable December 31, 2014 2013 Account payables4,580 4,625Other liabilities to AAMS296,085 233,873Related party payables62,820 58,235 363,485 296,733Accounts payable are non-interest bearing and are normally settled on 60 to 90 day terms.Other liabilities to AAMS refer to the remittance due to AAMS based on the total monthly wagers.For comments on related parties payables, see the related parties relationships and transactions disclosure in Note 17.11. Other current liabilitiesF-24 December 31, 2014 2013 Taxes other than income taxes462 —Other liabilities235 6,967 697 6,967Other liabilities are mainly comprised of a Euro 6,120 penalty due to AAMS for failure to fully comply with a concession agreement’sobligation of activating a certain required number of Point of sales on a regional basis. The penalty amount was already included in“Other liabilities” as of December 31, 2012.12. Service revenue December 31, 2014 2013 2012 Instant lotteries366,717 373,364 379,384Traditional lotteries1,608 1,612 1,464Other service revenues27 16 20 368,352 374,992 380,868The Company operates in a highly regulated environment and sales to counterparties (PoS) generally not impacted in a significantmanner by the current adverse market conditions.13. Service costs December 31, 2014 2013 2012 Service costs from GTECH S.p.A.87,262 78,015 82,871Point of sales assistance30,668 31,424 29,449Consulting fees1,661 2,312 2,561Maintanance fees1,642 1,628 1,247Advertising costs3,402 4,548 3,803Other costs1,463 1,451 1,660 126,098 119,378 121,591For comments related to costs from the equity holder GTECH S.p.A. and other related parties with which the Company conductsbusiness, see the related parties relationships and transactions disclosure in Note 17.14. Financial income and expensesF-25 December 31, 2014 2013 2012 Interest income 2 5 285Foreign currency forward contracts 782 155 —Exchange gains 164 861 554Financial income 948 1,021 839 Interest expenses 638 538 506Foreign currency forward contracts — 421 389Factoring of trade receivables 3,731 3,628 6,051Exchange losses 1,761 264 12Financial expense 6,130 4,851 6,95815. Income taxSignificant components of income tax expense are as follows: December 31, 201420132012Current National (IRES)25,33227,87727,747Regional (IRAP)5,3855,5715,708Current income tax recovered10(219)(260)Total Current30,72733,22933,195 Deferred Deferred income tax (benefit)/expense1,378(486)438Other adjustments———Total Deferred1,378(486)438Total income tax expense32,10532,74333,633The tax effects of temporary differences and carry forwards that give rise to deferred income tax assets and liabilities consist of thefollowing:F-26 December 31, 2014 2013Deferred tax assets Bad debt reserve provision1,508 2,817Equipment depreciation109 125Inventory depreciation282 171Cash flow hedge— 583Other286 450 2,185 4,146Deferred tax liabilities Cash flow hedge383 — 383 —Net deferred income tax assets1,802 4,146 Net deferred income tax assets at December 31, 20141,802 Net deferred income tax assets at December 31, 20134,146 (2,344) Income tax effect on cash flow hedges' net movement966 Other accruals— Deferred income tax expense charged to profit or loss(1,378) The effective income tax rate on profit before income tax differed from the Italian statutory tax rate for the following reasons:F-27EFFECTIVE TAX RATE RECONCILIATIONDecember 31, 201420132012€/000 Net income before tax97,306100,091102,324 Italian Statutory tax rate (IRES)27.5%27.5%27.5% Theorical provision for income taxes based on Italian statutorytax rate26,75927,52528,139 Reconciliation of the theorical and effective provision forincome taxes: Permanent differences Italian local tax (IRAP)5,3855,1255,239 Non-deductible expense1006451 Other(139)29204 Total tax provision32,10532,74333,633 Effective tax rate33%33%33%The recognition of deferred tax assets is based on management’s expectations that sufficient taxable income will be generated in thefuture years to realize them.16. Geographic informationThe Company operates geographically only in Italy.17. Related parties disclosuresRelated parties relationships and transactions are reported in the table below:F-28 December 31, Statements of Financial Position 2014 2013 2012Trade and other receivables GTECH S.p.A.21,773 14,986 21,793Lottomatica Scommesse S.r.l.10 7 40Scientific Games Int.103 330 341Consorzio Lotterie Nazionali— 1 1 21,886 15,324 22,175 Current financial assets from the parent company GTECH S.p.A.169,963 — 55,081 169,963 — 55,081 Accounts Payable GTECH S.p.A.38,309 35,297 32,818Scientific Games Int.8,737 9,844 10,161Arianna 200110,498 10,139 10,170Gtech Corp.4,758 2,565 2,153Servizi in Rete390 365 328Lottomatica Scommesse S.r.l.24 24 —PCC Giochi e Servizi104 — 62,820 58,235 55,630 Current financial payables to parent company GTECH S.p.A.47,989 40,288 83 47,989 40,288 83F-29 December 31, Statements of comprehensive income 2014 2013 2012Cost of tickets Scientific Games Int.42,352 46,492 46,797Gtech Corp.10,462 10,947 10,086 52,814 57,439 56,883 Service costs GTECH S.p.A.87,231 77,895 82,871Arianna 200130,364 31,108 29,114Scientific Games Inc.1,123 1,090 1,261Servizi in Rete390 365 329GTECH Corp.322 285 —Lottomatica Scommesse S.r.l.285 595 —PCC Giochi e Servizi169 2 22 119,885 111,341 113,597 Financial income GTECH S.p.A.2 — 277 2 — 277 Financial expenses GTECH S.p.A.502 505 194 502 505 194Current financial assets from parent company refer to the intercompany cash pooling transactions swept daily into the cash poolsmanaged by GTECH S.p.A.Accounts payable and service costs to the parent company refer to the services rendered to LN in accordance with intercompanyagreements. In particular, they refer primarily to marketing and advertising, data processing, back office and cash pooling activitiesperformed by the parent company and charged to the Company.Accounts payable and service costs to the equity holder, Arianna 2001, refer to secure depository and distribution expenses.Accounts payable and costs to Scientific Games Int. refer primarily to the tickets purchased during the year.Financial income and expenses from/to the parent company refer primarily to interest received from/charged by the equity holderGTECH S.p.A. relating to the Company’s short-term borrowing transactions with the parent company.All the transactions with related parties, including the intragroup transactions, were executed at terms and conditions that are consistentwith market rates and they refer to mutual administrative, financial and organizational services rendered. No atypical and/or unusualtransactions have been recorded by the Company. At December 31, 2014, there were no guarantees made to or received from related parties.18. Financial instruments and financial risk management objective and policiesF-30Fair valuesSet out below is a comparison, by category, of the carrying amounts and fair values of our financial instruments.The fair value of the financial assets and liabilities are included at the amount at which the instrument couldbe exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. December 31, 2014December 31, 2013 Carrying FairCarrying Fair Amount ValueAmount ValueFinancial assets Trade and other receivables 325,847 325,847462,692 462,692Current financial assets from parent company169,963 169,963— —Foreign currency contracts 1,645 1,645— —Other current assets 2,176 2,176395 395Cash and cash equivalents 16 1617 17 499,647 499,647463,104 463,104 Financial liabilities at amortised costs Accounts payable 363,485 363,485296,733 296,733Foreign currency contracts — —2,215 2,215Current financial liabilities to parent company47,989 47,98940,288 40,288Other current liabilities 697 6976,967 6,967 412,171 412,171346,203 346,203The following methods and assumptions were used to estimate the fair values:•Trade and other receivables, current financial assets from parent, other current assets, cash and cash equivalents, accountspayable, current financial liabilities to parent and other current liabilities approximate their carrying amounts largely due to theshort-term maturities of these instruments.•The Company executed foreign currency forward contracts with various counterparties, principally financial institutions withinvestment grade credit ratings. The fair value of these contracts was calculated principally by reference to forward exchangerates for contracts with similar maturity profiles. The valuation techniques incorporated various inputs including the creditquality of the counterparty in a net liability position.Fair value hierarchyThe Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuationtechnique:Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilitiesLevel 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly orindirectlyLevel 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable marketdata.At December 31, 2014, all of the Company’s financial instruments were valued utilizing Level 2 fair value measurements. During thereporting period ended December 31, 2013, there were no transfers between Level 1 and Level 2 fair value measurements, and notransfers into and out of Level 3 fair value measurements.F-31Interest income and expense (excluding realized interest income and expense)The following is a breakdown of the Company’s interest income and interest expense by category for the year ended December 31: Interest income Interest expense 2014 2013 2012 2014 2013 2012 Current financial assets from parent company — — 277 — — —Other current assets 2 5 8 — — —Foreign currency contracts — 155 — — — — 2 160 285 — — — Financial liabilities at amortised costs Current financial liabilities to parent company — — — 502 505 194Foreign currency contracts — — — 246 31 223Other current liabilities — — — 101 10 285 — — — 849 546 702 Financial liabilities Bank overdrafts — — — 34 23 27Factoring of trade receivables contract— — — 3,731 3,628 6,051 — — — 3,765 3,651 6,078Credit riskThe Company’s credit risk is derived from cash and cash equivalents, trade and other receivables and other current assets balances. Wemaintain cash deposits and trade with only recognized, creditworthy third parties. We evaluate the collectability of trade accounts andsales receivables on a customer by customer basis. Trade and other receivables are reported net of allowances for doubtful accounts.Allowance for doubtful accounts is generally recorded when objective evidence exists that we will not been able to collect thereceivable.With respect to credit risk arising from financial assets of the Company, the Company’s exposure arises only from default of thecounterparty, with a maximum exposure equal to the carrying amount of these balances. We manage our exposure to counterpartycredit risk by dealing with major, financially sound counterparties with high-grade credit ratings and by limiting exposure to any onecounterparty.The following is an analysis of the Company’s past due trade receivables (amounts indicated net of allowance).F-32Year ended December 31, 2014 1-30 31-60 61-90 over 90 Total Current days days days days Trade receivables36,691 36,691 — — — — 100% —% —% —% —% Year ended December 31, 2013 1-30 31-60 61-90 over 90 Total Current days days days days Trade receivables35,164 35,164 — — — 100% —% —% —% —%The following is an analysis of the Company’s past due receivables from retailers (amounts indicated net of allowance).Year ended December 31, 2014 1-30 31-60 61-90 over 90 Total Current days days days days Receivables from retailers 267,372 258,688 4,806 1,361 1,312 1,205 98.8% 0.6% 0.3% 0.2% 0.1% Year ended December 31, 2013 1-30 31-60 61-90 over 90 Total Current days days days days Receivables from retailers 412,204 407,112 2,511 1,083 986 512 98.8% 0.6% 0.3% 0.2% 0.1%Bad debt reserve December 31, 2014 2013 Balance at the beginning of the period14,305 13,685Provisions 2,534 4,122Utilization (7,398) (3,502)Balance at the end of the period9,441 14,305 F-33Liquidity riskThe Company’s objective in managing liquidity risk is to maintain a balance between continuity of funding and flexibility through theuse of cash generated by operating activities. The Company participates in a cash pooling agreement with the parent company, GTECHS.p.A., pursuant to which the Company’s fund are swept daily into various cash pools managed by GTECH S.p.A.. We believe ourability to generate excess cash from operations to reinvest in our business is one of our fundamental financial strengths, and combinedwith our business cash generating capacity, we expect to meet our financial obligations and operating needs in the foreseeable future.We expect to use cash generated primarily from operating activities to meet contractual obligations and to pay dividends.The Company does not have any remaining financial liabilities, including derivatives, with maturity dates that exceed 12 months. Assuch, the contractual maturity dates of the Company’s remaining financial liabilities are all within one year.The Company, since entering into the cash pooling agreement discussed above, did not enter into any lines of credit or other borrowingarrangements with banks.Market riskForeign currency exchange rate riskAs a result of transactions relating to tickets purchased from the US equity holder Scientific Games Int. and from the related partyGTech Printing Corp., our financial statements can be affected by movements in the USD/EUR exchange rates. The primary riskinherent in our financial instruments is the market risk arising from adverse changes in foreign currency exchange rates. In order tomitigate such risk the Company decided to apply an hedging strategy, by subscribing foreign currency forward contracts. Suchcontracts have been designated as qualifying for hedge accounting treatment (i.e., changes in fair value are reflected in othercomprehensive income/loss in the statement of comprehensive income each period).The sensitivity analysis to a reasonably possible change in the USD exchange rate, in a range between +10% and -10% compared to theexchange rate as of December 31, 2014, 2013 and 2012, and the related potential effect on the net income and net equity of theCompany is as follows: Increase/decrease in US Dollar rateEffect on net incomebefore taxEffect on equity 201410 %251169 (10)%(307)(207) 201310 %13188 (10)%(161)(108) 201210 %12584 (10)%(220)(148)F-34Components of other comprehensive income December 31, 2,014 2,013 2,012 Cash flow hedges: Gains(/losses) arising during the year 2,627 (1,575) (1,028)Reclassification adjustments for gain (losses) included in theincome statement334 817 (2,079) 2,961 (758) (3,107) The cumulative amount of cash flow hedge reserve gains amounts to 3.0 million at December 31, 2014 (0.8 million losses as atDecember 31, 2013). The hedged cash flows are expected to occur monthly between January 2015 and October 2016 and will impactprofit or loss at such time.Interest rate riskThe Company does not have financing