SCIENTIFIC GAMES CORP (Form: 10-Q, Received: 11/03/2016 08:38:05)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-13063

SCIENTIFIC GAMES CORPORATION

(Exact name of registrant as specified in its charter)



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

6650 S. El Camino Road, Las Vegas, Nevada 89118

(Address of principal executive offices)

(Zip Code)

(702) 897-7150

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required 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 shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ý		Accelerated filer ¨

Non-accelerated filer ¨		Smaller reporting company ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The registrant has the following number of shares outstanding of each of the registrant's classes of common stock as of October 27, 2016 :

Class A Common Stock: 87,565,647

Class B Common Stock: None

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL INFORMATION

AND OTHER INFORMATION

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016



		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	7

	Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2016 and 2015	7

	Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	8

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015	9

	Condensed Notes to Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	47

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosures	48

Item 5.	Other Information	48

Item 6.	Exhibits	49



Glossary of Terms

The following terms or acronyms used in this Quarterly Report on Form 10-Q are defined below:
Term or Acronym	Definition
2015 10-K	2015 Annual Report on Form 10-K filed with the SEC on February 29, 2016
2018 Notes	8.125% senior subordinated notes due 2018 issued by SGC
2020 Notes	6.250% senior subordinated notes due 2020 issued by SGI
2021 Notes	6.625% senior subordinated notes due 2021 issued by SGI
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Annual Meeting	the annual meeting of stockholders held on June 15, 2016
Bally	Bally Technologies, Inc.
Bally acquisition	the acquisition of Bally by the Company on November 21, 2014
Barcrest	Barcrest Group Limited
Coin-in	the amount wagered
Company	refers to SGC and its consolidated subsidiaries, unless otherwise specified or the context otherwise dictates
CSG	Beijing CITIC Scientific Games Technology Co., Ltd.
CSL	China Sports Lottery
CSP	Cooperative Services Program
D&A	depreciation, amortization and impairments (excluding goodwill)
ESPP	employee stock purchase plan
EU	European Union
FASB	Financial Accounting Standards Board
F/X	Foreign currency exchange
GLB	Beijing Guard Libang Technology Co., Ltd.
Guarantor Subsidiaries	refers to substantially all of SGC’s 100%-owned U.S. subsidiaries other than SGC’s 100%-owned U.S. Interactive social gaming subsidiaries
Hellenic Lotteries	Hellenic Lotteries S.A.
ITL	International Terminal Leasing
KPIs	Key Performance Indicators
LBO	licensed betting office
LNS	Lotterie Nazionali S.r.l.
Net win	Coin-in less payouts
Non-Guarantor Subsidiaries	refers to SGC’s U.S. subsidiaries that are not Guarantor Subsidiaries and SGC’s foreign subsidiaries
Northstar Illinois	Northstar Lottery Group, LLC
Northstar New Jersey	Northstar New Jersey Lottery Group, LLC
Note	refers to a note in the Condensed Notes to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q, unless otherwise indicated
Participation	with respect to our Gaming business, refers to gaming machines provided to customers through service or leasing arrangements in which we earn revenues and are paid based on: (1) a percentage of 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, and with respect to our Lottery business, refers to a contract or arrangement in which we earn revenues and are paid based on a percentage of retail sales
PMA	private management agreement
PPU	price-per-unit
PTG	Proprietary table games
R&D	research and development
RCN	Roberts Communications Network, LLC
RFP	Request for proposal



RMG	real-money gaming
RSU	restricted stock unit
SEC	Securities and Exchange Commission
Secured Notes	7.00% senior secured notes due 2022 issued by SGI
SG&A	selling, general and administrative
SGC	Scientific Games Corporation
SGI	Scientific Games International, Inc., a wholly-owned subsidiary of SGC
SHFL	SHFL entertainment, Inc.
Shufflers	various models of automatic card shufflers, deck checkers and roulette chip sorters
Unsecured Notes	10.00% senior unsecured notes due 2022 issued by SGI
U.K.	United Kingdom of Great Britain and Northern Ireland
U.S.	United States of America
U.S. GAAP	accounting principles generally accepted in the U.S.
VGT	video gaming terminal
VLT	video lottery terminal
WAP	wide-area progressive
WMS	WMS Industries, Inc.
WMS acquisition	the acquisition of WMS by the Company on October 18, 2013

Intellectual Property Rights

® and ™ indicate U.S. trademarks. Marks are owned by their respective owners.

Forward-Looking Statements

Throughout this Quarterly Report on Form 10-Q, we make "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as "may," "will," "estimate," "intend," "plan," "continue," "believe," "expect," "anticipate," "target," "should," "could," "potential," "opportunity," "goal" or similar terminology. The forward-looking statements contained in this Quarterly Report on Form 10-Q are generally located in the material set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" but may be found in other locations as well. These statements are based upon management's current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:


•	competition;


•	U.S. and international economic and industry conditions, including declines in or slow growth of gross gaming revenues or lottery retail sales, reductions in 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 existing gaming machines;


•	ownership changes and consolidation in the casino industry, including by casino operators;


•	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, lottery and interactive gaming industries;


•	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 indebtedness, other obligations or future cash needs;


•	inability to reduce or refinance our indebtedness;


•	restrictions and covenants in debt agreements, including those that could result in acceleration of the maturity of our indebtedness;


•	protection of intellectual property, inability to license third party intellectual property and the intellectual property rights of others;


•	security and integrity of our products and systems and reliance on or failures in information technology and other 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 realize the anticipated benefits under its PMA with the Illinois lottery or from the disentanglement services performed in connection with the termination thereof, (2) the inability of our joint venture to meet the net income targets or other requirements under its agreement to provide marketing and sales services to the New Jersey Lottery or otherwise to realize the anticipated benefits under such agreement and (3) the failure to realize the anticipated benefits related to our consortium's instant lottery game concession in Greece;


•	failure to achieve the intended benefits of the Bally acquisition, the WMS acquisition, our other recent acquisitions, or future acquisitions, including due to the inability to successfully complete or integrate such acquisitions or realize synergies in the anticipated amounts or within the contemplated time frames or cost expectations, or at all;


•	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 other third parties;


•	incurrence of employee termination or restructuring costs and impairment or asset write-down charges;


•	changes in estimates or judgments related to our impairment analysis of goodwill or other intangible assets;


•	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 (including those fluctuations related to the affirmative vote in the U.K. to withdraw from the EU), restrictions on the payment of dividends from earnings, restrictions on the import of products and financial instability, including the potential impact to our business resulting from the affirmative vote in the U.K. to withdraw from the EU and the potential impact to our instant lottery game concession or VLT lease arrangements resulting from the recent economic and political conditions in Greece;


•	dependence on key 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 (including labor disputes), 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 those contemplated in forward-looking statements is included from time to time in our filings with the SEC, including under Item 1A "Risk Factors" in our 2015 10-K and under Item 1A "Risk Factors" in our Quarterly Report on Form 10-Q for the period ended June 30, 2016. 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 or otherwise.

You should also note that this Quarterly Report on Form 10-Q may contain references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us and we do not make any representation as to the accuracy of that information. In general, we believe there is less publicly available information concerning the international gaming, lottery and interactive gaming industries than the same industries in the U.S.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited, in millions, except per share amounts)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Revenue:
Services	$	356.4		$	340.5		$	1,070.2		$	1,008.8
Product sales	225.9			193.5			638.3			611.0
Instant games	137.7			137.6			422.7			402.0
Total revenue	720.0			671.6			2,131.2			2,021.8
Operating expenses:
Cost of services ⁽¹⁾	98.0			85.5			294.3			274.6
Cost of product sales ⁽¹⁾	104.6			87.4			299.7			293.2
Cost of instant games ⁽¹⁾	71.7			77.1			212.8			212.9
Selling, general and administrative	152.8			136.8			440.0			423.6
Research and development	53.9			45.9			155.4			140.8
Restructuring and other	13.8			5.6			20.7			19.0
Depreciation, amortization and impairments	191.7			286.5			565.4			692.9
Goodwill impairment	—			935.0			—			935.0
Operating income (loss)	33.5			(988.2		)	142.9			(970.2		)
Other (expense) income:
Interest expense	(165.4		)	(166.8		)	(496.4		)	(497.5		)
Earnings from equity investments	7.3			3.0			18.5			9.4
Gain on early extinguishment of debt	—			—			25.2			—
Other income (expense), net	6.0			(7.5		)	8.4			(17.4		)
Total other expense, net	(152.1		)	(171.3		)	(444.3		)	(505.5		)
Net loss before income taxes	(118.6		)	(1,159.5		)	(301.4		)	(1,475.7		)
Income tax benefit	19.7			81.3			58.5			208.9
Net loss	$	(98.9	)	$	(1,078.2	)	$	(242.9	)	$	(1,266.8	)
Other comprehensive income (loss):
Foreign currency translation gain (loss)	1.9			(47.9		)	(34.8		)	(136.3		)
Pension and post-retirement gain, net of tax	0.2			0.8			0.7			1.0
Derivative financial instruments unrealized gain (loss), net of tax	3.1			(1.9		)	6.7			(0.8		)
Other comprehensive income (loss)	5.2			(49.0		)	(27.4		)	(136.1		)
Comprehensive loss	$	(93.7	)	$	(1,127.2	)	$	(270.3	)	$	(1,402.9	)

Basic and diluted net loss per share:
Basic	$	(1.13	)	$	(12.52	)	$	(2.79	)	$	(14.76	)
Diluted	$	(1.13	)	$	(12.52	)	$	(2.79	)	$	(14.76	)

Weighted average number of shares used in per share calculations:
Basic shares	87.5			86.1			87.1			85.8
Diluted shares	87.5			86.1			87.1			85.8

(1) Exclusive of D&A.

See accompanying condensed notes to consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except par value)



	September 30, 2016			December 31, 2015
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	120.9		$	128.7
Restricted cash	24.3			20.2
Accounts receivable, net	465.3			487.1
Notes receivable, net	129.0			167.7
Inventories	270.1			248.5
Prepaid expenses, deposits and other current assets	126.0			123.3
Total current assets	1,135.6			1,175.5
Long-term restricted cash	17.3			17.9
Long-term notes receivable, net	43.6			51.3
Property and equipment, net	663.8			794.0
Goodwill	2,991.0			3,013.7
Intangible assets, net	1,841.0			1,920.0
Software, net	431.1			485.9
Equity investments	206.5			228.5
Other assets	46.7			45.4
Total assets	$	7,376.6		$	7,732.2

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt	$	49.6		$	50.3
Accounts payable	173.6			159.8
Accrued liabilities	495.3			443.8
Total current liabilities	718.5			653.9
Deferred income taxes	129.9			228.2
Other long-term liabilities	244.4			188.9
Long-term debt, excluding current portion	8,033.8			8,156.7
Total liabilities	9,126.6			9,227.7
Commitments and contingencies (see Note 16)
Stockholders' deficit:
Class A common stock, par value $0.01 per share: 199.3 shares authorized; 104.8 and 103.7 shares issued and 87.6 and 86.5 shares outstanding, respectively	1.0			1.0
Additional paid-in capital	781.7			765.9
Accumulated loss	(2,107.9		)	(1,865.0		)
Treasury stock, at cost, 17.2 shares	(175.2		)	(175.2		)
Accumulated other comprehensive loss	(249.6		)	(222.2		)
Total stockholders' deficit	(1,750.0		)	(1,495.5		)
Total liabilities and stockholders' deficit	$	7,376.6		$	7,732.2

See accompanying condensed notes to consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)



	Nine Months Ended
	September 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(242.9	)	$	(1,266.8	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation, amortization and impairments	565.4			692.9
Change in deferred income taxes	(100.7		)	(223.3		)
Stock-based compensation	23.5			19.5
Non-cash interest expense	30.3			29.0
Earnings from equity investments, net	(18.5		)	(9.4		)
Distributed earnings from equity investments	16.7			20.9
Gain on early extinguishment of debt	(25.2		)	—
Goodwill impairment	—			935.0
Changes in current assets and liabilities:
Accounts and notes receivable, net	53.5			43.7
Inventories	(30.3		)	36.8
Other current assets and liabilities	17.8			11.8
Accounts payable	4.1			(17.7		)
Accrued liabilities	51.2			(17.4		)
Other, net	(2.1		)	0.5
Net cash provided by operating activities	342.8			255.5
Cash flows from investing activities:
Capital expenditures	(214.4		)	(233.6		)
Proceeds from asset sales	3.1			—
Changes in other assets and liabilities and other	3.0			10.1
Restricted cash	(3.5		)	9.3
Distributions of capital on equity investments	24.0			37.0
Net cash used in investing activities	(187.8		)	(177.2		)
Cash flows from financing activities:
Borrowings under revolving credit facility	270.0			110.0
Repayments under revolving credit facility	(315.0		)	(180.0		)
Payments on long-term debt	(37.6		)	(38.8		)
Repurchase of notes	(39.9		)	—
Payments on license obligations	(34.5		)	(32.0		)
Contingent earnout payments	—			(0.5		)
(Redemptions) issuance of common stock under stock-based compensation plans	(4.7		)	0.4
Net cash used in financing activities	(161.7		)	(140.9		)
Effect of exchange rate changes on cash and cash equivalents	(1.1		)	(7.1		)
Decrease in cash and cash equivalents	(7.8		)	(69.7		)
Cash and cash equivalents, beginning of period	128.7			171.8
Cash and cash equivalents, end of period	$	120.9		$	102.1

Supplemental cash flow information:
Cash paid for interest	$	433.5		$	424.4
Income taxes paid/(received)	9.8			(9.1		)
Non-cash investing and financing transactions:
Disposal of fully depreciated assets	38.9			59.9
Non-cash additions to intangible assets related to license agreements	91.3			9.1

See accompanying condensed notes to consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in USD, table amounts in millions, except per share amounts)

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

Description of the Business

We are a leading developer of technology‑based products and services and associated content for the worldwide gaming, lottery and interactive gaming industries. Our portfolio includes gaming machines and game content, casino management systems, table game products and services, instant and draw‑based lottery games, server‑based gaming and lottery systems, sports betting technology, lottery content and services, loyalty and rewards programs, interactive gaming and social casino solutions. We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments. We report our operations in three business segments—Gaming, Lottery and Interactive.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements of the Company have been prepared in accordance with SEC and U.S. GAAP requirements. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as well as those subsidiaries in which we have a controlling financial interest. Investments in other entities in which we do not have a controlling financial interest but we exert significant influence are accounted for in our consolidated financial statements using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, we have made all adjustments necessary to present fairly our consolidated financial position, results of operations and comprehensive loss and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2015 10-K. Interim results of operations are not necessarily indicative of results of operations for a full year.