arrangements with banks since its short-term borrowing requirements are provided by GTECHS.p.A. through the cash pooling agreement previously discussed. The interest rate for the cash pooling agreement is set on a quarterlybasis. The interest rate on the cash account for the remittances to AAMS is set at market rates. Consequently, changes in market interestrates would not have a significant effect on the Company’s net income and net equity.19. Events after the reporting periodSubsequent events have been evaluated after the reporting period through February 25th 2015. No significant event occurred during thisperiod.F-35Exhibit 99.8SCIENTIFIC GAMES CORPORATION2003 INCENTIVE COMPENSATION PLANAS AMENDED AND RESTATED JUNE 11, 2014EQUITY AWARD NOTICEYou have been granted the equity award shown below with respect to shares of Class A Common Stock, par value $0.01 (“Shares”), of Scientific GamesCorporation (“Company”). This award is subject to the applicable award agreement, by and between you and Company, and Company’s 2003 IncentiveCompensation Plan, as amended from time to time, both of which are incorporated herein and made a part of this notice. Award Recipient: [•] Stock OptionsGrant Date: [•]Number of Shares: [•]Exercise Price: [•]Vesting Schedule: 4 years*Restricted Stock Units (“RSUs”)Grant Date: [•]Number of Shares: [•]Vesting Schedule: 4 years*Performance-Conditioned RSUs (“PRSUs”)Grant Date: [•]Number of Shares: [•]Vesting Schedule: 4 years**Executed as of the Grant Date SCIENTIFIC GAMES CORPORATION By:___________________________________Scott SchweinfurthExecutive Vice President and Chief Financial Officer*25% of total number of Shares subject to the award on each of first four (4) anniversaries of Grant Date**With respect the PRSUs, vesting is contingent upon satisfaction of the performance conditions as more fully described on Exhibit A hereto.EXHIBIT APerformance Conditions[•]Exhibit 99.9SCIENTIFIC GAMES CORPORATION2003 INCENTIVE COMPENSATION PLANAS AMENDED AND RESTATED JUNE 11, 2014TERMS AND CONDITIONS OFEQUITY AWARDS TO EMPLOYEESTHIS AGREEMENT, made as of the [•] day of [•], 20[•], between SCIENTIFIC GAMES CORPORATION (the “Company”) and [•] (the“Participant”).WHEREAS, the Compensation Committee (the “Committee”) administers the Scientific Games Corporation 2003 IncentiveCompensation Plan, as amended from time to time (the “Plan”);WHEREAS, the Participant is eligible to receive awards under the Plan in connection with the Participant’s employment with theCompany (or any of its applicable affiliates) (“Employment”); andWHEREAS, the Committee may from time to time approve awards for the Participant in such amounts and at such times as the Committeemay determine in its sole discretion, which awards shall be subject to the terms and conditions of the Plan and this Agreement, as such terms and conditionsmay be amended or supplemented from time to time by the Committee;agree as follows.NOW, THEREFORE, in consideration of the premises and the mutualcovenants hereinafter set forth, the parties1.Grants. Pursuant and subject to the terms and conditions set forth herein and in the Plan, the Participant may be granted thefollowing types of awards (“Awards”) with respect to the Company’s Class A Common Stock (“Common Stock”), pursuant to an Award notice, which willstate the type of Award, the number of shares subject to the Award and any other terms determined by the Committee in its sole discretion:(a)Stock Options (“Options”) -- representing a right to purchase shares of the Common Stock at an exercise price per share that isequal to or greater than the fair market value of a share of Common Stock on the date of grant. The Committee will generally set the exercise price ofOptions at the fair market value of the Common Stock on the date of grant. The Options do not become exercisable until satisfaction of an applicablevesting period. The Options are “Non-Qualified Stock Options” (i.e., they do not constitute “incentive stock options” within the meaning of Section 422 ofthe Internal Revenue Code of 1986, as amended (“Code”)).(b)Restricted Stock Units (“Units”) -- representing a right to receive shares of Common Stock following satisfaction of an applicablevesting period subject to the conditions, restrictions and limitations set forth in Section 6(d) of the Plan, this Agreement and the Award notice.(c)Performance Conditioned Restricted Stock Units (“Performance Units”) -- representing a right to receive shares of the CommonStock following satisfaction of an applicable vesting period and subject to performance requirements established by the Committee at the time of grant,which may be based on Company or individual performance criteria for an annual or other applicable performance period, and subject to such otherconditions, restrictions and limitations set forth in Section 7 of the Plan, this Agreement and the Award notice.2.Incorporation of Plan by Reference. All terms, conditions and restrictions of the Plan are incorporated in, and made a part of, thisAgreement as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan,as interpreted by the Committee, shall govern. Except as otherwise provided herein, all capitalized terms used in this Agreement shall have the meaninggiven to such terms in the Plan. In addition, if there is any conflict between this Agreement and the terms of any written employment contract between theParticipant and the Company (or any of its applicable affiliates), the terms of the written employment contract will govern (except to the extent the terms setforth in this Agreement or the Award notice expressly apply notwithstanding anything to the contrary set forth in such employment contract), subject to themandatory terms of the Plan.3.Restriction on Transfer of Awards. Awards under the Plan may not be sold, assigned, transferred, pledged, hypothecated, margined,or otherwise encumbered or disposed of by the Participant, except for transfers upon the death of the Participant.Vesting Schedule for Awards. Unless otherwise set forth in the applicable Award notice, an Award under the Plan will be granted with afour-year ratable vesting schedule such that 25% of the total Award will vest on each of the first four anniversaries of the grant date. In the case ofPerformance Units, vesting will also be conditioned on satisfaction of performance criteria established by the Committee. With respect to such PerformanceUnits, the Committee will determine whether the performance criteria applicable to an Award have been satisfied within 90 days following the end of theapplicable performanceperiod(s) (but not later than the March 15 following the year in which the performance period ended). Notwithstanding anything contained to the contraryin this Agreement (or in any prior award agreement), in any Award notice or in any other document (including any employment contract), in the event thatthe Participant’s Employment is terminated other than as a result of death or “Disability” (as defined below) prior to the Committee’s determination as to thesatisfaction of any performance criteria to which any Award of Performance Units is subject, such Performance Units will neither vest nor accelerate unlessand until a determination is or has been made by the Committee that such criteria have been satisfied, at which time such Performance Units may vest oraccelerate to the extent provided in, and in accordance with, any applicable contract and the Plan (it being understood and agreed that nothing in thisAgreement shall grant any right to any such acceleration or vesting upon any such termination). For the avoidance of doubt, in the event that the criteria aredetermined not to have been satisfied, such Award shall immediately lapse and be forfeited.4.Method of Exercise of Vested Options. Awards of Options, to the extent vested, shall be exercisable in whole or in part by theParticipant delivering notice to the Plan Administrator (as defined below) in accordance with the terms of the Award. Payment for shares of Common Stockpurchased upon the exercise of an Option, and any applicable withholding taxes, shall be made on the effective date of such exercise through any of thefollowing means: (i) in cash, by certified check, bank cashier’s check or wire transfer; (ii) through a brokered exercise with the Plan Administrator underwhich a portion of the proceeds from a sale are withheld for such exercise price and applicable taxes; or (iii) if permitted by the Company at the time ofexercise, by surrendering shares of Common Stock. The notification to the Plan Administrator shall be made in accordance with its procedures. The shares ofCommon Stock purchased upon the exercise of an Option shall be delivered as soon as practicable following exercise in accordance with the proceduresestablished by the Company or the Plan Administrator from time to time. Options may only be exercised by the Participant or, if the Participant isincapacitated, by the Participant's guardian or legal representative; provided that an exercise by a guardian or legal representative shall not be effectiveunless and until the Company has received evidence satisfactory to it as to the authority of such guardian or legal representative.5.Distribution of Vested Units and Performance Units. As soon as administratively practicable after each applicable vesting date of anAward of Units or Performance Units (generally within three business days and in no event more than 15 business days), the Company will deliver to theParticipant a number of shares of Common Stock equal to the number of Units or Performance Units that vested as of an applicable vesting date less thenumber of shares, if any, withheld in satisfaction of applicable withholding taxes as discussed in Section 7(b).6.Taxes. To the extent required by applicable federal, state, local or foreign law, the Participant shall make arrangements satisfactoryto the Company for the satisfaction of any withholding tax obligations that arise with respect to an Award. The Company shall not be required to issueshares until such obligations are satisfied. The methods permitted by the Company for the payment of taxes are as follows:(a)Options. In the case of Options, the acceptable methods for making payment for taxes shall be the same as those for payment of theexercise price for Options as discussed in Section 5 above. If shares of Common Stock are used to satisfy the applicable taxes, the taxes must be calculatedat the Participant’s minimum applicable tax rates.(b)Units and Performance Units. In the case of Units and Performance Units, unless otherwise determined by the Committee, theCompany will withhold from any shares deliverable upon the vesting of Units or Performance Units a number of shares sufficient to satisfy the minimumapplicable withholding taxes; provided, however, that, unless otherwise determined by the Committee, the Participant will be permitted to elect, inaccordance with procedures adopted from time to time by the Company, to pay the tax withholding amount in cash, in which case no shares will bewithheld and the Participant will be required to pay the amount of the taxes in full by the vesting date, in cash, by certified check, bank cashier’s check orwire transfer.7.Expiration of Awards; Effect of Termination.(a)Units and Performance Units. Subject to the provisions of the Plan and this Agreement, except to the extent otherwise specificallyprovided under the terms of any Award notice with respect to Units or Performance Units (as the case may be):(i)in the event the Employment of the Participant terminates for any reason (other than by reason of death or Disability(as defined below)), all unvested Units and Performance Units shall be immediately forfeited; or(ii)in the event the Employment of the Participant terminates by reason of death or Disability, all unvested Units orPerformance Units shall fully vest and become non-forfeitable as of the date of death or the date of such termination, as the case may be, and, in allother respects, all such Units or Performance Units shall be governed b the plans and programs and the agreements and other documents pursuant towhich such Units or Performance Units were granted.(b)Options. The Options granted by the Company will expire at a date specified in the Award notice, which shall be not later than thetenth anniversary of the grant date (the “Scheduled Expiration Date”). Subject to the provisions of the Plan and this Agreement, except to the extentotherwise specifically provided under the terms of any Award notice with respect to Options:(i) in the event the Employment of the Participant terminates for any reason (other than by reason of death or Disability), (A) allunvested Options shall immediately expire on the date of termination and (B) the portion of any Options that vested prior to such termination(other than a termination for “Cause” (as defined below), in which event all such vested Options shall be immediately forfeited) shall remainexercisable until the earlier of three (3) months after such termination and the Scheduled Expiration Date and, in all other respects, shall begoverned by the plans and programs and the agreements and other documents pursuant to which such Options were granted; or(ii) in the event the Employment of the Participant terminates by reason of death or Disability, all unvested Options shall fullyvest and become non-forfeitable as of the date of death or the date of such termination, as the case may be, and such Options (together with theportion of any Options that vested prior to such death or termination) shall remain exercisable by the Participant (or, in the case of death,Participant’s executor or administrator or Beneficiary (as defined below)) until the earlier of (A) the first anniversary of such death or terminationand (B) the Scheduled Expiration Date and, in all other respects, all such Options shall be governed by the plans and programs and the agreementsand other documents pursuant to which such Options were granted.For purposes of this Agreement, “Cause” shall mean any of the following: (i) the Participant’s breach of the terms of any employment orother agreement with any of the Company and its subsidiaries and affiliates (collectively, “SG”); (ii) the Participant’s failure substantially to perform his orher duties; (iii) the Participant’s material act or omission that is or may be injurious to the SG, monetarily or otherwise; (iv) the Participant’s materialviolation of the SG’s policies, including the Code of Conduct; and (v) the Participant’s commission of a felony, any other crime involving moral turpitudeor any act involving dishonesty or fraud. Any rights SG may have hereunder in respect of the events giving rise to Cause shall be in addition to the rightsSG may have under any other agreement with the Participant or at law or in equity. Any determination of whether the Participant’s is (or is deemed to havebeen) terminated for Cause shall be made by the Committee in its discretion. The Participant’s termination for Cause shall be effective as of the date of theoccurrence of the event giving rise to Cause, regardless of when the determination of Cause is made.For purposes of this Agreement, “Beneficiary” means the person, persons, trust, or trusts which have been designated by a Participant inhis or her most recent written beneficiary designation filed with the Company to receive the benefits specified under the Plan upon such Participant's death.If, upon a Participant's death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means a person, persons,trust, or trusts entitled by will or the laws of descent and distribution to receive such benefits. A Beneficiary or other person claiming any rights under thePlan from or through any Participant shall be subject to all terms and conditions of the Plan and any Award agreement applicable to such Participant and toany additional terms and conditions deemed necessary or appropriate by the Committee.(c) Definition of Disability. For purposes of this Agreement, “Disability” shall mean the Participant’s becoming eligible to receive benefitsunder any SG-sponsored long-term disability program under which the Participant is eligible for coverage, determined in accordance with Section 409A ofthe Code.(d)Last Day to Exercise an Option. If an Option’s expiration date determined under this Section 8 falls on a day which is not abusiness day, then the last day to exercise the Option shall be the last business day before such date.8.Other Terms.(a)No Shareholder Rights. Until shares of Common Stock covered by an Award are issued to the Participant in connection with theexercise of an Option or the vesting of Units or Performance Units, the Participant shall have no voting, dividend or other rights as a stockholder of theCompany for any purpose.(b)Consideration for Grant. Participant shall not be required to pay any cash consideration for the grant of an Award. In the case ofgrants of Units and Performance Units, as to which cash consideration at the time of grant or vesting shall not be required, the Participant's Employmentfrom the grant date to the date of vesting shall be deemed to be consideration for the grant, which services have a value at least equal to the aggregate parvalue of the shares being newly issued in connection with the grant. The foregoing notwithstanding, an Award may be granted in exchange for theParticipant’s surrender of another Award or other right to compensation, if and to the extent permitted by the Committee.(c)Insider Trading Policy Applicable. Participant acknowledges that sales of shares received with respect to Awards will be subject tothe SG's policies regulating trading by employees.10. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party hereto, upon any breach ordefault of any party under this Agreement, shall impair any such right, power or remedy of such party, nor shall it be construed to be a waiver of any suchbreach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach ordefault be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind orcharacter on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions ofthis Agreement, must be in a writing signed by such party and shall be effective only to the extent specifically set forth in such writing.11.Integration. This Agreement, the Plan and the other documents, including without limitation, the Award notice, which form a partof this Agreement, contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises,representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein. This Agreement,including, without limitation, the Plan, supersedes all prior agreements and understandings between the parties with respect to its subject matter.12.Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State ofDelaware, without regard to the provisions governing conflict of laws.13.Restrictive Covenants Condition. The Participant hereby acknowledges and agrees that the receipt of Awards, including any rightto exercise an Option, receive the shares of Common Stock following a vesting date or retains the profit from the sale of shares of Common Stock subject toan Award, is conditioned upon Participant’s compliance with the restrictive covenants in Section 14-17 of this Agreement.14. Noncompetition; Non-solicitation.(a) Participant acknowledges the highly competitive nature of the business of SG and that access to SG’s confidential records andproprietary information renders Participant special and unique within SG’s industry. Participant hereby agrees that during his Employment, and during theCovered Time (as defined below), Participant, alone or with others, will not, directly or indirectly, engage (as owner, investor, partner, stockholder, employer,employee, consultant, advisor, director or otherwise) in any Competing Business. For purposes of this Section 14, “Competing Business” shall mean anybusiness or operations (i) (A) involving the design, development, manufacture, production, sale, lease, license, provision, operation, or management (as thecase may be) of (I) instant lottery tickets or games or any related marketing, warehouse, distribution, category management or other services or programs; (II)lottery-related terminals or vending machines (whether clerk-operated, self-service or otherwise), (III) gaming machines, terminals or devices (including videoor reel spinning slot machines, video poker machines, video lottery terminals and fixed odds betting terminals), (IV) lottery, video gaming (including server-based gaming), sports betting or other wagering or gaming systems (including control and monitoring systems, local or wide-area progressive systems andredemption systems); (V) lottery- or gaming-related proprietary or licensed content (including themes, entertainment and brands), platforms, websites andloyalty and customer relationship management programs (including any of the foregoing relating to online play, social gaming or interactive (includinginternet and mobile) lottery or gaming); (VI) prepaid cellular or other phone cards; or (VII) ancillary products (including equipment, hardware, software,marketing materials, chairs and signage) or services (including field service, maintenance and support) related to any of the foregoing under sub-clauses (I)through (VI) above); or (B) in which SG is then or was within the previous 12 months engaged, or in which SG, to Participant’s knowledge, contemplates toengage in during Participant’s Employment or the Covered Time, (ii) in which Participant is or was engaged or involved (whether in a supervisory capacity orotherwise) on behalf of SG or with respect to which Participant has obtained proprietary or confidential information, and (iii) which is or was, to Participant’sknowledge, conducted or contemplated to be conducted anywhere in the United States or in any other geographic area during Participant’s Employment orthe Covered Time. (b) Participant hereby agrees that, during his Employment and during the Covered Time, Participant shall not, directly or indirectly: (i)solicit or attempt to induce any of the employees, agents, consultants or representatives of SG to terminate his, her, or its relationship with SG; (ii) solicit orattempt to induce any of the employees, agents, consultants or representatives of SG to become employees, agents, consultants or representatives of any otherperson or entity; (iii) solicit or attempt to induce any customer, vendor or distributor of SG to curtail or cancel any business with SG; or (iv) hire any personwho, to Participant’s actual knowledge, is, or was within 180 days prior to such hiring, an employee of SG.(c) Participant hereby agrees that, during his Employment and during the Covered Time, upon the earlier of his (i) negotiating with anyCompetitor (as defined below) concerning his possible employment with the Competitor, (ii) responding to (other than for the purpose of declining) an offerof employment from a Competitor, or (iii) becoming employed by a Competitor, (A) Participant will provide copies of this Agreement to the Competitor, and(B) in the case of any circumstance described in (iii) above occurring during the Covered Time, and in the case of any circumstance described in (i) or (ii)above occurring during Participant’s Employment or during the Covered Time, Participant will promptly provide notice to the Company of suchcircumstances. Participant further agrees that the Company may provide notice to a Competitor of Participant’s obligations under this Agreement. Forpurposes of this Agreement, “Competitor” shall mean any person or entity (other than SG) that engages, directly or indirectly, in the United States in anyCompeting Business.(d) Participant understands that the restrictions in this Section 14 may limit Participant’s ability to earn a livelihood in a business similarto the business of SG but nevertheless agrees and acknowledges that the consideration provided under this Agreement is sufficient to justify such restrictions.In consideration thereof and in light of Participant’s education, skills and abilities, Participant hereby agrees that he will not assert in any forum that suchrestrictions prevent him from earning a living or otherwise should be held void or unenforceable.(e) For purposes of this Section 14, “Covered Time” shall mean the period beginning on the date of termination of Participant’sEmployment (the “Date of Termination”) and ending twelve (12) months after the Date of Termination.15. Proprietary Information; Inventions.(a) Participant hereby acknowledges that, during the course of his Employment, Participant necessarily will have (and during anyaffiliation with SG prior to his Employment Participant may have had) access to and make use of proprietary information and confidential records of SG. Participant covenants that he shall not during his Employment or at any time thereafter, directly or indirectly, use for his own purpose or for the benefit ofany person or entity other than SG, nor otherwise disclose to any person or entity, any such proprietary information, unless and to the extent such disclosurehas been authorized in writing by the Company or is otherwise required by law. The term “proprietary information” means: (i) the software products,programs, applications, and processes utilized by SG; (ii) the name or address of any customer or vendor of SG or any information concerning thetransactions or relations of any customer or vendor of SG or with SG; (iii) any information concerning any product, technology, or procedure employed bySG but not generally known to its customers or vendors or competitors, or under development by or being tested by SG but not at the time offered generallyto customers or vendors; (iv) any information relating to SG’s computer software, computer systems, pricing or marketing methods, sales margins, cost ofgoods, cost of material, capital structure, operating results, borrowing arrangements or business plans; (v) any information identified as confidential orproprietary in any line of business engaged in by SG; (vi) any information that, to Participant’s actual knowledge, SG ordinarily maintains as confidential orproprietary; (vii) any business plans, budgets, advertising or marketing plans; (viii) any information contained in any of SG’s written or oral policies andprocedures or manuals; (ix) any information belonging to customers, vendors or any other person or entity which SG, to Participant’s actual knowledge, hasagreed to hold in confidence; and (x) all written, graphic, electronic data and other material containing any of the foregoing. Participant acknowledges thatinformation that is not novel or copyrighted or patented may nonetheless be proprietary information. The term “proprietary information” shall not includeinformation generally known or available to the public or information that becomes available to Participant on an unrestricted, non-confidential basis froma source other than SG or any of its directors, officers, employees, agents or other representatives (without breach of any obligation of confidentiality ofwhich Participant has knowledge, after reasonable inquiry, at the time of the relevant disclosure by Participant). Notwithstanding the foregoing and Section16, Participant may disclose or use proprietary information or confidential records solely to the extent (A) such disclosure or use may be required orappropriate in the performance of Participant’s Employment, (B) required to do so by a court of law, by any governmental agency having supervisoryauthority over the business of SG or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to orderParticipant to divulge, disclose or make accessible such information (provided that in such case Participant shall first give the Company prompt writtennotice of any such legal requirement, disclose no more information than is so required and cooperate fully with all efforts by SG to obtain a protective orderor similar confidentiality treatment for such information), (C) such information or records becomes generally known to the public without Participant’sviolation of this Agreement, or (D) disclosed to Participant’s spouse, attorney or his personal tax and financial advisors to the extent reasonably necessary toadvance Participant’s tax, financial and other personal planning (each an “Exempt Person”); provided, however, that any disclosure or use of anyproprietary information or confidential records by an Exempt Person shall be deemed to be a breach of this Section 15 or Section 16 by Participant.