Significant Accounting Policies

There have been no changes to our significant accounting policies described in Note 1 in our 2015 10-K.

New Accounting Guidance - Recently Adopted

In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory. ASU 2015-11 changes the criteria for measuring inventory within the scope of the ASU. Inventory will now be measured at the lower of cost and net realizable value, while the concept of market value will be eliminated. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We adopted this guidance prospectively at the beginning of the second quarter of 2016. The adoption of this guidance did not have a material effect on our financial condition, results of operations, or cash flows.

In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The amended guidance simplifies the accounting for equity investments and eliminates the requirements in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. We adopted this guidance prospectively at the beginning of the first quarter of 2016. The adoption of this guidance did not have a material effect on our financial condition, results of operations or cash flows.

New Accounting Guidance - Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09 (Topic 606), Revenue from Contracts with Customers . The amended guidance outlines a single comprehensive revenue model for entities to use in accounting for revenue from contracts with customers. The guidance (including subsequent amendments) supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that "an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." The ASU may be adopted using a full retrospective approach or using a modified retrospective application approach. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years with earlier adoption permitted for fiscal years beginning after December 15, 2016. We are

currently evaluating the impact of adopting this guidance and anticipate the adoption to occur at the beginning of the first quarter of 2018, using a modified retrospective application approach.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . The amended guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is expected to result in a significant portion of our operating leases, where we are the lessee, to be recognized on our Consolidated Balance Sheets. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier adoption permitted. We are currently evaluating the impact and timing of adopting this guidance.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . The amended guidance is intended to simplify several aspects of accounting for share-based payment award transactions, including income tax consequences, accounting for forfeitures, classification of awards as either equity or liabilities and classification in the statement of cash flows. ASU 2016-09 has separate transition guidance for each element of the new standard and is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years with earlier adoption permitted. We are currently evaluating the impact of adopting this guidance.

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

(2) Business Segments

We report our operations in three business segments—Gaming, Lottery and Interactive—representing our different products and services. Our Gaming business segment generally sells gaming machines, VGTs, VLTs and conversion kits and parts, leases or otherwise provides gaming machines, server-based systems and content, sells and supports casino-management systems-based software and hardware, and sells and leases PTG content and Shufflers to commercial, tribal and governmental gaming operators. Our Lottery business segment provides instant lottery games and related value-added services, as well as licensed brands utilized in instant lottery games and loyalty and reward services. 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 provides social gaming and RMG services to online casino operators through our remote game servers. Additional discussion regarding the products and services from which each reportable business segment derives its revenue is included in Note 1 in our 2015 10-K.

In evaluating financial performance, we focus on operating income (loss) as a segment's measure of profit or loss. The accounting policies of our business segments are the same as those described in our summary of significant accounting policies in Note 1 in our 2015 10-K. The following tables present the Company's segment information:



	Three Months Ended September 30, 2016
	Gaming		Lottery		Interactive			Corporate ⁽¹⁾			Total
Total revenue	$	448.2	$	186.6	$	85.2		$	—		$	720.0
Restructuring and other	—		0.5		(0.4		)	13.7			13.8
Depreciation, amortization and impairments	154.0		15.2		3.7			18.8			191.7
Operating income (loss)	51.5		43.2		9.6			(70.8		)	33.5
Interest expense											(165.4		)
Earnings from equity investments											7.3
Other income (expense), net											6.0
Net loss before income taxes											$	(118.6	)

(1) Includes corporate amounts not allocated to the business segments.



	Three Months Ended September 30, 2015
	Gaming			Lottery		Interactive		Corporate ⁽¹⁾			Total
Total revenue	$	429.1		$	191.3	$	51.2	$	—		$	671.6
Restructuring and other	3.2			—		0.5		1.9			5.6
Depreciation, amortization and impairments	245.1			21.6		5.4		14.4			286.5
Goodwill impairment	935.0			—		—		—			935.0
Operating income (loss)	(985.3		)	41.3		6.3		(50.5		)	(988.2		)
Interest expense											(166.8		)
Earnings from equity investments											3.0
Other income (expense), net											(7.5		)
Net loss before income taxes											$	(1,159.5	)

(1) Includes corporate amounts not allocated to the business segments.



	Nine Months Ended September 30, 2016
	Gaming		Lottery		Interactive		Corporate ⁽¹⁾			Total
Total revenue	$	1,311.8	$	578.2	$	241.2	$	—		$	2,131.2
Restructuring and other	5.0		1.8		0.1		13.8			20.7
Depreciation, amortization and impairments	449.9		50.2		11.2		54.1			565.4
Operating income (loss)	141.6		149.1		34.8		(182.6		)	142.9
Interest expense										(496.4		)
Earnings from equity investments										18.5
Gain on early extinguishment of debt										25.2
Other income (expense), net										8.4
Net loss before income taxes										$	(301.4	)

(1) Includes corporate amounts not allocated to the business segments.



	Nine Months Ended September 30, 2015
	Gaming			Lottery		Interactive		Corporate ⁽¹⁾			Total
Total revenue	$	1,304.6		$	567.5	$	149.7	$	—		$	2,021.8
Restructuring and other	10.1			0.2		1.5		7.2			19.0
Depreciation, amortization and impairments	569.9			62.9		15.9		44.2			692.9
Goodwill impairment	935.0			—		—		—			935.0
Operating income (loss)	(955.1		)	130.6		17.5		(163.2		)	(970.2		)
Interest expense											(497.5		)
Earnings from equity investments											9.4
Other income (expense), net											(17.4		)
Net loss before income taxes											$	(1,475.7	)

(1) Includes corporate amounts not allocated to the business segments.

(3) Restructuring and other

Restructuring and other includes charges or expenses attributable to: (i) employee severance; (ii) management changes; (iii) restructuring and integration; (iv) cost savings initiatives; and (v) other unusual items. In the three and nine months ended September 30, 2016, approximately $10.3 million and $17.2 million , respectively, of Restructuring and other were related to items (i) and (iii) set forth above.

We began integrating Scientific Games and WMS subsequent to the WMS acquisition in October 2013. This integration was completed during the first quarter of 2016. We began integrating Scientific Games and Bally subsequent to the Bally acquisition in November 2014 by implementing our plans to streamline our operations and cost structure.

Although we have substantially completed the actions under the above-described restructuring plans, we remain focused on cost efficiencies and will execute additional initiatives in the future, if necessary, in order to streamline our operations and cost structure. We do not expect to incur additional material costs related to our previously announced integration plans. The amounts currently accrued and previously expensed as Restructuring and other were $5.8 million as of September 30, 2016. During the three and nine months ended September 30, 2016, we made cash payments on these restructuring plans totaling $3.4 million and $10.7 million , respectively.

Refer to Subsequent Events Note 17.

(4) Basic and Diluted Net Loss Per Share

Basic and diluted net loss per share were the same for all periods presented as all common stock equivalents would be anti-dilutive. We excluded 3.2 million and 1.9 million of stock options from the diluted weighted-average common shares outstanding as of September 30, 2016 and 2015, respectively, and 5.6 million and 6.0 million of RSUs from the calculation of diluted weighted-average common shares outstanding as of September 30, 2016 and 2015, respectively.

(5) Accounts and Notes Receivable and Credit Quality of Notes Receivable

Accounts and Notes Receivable

The following summarizes the components of current and long-term accounts and notes receivable, net:



	September 30, 2016			December 31, 2015
Current:
Accounts receivable	$	478.3		$	497.7
Notes receivable	143.6			180.4
Allowance for doubtful accounts and notes	(27.6		)	(23.3		)
Current accounts and notes receivable, net	$	594.3		$	654.8
Long-term:
Notes receivable, net of allowance of $0.2 and $0.3	43.6			51.3
Total accounts and notes receivable, net	$	637.9		$	706.1

Credit Quality of Notes Receivable

The interest rates on our outstanding notes receivable ranged from 3.25% to 10.42% at September 30, 2016 and December 31, 2015.

We have certain concentrations of outstanding notes receivable in international locations that impact our assessment of the credit quality of our notes receivable. We monitor the macroeconomic and political environment in each of these locations in our assessment of the credit quality of our notes receivable. We have not identified changes in the aforementioned factors in the nine months ended September 30, 2016 that require a reassessment of our receivable balances. The international locations with significant concentrations (generally deemed to be exceeding 10%) of our notes receivable are as follows:


•	Mexico - Our accounts and notes receivable, net, from certain customers in Mexico at September 30, 2016 was $43.2 million. We collected $22.1 million of outstanding receivables from these customers during the nine months ended September 30, 2016 .


•	Peru - Our accounts and notes receivable, net, from certain customers in Peru at September 30, 2016 was $34.6 million . We collected $19.5 million of outstanding receivables from these customers during the nine months ended September 30, 2016 .


•	Argentina - Our accounts and notes receivable, net, from customers in Argentina at September 30, 2016 was $17.5 million denominated in USD. Our customers are required to and have continued to pay us in pesos at the spot exchange rate on the date of payment. We collected $17.7 million of outstanding receivables from customers in Argentina during the nine months ended September 30, 2016 .

In addition to the macroeconomic and political factors noted above, we also evaluated recent payments, receivables aging, any additional security or collateral we had (bills of exchange, pledge agreements, etc.) and other facts and circumstances relevant to our customers' ability to pay.

The following summarizes the components of total notes receivable, net:



	September 30, 2016			Balances over 90 days past due			December 31, 2015			Balances over 90 days past due
Notes receivable:
Domestic	$	34.5		$	0.8		$	62.4		$	2.6
International	152.9			34.1			169.8			26.6
Total notes receivable	187.4			34.9			232.2			29.2

Notes receivable allowances
Domestic	(1.1		)	(0.8		)	(2.6		)	(2.5		)
International	(13.7		)	(13.7		)	(10.6		)	(9.5		)
Total notes receivable allowances	(14.8		)	(14.5		)	(13.2		)	(12.0		)
Notes receivable, net	$	172.6		$	20.4		$	219.0		$	17.2

At September 30, 2016 , 11.8% of our total notes receivable, net, was past due by over 90 days, compared to 7.9% at December 31, 2015.

The following tables detail our evaluation of notes receivable for impairment and the changes in our notes receivable allowances:



	September 30, 2016									December 31, 2015
	Ending Balance Individually Evaluated for Impairment			Ending Balance Collectively Evaluated for Impairment			Total			Ending Balance Individually Evaluated for Impairment			Ending Balance Collectively Evaluated for Impairment			Total
Notes receivable:
Domestic	$	10.4		$	24.1		$	34.5		$	20.7		$	41.7		$	62.4
International	78.9			74.0			152.9			101.8			68.0			169.8
Total notes receivable	89.3			98.1			187.4			122.5			109.7			232.2
Allowance for notes receivable	(14.6		)	(0.2		)	(14.8		)	(12.9		)	(0.3		)	(13.2		)
Total notes receivable, net	$	74.7		$	97.9		$	172.6		$	109.6		$	109.4		$	219.0



	For the Nine Months Ended September 30, 2016								For the Nine Months Ended September 30, 2015
	Ending Balance Individually Evaluated for Impairment			Ending Balance Collectively Evaluated for Impairment		Total			Ending Balance Individually Evaluated for Impairment			Ending Balance Collectively Evaluated for Impairment			Total
Provision	$	(3.8	)	$	—	$	(3.8	)	$	(6.2	)	$	(1.7	)	$	(7.9	)
Charge-offs and recoveries	2.1			0.1		2.2			2.3			0.1			2.4

The fair value of notes receivable is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of September 30, 2016 and December 31, 2015, the fair value of notes receivable, net, approximated the carrying amount due to their short-term nature.

(6) Inventories

Inventories consisted of the following as of the dates presented below:



	September 30, 2016		December 31, 2015
Parts and work-in-process	$	117.8	$	118.3
Finished goods	152.3		130.2
Total inventories	$	270.1	$	248.5

Parts and work-in-process include parts for gaming machines, lottery terminals and instant lottery ticket materials, as well as labor and overhead costs for work-in-process associated with the manufacturing of instant lottery games and lottery terminals. Our finished goods inventory primarily consists of gaming machines for sale, instant games for our Participation arrangements and our licensed branded merchandise.

During the nine months ended September 30, 2015, we recorded an impairment of $7.1 million related to the discontinuance of certain product lines as a result of the Bally acquisition. The impairment is included in Cost of product sales for the nine months ended September 30, 2015.

(7) Property and Equipment, net

Property and equipment, net consisted of the following:



	September 30, 2016			December 31, 2015
Land	$	38.5		$	38.5
Buildings and leasehold improvements	183.1			185.2
Gaming and lottery machinery and equipment	1,057.1			1,084.6
Furniture and fixtures	29.2			36.0
Construction in progress	22.5			25.5
Other property and equipment	263.7			271.0
Less: accumulated depreciation	(930.3		)	(846.8		)
Total property and equipment, net	$	663.8		$	794.0

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



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2016		2015		2016		2015
Depreciation expense	$	80.9	$	72.8	$	248.3	$	249.1

(8) Intangible Assets, net and Goodwill

Intangible Assets, net

The following tables present certain information regarding our intangible assets as of September 30, 2016 and December 31, 2015 . Amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives with no estimated residual value, which materially approximates the expected pattern of use of these intangible assets.



	September 30, 2016							December 31, 2015
	Gross Carrying Amount		Accumulated Amortization			Net Balance		Gross Carrying Amount		Accumulated Amortization			Net Balance
Amortizable intangible assets:
Customer relationships	$	879.2	$	(151.0	)	$	728.2	$	877.7	$	(109.1	)	$	768.6
Intellectual property ⁽¹⁾	733.9		(195.3		)	538.6		731.1		(124.5		)	606.6
Licenses	417.8		(139.0		)	278.8		326.1		(91.6		)	234.5
Brand names	125.2		(29.1		)	96.1		124.0		(18.9		)	105.1
Trade names	97.4		(6.5		)	90.9		97.5		(1.9		)	95.6
Patents and other	27.8		(14.0		)	13.8		27.1		(12.8		)	14.3
	2,281.3		(534.9		)	1,746.4		2,183.5		(358.8		)	1,824.7
Non-amortizable intangible assets:
Trade names	96.7		(2.1		)	94.6		97.4		(2.1		)	95.3
Total intangible assets	$	2,378.0	$	(537.0	)	$	1,841.0	$	2,280.9	$	(360.9	)	$	1,920.0

(1) December 31, 2015 net balance includes $33 million of in-process R&D assets that were not subject to amortization. These assets reached commercial feasibility at the end of the third quarter of 2016, with amortization commencing October 2016.

In January 2016, we amended and extended the terms of one of our existing license agreements through December 31, 2022. Under the terms of the amended agreement, we are obligated to pay aggregate minimum guarantees of $88.0 million over the life of the contract in exchange for the right to use certain licensed properties in game content themes, which are incorporated into our slot games, online games, lottery products and promotional materials. We account for the minimum guaranteed obligations within other long-term liabilities (or, with respect to the portion that is a current liability within accounts payable or accrued liabilities) at the onset of the license arrangement and record a corresponding licensed asset within Intangible assets, net. The current and long-term portions of our minimum guaranteed obligations related to the amended license agreement were $8.8 million and $74.6 million , respectively, and are recorded in Accounts payable and Other long-term liabilities, respectively, as of September 30, 2016.

Intangible amortization expense is included within D&A.



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Amortization expense	$	60.9	$	181.5	$	188.8	$	331.8

We recorded non-cash impairment charges of $103.6 million and $128.6 million in D&A for the three and nine months ended September 30, 2015, respectively, to reduce the gross carrying amount of two indefinite-lived trade name assets to their fair values. These assets were subsequently reclassified to finite-lived during the third quarter of 2015.

Goodwill

Based on the results of our third quarter 2015 interim goodwill impairment analysis for our SG gaming reporting unit, we recorded a $935.0 million non-cash impairment charge with no tax benefit for the three and nine months ended September 30, 2015. The impairment charge primarily resulted from a change in outlook for the SG gaming reporting unit due to market-related factors negatively impacting gaming machine unit demand and the number of gaming machines leased by our customers combined with fewer than anticipated new casino openings and expansions. All of these factors resulted in declines in our outlook for gaming machine sales and Participation game revenues.

The table below reconciles the change in the carrying amount of goodwill by business segment for the period from

December 31, 2015 to September 30, 2016 .



Goodwill	Gaming			Lottery		Interactive		Totals
Balance as of December 31, 2015	$	2,486.0		$	417.9	$	109.8	$	3,013.7
Foreign currency adjustments	(27.1		)	4.4		—		(22.7		)
Balance as of September 30, 2016	$	2,458.9		$	422.3	$	109.8	$	2,991.0

(9) Software, net

Software, net consisted of the following:



	September 30, 2016			December 31, 2015
Software	$	932.1		$	854.2
Accumulated amortization	(501.0		)	(368.3		)
Software, net	$	431.1		$	485.9

Software amortization expense is included within D&A.



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Amortization expense	$	44.2	$	32.2	$	122.6	$	112.0

(10) Equity Investments

Equity investments totaled $206.5 million and $228.5 million as of September 30, 2016 and December 31, 2015, respectively. We received distributions and dividends totaling $40.7 million and $57.9 million during the nine months ended September 30, 2016 and 2015, respectively.

(11) Long-Term and Other Debt

Outstanding Debt and Capital Leases

The following reflects our outstanding debt:



	Principal		Unamortized debt discount			Unamortized deferred financing costs			Book value September 30, 2016
Senior Secured Credit Facilities:
Revolver, varying interest rate, due 2018	$	50.0	$	—		$	—		$	50.0
Term Loan, varying interest rate, due 2020	2,236.8		(6.5		)	(44.2		)	2,186.1
Term Loan, varying interest rate, due 2021	1,965.0		(14.5		)	(42.7		)	1,907.8
2018 Notes	250.0		—			(1.5		)	248.5
2020 Notes	243.5		—			(2.5		)	241.0
2021 Notes	340.6		(1.5		)	(4.8		)	334.3
Secured Notes	950.0		—			(14.4		)	935.6
Unsecured Notes	2,200.0		—			(37.5		)	2,162.5
Capital lease obligations, 3.9% interest as of September 30, 2016 payable monthly through 2019	17.6		—			—			17.6
Total long-term debt outstanding	$	8,253.5	$	(22.5	)	$	(147.6	)	$	8,083.4
Less: current portion of long-term debt									(49.6		)
Long-term debt, excluding current portion									$	8,033.8

	Principal		Unamortized debt discount			Unamortized deferred financing costs			Book value December 31, 2015
Senior Secured Credit Facilities:
Revolver, varying interest rate, due 2018	$	95.0	$	—		$	—		$	95.0
Term Loan, varying interest rate, due 2020	2,254.0		(7.8		)	(52.5		)	2,193.7
Term Loan, varying interest rate, due 2021	1,980.0		(16.7		)	(49.2		)	1,914.1
2018 Notes	250.0		—			(2.0		)	248.0
2020 Notes	300.0		—			(3.6		)	296.4
2021 Notes	350.0		(1.8		)	(5.6		)	342.6
Secured Notes	950.0		—			(16.4		)	933.6
Unsecured Notes	2,200.0		—			(42.1		)	2,157.9
Capital lease obligations, 3.9% interest as of December 31, 2015 payable monthly through 2019	25.7		—			—			25.7
Total long-term debt outstanding	$	8,404.7	$	(26.3	)	$	(171.4	)	$	8,207.0
Less: current portion of long-term debt									(50.3		)
Long-term debt, excluding current portion									$	8,156.7

Senior Secured Credit Facilities

We and certain of our subsidiaries are party to a credit agreement dated as of October 18, 2013, as amended, by and among SGI, as the borrower, SGC, as a guarantor, Bank of America, N.A., as administrative agent, and the lenders and other agents party thereto. This credit facility includes the term loans due in 2020 and 2021, each as set forth in the above table, and a $592.6 million revolving credit facility. Up to $350.0 million of the revolving credit facility is available for issuances of letters of credit.

All of the debt incurred under this credit agreement is subject to accelerated maturity depending on our liquidity at the times each of the 2018 Notes, 2020 Notes and 2021 Notes become due.

2020 Notes and 2021 Notes

During the second quarter of 2016, we repurchased and cancelled $56.5 million and $9.4 million of principal amount of the 2020 Notes and 2021 Notes, respectively, for $34.2 million and $5.7 million in cash, respectively, through separate open

market purchases. In connection with this transaction, we recorded a $25.2 million gain on early extinguishment of debt, net of a $0.8 million charge related to the write-off of unamortized debt discount and deferred financing costs associated with the extinguished debt.

Social Gaming Unrestricted Subsidiary Designation

In order to provide flexibility for potential future growth opportunities with respect to our social gaming business, during the third quarter of 2016 we designated certain of our wholly owned direct and indirect subsidiaries, which hold substantially all of the assets of, and operate, our social gaming business, as “Unrestricted Subsidiaries” under our credit agreement and each of the indentures governing the 2018 Notes, 2020 Notes, 2021 Notes, Secured Notes and Unsecured Notes. As a result of such designations, these social gaming subsidiaries are not guarantors under our credit agreement and indentures and are not obligated to comply with many of the covenants set forth in those agreements and that remain applicable to us and our restricted subsidiaries. In addition, except to the extent of cash distributions from these social gaming subsidiaries to us or our restricted subsidiaries, the assets, liabilities and financial results of these social gaming subsidiaries will be excluded from the calculation of the applicable financial metrics required by these agreements, including our credit agreement’s maintenance covenant, which is based on our consolidated net first lien leverage. Following these designations, the social gaming subsidiaries remain wholly owned direct and indirect subsidiaries of the Company.

For additional information regarding our senior secured credit facilities, 2018 Notes, 2020 Notes, 2021 Notes, Secured Notes, Unsecured Notes and capital lease obligations, see Note 15 in our 2015 10-K.

Fair Value of Debt

The estimated fair value of our long-term debt as of September 30, 2016 and December 31, 2015 was approximately $7,976.0 million and $6,931.6 million , respectively. We estimate the fair value of debt based on quoted market prices of our securities, if available, and indicative pricing derived from market information. We categorize inputs used to measure the fair value of debt as Level 2 in the fair value hierarchy due to the low volume and frequency of transactions in the market.

(12) Fair Value Measurements

We determine the fair value of our financial assets and liabilities by reference to market data and other valuation techniques as appropriate. We believe the fair value of our financial instruments, which are principally cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities, approximates their recorded values due to the short-term nature of these instruments. Our assets and liabilities measured at fair value on a recurring basis are described below.

Interest rate swap contracts

We hedge a portion of our variable rate debt to effectively fix the interest rates that we pay. We have interest rate swap contracts designated as cash flow hedges under ASC 815. Under these hedges, we pay interest at a weighted-average fixed rate of 2.151% and receive interest at the greater of 1% or the prevailing three-month LIBOR rate.

These hedges are highly effective in offsetting changes in our future expected cash flows due to the fluctuation in the three-month LIBOR rate associated with our variable rate debt. The effectiveness of these hedges is measured quarterly on a retrospective basis. As a result of the effective matching of the critical terms on our variable rate debt being hedged to the hedging instruments being used, we have not measured any hedge ineffectiveness to date. All gains and losses from these hedges are recorded in Other comprehensive income (loss) until the future underlying payment transactions occur. Any realized gains or losses resulting from the hedges will be recognized (together with the hedged transaction) as interest expense. We estimate the fair value of our interest rate swap contracts by discounting the future cash flows of both the fixed rate and variable rate interest payments based on market yield curves. The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy.

The following table shows the losses (gains) on our interest rate swap contracts:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Losses (gains) recorded in accumulated other comprehensive loss, net of tax	$	(2.7	)	$	1.7		$	(6.3	)	$	1.0
Realized (gains) losses recorded in interest expense	2.0			(0.6		)	6.1			1.1

We expect to reclassify additional losses of $8.2 million from accumulated other comprehensive loss to interest expense in the next twelve months. The following table shows the fair value of our hedges:



	September 30, 2016		December 31, 2015
Accrued liabilities	$	8.2	$	7.9
Other long-term liabilities	1.7		4.0
Total fair value	$	9.9	$	11.9

Other

As of September 30, 2016 and December 31, 2015, we had $15.3 million and $16.7 million of assets held for sale, respectively, which consisted of our Waukegan, Illinois manufacturing facility and a portion of our Chicago, Illinois R&D campus. During the second quarter of 2016, we sold the portion of our Chicago, Illinois R&D campus which was previously held for sale at a price that materially approximated the carrying amount, less selling costs. During the third quarter of 2016, we classified additional office buildings located in our Chicago, Illinois R&D campus as assets held for sale. The carrying amount of these buildings approximated the fair market value, less expected costs to sell. During the third quarter of 2016, we recorded a non-cash impairment charge of $5.7 million in D&A related to our Waukegan manufacturing facility. Assets held for sale are included within Prepaid expenses, deposits and other current assets and are reported at the lower of the carrying amount or fair market value, less expected costs to sell, which approximated the fair value as of September 30, 2016 and December 31, 2015. We measured the fair value of assets held for sale under a market approach and have categorized such measurements as Level 3 in the fair value hierarchy.

(13) Stockholders' Deficit

Stock-based and other incentive compensation

We provide stock-based compensation using stock options and RSUs. We also previously offered an ESPP through September 30, 2015, when the shares allocated to this plan were fully issued and the ESPP terminated in accordance with its terms. See Note 18 in our 2015 10-K. At the Annual Meeting, our stockholders approved the adoption of a new ESPP. The first offering period under the new ESPP will commence on January 1, 2017. A summary of our stock-based compensation plans follows:



		As of September 30, 2016
Options outstanding		3.2
Remaining unrecognized expense related to unvested options		$8.3

RSUs Outstanding		5.6
Remaining unrecognized expense related to unvested RSUs		$52.8



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Stock-based compensation expense recognized:
Related to vesting of stock options	$	2.9	$	0.6	$	4.2	$	1.5
Related to vesting of RSUs	8.1		6.6		19.3		17.6
Total	$	11.0	$	7.2	$	23.5	$	19.1

On August 5, 2016, we announced that Kevin Sheehan succeeded M. Gavin Isaacs as President and Chief Executive Officer of the Company. On August 10, 2016, Mr. Sheehan received sign-on equity awards consisting of (a) 400,000 performance-conditioned restricted stock units that will vest based on achievement of specified performance conditions over a three -year period and (b) equity awards with a grant date value equal to approximately 250% of his base salary, prorated based on the number of days Mr. Sheehan will be employed in 2016, and consisting of (i) restricted stock units and stock options, each with a four -year vesting schedule and (ii) performance-conditioned stock options vesting over a four -year period.