(a) Participant hereby agrees that all processes, technologies and inventions (collectively, “Inventions”), including new contributions,improvements, ideas and discoveries, whether patentable or not, conceived, developed, invented or made by Participant during his Employment (andduring any affiliation with SG prior to Participant’s Employment) shall belong to the SG, provided that such Inventions grew out of Participant’s work withSG, are related in any manner to the business (commercial or experimental) of SG or are conceived or made on SG’s time or with the use of SG’s facilities ormaterials. Participant further agrees to: (i) promptly disclose such Inventions to the Company; (ii) assign to the SG, without additional compensation, allpatent and other rights to such Inventions for the United States and foreign countries; (iii) sign all papers necessary to carry out the foregoing; and (iv) givetestimony in support of Participant’s Inventions. If any Invention is described in a patent application or is disclosed to third parties, directly or indirectly,by Participant within two (2) years after the termination of Participant’s Employment, it is to be presumed that the Invention was conceived or made duringParticipant’s Employment. Participant agrees that he will not assert any rights to any Invention as having been made or acquired by him prior to the date ofthis Agreement, except for Inventions, if any, disclosed by Participant in writing in connection with his execution of this Agreement.16. Confidentiality and Surrender of Records. Participant hereby agrees that he shall not, during his Employment or at any time thereafter(irrespective of the circumstances under which his Employment terminates), except to the extent required by law, directly or indirectly publish, make knownor in any fashion disclose or retain any confidential records to, or permit any inspection or copying of confidential records by, any person or entity otherthan in the course of such person’s or entity’s employment or retention by SG, and Participant further agrees to deliver promptly to the Company, any of thesame following termination of his Employment for any reason or upon request by SG. For purposes hereof, “confidential records” means those portions ofcorrespondence, memoranda, files, manuals, books, lists, financial, operating or marketing records, magnetic tape, or electronic or other media or equipmentof any kind in Participant’s possession or under Participant’s control or accessible to Participant which contain any proprietary information. Allconfidential records shall be and remain the sole property of the Company during Participant’s Employment and thereafter.17. Non-disparagement. Participant hereby agrees that he shall not, during his Employment and thereafter, disparage in any materialrespect SG, any of their respective businesses, any of their respective officers, directors or employees, or the reputation of any of the foregoing persons orentities. Notwithstanding the foregoing, nothing in this Agreement shall preclude Participant from making truthful statements that are required byapplicable law, regulation or legal process.18. No Other Obligations. Participant hereby represents that he is not precluded or limited in his ability to undertake or perform hisEmployment by any contract, agreement or restrictive covenant. Participant covenants that he shall not employ the trade secrets or proprietary informationof any other person in connection with his Employment without such person’s authorization.19. Enforcement. Participant acknowledges and agrees that, by virtue of his position, Employment and access to and use of confidentialrecords and proprietary information, any violation by Participant of any of the undertakings contained in this Agreement would cause SG immediate,substantial and irreparable injury for which it has no adequate remedy at law. Accordingly, Participant hereby agrees and consents to the entry of aninjunction or other equitable relief by a court of competent jurisdiction restraining any violation or threatened violation of any undertaking contained inthis Agreement. Participant waives posting of any bond otherwise necessary to secure such injunction or other equitable relief. Rights and remediesprovided for in this Agreement are cumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any otheragreement or applicable law.20. Data Privacy. For Participants in certain jurisdictions, the data privacy laws of such jurisdictions may require the Participants’ consentto the use and transfer of certain personal information necessary to administer the Plan and any Awards the Participants may receive. Accordingly, ifapplicable, the Participant hereby acknowledges and agrees that the Participant’s receipt of any Awards, including any right to exercise an Option, receivethe shares of Common Stock following vesting of an award of Units or Performance Units or retain the profit from the sale of shares of Common Stocksubject to an Award, is conditioned upon Participant’s consent to the use and transfer of such personal information.21. Plan Administrator. The Company has retained Fidelity Stock Plan Services, LLC as a third-party administrator to assist in theadministration and management of the Plan (the “Plan Administrator” or “Fidelity”). A listing of all Awards may be viewed through the PlanAdministrator’s website at www.NetBenefits.com once the Participant has established an account with the Plan Administrator. The Plan Administrator shallhandle the processing of Option exercises and vesting and settlement of Units and Performance Units. The Company reserves the right to replace Fidelity asthe Plan Administrator at any time in the Company’s sole discretion.22. Participant Acknowledgment. The Participant hereby acknowledges receipt of a copy of the Plan. The Participant herebyacknowledges that all decisions, determinations and interpretations of the Committee in respect of the Plan, this Agreement and the Awards shall be finaland conclusive.23. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which togetherwill constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail inportable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, willhave the same effect as physical delivery of the paper document bearing an original signature.24. Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement will be binding upon andinure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be bindingupon the Participant or and the Participant’s beneficiaries, executors, administrators and the person(s) to whom the Award may be transferred by will or thelaws of descent or distribution.25. Severability. The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity orenforceability of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable tothe extent permitted by law.[remainder of page intentionally left blank]IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its duly authorized officer, and the Participanthas signed this Agreement on his or her own behalf, thereby representing that he or she has carefully read and understands this Agreement and the Plan as ofthe day and year first written above.SCIENTIFIC GAMES CORPORATIONBy:___________________________________Scott SchweinfurthExecutive Vice President and Chief Financial OfficerPARTICIPANT:_______________________________________[•] Exhibit 99.10SCIENTIFIC GAMES CORPORATION2003 INCENTIVE COMPENSATION PLANAS AMENDED AND RESTATED JUNE 11, 2014TERMS AND CONDITIONS OFEQUITY AWARDS TO NON-EMPLOYEE DIRECTORSTHIS AGREEMENT, made as of the [•] day of [•], 20[•], between SCIENTIFIC GAMES CORPORATION (the “Company”) and [•] (the“Participant”).WHEREAS, the Compensation Committee (the “Committee”) administers the Scientific Games Corporation 2003 Incentive CompensationPlan, as amended from time to time (the “Plan”);WHEREAS, the Committee has determined that the Participant is eligible to receive awards under the Plan by virtue of the Participant’sprovision of substantial services to the Company (or any of its applicable affiliates) (“Services”); andWHEREAS, the Committee may from time to time approve awards for the Participant in such amounts and at such times as the Committeemay determine in its sole discretion, which awards shall be subject to the terms and conditions of the Plan and this Agreement and the Award notice, as suchterms and conditions may be amended or supplemented from time to time by the Committee;NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties agree as follows.1. Grants. Pursuant and subject to the terms and conditions set forth herein and in the Plan, the Participant may be granted the followingtypes of awards (“Awards”) with respect to the Company’s Class A Common Stock (“Common Stock”), pursuant to an Award notice, which will state the typeof Award, the number of shares subject to the Award and any other terms determined by the Committee in its sole discretion:(a) Stock Options (“Options”) -- representing a right to purchase shares of the Common Stock at an exercise price per share that is equal toor greater than the fair market value of a share of Common Stock on the date of grant. The Committee will generally set the exercise price of Options at thefair market value of the Common Stock on the date of grant. The Options do not become exercisable until satisfaction of an applicable vesting period. TheOptions are “Non-Qualified Stock Options” (i.e., they do not constitute “incentive stock options” within the meaning of Section 422 of the Internal RevenueCode of 1986, as amended).(b) Restricted Stock Units (“Units”) -- representing a right to receive shares of Common Stock following satisfaction of an applicablevesting period subject to the conditions, restrictions and limitations set forth in Section 6(d) of the Plan, this Agreement and the Award notice.(c) Performance Conditioned Restricted Stock Units (“Performance Units”) -- representing a right to receive shares of the Common Stockfollowing satisfaction of an applicable vesting period and subject to performance requirements established by the Committee at the time of grant, based onCompany performance criteria for an annual or other applicable performance period, and subject to such other conditions, restrictions and limitations setforth in Section 7 of the Plan, this Agreement and the Award notice.2. Incorporation of Plan by Reference. All terms, conditions and restrictions of the Plan are incorporated in, and made a part of, thisAgreement as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan, asinterpreted by the Committee, shall govern. Except as otherwise provided herein, all capitalized terms used in this Agreement shall have the meaning givento such terms in the Plan.3. Restriction on Transfer of Awards. Awards under the Plan may not be sold, assigned, transferred, pledged, hypothecated, margined, orotherwise encumbered or disposed of by the Participant, except for transfers upon the death of the Participant.4. Vesting Schedule for Awards. Unless otherwise set forth in the applicable Award notice, an Award under the Plan will be granted with afour-year ratable vesting schedule such that 25% of the total Award will vest on each of the first four anniversaries of the grant date. In the case ofPerformance Units, vesting will also be conditioned on satisfaction of performance criteria established by the Committee. With respect to such PerformanceUnits, the Committee will determine whether the performance criteria applicable to an Award have been satisfied within 90 days following the end of theapplicable performance period(s) (but not later than the March 15 following the year in which the performance period ended). Notwithstanding anythingcontained to the contrary in this Agreement (or in any prior award agreement), in any Award notice or in any other document, in the event that theParticipant’s provision of Services is terminated other than as a result of death or “Disability” (as defined below) prior to the Committee’s determination as tothe satisfaction of any performance criteria to which any Award of Performance Units is subject, such Performance Units will neither vest nor accelerate unless and until a determination is or has been made by the Committee that such criteria have been satisfied, at which time suchPerformance Units may vest or accelerate to the extent provided in, and in accordance with, any applicable contract and the Plan (it being understood andagreed that nothing in this Agreement shall grant any right to any such acceleration or vesting upon any such termination). For the avoidance of doubt, in theevent that the criteria are determined not to have been satisfied, such Award shall immediately lapse and be forfeited.5. Method of Exercise of Vested Options. Awards of Options, to the extent vested, shall be exercisable in whole or in part by theParticipant delivering notice to the Plan Administrator (as defined below) in accordance with the terms of the Award. Payment for shares of Common Stockpurchased upon the exercise of an Option shall be made on the effective date of such exercise through any of the following means: (i) in cash, by certifiedcheck, bank cashier’s check or wire transfer; (ii) through a brokered exercise with the Plan Administrator under which a portion of the proceeds from a sale arewithheld for such exercise price; or (iii) if permitted by the Company at the time of exercise, by surrendering shares of Common Stock. The notification to thePlan Administrator shall be made in accordance with its procedures. The shares of Common Stock purchased upon the exercise of an Option shall bedelivered as soon as practicable following exercise in accordance with the procedures established by the Company or the Plan Administrator from time totime. Options may only be exercised by the Participant or, if the Participant is incapacitated, by the Participant's guardian or legal representative; providedthat an exercise by a guardian or legal representative shall not be effective unless and until the Company has received evidence satisfactory to it as to theauthority of such guardian or legal representative.6. Distribution of Vested Units and Performance Units. As soon as administratively practicable after each applicable vesting date of anAward of Units or Performance Units (generally within three business days and in no event more than 15 business days), the Company will deliver to theParticipant a number of shares of Common Stock equal to the number of Units or Performance Units that vested as of an applicable vesting date.7. Taxes. The Participant shall be solely responsible for taxes under applicable federal, state, local or foreign law.8. Expiration of Awards; Effect of Termination.(a) Units and Performance Units. Subject to the provisions of the Plan and this Agreement, except to the extent otherwise specificallyprovided under the terms of any Award notice with respect to Units or Performance Units (as the case may be):(i) in the event the provision of Services by the Participant terminates for any reason (other than by reason of death or“Disability” (as defined below)), all unvested Units and Performance Units shall be immediately forfeited; or(ii) in the event the provision of Services by the Participant terminates by reason of death or Disability, all unvested Units orPerformance Units shall fully vest and become non-forfeitable as of the date of death or the date of such termination, as the case may be, and, in allother respects, all such Units or Performance Units shall be governed by the plans and programs and the agreements and other documents pursuant towhich such Units or Performance Units were granted.