(14) Employee Benefit Plans

We have defined benefit pension plans for our U.K.-based union employees (the "U.K. Plan") and certain Canadian-based employees (the "Canadian Plan"). 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 contribution permissible by the applicable authorities. See Note 19 in our 2015 10-K. We recognized no material costs in 2015 and 2016 under these plans.

We have a 401(k) plan for U.S.-based employees. Those employees who participate in our 401(k) plan are eligible to receive matching contributions of 35% from us for participant contributions up to the first 6% of their compensation (as defined in the plan document). Contribution expense for the three months ended September 30, 2016 and 2015 was $2.8 million and $2.0 million , respectively. Contribution expense for the nine months ended September 30, 2016 and 2015 was $8.6 million and $7.8 million , respectively.

(15) Income Taxes

The effective income tax rates for the three and nine months ended September 30, 2016 were 16.6% and 19.4% , respectively , and 7.0% and 14.2% for the three and nine months ended September 30, 2015, respectively, and were determined using an estimated annual effective tax rate after considering any discrete items for such periods.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. The Company has remained in a three year cumulative loss in the U.S. federal tax jurisdiction. As of September 30, 2016, on the basis of this evaluation and considering the projected U.S. pre-tax losses for 2016 and the resulting net U.S. deferred tax asset position anticipated to occur during 2016, a valuation allowance has been contemplated as a component of the estimated annual effective tax rate in order to recognize only the portion of the benefit related to current year losses that is more likely than not to be realized.

As of December 31, 2015, the Company remained in a net U.S. deferred tax liability position and therefore a valuation allowance against its U.S. deferred tax assets was only necessary for certain state deferred tax assets and U.S. foreign tax credit carryforwards. The Company maintained other valuation allowances for certain non-U.S. jurisdictions with cumulative losses. The Company is projecting a pre-tax loss for its U.S. operations in 2016 in an amount that will more than exceed, on an after tax basis, the net deferred tax liability recorded as of December 31, 2015. Thus, we are projecting to be in a net U.S. deferred tax asset position at December 31, 2016, exclusive of the valuation allowance.

Our effective income tax rate on foreign earnings is impacted by the mix of income and the statutory tax rates in our foreign jurisdictions, which range from a low of 0% to a high of 39% . The foreign jurisdictions that had the most impact on our foreign income tax expense (benefit) in the three and nine months ended September 30, 2016 included Austria, Bermuda, Canada, India, Ireland and the U.K.

(16) Litigation

The Company is involved in various legal proceedings, including those discussed below. We record an accrual for legal contingencies when it is both probable that a liability has been incurred and the amount or range of the loss can be reasonably estimated (although, as discussed below, there may be an exposure to loss in excess of the accrued liability). We evaluate our accruals for legal contingencies at least quarterly and, as appropriate, establish new accruals or adjust existing accruals to reflect (1) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments, (2) the advice and analyses of counsel and (3) the assumptions and judgment of management. Legal costs associated with our legal proceedings are expensed as incurred. We had accrued liabilities of $ 8.2 million and $16.4 million for all of our legal matters that were contingencies as of September 30, 2016 and December 31, 2015, respectively.

Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies could result in losses in excess of amounts we have accrued. We may be unable to estimate a range of possible losses for some matters pending against the Company or its subsidiaries, even when the amount of damages claimed against the Company or its subsidiaries is stated because, among other things: (1) the claimed amount may be exaggerated or unsupported; (2) the claim may be based on a novel legal theory or involve a large number of parties; (3) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (4) there may be uncertainty as to the outcome of pending appeals or motions; (5) the matter may not have progressed sufficiently through discovery or there may be significant factual or legal issues to be resolved or developed; and/or (6) there may be uncertainty as to the enforceability of legal judgments and outcomes in certain jurisdictions. Other matters have progressed sufficiently that we are able to estimate a range of possible loss. For those legal contingencies disclosed below, as well as those related to the previously disclosed settlement agreement entered into in February 2015 with SNAI S.p.a., as to which a loss is reasonably possible, whether in excess of a related accrued liability or where there is no accrued liability, and for which we are able to estimate a range of possible loss, the current estimated range is up to approximately $13.5 million in excess of the accrued liabilities (if any) related to those legal contingencies. This aggregate range represents management's estimate of additional possible loss in excess of the accrued liabilities (if any) with respect to these matters based on currently available information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherent uncertainties. For example, at the time of making an estimate, management may have only preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co‑defendants, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that management had not accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which the Company is not able to estimate a range of possible loss. Accordingly, the estimated aggregate range of possible loss does not represent our maximum loss exposure. Any such losses could have a material adverse impact on our results of operations, cash flows or financial condition. The legal proceedings underlying the estimated range will change from time to time and actual results may vary significantly from the current estimate.

Colombia Litigation

Our subsidiary, SGI, owned a minority interest in Wintech de Colombia S.A., or Wintech (now liquidated), which formerly operated the Colombian national lottery under a contract with Empresa Colombiana de Recursos para la Salud, S.A. (together with its successors, "Ecosalud"), an agency of the Colombian government. The contract provided for a penalty against Wintech, SGI and the other shareholders of Wintech of up to $5.0 million if certain levels of lottery sales were not achieved. In addition, SGI delivered to Ecosalud a $4.0 million surety bond as a further guarantee of performance under the contract. Wintech started the instant lottery in Colombia but, due to difficulties beyond its control, including, among other factors, social and political unrest in Colombia, frequently interrupted telephone service and power outages, and competition from another lottery being operated in a province of Colombia that we believe was in violation of Wintech's exclusive license from Ecosalud, the projected sales level was not met for the year ended June 30, 1993.

In 1993, Ecosalud issued a resolution declaring that the contract was in default. In 1994, Ecosalud issued a liquidation resolution asserting claims for compensation and damages against Wintech, SGI and other shareholders of Wintech for, among other things, realization of the full amount of the penalty, plus interest, and the amount of the bond. SGI filed separate actions opposing each resolution with the Tribunal Contencioso of Cundinamarca in Colombia (the "Tribunal"), which upheld both resolutions. SGI appealed each decision to the Council of State. In May 2012, the Council of State upheld the contract default resolution, which decision was notified to us in August 2012. In October 2013, the Council of State upheld the liquidation resolution, which decision was notified to us in December 2013.

In July 1996, Ecosalud filed a lawsuit against SGI in the U.S. District Court for the Northern District of Georgia asserting many of the same claims asserted in the Colombia proceedings, including breach of contract, and seeking damages. In March 1997, the District Court dismissed Ecosalud's claims. Ecosalud appealed the decision to the U.S. Court of Appeals for the Eleventh Circuit. The Court of Appeals affirmed the District Court's decision in 1998.

In June 1999, Ecosalud filed a collection proceeding against SGI to enforce the liquidation resolution and recover the claimed damages. In May 2013, the Tribunal denied SGI's merit defenses to the collection proceeding and issued an order of payment of approximately 90 billion Colombian pesos (or approximately $30.6 million), plus default interest potentially accrued since 1994 at a 12% statutory interest rate. SGI has filed an appeal to the Council of 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 a material adverse effect on our consolidated results of operations, cash flows or financial position, it is

not feasible to predict the final outcome and there can be no assurance that these claims will not ultimately be resolved adversely to us or result in material liability.

Oregon State Lottery Matter

On December 31, 2014, a representative of a purported class of persons alleged to have been financially harmed by relying on the "auto hold" feature of various manufacturers' video lottery terminals played in Oregon, filed suit in the Circuit Court of Multnomah County, Oregon, against the Oregon State Lottery and various manufacturers, including WMS Gaming Inc. The suit alleges that the auto hold feature of video poker games is perceived by players as providing 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.

In April 2015, the court granted the Oregon State Lottery's motion to dismiss, stating the plaintiffs had not satisfied the Oregon Tort Claims Act. As a result of the dismissal, the court indicated that all claims against WMS Gaming Inc. were moot. In June 2015, plaintiffs filed an appeal. We intend to vigorously defend against the claims asserted in the lawsuit.

Shuffle Tech Matter

In April 2015, Shuffle Tech International, LLC, Aces Up Gaming, Inc. and Poydras-Talrick Holdings LLC brought a civil action in the United States District Court for the Northern District of Illinois against the Company, Bally and Bally Gaming, Inc., alleging monopolization of the market for card shufflers in violation of federal antitrust laws, fraudulent procurement of patents on card shufflers, unfair competition and deceptive trade practices. Specifically, the plaintiffs claim that the defendants utilized certain shuffler patents in a predatory manner to create and maintain a monopoly in the relevant shuffler market. The plaintiffs seek no less than $100.0 million in compensatory damages, treble damages and injunctive and declaratory relief. In June 2015, the defendants filed a motion to dismiss. In October 2015, the court dismissed all of the plaintiffs' claims against Bally and Bally Gaming, Inc. with prejudice, except for the claims of violation of antitrust laws related to the fraudulent procurement of patents on card shufflers. We intend to vigorously defend against the claims asserted in the lawsuit.

(17) Subsequent Events

On November 3, 2016, we announced that we began implementing a new business improvement initiative, which we expect will streamline our organization, increase our efficiencies, and significantly reduce our operating costs once the initiative is fully implemented. These cost savings are expected to be achieved across all our divisions and will encompass a combination of headcount reductions, facilities streamlining, and reductions in other operating costs. We anticipate Restructuring and other costs of approximately $20 million in the fourth quarter of 2016. The mostly cash payments related to this charge are anticipated to be incurred during the fourth quarter of 2016.

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

We conduct substantially all of our business through our U.S. and foreign subsidiaries. As of September 30, 2016, SGI's obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes were fully and unconditionally and jointly and severally guaranteed by SGC and the Guarantor Subsidiaries other than SGI. As of September 30, 2016, our 2018 Notes, which were issued by SGC, were fully and unconditionally and jointly and severally guaranteed by the Guarantor Subsidiaries. The guarantees of our 2018 Notes, 2020 Notes, 2021 Notes, Secured Notes and Unsecured Notes will terminate under the following customary circumstances: (1) the sale or disposition of the capital stock of the guarantor (including by consolidation or merger of the guarantor into another person); (2) the liquidation or dissolution of the guarantor; (3) the defeasance or satisfaction and discharge of the notes; (4) the release of the guarantor from any guarantees of indebtedness of SGC and SGI (or, in the case of the 2018 Notes, the release of the guarantor from any guarantees of indebtedness of SGC); and (5) in the case of the 2020 Notes, the 2021 Notes and the Secured Notes and the Unsecured Notes, the proper designation of the guarantor as an unrestricted subsidiary pursuant to the indenture governing the respective Notes.

During the third quarter, we designated certain of our wholly owned direct and indirect subsidiaries that hold substantially all of the assets of, and operate, our social gaming business, as “Unrestricted Subsidiaries” under our credit agreement and each of the indentures governing the 2018 Notes, 2020 Notes, 2021 Notes, Secured Notes and Unsecured Notes. As a result of these designations, our 100%-owned social gaming subsidiaries are no longer guarantors under our credit agreement and indentures. Therefore, the historical condensed consolidating financial information presented has been

reclassified to show the nature of assets held, results of operations and cash flows assuming the "Unrestricted Subsidiary" designations were in effect at the beginning of all periods presented, consistent with their status as non-guarantors as of September 30, 2016. The affected subsidiaries are no longer allocated interest in this condensed consolidating financial information due to their present status as non-guarantors. Accordingly, for all periods presented, we no longer present an allocation of interest to any entities, including the Unrestricted Subsidiaries, other than the legal entity issuer of the associated debt.

Presented below is condensed consolidating financial information for (1) SGC, (2) SGI, (3) the Guarantor Subsidiaries and (4) the Non-Guarantor Subsidiaries as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015. The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of SGC, SGI, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries assuming the guarantee structures of our credit agreement, the 2018 Notes, the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes were in effect at the beginning of the periods presented.

The condensed consolidating financial information reflects the investments of SGC in SGI and in the Guarantor Subsidiaries and Non-Guarantor Subsidiaries using the equity method of accounting. They also reflect the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries. Net changes in intercompany due from/due to accounts are reported in the accompanying Supplemental Condensed Consolidating Statements of Cash Flows as investing activities if the applicable entities have a net investment (asset) in intercompany accounts and as a financing activity if the applicable entities have a net intercompany borrowing (liability) balance.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2016



	SGC (Parent and Issuer ¹ )			SGI (Issuer ² )			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Cash and cash equivalents	$	42.7		$	0.5		$	—	$	84.8	$	(7.1	)	$	120.9
Restricted cash	—			—			24.2		0.1		—			24.3
Accounts receivable, net	—			58.2			193.2		213.9		—			465.3
Notes receivable, net	—			—			94.3		34.7		—			129.0
Inventories	—			37.9			93.2		156.8		(17.8		)	270.1
Prepaid expenses, deposits and other current assets	32.2			17.5			35.2		41.1		—			126.0
Property and equipment, net	8.1			106.3			406.8		166.1		(23.5		)	663.8
Investment in subsidiaries	3,166.1			859.5			888.1		—		(4,913.7		)	—
Goodwill	—			188.3			1,931.7		871.0		—			2,991.0
Intangible assets, net	196.5			38.5			1,386.0		220.0		—			1,841.0
Intercompany balances	—			5,505.1			—		89.3		(5,594.4		)	—
Software, net	71.0			22.9			285.5		51.7		—			431.1
Other assets	270.1			223.9			44.8		217.9		(442.6		)	314.1
Total assets	$	3,786.7		$	7,058.6		$	5,383.0	$	2,147.4	$	(10,999.1	)	$	7,376.6
Liabilities and stockholders' (deficit) equity
Current portion of long-term debt	$	—		$	43.0		$	—	$	6.6	$	—		$	49.6
Other current liabilities	66.7			194.0			206.9		208.4		(7.1		)	668.9
Long-term debt, excluding current portion	248.5			7,774.2			—		11.1		—			8,033.8
Other long-term liabilities	179.4			12.1			517.4		108.0		(442.6		)	374.3
Intercompany balances	5,042.1			—			552.3		—		(5,594.4		)	—
Stockholders' (deficit) equity	(1,750.0		)	(964.7		)	4,106.4		1,813.3		(4,955.0		)	(1,750.0		)
Total liabilities and stockholders' (deficit) equity	$	3,786.7		$	7,058.6		$	5,383.0	$	2,147.4	$	(10,999.1	)	$	7,376.6

^{1 - Issuer of obligations under the 2018 Notes.}

^{2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.}

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2015



	SGC (Parent and Issuer ¹ )			SGI (Issuer ² )			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Cash and cash equivalents	$	43.2		$	—		$	0.5	$	85.0	$	—		$	128.7
Restricted cash	—			—			20.0		0.2		—			20.2
Accounts receivable, net	—			94.6			223.0		169.5		—			487.1
Notes receivable, net	—			—			114.2		53.5		—			167.7
Inventories	—			36.9			104.2		119.6		(12.2		)	248.5
Prepaid expenses, deposits and other current assets	26.8			7.0			51.0		38.5		—			123.3
Property and equipment, net	8.2			106.4			501.1		189.8		(11.5		)	794.0
Investment in subsidiaries	3,319.6			838.1			819.0		—		(4,976.7		)	—
Goodwill	—			186.0			1,934.0		893.7		—			3,013.7
Intangible assets, net	138.3			39.8			1,505.0		236.9		—			1,920.0
Intercompany balances	—			5,857.1			—		—		(5,857.1		)	—
Software, net	35.6			32.7			358.0		59.6		—			485.9
Other assets	232.5			123.4			51.8		241.7		(306.3		)	343.1
Total assets	$	3,804.2		$	7,322.0		$	5,681.8	$	2,088.0	$	(11,163.8	)	$	7,732.2
Liabilities and stockholders' (deficit) equity
Current portion of long-term debt	$	—		$	43.0		$	—	$	7.3	$	—		$	50.3
Other current liabilities	63.7			150.5			238.8		150.6		—			603.6
Long-term debt, excluding current portion	248.0			7,890.3			—		18.4		—			8,156.7
Other long-term liabilities	119.1			14.5			502.1		87.7		(306.3		)	417.1
Intercompany balances	4,868.9			—			966.8		21.4		(5,857.1		)	—
Stockholders' (deficit) equity	(1,495.5		)	(776.3		)	3,974.1		1,802.6		(5,000.4		)	(1,495.5		)
Total liabilities and stockholders' (deficit) equity	$	3,804.2		$	7,322.0		$	5,681.8	$	2,088.0	$	(11,163.8	)	$	7,732.2

^{1 - Issuer of obligations under the 2018 Notes.}

^{2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.}

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF

OPERATIONS AND COMPREHENSIVE LOSS

Three Months Ended September 30, 2016



	SGC (Parent and Issuer ¹ )			SGI (Issuer ² )			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	114.2		$	330.8		$	358.4		$	(83.4	)	$	720.0
Cost of services, cost of product sales and cost of instant games ⁽³⁾	—			81.8			86.1			189.8			(83.4		)	274.3
Selling, general and administrative	30.9			14.8			43.1			64.0			—			152.8
Research and development	2.1			1.6			38.3			11.9			—			53.9
Restructuring and other	14.3			0.2			(0.7		)	—			—			13.8
Depreciation, amortization and impairments	13.8			8.7			140.6			28.6			—			191.7
Operating (loss) income	(61.1		)	7.1			23.4			64.1			—			33.5
Interest expense	(5.3		)	(159.5		)	—			(0.6		)	—			(165.4		)
Other (expense) income, net	(13.9		)	54.7			(26.7		)	(0.8		)	—			13.3
Net (loss) income before equity in income of subsidiaries and income taxes	(80.3		)	(97.7		)	(3.3		)	62.7			—			(118.6		)
Equity in income of subsidiaries	18.1			7.5			37.9			—			(63.5		)	—
Income tax (expense) benefit	(36.7		)	99.2			(16.9		)	(25.9		)	—			19.7
Net (loss) income	$	(98.9	)	$	9.0		$	17.7		$	36.8		$	(63.5	)	$	(98.9	)

Other comprehensive income (loss)	5.2			2.1			(48.0		)	19.0			26.9			5.2
Comprehensive (loss) income	$	(93.7	)	$	11.1		$	(30.3	)	$	55.8		$	(36.6	)	$	(93.7	)

^{1 - Issuer of obligations under the 2018 Notes.}

^{2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.}

^{3 - Exclusive of D&A.}

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF

OPERATIONS AND COMPREHENSIVE LOSS

Three Months Ended September 30, 2015



	SGC (Parent and Issuer ¹ )			SGI (Issuer ² )			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	106.5		$	370.7		$	270.4		$	(76.0	)	$	671.6
Cost of services, cost of product sales and cost of instant games ⁽³⁾	—			77.7			113.1			135.2			(76.0		)	250.0
Selling, general and administrative	16.2			15.9			59.2			45.5			—			136.8
Research and development	—			0.8			35.4			9.7			—			45.9
Restructuring and other	1.4			0.6			2.9			0.7			—			5.6
Depreciation, amortization and impairments	8.3			10.5			232.2			35.5			—			286.5
Goodwill impairment	—			—			802.9			132.1			—			935.0
Operating (loss) income	(25.9		)	1.0			(875.0		)	(88.3		)	—			(988.2		)
Interest expense	(5.2		)	(161.4		)	—			(0.2		)	—			(166.8		)
Other (expense) income, net	6.9			19.3			(8.2		)	(22.5		)	—			(4.5		)
Net loss before equity in (loss) income of subsidiaries and income taxes	(24.2		)	(141.1		)	(883.2		)	(111.0		)	—			(1,159.5		)
Equity in (loss) income of subsidiaries	(1,137.5		)	11.8			(143.6		)	—			1,269.3			—
Income tax benefit (expense)	83.5			(0.1		)	(0.9		)	(1.2		)	—			81.3
Net loss	$	(1,078.2	)	$	(129.4	)	$	(1,027.7	)	$	(112.2	)	$	1,269.3		$	(1,078.2	)

Other comprehensive (loss) income	(49.0		)	(3.1		)	56.8			(104.1		)	50.4			(49.0		)
Comprehensive loss	$	(1,127.2	)	$	(132.5	)	$	(970.9	)	$	(216.3	)	$	1,319.7		$	(1,127.2	)

^{1 - Issuer of obligations under the 2018 Notes.}

^{2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.}

^{3 - Exclusive of D&A.}

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF

OPERATIONS AND COMPREHENSIVE LOSS

Nine Months Ended September 30, 2016



	SGC (Parent and Issuer ¹ )			SGI (Issuer ² )			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	355.8		$	1,047.0		$	942.2		$	(213.8	)	$	2,131.2
Cost of instant games, cost of services and cost of product sales ⁽³⁾	—			250.8			275.2			494.6			(213.8		)	806.8
Selling, general and administrative	91.9			37.6			132.8			177.7			—			440.0
Research and development	4.8			6.3			109.1			35.2			—			155.4
Restructuring and other	14.3			0.4			3.3			2.7			—			20.7
Depreciation, amortization and impairments	39.5			29.9			407.3			88.7			—			565.4
Operating (loss) income	(150.5		)	30.8			119.3			143.3			—			142.9
Interest expense	(15.8		)	(480.0		)	—			(0.6		)	—			(496.4		)
Gain on early extinguishment of debt	—			25.2			—			—			—			25.2
Other (expense) income, net	(64.2		)	157.5			(73.9		)	7.5			—			26.9
Net (loss) income before equity in (loss) income of subsidiaries and income taxes	(230.5		)	(266.5		)	45.4			150.2			—			(301.4		)
Equity in (loss) income of subsidiaries	(22.7		)	37.8			85.3			—			(100.4		)	—
Income tax benefit (expense)	10.3			99.2			(16.8		)	(34.2		)	—			58.5
Net (loss) income	$	(242.9	)	$	(129.5	)	$	113.9		$	116.0		$	(100.4	)	$	(242.9	)

Other comprehensive (loss) income	(27.4		)	5.0			(54.2		)	(11.8		)	61.0			(27.4		)
Comprehensive (loss) income	$	(270.3	)	$	(124.5	)	$	59.7		$	104.2		$	(39.4	)	$	(270.3	)

^{1 - Issuer of obligations under the 2018 Notes.}

^{2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.}

^{3 - Exclusive of D&A.}

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF

OPERATIONS AND COMPREHENSIVE LOSS

Nine Months Ended September 30, 2015




	SGC (Parent and Issuer ¹ )			SGI (Issuer ² )			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	324.1		$	1,163.3		$	811.0		$	(276.6	)	$	2,021.8
Cost of instant games, cost of services and cost of product sales ⁽³⁾	—			238.0			371.4			447.9			(276.6		)	780.7
Selling, general and administrative	47.8			50.5			186.9			138.4			—			423.6
Research and development	—			3.6			108.5			28.7			—			140.8
Restructuring and other	4.6			1.5			9.6			3.3			—			19.0
Depreciation, amortization and impairments	24.3			30.1			528.2			110.3			—			692.9
Goodwill impairment	—			—			802.9			132.1			—			935.0
Operating (loss) income	(76.7		)	0.4			(844.2		)	(49.7		)	—			(970.2		)
Interest expense	(15.8		)	(481.3		)	—			(0.4		)	—			(497.5		)
Other (expense) income, net	24.9			55.2			(77.0		)	(11.1		)	—			(8.0		)
Net loss before equity in (loss) income of subsidiaries and income taxes	(67.6		)	(425.7		)	(921.2		)	(61.2		)	—			(1,475.7		)
Equity in (loss) income of subsidiaries	(1,412.1		)	41.1			(112.6		)	—			1,483.6			—
Income tax benefit (expense)	212.9			(0.2		)	(7.0		)	3.2			—			208.9
Net loss	$	(1,266.8	)	$	(384.8	)	$	(1,040.8	)	$	(58.0	)	$	1,483.6		$	(1,266.8	)

Other comprehensive (loss) income	(136.1		)	(12.9		)	48.4			(181.4		)	145.9			(136.1		)
Comprehensive loss	$	(1,402.9	)	$	(397.7	)	$	(992.4	)	$	(239.4	)	$	1,629.5		$	(1,402.9	)

^{1 - Issuer of obligations under the 2018 Notes.}

^{2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.}

^{3 - Exclusive of D&A.}

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2016



	SGC (Parent and Issuer ¹ )			SGI (Issuer ² )			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net cash (used in) provided by operating activities	$	(213.3	)	$	(157.0	)	$	494.3		$	225.9		$	(7.1	)	$	342.8
Cash flows from investing activities:
Capital expenditures	(36.6		)	(22.1		)	(110.4		)	(45.3		)	—			(214.4		)
Distributions of capital on equity investments	—			—			—			24.0			—			24.0
Restricted Cash	—			—			(3.5		)	—			—			(3.5		)
Changes in other assets and liabilities and other	—			—			6.1			—			—			6.1
Other, principally change in intercompany investing activities	—			296.8			—			(198.8		)	(98.0		)	—
Net cash (used in) provided by investing activities	(36.6		)	274.7			(107.8		)	(220.1		)	(98.0		)	(187.8		)
Cash flows from financing activities:
Net payments of long-term debt including repurchases of notes	—			(117.2		)	—			(5.3		)	—			(122.5		)
Payments on license obligations	(24.2		)	—			(10.3		)	—			—			(34.5		)
Redemptions of common stock under stock-based compensation plans	(4.7		)	—			—			—			—			(4.7		)
Other, principally change in intercompany financing activities	278.3			—			(376.3		)	—			98.0			—
Net cash provided by (used in) financing activities	249.4			(117.2		)	(386.6		)	(5.3		)	98.0			(161.7		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(0.4		)	(0.7		)	—			(1.1		)
(Decrease) increase in cash and cash equivalents	(0.5		)	0.5			(0.5		)	(0.2		)	(7.1		)	(7.8		)
Cash and cash equivalents, beginning of period	43.2			—			0.5			85.0			—			128.7
Cash and cash equivalents, end of period	$	42.7		$	0.5		$	—		$	84.8		$	(7.1	)	$	120.9

^{1 - Issuer of obligations under the 2018 Notes.}

^{2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.}

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2015



	SGC (Parent and Issuer ¹ )			SGI (Issuer ² )			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net cash (used in) provided by operating activities	$	(26.7	)	$	(339.9	)	$	454.6		$	167.5		$	—		$	255.5
Cash flows from investing activities:
Capital expenditures	(12.8		)	(19.7		)	(168.0		)	(33.1		)	—			(233.6		)
Distributions of capital on equity investments	—			1.0			—			36.0			—			37.0
Restricted cash	—			—			9.3			—			—			9.3
Changes in other assets and liabilities and other	—			(0.1		)	5.1			5.1			—			10.1
Other, principally change in intercompany investing activities	—			461.4			—			—			(461.4		)	—
Net cash (used in) provided by investing activities	(12.8		)	442.6			(153.6		)	8.0			(461.4		)	(177.2		)
Cash flows from financing activities:
Net payments on long-term debt	—			(102.3		)	—			(6.5		)	—			(108.8		)
Payments on license obligations	(19.5		)	—			(12.5		)	—			—			(32.0		)
Contingent earnout payments	—			—			(0.5		)	—			—			(0.5		)
Issuance (redemptions) of common stock under stock-based compensation plans	0.5			—			(37.1		)	(110.2		)	147.2			0.4
Other, principally change in intercompany financing activities	37.9			—			(270.6		)	(81.5		)	314.2			—
Net cash provided by (used in) financing activities	18.9			(102.3		)	(320.7		)	(198.2		)	461.4			(140.9		)
Effect of exchange rate changes on cash and cash equivalents	—			(0.5		)	(0.8		)	(5.8		)	—			(7.1		)
Decrease in cash and cash equivalents	(20.6		)	(0.1		)	(20.5		)	(28.5		)	—			(69.7		)
Cash and cash equivalents, beginning of period	37.9			0.1			27.3			106.5			—			171.8
Cash and cash equivalents, end of period	$	17.3		$	—		$	6.8		$	78.0		$	—		$	102.1

^{1 - Issuer of obligations under the 2018 Notes.}

^{2 - Issuer of obligations under the 2020 Notes, the 2021 Notes, the Secured Notes and the Unsecured Notes.}

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to enhance the reader's understanding of our operations and current business environment and should be read in conjunction with the description of our business included under Item 1 "Financial Statements" in this Quarterly Report on Form 10-Q, Item 1A. "Risk Factors" in our Quarterly Report on Form 10-Q for the period ended June 30, 2016 and our "Management’s Discussion and Analysis of Financial Condition and Results of Operations," "Business" and "Risk Factors" sections included in our 2015 10-K.