(b) Options. The Options granted by the Company will expire at a date specified in the Award notice, which shall be not later than thetenth anniversary of the grant date (the “Scheduled Expiration Date”). Subject to the provisions of the Plan and this Agreement, except to the extentotherwise specifically provided under the terms of any Award notice with respect to Options:(i) in the event the provision of Services by the Participant terminates for any reason (other than by reason of death orDisability), (A) all unvested Options shall immediately expire on the date of termination and (B) the portion of any Options that vested prior to suchtermination (other than a termination by reason of removal from the Board of Directors of the Company for cause, in which event all such vestedOptions shall be immediately forfeited) shall remain exercisable until the earlier of three (3) months after such termination and the ScheduledExpiration Date and, in all other respects, shall be governed by the plans and programs and the agreements and other documents pursuant to whichsuch Options were granted; or(ii)in the event the provision of Services by the Participant terminates by reason of death or Disability, all unvestedOptions shall fully vest and become non-forfeitable as of the date of death or the date of such termination, as the case may be, and such Options(together with the portion of any Options that vested prior to such death or termination) shall remain exercisable by the Participant (or, in the case ofdeath, Participant’s executor or administrator or Beneficiary (as defined below)) until the earlier of (A) the first anniversary of such death ortermination and (B) the Scheduled Expiration Date and, in all other respects, all such Options shall be governed by the plans and programs and theagreements and other documents pursuant to which such Options were granted.For purposes of this Agreement, “Beneficiary” means the person, persons, trust, or trusts which have been designated by a Participant inhis or her most recent written beneficiary designation filed with the Company to receive the benefits specified under the Plan upon such Participant's death.If, upon a Participant's death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means person, persons, trust,or trusts entitled by will or the laws of descent and distribution to receive such benefits. A Beneficiary or other person claiming any rights under the Plan fromor through any Participant shall be subject to all terms and conditions of the Plan and any Award agreement applicable to such Participant and to any additional terms and conditionsdeemed necessary or appropriate by the Committee.(c) Definition of Disability. For purposes of this Agreement, “Disability” shall mean the Participant’s inability to engage in anysubstantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expectedto last for a continuous period of not less than 12 months.(d) Last Day to Exercise an Option. If an Option’s expiration date determined under this Section 8 falls on a day which is not a businessday, then the last day to exercise the Option shall be the last business day before such date.9. Other Terms.(a) No Shareholder Rights. Until shares of Common Stock covered by an Award are issued to the Participant in connection with theexercise of an Option or the vesting of Units or Performance Units, the Participant shall have no voting, dividend or other rights as a stockholder of theCompany for any purpose.(b) Consideration for Grant. Participant shall not be required to pay any cash consideration for the grant of an Award. In the case of grantsof Units and Performance Units, as to which cash consideration at the time of grant or vesting shall not be required, the Participant's performance of Servicesfrom the grant date to the date of vesting shall be deemed to be consideration for the grant, which Services have a value at least equal to the aggregate parvalue of the shares being newly issued in connection with the grant. The foregoing notwithstanding, an Award may be granted in exchange for theParticipant’s surrender of another Award or other right to compensation, if and to the extent permitted by the Committee.(c) Insider Trading Policy Applicable. Participant acknowledges that sales of shares received with respect to Awards will be subject to thepolicies regulating trading by directors of Company10 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party hereto, upon any breach ordefault of any party under this Agreement, shall impair any such right, power or remedy of such party, nor shall it be construed to be a waiver of any suchbreach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or defaultbe deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on thepart of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, mustbe in a writing signed by such party and shall be effective only to the extent specifically set forth in such writing.11. Integration. This Agreement, the Plan, and the other documents, including, without limitation, the Award notice, which form a part ofthis Agreement, contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises,representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein. This Agreement,including, without limitation, the Plan, supersedes all prior agreements and understandings between the parties with respect to its subject matter.12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State ofDelaware, without regard to the provisions governing conflict of laws.13. Restrictive Covenants Condition. The Participant hereby acknowledges and agrees that the receipt of Awards, including any right toexercise an Option, receive the shares of Common Stock following a vesting date or retains the profit from the sale of shares of Common Stock subject to anAward, is conditioned upon Participant’s compliance with the restrictive covenants in Sections 14-16 of this Agreement.14. Proprietary Information. Participant hereby acknowledges that, during the period of providing Services, Participant necessarily willhave (and during any affiliation with any of the Company and its subsidiaries and affiliates (collectively, (“SG”)) SG prior to his Service, Participant mayhave had) access to and make use of proprietary information and confidential records of SG. Participant covenants that he shall not during his provision ofServices or at any time thereafter, directly or indirectly, use for his own purpose or for the benefit of any person or entity other than SG, nor otherwise discloseto any person or entity, any such proprietary information, unless and to the extent such disclosure has been authorized in writing by the Company or isotherwise required by law. The term “proprietary information” means: (i) the software products, programs, applications, and processes utilized by SG; (ii) thename or address of any customer or vendor of SG or any information concerning the transactions or relations of any customer or vendor of SG or with SG; (iii)any information concerning any product, technology, or procedure employed by SG but not generally known to its customers or vendors or competitors, orunder development by or being tested by SG but not at the time offered generally to customers or vendors; (iv) any information relating to SG’s computersoftware, computer systems, pricing or marketing methods, sales margins, cost of goods, cost of material, capital structure, operating results, borrowingarrangements or business plans; (v) any information identified as confidential or proprietary in any line of business engaged in by SG; (vi) any informationthat, to Participant’s actual knowledge, SG ordinarily maintains as confidential or proprietary; (vii) any business plans, budgets, advertising or marketingplans; (viii) any information contained in any of SG’s written or oral policies and procedures or manuals; (ix) any information belonging to customers,vendors or any other person or entity which SG, to Participant’s actual knowledge, has agreed to hold in confidence; and (x) all written, graphic, electronic data and other material containing any of the foregoing. Participant acknowledges that information that is not novel orcopyrighted or patented may nonetheless be proprietary information. The term “proprietary information” shall not include information generally known oravailable to the public or information that becomes available to Participant on an unrestricted, non-confidential basis from a source other than SG or any ofits directors, officers, employees, agents or other representatives (without breach of any obligation of confidentiality of which Participant has knowledge,after reasonable inquiry, at the time of the relevant disclosure by Participant). Notwithstanding the foregoing, Participant may disclose or use proprietaryinformation or confidential records solely to the extent (A) such disclosure or use may be required or appropriate in connection with the provision of Servicesby the Participant, (B) required to do so by a court of law, by any governmental agency having supervisory authority over the business of SG or by anyadministrative or legislative body (including a committee thereof) with apparent jurisdiction to order Participant to divulge, disclose or make accessible suchinformation (provided that in such case Participant shall first give the Company prompt written notice of any such legal requirement, disclose no moreinformation than is so required and cooperate fully with all efforts by SG to obtain a protective order or similar confidentiality treatment for suchinformation), (C) such information or records becomes generally known to the public without Participant’s violation of this Agreement, or (D) disclosed toParticipant’s spouse, attorney or his personal tax and financial advisors to the extent reasonably necessary to advance Participant’s tax, financial and otherpersonal planning (each an “Exempt Person”); provided, however, that any disclosure or use of any proprietary information or confidential records by anExempt Person shall be deemed to be a breach of this Section 14 or Section 15 by Participant.15. Confidentiality and Surrender of Records. Participant hereby agrees that he shall not, during the period of providing Services or at anytime thereafter (irrespective of the circumstances under which his provision of Services terminates), except to the extent required by law, directly or indirectlypublish, make known or in any fashion disclose or retain any confidential records to, or permit any inspection or copying of confidential records by, anyperson or entity other than in the course of such person’s or entity’s employment or retention by SG, and Participant further agrees to deliver promptly to theCompany, any of the same following termination of his provision of Services for any reason or upon request by SG. For purposes hereof, “confidentialrecords” means those portions of correspondence, memoranda, files, manuals, books, lists, financial, operating or marketing records, magnetic tape, orelectronic or other media or equipment of any kind in Participant’s possession or under Participant’s control or accessible to Participant which contain anyproprietary information. All confidential records shall be and remain the sole property of SG during the provision of Services by the Participant andthereafter.16. Non-disparagement. Participant hereby agrees that he shall not, during the period of providing and thereafter, disparage in anymaterial respect SG, any of their respective businesses, any of their respective officers, directors or employees, or the reputation of any of the foregoingpersons or entities. Notwithstanding the foregoing, nothing in this Agreement shall preclude Participant from making truthful statements that are required byapplicable law, regulation or legal process.17. No Other Obligations. Participant hereby represents that he is not precluded or limited in his ability to undertake or perform Services byany contract, agreement or restrictive covenant. Participant covenants that he shall not employ the trade secrets or proprietary information of any otherperson in connection with the provision of Services by the Participant without such person’s authorization.18. Enforcement. Participant acknowledges and agrees that, by virtue of his position, provision of the Services and access to and use ofconfidential records and proprietary information, any violation by Participant of any of the undertakings contained in this Agreement would cause SGimmediate, substantial and irreparable injury for which it has no adequate remedy at law. Accordingly, Participant hereby agrees and consents to the entry ofan injunction or other equitable relief by a court of competent jurisdiction restraining any violation or threatened violation of any undertaking contained inthis Agreement. Participant waives posting of any bond otherwise necessary to secure such injunction or other equitable relief. Rights and remediesprovided for in this Agreement are cumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any otheragreement or applicable law.19. Data Privacy. For Participants in certain jurisdictions, the data privacy laws of such jurisdictions may require the Participants’ consentto the use and transfer of certain personal information necessary to administer the Plan and any Awards the Participants may receive. Accordingly, ifapplicable, the Participant hereby acknowledges and agrees that the Participant’s receipt of any Awards, including any right to exercise an Option, receivethe shares of Common Stock following vesting of an award of Units or Performance Units or retain the profit from the sale of shares of Common Stock subjectto an Award, is conditioned upon Participant’s consent to the use and transfer of such personal information. 20. Plan Administrator. The Company has retained Fidelity Stock Plan Services, LLC as a third-party administrator to assist in theadministration and management of the Plan (the “Plan Administrator” or “Fidelity”). A listing of all Awards may be viewed through the Plan Administrator’swebsite at www.NetBenefits.com once the Participant has established an account with the Plan Administrator. The Plan Administrator shall handle theprocessing of Option exercises and vesting and settlement of Units and Performance Units. The Company reserves the right to replace Fidelity as the PlanAdministrator at any time in the Company’s sole discretion.21. Participant Acknowledgment. The Participant hereby acknowledges receipt of a copy of the Plan. The Participant herebyacknowledges that all decisions, determinations and interpretations of the Committee in respect of the Plan, this Agreement and the Awards shall be final andconclusive. 22. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which togetherwill constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail inportable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will havethe same effect as physical delivery of the paper document bearing an original signature.23. Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement will be binding upon andinure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding uponthe Director and the Director's beneficiaries, executors, administrators and the person(s) to whom the Option may be transferred by will or the laws of descentor distribution.24. Severability. The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity orenforceability of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable tothe extent permitted by law.[remainder of page intentionally left blank] IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its duly authorized officer, and the Participanthas signed this Agreement on his or her own behalf, thereby representing that he or she has carefully read and understands this Agreement and the Plan as ofthe day and year first written above.SCIENTIFIC GAMES CORPORATIONBy:___________________________________Scott SchweinfurthExecutive Vice President and Chief Financial OfficerPARTICIPANT:_______________________________________[•] Exhibit 99.11SCIENTIFIC GAMES CORPORATION2003 INCENTIVE COMPENSATION PLANAS AMENDED AND RESTATED JUNE 11, 2014TERMS AND CONDITIONS OFEQUITY AWARDS TO CONSULTANTSTHIS AGREEMENT, made as of the [•] day of [•], 20[•], between SCIENTIFIC GAMES CORPORATION (the “Company”) and [•] (the“Participant”).WHEREAS, the Compensation Committee (the “Committee”) administers the Scientific Games Corporation 2003 Incentive CompensationPlan, as amended from time to time (the “Plan”);WHEREAS, the Committee has determined that the Participant is eligible to receive awards under the Plan by virtue of the Participant’sprovision of substantial services to the Company (or any of its applicable affiliates) (“Services”); andWHEREAS, the Committee may from time to time approve awards for the Participant in such amounts and at such times as the Committeemay determine in its sole discretion, which awards shall be subject to the terms and conditions of the Plan and this Agreement and the Award notice, as suchterms and conditions may be amended or supplemented from time to time by the Committee;NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties agree as follows.1. Grants. Pursuant and subject to the terms and conditions set forth herein and in the Plan, the Participant may be granted the followingtypes of awards (“Awards”) with respect to the Company’s Class A Common Stock (“Common Stock”), pursuant to an Award notice, which will state the typeof Award, the number of shares subject to the Award and any other terms determined by the Committee in its sole discretion:(a) Stock Options (“Options”) -- representing a right to purchase shares of the Common Stock at an exercise price per share that is equal toor greater than the fair market value of a share of Common Stock on the date of grant. The Committee will generally set the exercise price of Options at thefair market value of the Common Stock on the date of grant. The Options do not become exercisable until satisfaction of an applicable vesting period. TheOptions are “Non-Qualified Stock Options” (i.e., they do not constitute “incentive stock options” within the meaning of Section 422 of the Internal RevenueCode of 1986, as amended).(b) Restricted Stock Units (“Units”) -- representing a right to receive shares of Common Stock following satisfaction of an applicablevesting period subject to the conditions, restrictions and limitations set forth in Section 6(d) of the Plan, this Agreement and the Award notice.(c) Performance Conditioned Restricted Stock Units (“Performance Units”) -- representing a right to receive shares of the Common Stockfollowing satisfaction of an applicable vesting period and subject to performance requirements established by the Committee at the time of grant, which maybe based on Company or individual performance criteria for an annual or other applicable performance period, and subject to such other conditions,restrictions and limitations set forth in Section 7 of the Plan and in this Agreement.2. Incorporation of Plan by Reference. All terms, conditions and restrictions of the Plan are incorporated in, and made a part of, thisAgreement as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan, asinterpreted by the Committee, shall govern. Except as otherwise provided herein, all capitalized terms used in this Agreement shall have the meaning givento such terms in the Plan.3. Restriction on Transfer of Awards. Awards under the Plan may not be sold, assigned, transferred, pledged, hypothecated, margined, orotherwise encumbered or disposed of by the Participant, except for transfers upon the death of the Participant.4. Vesting Schedule for Awards. Unless otherwise set forth in the applicable Award notice, an Award under the Plan will be granted with afour-year ratable vesting schedule such that 25% of the total Award will vest on each of the first four anniversaries of the grant date. In the case ofPerformance Units, vesting will also be conditioned on satisfaction of performance criteria established by the Committee. With respect to such PerformanceUnits, the Committee will determine whether the performance criteria applicable to an Award have been satisfied within 90 days following the end of theapplicable performance period(s) (but not later than the March 15 following the year in which the performance period ended). Notwithstanding anythingcontained to the contrary in this Agreement (or in any prior award agreement), in any Award notice or in any other document, in the event that theParticipant’s provision of Services is terminated other than as a result of death or “Disability” (as defined below) prior to the Committee’s determination as to the satisfaction of any performance criteria to which any Award of Performance Units is subject, such Performance Units will neither vest nor accelerate unlessand until a determination is or has been made by the Committee that such criteria have been satisfied, at which time such Performance Units may vest oraccelerate to the extent provided in, and in accordance with, any applicable contract and the Plan (it being understood and agreed that nothing in thisAgreement shall grant any right to any such acceleration or vesting upon any such termination). For the avoidance of doubt, in the event that the criteria aredetermined not to have been satisfied, such Award shall immediately lapse and be forfeited.5. Method of Exercise of Vested Options. Awards of Options, to the extent vested, shall be exercisable in whole or in part by theParticipant delivering notice to the Plan Administrator (as defined below) in accordance with the terms of the Award. Payment for shares of Common Stockpurchased upon the exercise of an Option shall be made on the effective date of such exercise through any of the following means: (i) in cash, by certifiedcheck, bank cashier’s check or wire transfer; (ii) through a brokered exercise with the Plan Administrator under which a portion of the proceeds from a sale arewithheld for such exercise price; or (iii) if permitted by the Company at the time of exercise, by surrendering shares of Common Stock. The notification to thePlan Administrator shall be made in accordance with its procedures. The shares of Common Stock purchased upon the exercise of an Option shall bedelivered as soon as practicable following exercise in accordance with the procedures established by the Company or the Plan Administrator from time totime. Options may only be exercised by the Participant or, if the Participant is incapacitated, by the Participant's guardian or legal representative; providedthat an exercise by a guardian or legal representative shall not be effective unless and until the Company has received evidence satisfactory to it as to theauthority of such guardian or legal representative.6. Distribution of Vested Units and Performance Units. As soon as administratively practicable after each applicable vesting date of anAward of Units or Performance Units (generally within three business days and in no event more than 15 business days), the Company will deliver to theParticipant a number of shares of Common Stock equal to the number of Units or Performance Units that vested as of an applicable vesting date.7. Taxes. The Participant shall be solely responsible for taxes under applicable federal, state, local or foreign law.8. Expiration of Awards; Effect of Termination.(a) Units and Performance Units. Subject to the provisions of the Plan and this Agreement, except to the extent otherwise specificallyprovided under the terms of any Award notice with respect to Units or Performance Units (as the case may be):(i) in the event the provision of Services by the Participant terminates for any reason (other than by reason of death or“Disability” (as defined below)), all unvested Units and Performance Units shall be immediately forfeited; or(ii) in the event the provision of Services by the Participant terminates by reason of death or Disability, all unvested Units orPerformance Units shall fully vest and become non-forfeitable as of the date of death or the date of such termination, as the case may be, and, in allother respects, all such Units or Performance Units shall be governed by the plans and programs and the agreements and other documents pursuant towhich such Units or Performance Units were granted.(b) Options. The Options granted by the Company will expire at a date specified in the Award notice, which shall be not later than thetenth anniversary of the grant date (the “Scheduled Expiration Date”). Subject to the provisions of the Plan and this Agreement, except to the extentotherwise specifically provided under the terms of any Award notice with respect to Options:(i) in the event the provision of Services by the Participant terminates for any reason (other than by reason of death orDisability), (A) all unvested Options shall immediately expire on the date of termination and (B) the portion of any Options that vested prior to suchtermination (other than a termination for “Cause” (as defined below)), in which event all such vested Options shall be immediately forfeited) shallremain exercisable until the earlier of three (3) months after such termination and the Scheduled Expiration Date and, in all other respects, shall begoverned by the plans and programs and the agreements and other documents pursuant to which such Options were granted; or(ii)in the event the provision of Services by the Participant terminates by reason of death or Disability, all unvestedOptions shall fully vest and become non-forfeitable as of the date of death or the date of such termination, as the case may be, and such Options(together with the portion of any Options that vested prior to such death or termination) shall remain exercisable by the Participant (or, in the case ofdeath, Participant’s executor or administrator or Beneficiary (as defined below)) until the earlier of (A) the first anniversary of such death ortermination and (B) the Scheduled Expiration Date and, in all other respects, all such Options shall be governed by the plans and programs and theagreements and other documents pursuant to which such Options were granted. For purposes of this Agreement, “Cause” shall mean any of the following: (i) the Participant’s breach of the terms of any agreement with anyof the Company and its subsidiaries and affiliates (collectively, “SG”); (ii) the Participant’s material act or omission that is or may be injurious to SG,monetarily or otherwise; (iii) the Participant’s material violation of SG’s policies applicable to Participant, including the Code of Conduct, and (iv) theParticipant’s commission of a felony, any other crime involving moral turpitude or any act involving dishonesty or fraud. Any rights SG may have hereunderin respect of the events giving rise to Cause shall be in addition to the rights SG may have under any other agreement with the Participant or at law or inequity. Any determination of whether the Participant’s is (or is deemed to have been) terminated for Cause shall be made by the Committee in its discretion.The Participant’s termination for Cause shall be effective as of the date of the occurrence of the event giving rise to Cause, regardless of when thedetermination of Cause is made.For purposes of this Agreement, “Beneficiary” means the person, persons, trust, or trusts which have been designated by a Participant in hisor her most recent written beneficiary designation filed with the Company to receive the benefits specified under the Plan upon such Participant's death. If,upon a Participant's death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means person, persons, trust, ortrusts entitled by will or the laws of descent and distribution to receive such benefits. A Beneficiary or other person claiming any rights under the Plan from orthrough any Participant shall be subject to all terms and conditions of the Plan and any Award agreement applicable to such Participant and to any additionalterms and conditions deemed necessary or appropriate by the Committee.(c) Definition of Disability. For purposes of this Agreement, “Disability” shall mean the Participant’s inability to engage in anysubstantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expectedto last for a continuous period of not less than 12 months.(d) Last Day to Exercise an Option. If an Option’s expiration date determined under this Section 8 falls on a day which is not a businessday, then the last day to exercise the Option shall be the last business day before such date.9. Other Terms.(a) No Shareholder Rights. Until shares of Common Stock covered by an Award are issued to the Participant in connection with theexercise of an Option or the vesting of Units or Performance Units, the Participant shall have no voting, dividend or other rights as a stockholder of theCompany for any purpose.(b) Consideration for Grant. Participant shall not be required to pay any cash consideration for the grant of an Award. In the case of grantsof Units and Performance Units, as to which cash consideration at the time of grant or vesting shall not be required, the Participant's performance of Servicesfrom the grant date to the date of vesting shall be deemed to be consideration for the grant, which Services have a value at least equal to the aggregate parvalue of the shares being newly issued in connection with the grant. The foregoing notwithstanding, an Award may be granted in exchange for theParticipant’s surrender of another Award or other right to compensation, if and to the extent permitted by the Committee.