This "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the disclosures and information contained and referenced under "Forward-Looking Statements" in this Quarterly Report on Form 10-Q, "Risk Factors" included in our Quarterly Report on Form 10-Q for the period ended June 30, 2016 and "Risk Factors" included in our 2015 10-K. As used in this MD&A, the terms "we," "us," "our" and the "Company" mean SGC together with its consolidated subsidiaries.

BUSINESS OVERVIEW

Current Events

On November 3, 2016, we announced that we began implementing a new business improvement initiative, which we expect will streamline our organization, increase our efficiencies, and reduce our costs by approximately $75 million on an annualized basis once the initiative is fully implemented. These cost savings are expected to be achieved across all our divisions and will encompass a combination of headcount reductions, facilities streamlining, and reductions in other operating costs. We anticipate Restructuring and other costs of approximately $20 million in the fourth quarter of 2016. The mostly cash payments related to this charge are anticipated to be incurred during the fourth quarter of 2016.

Segments

We report our operations in three business segments — Gaming, Lottery and Interactive — representing our different products and services. See " — Business Segments Results" below and Note 2 for additional business segment information.

Foreign Exchange

Our results are impacted by changes in foreign currency exchange rates used in the translation of foreign functional currencies into USD and the re-measurement of foreign currency transactions or balances. The impact of foreign currency exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity. Our exposure to foreign currency volatility on revenue is as follows:



	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2016				2015				2016				2015
(in millions)	Revenue		% Consolidated Revenue		Revenue		% Consolidated Revenue		Revenue		% Consolidated Revenue		Revenue		% Consolidated Revenue
Foreign Currency:
British Pound Sterling	$	59.6	8.3	%	$	59.3	8.8	%	$	175.8	8.2	%	$	176.4	8.7	%
Euro	33.7		4.7	%	26.8		4.0	%	91.4		4.3	%	78.4		3.9	%
Australian Dollar	40.4		5.6	%	25.1		3.7	%	92.4		4.3	%	82.2		4.1	%

We also have foreign currency exposure related to certain of our equity investments. See further information regarding our foreign exchange exposure in "Quantitative and Qualitative Disclosures About Market Risk" under Item 7A of our 2015 10-K and "Risk Factors" under Item 1A in our Quarterly Report on Form 10-Q for the period ended June 30, 2016 and "Risk Factors" included in our 2015 10-K. Total foreign currency exchange rate impact upon revenue for the three and nine months ended September 30, 2016 was $10.8 million (unfavorable) and $23.5 million (unfavorable), respectively.

CONSOLIDATED RESULTS



	Three Months Ended September 30,						Variance					Nine Months Ended September 30,						Variance
(in millions)	2016			2015			2016 vs. 2015					2016			2015			2016 vs. 2015
Total revenue	$	720.0		$	671.6		$	48.4		7.2	%	$	2,131.2		$	2,021.8		$	109.4		5.4	%
Total operating expenses	686.5			1,659.8			(973.3		)	(58.6	)%	1,988.3			2,992.0			(1,003.7		)	(33.5	)%
Operating income (loss)	33.5			(988.2		)	1,021.7			(103.4	)%	142.9			(970.2		)	1,113.1			(114.7	)%
Net loss before income taxes	(118.6		)	(1,159.5		)	1,040.9			(89.8	)%	(301.4		)	(1,475.7		)	1,174.3			(79.6	)%
Net loss	(98.9		)	(1,078.2		)	979.3			(90.8	)%	(242.9		)	(1,266.8		)	1,023.9			(80.8	)%

Three and Nine Months Ended September 30, 2016 Compared to Three and Nine Months Ended September 30, 2015

Revenue



	Three Months Ended September 30,				Variance					Nine Months Ended September 30,				Variance
(in millions)	2016		2015		2016 vs. 2015					2016		2015		2016 vs. 2015
Gaming	$	448.2	$	429.1	$	19.1		4.5	%	$	1,311.8	$	1,304.6	$	7.2	0.6	%
Lottery	186.6		191.3		(4.7		)	(2.5	)%	578.2		567.5		10.7		1.9	%
Interactive	85.2		51.2		34.0			66.4	%	241.2		149.7		91.5		61.1	%
Total revenue	$	720.0	$	671.6	$	48.4		7.2	%	$	2,131.2	$	2,021.8	$	109.4	5.4	%

Gaming revenue increased for all comparable periods primarily due to higher unit sales of gaming machines and table products from global shipments, which was partially offset by a decrease in WAP and premium game lease revenue and lower systems hardware and software sales. The Gaming revenue increase included the impact of $7.8 million and $15.4 million of unfavorable currency translation in the three and nine months ended September 30, 2016, respectively.

Lottery revenue for the three month period decreased primarily due to an unfavorable $5.6 million impact resulting from the previously disclosed expiration of the CSL validation contract and $1.9 million of unfavorable currency translation, partially offset by higher lottery terminal sales. Lottery revenue for the nine month period increased (this increase was offset by an unfavorable $17.3 million impact from the expiration of the CSL validation contract and $6.1 million of unfavorable currency translation) primarily due to higher U.S. revenue, mostly driven by increased retail sales of multi-state games including sales leading up to the record $1.6 billion POWERBALL® jackpot in January 2016, and an increase in U.S. instant game sales revenue with particular strength in Participation contracts and from CSP customers for whom we provide our CSP offerings in an integrated approach, which includes a range of services from game design to support initiatives at retailers.

Interactive revenue increased for all comparable periods primarily due to growth in our social gaming business reflecting the ongoing popularity of Jackpot Party® Social Casino and the success of our recently launched Quick Hit® Slots , Hot Shot® Social Casino and Blazing 7s® Hot Shot Slots social gaming apps.

Operating Expenses



	Three Months Ended September 30,				Variance					Nine Months Ended September 30,				Variance
(in millions)	2016		2015		2016 vs. 2015					2016		2015		2016 vs. 2015
Operating expenses:
Cost of services	$	98.0	$	85.5	$	12.5		14.6	%	$	294.3	$	274.6	$	19.7		7.2	%
Cost of product sales	104.6		87.4		17.2			19.7	%	299.7		293.2		6.5			2.2	%
Cost of instant games	71.7		77.1		(5.4		)	(7.0	)%	212.8		212.9		(0.1		)	0.0	%
Selling, general and administrative	152.8		136.8		16.0			11.7	%	440.0		423.6		16.4			3.9	%
Research and development	53.9		45.9		8.0			17.4	%	155.4		140.8		14.6			10.4	%
Restructuring and other	13.8		5.6		8.2			146.4	%	20.7		19.0		1.7			8.9	%
Depreciation, amortization and impairments	191.7		286.5		(94.8		)	(33.1	)%	565.4		692.9		(127.5		)	(18.4	)%
Goodwill impairment	—		935.0		(935.0		)	(100.0	)%	—		935.0		(935.0		)	(100.0	)%
Total operating expenses	$	686.5	$	1,659.8	$	(973.3	)	(58.6	)%	$	1,988.3	$	2,992.0	$	(1,003.7	)	(33.5	)%

Cost of Revenue

Total cost of revenue for the three month period increased primarily due to (1) a $16.7 million increase in cost of unit shipments in Gaming corresponding to the $28.6 million growth in revenues; and (2) a $14.7 million increase in the cost of Interactive services primarily related to platform fees associated with the $34.0 million increase in Interactive revenue; partially offset by (3) a $5.4 million reduction in cost of instant games primarily due to the cancellation of the MONOPOLY MILLIONAIRES’ CLUB ^TM ( MMC ) game.

Total cost of revenue for the nine month period increased primarily due to (1) a $35.9 million increase in the cost of Interactive services primarily related to platform fees associated with the $91.5 million increase in Interactive revenue; (2) a product mix shift among the Gaming lines of business with a $14.4 million decrease in cost of gaming services, partially offset by an increase of $9.4 million related to cost of product sales; and (3) cost of instant games having offsetting factors with an increase in PPU program costs offset by an $8.0 million reduction in costs due to the cancellation of the MMC game.

Selling, general and administrative

The increase in SG&A in the comparable periods was primarily due to the following: (1) a $10.8 million and $27.7 million increase in Interactive marketing and player acquisition costs for the three and nine month comparable periods, respectively; (2) a $3.6 million and $4.0 million increase in stock based compensation for the three and nine month comparable periods, respectively, each primarily attributable to certain accelerated recognition of stock based compensation; (3) a $2.6 million increase in professional and legal services for the three month comparable period; and (4) a $15.2 million decrease in professional and legal fees for the nine month comparable period, which includes an offset of $7.5 million due to insurance proceeds received during the second quarter of 2016 in connection with the settlement of a legal matter.

Depreciation, amortization and impairments

The decrease in D&A for both comparable periods was primarily due to the non-recurrence of $128.6 million of intangible asset impairment charges recognized in the nine months ended September 30, 2015 in order to reduce the carrying amount of two trade name assets to their fair value, of which $25.0 million was recorded in the second quarter of 2015 with the remainder recorded in the third quarter of 2015.

Goodwill impairment

The decrease in goodwill impairment for both comparable periods was primarily due to the non-recurrence of a $935.0 million impairment charge recognized in the third quarter of 2015 to reduce the carrying amount of our SG gaming reporting unit goodwill to its implied fair value as a result of a change in outlook for the SG gaming reporting unit. For additional information regarding this charge, see Note 8.

Other Factors Affecting Net Loss:

Gain on early extinguishment of debt

During the second quarter of 2016, we repurchased and cancelled an aggregate principal amount of $65.9 million of our 2020 Notes and 2021 Notes for $39.9 million in cash, which resulted in a $25.2 million gain on early extinguishment of debt inclusive of a $0.8 million charge related to the write-off of unamortized debt discount and deferred financing costs associated with the extinguished debt.

Income tax benefit

We recorded an income tax benefit of $19.7 million and $58.5 million for the three and nine months ended September 30, 2016, respectively, compared to an income tax benefit of $81.3 million and $208.9 million for the three and nine months ended September 30, 2015, respectively. The effective income tax rates for the three and nine months ended September 30, 2016 were 16.6% and 19.4%, respectively, and 7.0% and 14.2% for the three and nine months ended September 30, 2015, respectively, and were determined using an estimated annual effective tax rate after considering any discrete items for such periods. For additional information regarding the changes in our effective tax rates and the variance in our income tax benefit, see Note 15.

See " — Business Segments Results" below for a more detailed explanation of the significant changes in our components of revenue within the individual segment results of operations.

BUSINESS SEGMENTS RESULTS

GAMING

Our Gaming business segment designs, develops, manufactures, markets and distributes a comprehensive portfolio of gaming products and services. We provide our Gaming portfolio of products and services to commercial casinos, Native American casinos, wide-area gaming operators such as LBOs, arcade and bingo operators in the U.K. and continental Europe, and government agencies and their affiliated operators. Our equity investments in RCN and ITL are part of our Gaming business segment.

We generate Gaming revenue from both services and product sales. Our services revenue includes revenue earned from WAP, premium and daily-fee Participation gaming machines, other leased gaming machines (including VLTs and electronic table games), leased table products and services (including Shufflers), casino management technology solutions and systems, PTG licensing and other services revenues. Our product sales revenue includes the sale of new and used gaming machines, electronic table games, VLTs and VGTs, casino-management technology solutions and systems, table products, conversion kits (including game, hardware or operating system conversions) and spare parts.

Current Year Update

We believe that challenging market conditions impacted our Gaming results during the first three quarters of 2016 and could continue to negatively impact our results of operations. These challenges included: (1) restrained investment in new replacement gaming machines by our existing customers; (2) increased competition for new systems, gaming operations, gaming machines and table products businesses; (3) political and economic conditions in Greece, resulting in a delay in the deployment of our VLTs; and (4) other economic and regulatory pressures that affect our business operations globally.

For the remainder of 2016, we expect to continue to face pricing pressure in our Gaming segment. We anticipate that replacement demand for gaming machines and constraints on capital spending by gaming operators will continue at current levels and that demand for gaming machines will continue to be negatively impacted by the continued consolidation of casino and other gaming operators. We anticipate that demand for our gaming systems products and services will continue at current levels due to fewer large, multi-site installation opportunities, system replacements and new casino openings throughout 2016. We have experienced a decrease in our installed base of WAP gaming machines and anticipate that our installed base of WAP, premium and daily-fee Participation gaming machines will begin to stabilize, benefiting from the release of a number of new games, including the launch of our new GameScape™ cabinet in the third quarter of 2016. The GameScape cabinet, a dedicated Participation platform, features a player-favorite branded WILLY WONKA'S WORLD OF WONKA™ game.