(c) Insider Trading Policy Applicable. Participant acknowledges that sales of shares received with respect to Awards will be subject toSG's policies regulating trading by consultants.10 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party hereto, upon any breach ordefault of any party under this Agreement, shall impair any such right, power or remedy of such party, nor shall it be construed to be a waiver of any suchbreach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or defaultbe deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on thepart of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, mustbe in a writing signed by such party and shall be effective only to the extent specifically set forth in such writing.11. Integration. This Agreement, the Plan, and the other documents, including, without limitation, the Award notice, which form a part ofthis Agreement, contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises,representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein. This Agreement,including, without limitation, the Plan, supersedes all prior agreements and understandings between the parties with respect to its subject matter.12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State ofDelaware, without regard to the provisions governing conflict of laws.13. Restrictive Covenants Condition. The Participant hereby acknowledges and agrees that the receipt of Awards, including any right toexercise an Option, receive the shares of Common Stock following a vesting date or retains the profit from the sale of shares of Common Stock subject to anAward, is conditioned upon Participant’s compliance with the restrictive covenants in Sections 14-16 of this Agreement.14. Non-solicitation. (a) Participant acknowledges the highly competitive nature of the business of SG and that access to SG’s confidential records andproprietary information renders Participant special and unique within SG’s industry. Participant hereby agrees that, during the period of providing Servicesand during the Covered Time (defined below), Participant shall not, directly or indirectly: (i) solicit or attempt to induce any of the employees, agents,consultants or representatives of SG to terminate his, her, or its relationship with SG; (ii) solicit or attempt to induce any of the employees, agents, consultantsor representatives of SG to become employees, agents, consultants or representatives of any other person or entity; (iii) solicit or attempt to induce anycustomer, vendor or distributor of SG to curtail or cancel any business with SG; or (iv) hire any person who, to Participant’s actual knowledge, is, or waswithin 180 days prior to such hiring, an employee of SG.(b) Participant hereby agrees that, during the Participant’s period of providing Services and during the Covered Time, upon the earlier ofhis (i) negotiating with any Competitor (as defined below) concerning his possible employment with the Competitor, (ii) responding to (other than for thepurpose of declining) an offer of employment from a Competitor, or (iii) becoming employed by a Competitor, (A) Participant will provide copies of thisAgreement to the Competitor, and (B) in the case of any circumstance described in (iii) above occurring during the Covered Time, and in the case of anycircumstance described in (i) or (ii) above occurring during the period in which the Participant is providing Services or during the Covered Time, Participantwill promptly provide notice to the Company of such circumstances. Participant further agrees that the Company may provide notice to a Competitor ofParticipant’s obligations under this Agreement. For purposes of this Agreement, “Competitor” shall mean any person or entity (other than SG) that engages,directly or indirectly, in the United States in any Competing Business. For purposes of this Section 14, “Competing Business” shall mean any business oroperations (i) (A) involving the design, development, manufacture, production, sale, lease, license, provision, operation, or management (as the case may be)of (I) instant lottery tickets or games or any related marketing, warehouse, distribution, category management or other services or programs; (II) lottery-relatedterminals or vending machines (whether clerk-operated, self-service or otherwise), (III) gaming machines, terminals or devices (including video or reelspinning slot machines, video poker machines, video lottery terminals and fixed odds betting terminals), (IV) lottery, video gaming (including server-basedgaming), sports betting or other wagering or gaming systems (including control and monitoring systems, local or wide-area progressive systems andredemption systems); (V) lottery- or gaming-related proprietary or licensed content (including themes, entertainment and brands), platforms, websites andloyalty and customer relationship management programs (including any of the foregoing relating to online play, social gaming or interactive (includinginternet and mobile) lottery or gaming); (VI) prepaid cellular or other phone cards; or (VII) ancillary products (including equipment, hardware, software,marketing materials, chairs and signage) or services (including field service, maintenance and support) related to any of the foregoing under sub-clauses (I)through (VI) above); or (B) in which SG is then or was within the previous 12 months engaged, or in which SG, to Participant’s knowledge, contemplates toengage in during the period in which the Participant is providing Services or the Covered Time, (ii) in which Participant is or was engaged or involved(whether in a supervisory capacity or otherwise) on behalf of SG or with respect to which Participant has obtained proprietary or confidential information, and(iii) which is or was, to Participant’s knowledge, conducted or contemplated to be conducted anywhere in the United States or in any other geographic areaduring Participant’s period of providing Services or the Covered Time. (c) For purposes of this Section 14, “Covered Time” shall mean the period beginning on the date of termination of Participant’s provisionof Services (the “Date of Termination”) and ending twelve (12) months after the Date of Termination.15. Proprietary Information. Participant hereby acknowledges that, during the period of providing Services, Participant necessarily willhave (and during any affiliation with SG prior to his Service, Participant may have had) access to and make use of proprietary information and confidentialrecords of SG. Participant covenants that he shall not during his provision of Services or at any time thereafter, directly or indirectly, use for his own purposeor for the benefit of any person or entity other than SG, nor otherwise disclose to any person or entity, any such proprietary information, unless and to theextent such disclosure has been authorized in writing by the Company or is otherwise required by law. The term “proprietary information” means: (i) thesoftware products, programs, applications, and processes utilized by SG; (ii) the name or address of any customer or vendor of SG or any informationconcerning the transactions or relations of any customer or vendor of SG or with SG; (iii) any information concerning any product, technology, or procedureemployed by SG but not generally known to its customers or vendors or competitors, or under development by or being tested by SG but not at the timeoffered generally to customers or vendors; (iv) any information relating to SG’s computer software, computer systems, pricing or marketing methods, salesmargins, cost of goods, cost of material, capital structure, operating results, borrowing arrangements or business plans; (v) any information identified asconfidential or proprietary in any line of business engaged in by SG; (vi) any information that, to Participant’s actual knowledge, SG ordinarily maintains asconfidential or proprietary; (vii) any business plans, budgets, advertising or marketing plans; (viii) any information contained in any of SG’s written or oralpolicies and procedures or manuals; (ix) any information belonging to customers, vendors or any other person or entity which SG, to Participant’s actualknowledge, has agreed to hold in confidence; and (x) all written, graphic, electronic data and other material containing any of the foregoing. Participantacknowledges that information that is not novel or copyrighted or patented may nonetheless be proprietary information. The term “proprietary information”shall not include information generally known or available to the public or information that becomes available to Participant on an unrestricted, non-confidential basis from a source other than SG or any of its directors, officers, employees, agents or other representatives (without breach of any obligation ofconfidentiality of which Participant has knowledge, after reasonable inquiry, at the time of the relevant disclosure by Participant). Notwithstanding theforegoing and Section 14, Participant may disclose or use proprietary information or confidential records solely to the extent (A) such disclosure or use maybe required or appropriate in connection with the provision of Services by the Participant, (B) required to do so by a court of law, by any governmentalagency having supervisory authority over the business of SG or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order Participant to divulge, disclose or make accessible such information (provided that in such caseParticipant shall first give the Company prompt written notice of any such legal requirement, disclose no more information than is so required and cooperatefully with all efforts by SG to obtain a protective order or similar confidentiality treatment for such information), (C) such information or records becomesgenerally known to the public without Participant’s violation of this Agreement, or (D) disclosed to Participant’s spouse, attorney or his personal tax andfinancial advisors to the extent reasonably necessary to advance Participant’s tax, financial and other personal planning (each an “Exempt Person”);provided, however, that any disclosure or use of any proprietary information or confidential records by an Exempt Person shall be deemed to be a breach ofthis Section 14 or Section 15 by Participant.15. Confidentiality and Surrender of Records. Participant hereby agrees that he shall not, during the period of providing Services or at anytime thereafter (irrespective of the circumstances under which his provision of Services terminates), except to the extent required by law, directly or indirectlypublish, make known or in any fashion disclose or retain any confidential records to, or permit any inspection or copying of confidential records by, anyperson or entity other than in the course of such person’s or entity’s employment or retention by SG, and Participant further agrees to deliver promptly to theCompany, any of the same following termination of his provision of Services for any reason or upon request by SG. For purposes hereof, “confidentialrecords” means those portions of correspondence, memoranda, files, manuals, books, lists, financial, operating or marketing records, magnetic tape, orelectronic or other media or equipment of any kind in Participant’s possession or under Participant’s control or accessible to Participant which contain anyproprietary information. All confidential records shall be and remain the sole property of SG during the provision of Services by the Participant andthereafter.16. Non-disparagement. Participant hereby agrees that he shall not, during the period of providing Services and thereafter, disparage inany material respect SG, any of their respective businesses, any of their respective officers, directors or employees, or the reputation of any of the foregoingpersons or entities. Notwithstanding the foregoing, nothing in this Agreement shall preclude Participant from making truthful statements that are required byapplicable law, regulation or legal process.17. No Other Obligations. Participant hereby represents that he is not precluded or limited in his ability to undertake or perform Services byany contract, agreement or restrictive covenant. Participant covenants that he shall not employ the trade secrets or proprietary information of any otherperson in connection with the provision of Services by the Participant without such person’s authorization.18. Enforcement. Participant acknowledges and agrees that, by virtue of his position, provision of the Services and access to and use ofconfidential records and proprietary information, any violation by Participant of any of the undertakings contained in this Agreement would cause SGimmediate, substantial and irreparable injury for which it has no adequate remedy at law. Accordingly, Participant hereby agrees and consents to the entry ofan injunction or other equitable relief by a court of competent jurisdiction restraining any violation or threatened violation of any undertaking contained inthis Agreement. Participant waives posting of any bond otherwise necessary to secure such injunction or other equitable relief. Rights and remediesprovided for in this Agreement are cumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any otheragreement or applicable law.19. Data Privacy. For Participants in certain jurisdictions, the data privacy laws of such jurisdictions may require the Participants’ consentto the use and transfer of certain personal information necessary to administer the Plan and any Awards the Participants may receive. Accordingly, ifapplicable, the Participant hereby acknowledges and agrees that the Participant’s receipt of any Awards, including any right to exercise an Option, receivethe shares of Common Stock following vesting of an award of Units or Performance Units or retain the profit from the sale of shares of Common Stock subjectto an Award, is conditioned upon Participant’s consent to the use and transfer of such personal information. 20. Plan Administrator. The Company has retained Fidelity Stock Plan Services, LLC as a third-party administrator to assist in theadministration and management of the Plan (the “Plan Administrator” or “Fidelity”). A listing of all Awards may be viewed through the Plan Administrator’swebsite at www.NetBenefits.com once the Participant has established an account with the Plan Administrator. The Plan Administrator shall handle theprocessing of Option exercises and vesting and settlement of Units and Performance Units. The Company reserves the right to replace Fidelity as the PlanAdministrator at any time in the Company’s sole discretion.21. Participant Acknowledgment. The Participant hereby acknowledges receipt of a copy of the Plan. The Participant herebyacknowledges that all decisions, determinations and interpretations of the Committee in respect of the Plan, this Agreement and the Awards shall be final andconclusive.22. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which togetherwill constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail inportable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will havethe same effect as physical delivery of the paper document bearing an original signature.23. Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement will be binding upon andinure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding upon the Director and the Director's beneficiaries, executors, administrators and the person(s) to whom the Option maybe transferred by will or the laws of descent or distribution.24. Severability. The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity orenforceability of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable tothe extent permitted by law. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its duly authorized officer, and the Participanthas signed this Agreement on his or her own behalf, thereby representing that he or she has carefully read and understands this Agreement and the Plan as ofthe day and year first written above.SCIENTIFIC GAMES CORPORATIONBy:___________________________________Scott SchweinfurthExecutive Vice President and Chief Financial OfficerPARTICIPANT:_______________________________________[•] Exhibit 99.12Gaming RegulationsLicensing and Suitability Determinations- GenerallyThe manufacture, distribution and operation of gaming equipment and related software is subject to regulation and approval by variouscity, county, state, provincial, federal, tribal and foreign agencies (collectively, “gaming authorities”). Gaming laws require us to obtainlicenses or findings of suitability from gaming authorities for our company, including each of our subsidiaries engaged inmanufacturing, distributing and operating gaming products and services, and certain of our directors, officers and employees. Thecriteria used by gaming authorities to make determinations as to qualification and suitability of an applicant varies among jurisdictions,but generally require the submission of detailed personal and financial information followed by a thorough investigation. The burden ofdemonstrating suitability and the cost of the investigation resides with the applicant. In evaluating individual applicants, gamingauthorities consider the individual’s character, criminal and financial history and, in some cases, the character of those with whom theindividual associates. Gaming authorities have very broad discretion in determining whether an applicant qualifies for licensing orshould be found suitable. Gaming authorities may, subject to certain administrative proceeding requirements, (i) deny an application, orlimit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval and (ii) fine any person licensed,registered or found suitable or approved, for any cause they deem reasonable.If any director, officer or employee of ours fails to qualify for a license or is found unsuitable (including due to the failure to submit therequired documentation or application) by a gaming authority, we may deem it necessary, or be required to, sever our relationship withsuch person, which may include terminating the employment of any such person.As we are a gaming licensee, gaming authorities may investigate any individual or entity having a material relationship to, or materialinvolvement with, us or any of our subsidiaries, to determine whether such individual or entity is suitable or should be licensed as abusiness associate of ours. In addition, gaming authorities in Nevada, as well as other jurisdictions, monitor the activities of the entitiesthey regulate both in their respective jurisdiction and in other jurisdictions to ensure that such entities are in compliance with localstandards on a worldwide basis. The Nevada gaming authorities require us and our gaming subsidiaries, WMS Gaming Inc. and BallyTechnologies, Inc., to maintain Nevada standards of conduct for all of our gaming activities and operations worldwide.Licensing Requirements of Security HoldersMany jurisdictions require certain of our stockholders or holders of our debt securities to file an application, be investigated, and befound suitable to own any of our debt securities. For example, a holder of our stock or of our issued debt may be required to file anapplication, be investigated and be subject to a suitability hearing as a beneficial holder if the Nevada Gaming Commission has reasonto believe that the holder’s ownership in our securities would be inconsistent with the commission’s public policies or those of the stateof Nevada.Many jurisdictions also require any person who acquires beneficial ownership of more than a certain percentage (typically five percent)of our voting securities and, in some jurisdictions, our non-voting securities, to report the acquisition to the gaming authorities andapply for a finding of suitability. However, most gaming authorities, allow an “institutional investor” to apply for a waiver that allowssuch institutional investor to acquire, in most cases, up to fifteen percent of our voting securities without applying for a finding ofsuitability.Any person who is found unsuitable by a gaming authority may be prohibited by applicable gaming regulations from holding, directlyor indirectly, the beneficial ownership of any voting security or debt security of any public corporation which is registered with thegaming authority. In light of these regulations and their potential impact on our business, our restated certificate of incorporationprohibits persons or entities who fail to comply with informational or other regulatory requirements under applicable gaming laws, whoare found unsuitable to hold our common stock by gaming authorities or whose stock ownership adversely affects our gaming licenses,from owning stock in our company.Any person who holds, directly or indirectly, any beneficial ownership of our securities, and, to the extent applicable, fails or refuses toapply for a license or a finding of suitability within the time period prescribed by the applicablegaming authorities, may be denied a license or found unsuitable, as applicable, and may be found guilty of a criminal offense. Thesame restrictions may also apply to a record owner who fails or refuses to identify a beneficial owner of our securities. Furthermore, wemay be subject to disciplinary action if, after we receive notice that a person is unsuitable to be a stockholder or to have any otherrelationship with us or any of our subsidiaries, we:•pay that person any dividend or interest upon our voting securities;•allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person;•pay remuneration in any form to that person for services rendered or otherwise;•make any payment to the unsuitable person by way of principal, redemption, conversation, exchange, liquidation or similar transaction; or•fail to pursue all lawful efforts to terminate our relationship with that person, including, if necessary, the immediate purchase of said votingsecurities for cash at fair market value.Notification and Approval of Certain Transactions or Changes in Directors and OfficersDepending on the jurisdiction, we may be required to notify, or obtain approval from gaming authorities with respect to certaintransactions to which we or any of subsidiaries are a party, including the following:•material loans, leases, sales of securities and similar financing transactions;•a public offering of our securities (or those of our subsidiaries) if the securities or their proceeds are intended to be used for certain gamingexpenditures;•repurchases of our voting securities (such as repurchases that treat security holders differently) above the current market price; and•recapitalizations proposed in response to tender offers.In addition, change of control transactions (whether through merger, consolidation, stock or asset acquisitions or otherwise) requireprior approval of gaming authorities in certain jurisdictions. Entities seeking to acquire control of us or one of our subsidiaries mustsatisfy a variety of stringent standards established by the gaming authorities prior to assuming control. Gaming authorities may alsorequire controlling stockholders, officers, directors and other persons having a material relationship with the proposed acquirer to beinvestigated and licensed as part of the approval process relating to a change of control transaction.Any change in our directors or officers, including the directors or officers of our licensed subsidiaries, must be reported to or, if suchchange relates to a position in which the individual is required to be licensed, qualified, found suitable or approved by the requisitegaming authority.Testing and Approvals for Gaming ProductsIn Nevada and in most other jurisdictions, gaming devices and systems may not be sold unless they have been approved by the relevantregulatory authority (or an agency of such authority). The authority will conduct rigorous testing of the gaming device or system andrelated equipment through a testing laboratory (which may be run by such gaming authority or by an independent third party) and mayrequire a field trial of the gaming device, platform or system before determining that the gaming device, platform or system meet theagency’s strict technical standards. As part of the approval process, gaming authorities may require equipment and softwaremodifications and several rounds of approval.We do not have control over the length of time that any regulatory agency or testing laboratory takes to review our products. However,we work closely with the gaming authority’s staff, or the staff of the independent testing laboratory, as the case may be, to timelyrespond to inquiries and assist where possible in the evaluation, inspection and review of our products.Federal RegistrationThe Federal Gambling Devices Act of 1962 (commonly known as the Johnson Act) generally makes it unlawful for a person tomanufacture, transport or receive gaming machines or components across state lines unless that person has first registered with theCriminal Division of the United States Department of Justice. As required by the Johnson Act, certain of our entities must register andrenew their registration annually with the Criminal Division of the United States Department of Justice in order to manufacture, sell,distribute, or operate gaming equipment. The Johnson Act also imposes on us various record-keeping and equipment-identificationrequirements. A violation of the Johnson Act may result in the seizure and forfeiture of gaming equipment, as well as the imposition ofother penalties.Native American RegulationNumerous Native American tribes have become engaged in or have licensed gaming activities on Native American tribal lands as ameans of generating revenue for tribal governments. Gaming on Native American lands, including the terms and conditions underwhich gaming equipment and systems can be sold or leased to Native American tribes, is or may be subject to regulation under the lawsof the tribes, the laws of the state, and the Indian Gaming Regulatory Act of 1988 (“IGRA”), which includes regulation and oversightby the National Indian Gaming Commission (“NIGC”) and the Secretary of the United States Department of the Interior. Furthermore,gaming on Native American lands may also be subject to the provisions of contracts (known as compacts) between states and NativeAmerican tribes, which are also administered by the Secretary of the United States Department of the Interior.The IGRA classifies legalized gaming into three categories: “Class I” gaming consists of traditional Native American social andceremonial games; “Class II” gaming consists of bingo, electronic aids to bingo, and, if played at the same location where bingo isoffered, pull-tabs and other games similar to bingo; and “Class III” gaming consists of all other forms of gaming that are not included ineither Class I or Class II, including traditional casino gaming machines.Class I gaming is regulated exclusively at the Native American tribe level. We do not currently offer Class I gaming products orservices.Class II gaming is regulated by the NIGC and the laws of the Native American tribe conducting such gaming. Subject to the detailedrequirements of the IGRA, federally recognized Native American tribes are typically permitted to conduct Class II gaming on Indianlands pursuant to tribal ordinances approved by the NIGC.The IGRA generally permits Native American tribes to conduct Class III gaming activities on reservation lands subject to the detailedrequirements of the IGRA, including NIGC approval of the Native American tribe’s gaming ordinance and the entering into of a tribal-state compact between the Native American tribe and the state in which the Native American tribe intends to conduct Class III gamingactivities on its trust lands. Tribal-state compacts vary from state to state. Many require that gaming suppliers meet ongoing registrationand licensing requirements established by the state and/or the tribe and some impose background check requirements on the gamingsuppliers’ officers, directors and shareholders.Under the IGRA, tribes are required to regulate gaming on their tribal lands under ordinances approved by the NIGC. These ordinancesmay impose standards and technical requirements on hardware and software and may impose registration, licensing and backgroundcheck requirements on gaming suppliers and their officers, directors and shareholders. International RegulationWe engage in the manufacture, distribution and operation of gaming equipment and systems and related products, as well as license ourgames and intellectual property, in various international markets worldwide. Many foreign jurisdictions permit the importation, saleand/or operation of gaming equipment in casino and non-casino environments. Where importation is permitted, some jurisdictionsprohibit or restrict the payout feature of the traditional gaming machine or limit the operation of gaming machines to a controllednumber of casinos or casino-like locations. Each gaming machine must comply with the individual jurisdiction’s regulations. Somejurisdictions require the licensing of gaming suppliers.In the U.K., the Gambling Act of 2005 regulates, among other things, the type of licensed gaming activity that is carried out byoperators, the licensing of the various types of venues for the conduct of licensed gaming activities, the categoriesand number of gaming machines allowed in each type of venue, the licensing and regulation of the supply and operation of thosemachines and the issuance of technical specifications, standards and licensing requirements for each category of gaming device.Violation of Gaming LawsIf we or any of our subsidiaries violate applicable gaming laws, our gaming licenses could be limited, conditioned, suspended orrevoked by gaming authorities, and we could be subject to substantial fines. Furthermore, a violation of laws in one jurisdiction couldresult in disciplinary action in other jurisdictions. As a result, a violation of applicable gaming laws by us or any of our subsidiariescould have a material adverse effect on our financial condition, prospects and results of operations.

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