Results of Operations and Key Performance Indicators for Gaming



	Three Months Ended September 30,					Variance					Nine Months Ended September 30,					Variance
(in millions)	2016		2015			2016 vs. 2015					2016		2015			2016 vs. 2015
Total revenue	$	448.2	$	429.1		$	19.1		4.5	%	$	1,311.8	$	1,304.6		$	7.2		0.6	%
Total operating expenses	396.7		1,414.4			(1,017.7		)	(72.0	)%	1,170.2		2,259.7			(1,089.5		)	(48.2	)%
Operating income (loss)	$	51.5	$	(985.3	)	$	1,036.8		(105.2	)%	$	141.6	$	(955.1	)	$	1,096.7		114.8	%

Three and Nine Months Ended September 30, 2016 Compared to Three and Nine Months Ended September 30, 2015

Revenue



	Three Months Ended September 30,						Variance					Nine Months Ended September 30,						Variance
(in millions)	2016			2015			2016 vs. 2015					2016			2015			2016 vs. 2015
Revenue:
Gaming operations	$	182.4		$	193.9		$	(11.5	)	(5.9	)%	$	552.8		$	577.1		$	(24.3	)	(4.2	)%
Gaming machine sales	159.8			131.2			28.6			21.8	%	448.7			397.2			51.5			13.0	%
Gaming systems	57.6			59.7			(2.1		)	(3.5	)%	176.8			204.3			(27.5		)	(13.5	)%
Table products	48.4			44.3			4.1			9.3	%	133.5			126.0			7.5			6.0	%
Total revenue	$	448.2		$	429.1		$	19.1		4.5	%	$	1,311.8		$	1,304.6		$	7.2		0.6	%

F/X impact on revenue	$	(7.8	)	$	(10.8	)	$	3.0		(27.8	)%	$	(15.4	)	$	(32.7	)	$	17.3		(52.9	)%

KPIs:
WAP, premium and daily-fee Participation units:
Installed base at period end	21,663			22,367			(704		)	(3.1	)%	21,663			22,367			(704		)	(3.1	)%
Average daily revenue per unit	$	51.61		$	56.40		$	(4.79	)	(8.5	)%	$	52.47		$	56.12		$	(3.65	)	(6.5	)%

Other Participation and leased units:
Installed base at period end	47,828			45,405			2,423			5.3	%	47,828			45,405			2,423			5.3	%
Average daily revenue per unit	$	15.31		$	15.78		$	(0.47	)	(3.0	)%	$	15.54		$	15.86		$	(0.32	)	(2.0	)%

Gaming machine unit sales:
U.S. and Canadian new unit shipments	4,022			3,670			352			9.6	%	13,065			12,051			1,014			8.4	%
International new unit shipments	3,938			2,585			1,353			52.3	%	9,311			7,741			1,570			20.3	%
Total new unit shipments	7,960			6,255			1,705			27.3	%	22,376			19,792			2,584			13.1	%
Average sales price per new unit	$	16,824		$	16,287		$	537		3.3	%	$	16,804		$	15,991		$	813		5.1	%

Gaming Operations

Gaming operations revenue decreased as compared to both prior year periods in part due to: (1) a 704 unit decrease in the installed base of WAP, premium and daily-fee Participation gaming machines; and (2) a decrease in the average daily revenue per WAP, premium and daily-fee Participation units primarily reflecting a lower mix of higher-yielding WAP games.

These decreases were partially offset by higher revenue in the three and nine months ended September 30, 2016 resulting from: (1) a 2,423 unit increase in the ending installed base for Other Participation and leased units reflecting additional placements of electronic table games and an increase in the number of leased units in the Caribbean and other international markets during the current year; and (2) a partially offsetting decrease in the average daily revenue for our Other Participation and leased units.

Gaming Machine Sales

Gaming machine unit sales increased compared to both prior year periods due to higher global unit shipments primarily resulting from sales of the Pro Series WAVE, TwinStar™ and Dualos cabinets.

U.S. and Canadian shipments for the three months ended September 30, 2016 encompassed 3,033 replacement units and 989 units for new casino openings and expansions, including 245 Illinois VGT units. International shipments encompassed 2,993 replacement units and 945 units for new casino openings and expansions, driven by growth in Asia, Australia and South America. The average sales price increased to $16,824 per unit reflecting a greater mix of higher performing premium gaming machines sold during the period.

U.S. and Canadian shipments for the nine months ended September 30, 2016 encompassed 10,365 replacement units, inclusive of 1,271 Oregon VLT units (which completed the contract), and 2,700 units for new casino openings and expansions, including 1,418 Illinois VGT units. International shipments encompassed 8,241 replacement units and 1,070 units for new casino openings and expansions. The average sales price increased to $16,804 per unit reflecting a greater mix of higher-performing premium gaming machines sold during the period.

Gaming Systems

Gaming systems sales decreased compared to both prior year periods due to lower hardware, software and services sales resulting from fewer large, multi-site opportunities, system replacements and new casino openings in 2016. The decreases were partially offset by a 5% and 6% increase in systems maintenance revenue during the three and nine months ended September 30, 2016, respectively, compared to the prior year periods.

Table Products

Table products revenue increased compared to both prior year periods primarily due to increased Shuffler sales and a 5% increase in revenue from leased Shufflers, PTGs and progressives primarily due to the success of the Blazing 7s Blackjack ^TM Progressive .

Operating Income

The decrease in operating loss from the comparable prior year periods was primarily attributable to the following: (1) the non-recurrence of third quarter 2015 goodwill impairment and trade name assets impairment charges, as more fully described above; (2) a decrease in overall operating expenses primarily due to realized integration cost synergies largely implemented in prior periods, including lower SG&A expense of $7.1 million and $23.4 million for the three and nine months ended September 30, 2016, respectively, which benefited in the nine month period from $7.5 million of insurance proceeds received in connection with the settlement of a legal matter; and (3) lower depreciation and amortization expense of $85.4 million and $120.0 million for the three and nine months ended September 30, 2016, respectively; partially offset by (4) a less profitable revenue mix, which was due to an increase in lower-margin Gaming machine sales revenue and a decline in higher-margin Gaming systems and Gaming operations revenue.

LOTTERY

The Lottery segment is primarily comprised of our systems-based services and product sales business and our instant games business. Our systems-based services and product sales business provides customized computer software, software support, equipment and data communication services, sports wagering systems and keno to lotteries. In the U.S., we typically provide the necessary point-of-sale terminals and equipment, software and maintenance services 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 instant games business generates revenue from the manufacture and sale of instant games, as well 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. In addition, we provide licensed games, promotional entertainment and internet-based marketing services to the lottery industry. These revenues are presented as instant games revenue.

Our equity investments in LNS, Northstar Illinois, Northstar New Jersey, CSG, Hellenic Lotteries and GLB are included in the Lottery segment.

Current Year Update

We were the exclusive instant game validation network provider to the CSL under an agreement that expired in January 2016 and was subsequently not renewed or extended. We have also seen a decline in the instant game printing revenue of CSG, our printing joint venture in China, which continues to service the CSL. We believe a decrease in retail sales is due in part to competition from other wagering products. We are actively seeking multiple opportunities to continue to provide value-added services to the CSL, as well as developing additional business initiatives to replace our revenue and profits previously generated by the CSL validation agreement. Until we are able to achieve these other opportunities and initiatives, or to the extent we are not able to do so, our operating results relating to our China lottery business will continue to be adversely affected.

In April, we signed a lottery instant games CSP agreement with the North Carolina lottery, which is anticipated to begin in March 2017 and has a term of eight years. The contract may be extended by the lottery for up to two additional years.

During the first quarter of 2016, we also launched innovative, multi-channel cross-over games, such as our Jackpot Party instant game, for several customers. These new launches capitalize on our extensive proprietary games library and our expertise in mobile applications and second-chance promotional games and activities.

During the second quarter of 2016, we were awarded a new agreement by the Georgia Lottery that provided for a seven-year extension of the current instant games contract.

During the third quarter of 2016, we were awarded a new three-year contract by the South Dakota Lottery as primary instant game provider and a one-year contract extension by the Massachusetts Lottery to continue as the primary instant game provider.

We believe that our U.S. lottery customers' retail sales is a key performance indicator of our services revenue. However, there may not always be a direct correlation between retail sales and 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 level of jackpots of the POWERBALL and MEGA MILLIONS ^® multi-state draw games, and the number of drawings conducted before a jackpot is won, may have an impact on U.S. retail sales and, therefore, on our Lottery services revenue. Our Lottery services revenue can also be impacted by the retail sales of instant games where we provide instant game validation services, either on a standalone basis or as part of a lottery systems contract. Our Lottery product sales revenue primarily relates to sales of equipment to international customers that are not subject to long-term contracts and demand can be volatile between quarters.

We believe we will continue to face intense price-based competition in our Lottery business for the remainder of 2016. In the near term, we also expect to see an increase in the number of jurisdictions that seek to privatize or outsource lottery operations and to face strong competition from both traditional and new competitors with respect to these opportunities. In addition, we anticipate that lottery RFPs, specifically those for our PMA arrangements and certain of our international customers, could increasingly include terms that expose us to increased risk, such as requiring the guarantee of specific income thresholds or significant upfront payments.

We believe retail sales of instant games is a key performance indicator of our instant games revenue. However, there may not always be a direct correlation between retail sales and our instant games revenue due to various factors. These factors include, but are not limited to, the type of contract (e.g., Participation contracts versus PPU contracts), the impact of changes to individual customer contracts, the performance of our licensed games and player loyalty business and foreign exchange volatility.

Results of Operations and Key Performance Indicators for Lottery



	Three Months Ended September 30,				Variance					Nine Months Ended September 30,				Variance
(in millions)	2016		2015		2016 vs. 2015					2016		2015		2016 vs. 2015
Total revenue	$	186.6	$	191.3	$	(4.7	)	(2.5	)%	$	578.2	$	567.5	$	10.7		1.9	%
Total operating expenses	143.4		150.0		(6.6		)	(4.4	)%	429.1		436.9		(7.8		)	(1.8	)%
Operating income	$	43.2	$	41.3	$	1.9		4.6	%	$	149.1	$	130.6	$	18.5		14.2	%

Three and Nine Months Ended September 30, 2016 Compared to Three and Nine Months Ended September 30, 2015

Revenue



	Three Months Ended September 30,						Variance					Nine Months Ended September 30,						Variance
(in millions)	2016			2015			2016 vs. 2015					2016			2015			2016 vs. 2015
Revenue:
Instant games	$	137.7		$	137.6		$	0.1		0.1	%	$	422.7		$	402.0		$	20.7		5.1	%
Services	38.3			45.0			(6.7		)	(14.9	)%	127.5			136.5			(9.0		)	(6.6	)%
Product sales	10.6			8.7			1.9			21.8	%	28.0			29.0			(1.0		)	(3.4	)%
Total revenue	$	186.6		$	191.3		$	(4.7	)	(2.5	)%	$	578.2		$	567.5		$	10.7		1.9	%

F/X impact on revenue	$	(1.9	)	$	(10.6	)	$	8.7		(82.1	)%	$	(6.1	)	$	(25.8	)	$	19.7		(76.4	)%

KPIs:
Change in retail sales of U.S. lottery instant games customers ⁽¹⁾⁽²⁾	2.2		%	9.1		%	(6.9)pp			nm		4.9		%	8.0		%	(3.1)pp			nm

Change in retail sales of U.S. lottery systems contract customers ⁽¹⁾⁽³⁾	3.7		%	(2.7		)%	6.4pp			nm		9.3		%	(2.9		)%	12.2pp			nm

Change in Italy retail sales of instant games ⁽¹⁾	(0.6		)%	(3.2		)%	2.6pp			nm		0.4		%	(4.9		)%	5.3pp			nm

nm = not meaningful

pp = percentage points

(1) Information provided by third-party lottery operators.

(2) U.S. instant games customers' retail sales include only sales of instant games.

(3) U.S. lottery systems customers' retail sales primarily include sales of draw games, keno and instant games validated by the relevant system.

Primary factors affecting total Lottery revenue in both the three and nine months ended September 30, 2016 were: (1) the expiration of the CSL validation contract which had a negative $5.6 million and $17.3 million impact on services revenue in the three and nine month periods, respectively; (2) continued strength in Participation and PPU contracts (especially with customers having a CSP contract) which increased instant games revenue by $7.7 million and $25.7 million in the three and nine month periods, respectively; (3) an unfavorable impact on revenue from foreign currency (primarily in the U.K.) totaling $1.9 million and $6.1 million in the three and nine month periods, respectively; and (4) an increase in product sales of $1.9 million reflecting higher terminal sales in the three month comparable period and a decrease of $1.0 million in the nine month comparable periods. In addition to the preceding factors, in the three month period, increases in instant games revenue were offset by declines in licensed games revenue of $5.5 million and by declines in international revenue primarily from Participation contract customers. In the nine month period, U.S. revenue from retail sales of multi-state games increased total revenue by $10.2 million, partially offsetting the impact to services revenue due to the expiration of the CSL validation contract.

Operating Income

Operating income increased compared to both prior year periods primarily due to a more profitable revenue mix and the following key factors: (1) a decrease in D&A totaling $6.4 million and $12.7 million in the three and nine month periods, respectively; (2) an increase in SG&A of $4.6 million and $5.4 million in the three and nine month periods, respectively; and (3) an R&D increase of $0.6 million and $2.7 million in the three and nine month periods, respectively.

INTERACTIVE

We generate Interactive gaming services revenue through our social gaming, RMG and SG Universe ™ products which are all available via desktop and mobile devices.

In our social gaming business, we generate revenue from the sale of virtual coins or chips, which players can use to play slot and table games (i.e., spin in the case of slot games, bet in the case of table games). The games are primarily our

WMS® , Bally , Barcrest ™, SHFL ® and Dragonplay ® branded games. In addition, we also offer third-party branded games as well as original content.

In our RMG business, we provide game content to real-money online casino operators, primarily in Europe. We host the play of our game content on our centrally-located servers (often referred to as remote game servers) that are integrated with the online casino operators' websites. We typically earn a percentage of the operator's net gaming revenue generated by the games we host.

Our SG Universe includes three interactive services for land based casino operators: Mobile Concierge , Play4Fun ^TM and VenueBet . Mobile Concierge provides casinos with the ability to customize marketing to players while giving players access to their loyalty reward credits and the ability to make on-property reservations. Play4Fun is a social casino platform delivered through a land based casino operator’s branded website and mobile application. VenueBet is an on-property mobile real money gaming platform that allows casino patrons to play their favorite casino games for real money on their mobile devices while anywhere on the casino property. We typically earn revenue from a combination of service fees and the sale of virtual coins

Current Year Update

In early 2016, our Hot Shot Social Casino became one of the top 30 grossing apps on Facebook and, in the third quarter of 2016, we launched the mobile version of this product worldwide. We have continued to expand our RMG business with the launch of RMG products at 18 additional online casino operators in 2016.

Results of Operations and Key Performance Indicators for Interactive



	Three Months Ended September 30,				Variance				Nine Months Ended September 30,				Variance
(in millions)	2016		2015		2016 vs. 2015				2016		2015		2016 vs. 2015
Total revenue	$	85.2	$	51.2	$	34.0	66.4	%	$	241.2	$	149.7	$	91.5	61.1	%
Operating expenses	75.6		44.9		30.7		68.4	%	206.4		132.2		74.2		56.1	%
Operating income	$	9.6	$	6.3	$	3.3	52.4	%	$	34.8	$	17.5	$	17.3	98.9	%

Three and Nine Months Ended September 30, 2016 Compared to Three and Nine Months Ended September 30, 2015

Revenue



	Three Months Ended September 30,						Variance					Nine Months Ended September 30,						Variance
(in millions)	2016			2015			2016 vs. 2015					2016			2015			2016 vs. 2015
Revenue:
Services	$	85.2		$	51.2		$	34.0		66.4	%	$	241.2		$	149.7		$	91.5	61.1	%
Total revenue	$	85.2		$	51.2		$	34.0		66.4	%	$	241.2		$	149.7		$	91.5	61.1	%

F/X impact on revenue	$	(1.2	)	$	(1.1	)	$	(0.1	)	9.1	%	$	(1.9	)	$	(3.3	)	$	1.4	(42.4	)%

KPIs:
Social gaming:
Mobile Penetration ⁽¹⁾	69.0		%	56.0		%	13pp			nm		67.0		%	54.0		%	13pp		nm
Average MAU ⁽²⁾	8.0			6.3			1.7			27.0	%	8.0			7.1			0.9		12.7	%
Average DAU ⁽³⁾	2.5			2.2			0.3			13.6	%	2.5			2.2			0.3		13.6	%
ARPDAU ⁽⁴⁾	$	0.31		$	0.20		$	0.11		55.0	%	$	0.29		$	0.20		$	0.09	45.0	%

nm = not meaningful

pp = percentage points


(1)	Mobile penetration as defined by percentage of B2C social gaming revenue generated from mobile platforms.


(2)	MAU = Monthly Active Users and is 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 daily revenue per DAU is calculated by dividing revenue for a period by the DAU for the period by the number of days for the period.

The increase in revenue compared to both prior year periods is primarily attributable to social gaming revenue (including SG Universe ^TM ) which grew 80.8% and 69.1% in three and nine month comparable periods, respectively, reflecting the ongoing popularity of Jackpot Party Social Casino and the success of the recently launched Quick Hit Slots, Hot Shot Social Casino, and Blazing 7s Hot Shot Slots social gaming apps.

Operating Income

The increase in operating income compared to both prior year periods reflects the corresponding revenue growth. SG&A expense and R&D expense increased as a result of higher marketing and player acquisition costs, coupled with new product development costs to support ongoing growth initiatives for which revenue has not yet been recognized.

RECENTLY ISSUED ACCOUNTING GUIDANCE

For a description of recently issued accounting pronouncements, see Note 1.

CRITICAL ACCOUNTING ESTIMATES

For a description of our policies regarding our critical accounting estimates, see "Critical Accounting Estimates" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2015 10-K.

There have been no significant changes in our critical accounting estimate policies or the application of those policies to our consolidated financial statements from those presented in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2015 10-K.

LIQUIDITY, CAPITAL RESOURCES AND WORKING CAPITAL

Sources of Liquidity

As of September 30, 2016 , our principal sources of liquidity, other than cash flows provided by operating activities, were cash and cash equivalents and amounts available under our revolving credit facility discussed below under "Credit Agreement and Other Debt."

Cash and Available Revolver Capacity



(in millions)	As of September 30, 2016			As of December 31, 2015
Cash and cash equivalents	$	120.9		$	128.7
Revolver capacity	592.6			592.6
Revolver capacity drawn or committed to letters of credit	(106.2		)	(138.3		)
Total	$	607.3		$	583.0

The amount of our available cash and cash equivalents fluctuates principally based on borrowings or repayments under our credit facilities, investments, acquisitions and changes in our working capital position. The borrowing capacity under our revolving credit facility will depend on the amount of outstanding borrowings and letters of credit issued and on us remaining in compliance with the covenants under our credit agreement, including a maintenance covenant based on consolidated net first lien leverage. We were in compliance with the covenants under our credit agreement as of September 30, 2016.

We believe that our cash flow from operations, available cash and cash equivalents and available borrowing capacity under our existing or anticipated financing arrangements will be sufficient to meet our liquidity needs for the foreseeable future; however, there can be no assurance that this will be the case. For example, 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 flow from 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. We believe that substantially all cash held outside the U.S. is free from legal encumbrances or similar restrictions that would prevent it from being available to meet our global liquidity needs.

Total cash held by our foreign subsidiaries was $75.3 million as of September 30, 2016. To the extent that a portion of our foreign cash was required to 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 which would depend on a variety of factors.

Our gaming Participation and lottery systems businesses generally require significant upfront capital expenditures. In connection with 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 capital expenditures in order to retain or win the contract. Our ability to generate revenue and to continue to procure new contracts will depend on, among other things, our then present liquidity 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 cash payments on favorable terms or at all, we may not be able to bid on certain contracts, which could restrict our ability to grow and have a material adverse effect on our results of operations, cash flows and financial condition. Our ability to make payments on and to refinance our indebtedness and other obligations depends on our ability to generate cash in the future. We may also, from time to time, repurchase, or otherwise retire or refinance our debt, through our subsidiaries or otherwise. Such activities, if any, will depend on prevailing market conditions, contractual restrictions and other factors, and the amounts involved may or may not be material. 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 obtain new financing or to refinance any of our indebtedness on commercially reasonable terms or at all. During the second quarter of 2016, we repurchased and cancelled a portion of our 2020 Notes and 2021 Notes (see Note 11 for more information). In the event we pursue significant acquisitions or other expansion opportunities, conduct significant repurchases of our outstanding securities, or refinance or repay existing debt, we may need to raise additional capital either through the public or private issuance of equity or debt securities or through additional borrowings under our existing financing arrangements, which sources of funds may not necessarily be available on terms acceptable to us, if at all.

In addition, lottery customers in the U.S. generally require service providers to provide performance bonds in connection with the relevant contract. As of September 30, 2016, our outstanding performance bonds totaled

$223.3 million. Our ability to obtain performance bonds on commercially reasonable terms is subject to our financial condition and to prevailing market conditions, which may be impacted by economic and political events. Although we have not experienced difficulty in obtaining such bonds to date, there can be no assurance that we will continue to be able to obtain performance bonds on commercially reasonable terms, or at all.

Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015

Cash Flow Summary



	Nine Months Ended September 30,						Variance
(in millions)	2016			2015			2016 vs. 2015
Net cash provided by operating activities	$	342.8		$	255.5		$	87.3
Net cash used in investing activities	(187.8		)	(177.2		)	(10.6		)
Net cash used in financing activities	(161.7		)	(140.9		)	(20.8		)
Effect of exchange rates on cash and cash equivalents	(1.1		)	(7.1		)	6.0
Decrease in cash and cash equivalents	$	(7.8	)	$	(69.7	)	$	61.9

Cash flows from operating activities

Net cash provided by operating activities increased primarily due to the increase in incremental net earnings after adjusting for non-cash items of $64.1 million and a $23.2 million increase in working capital and other items.

Cash flows from investing activities

Net cash used in investing activities increased primarily due to a decrease of $13.0 million in distributions of capital on equity investments which was partially offset by $3.1 million in proceeds from asset sales. In addition, we decreased our capital expenditures by $19.2 million which was offset by a decrease in restricted cash of $12.8 million and a decrease in changes in other assets and liabilities and other of $7.1 million, when compared to the same period last year. Capital expenditures are composed of investments in systems, equipment and other assets related to contracts, property and equipment, intangible assets and software.

Cash flows from financing activities

Net cash used in financing activities increased primarily due to a net increase in payments on debt of $38.7 million. The increase was primarily due to the repurchase of $65.9 million in aggregate principal face value of our 2020 Notes and 2021 Notes for $39.9 million, resulting in a $25.2 million gain on early extinguishment of debt. In addition, we increased our payments on license obligations by $2.5 million and made $25.0 million less in net payments on our revolving credit facility, when compared to the nine-month period last year.

Credit Agreement and Other Debt

For additional information regarding our credit agreement and other debt, interest rate risk and interest rate hedging instruments, see Note 11 and Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in of our 2015 10-K.

Off-Balance Sheet Arrangements

As of September 30, 2016, we did not have any significant off-balance sheet arrangements.

Contractual Obligations

Other than the amendment and extension of terms of one of our existing license agreements, which is more fully described in Note 8, and the repurchase and cancellation of $56.5 million and $9.4 million of principal amount of our 2020 Notes and 2021 Notes, respectively, which is more fully described in Note 11, there have been no material changes to our contractual obligations disclosed under Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity, Capital Resources and Working Capital — Contractual Obligations" in our 2015 10-K.

During the third quarter of 2016, we entered into a definitive agreement to acquire all of the issued and outstanding common shares of DEQ Systems Corp. (DEQ) for approximately $21.0 million in cash. The transaction is expected to close around year-end 2016, subject to approval by DEQ’s shareholders, receipt of gaming approvals in certain jurisdictions and other customary closing conditions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the disclosure under Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" included in our 2015 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. The evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness in our internal control over financial reporting ("ICFR") previously disclosed in our 2015 10-K, our disclosure controls and procedures were not effective as of September 30, 2016. Although we have completed our remediation measures designed to correct the material weakness as of September 30, 2016, we are unable to conclude that the remediation was successful until further testing can be performed, as described below. The material weakness, which is described more fully in Item 9A of our 2015 10-K, is as follows: the Company's review control did not operate at a sufficient level of precision to identify the improper inclusion of deferred taxes in the fair value modeling used in our step two goodwill impairment test for our SG gaming reporting unit. Notwithstanding the material weakness identified by our management, our Chief Executive Officer and our Chief Financial Officer have concluded, based on their knowledge, that the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present in all material respects the Company's financial condition, results of operations and cash flows as of and for the periods presented in this report, in conformity with accounting principles generally accepted in the United States.

Changes in Internal Control over Financial Reporting

As previously disclosed, we identified a material weakness in our ICFR, pertaining to the step two goodwill impairment testing for our SG gaming reporting unit that we performed in accordance with ASC 350, Intangibles- Goodwill and Other . As of September 30, 2016 we have completed remediation measures designed to correct this material weakness as follows:

Reviewed the processes and controls related to the fair value modeling in the step two goodwill impairment assessment.

Designed and documented a new review control with enhanced precision related to the review of the fair value modeling of the step two goodwill impairment assessment.

Conducted a training program for relevant personnel and developed specific review procedures for the step two goodwill impairment assessment.

We believe these actions have meaningfully strengthened our ICFR, but we will not be able to conclude whether the material weakness has been remediated until sufficient time has elapsed to provide evidence that the enhanced controls are operating effectively in connection with our routine annual goodwill impairment testing to be performed in accordance with ASC 350. We are in the process of performing our annual goodwill impairment testing, which will be completed before the filing of our 2016 Annual Report on Form 10-K.

Other than the completion of the remediation steps described above, there were no changes in our ICFR during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our ICFR.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our legal proceedings, see Note 16.

Item 1A. Risk Factors

Except for the risk factor disclosed in our Quarterly Report on Form 10-Q for the period ended June 30, 2016, there have been no material changes in our risk factors from those disclosed under Item 1A. "Risk Factors" included in our 2015 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There was no stock repurchase activity during the three months ended September 30, 2016, other than 24,989 shares acquired from employees to satisfy the withholding taxes associated with the vesting of RSUs during this period at an average price paid per share of $10.01.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibit Number		Description
10.1		Employment Agreement dated as of August 4, 2016 by and between Scientific Games Corporation and Kevin Sheehan. *(†)

10.2		Form of Inducement Equity Award Agreement between Scientific Games Corporation and Kevin Sheehan (incorporated by reference to Exhibit 4.4 to Scientific Games Corporation’s Registration Statement on Form S-8 (No. 000-13063) filed on September 30, 2016).*

10.3		Form of Inducement Equity Award Agreement between Scientific Games Corporation and Kevin Sheehan (incorporated by reference to Exhibit 4.5 to Scientific Games Corporation’s Registration Statement on Form S-8 (No. 000-13063) filed on September 30, 2016).*

10.4		Modification Agreement dated as of August 4, 2016 by and between Scientific Games Corporation and M. Gavin Isaacs, which modified Mr. Isaacs’ Employment Agreement dated as of June 9, 2014 and amended on October 29, 2015.*(†)

10.5		Agreement and General Release dated as of October 1, 2016 by and between Scientific Games Corporation and Jeffrey Johnson, which modified Mr. Johnson’s Employment Agreement dated as of August 2, 2011 and amended on May 28, 2015.*(†)

31.1		Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (†)

31.2		Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (†)

32.1		Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (†)

32.2		Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (†)

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Label Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

(†) Filed herewith.

*Management contracts and compensation plans and arrangements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		SCIENTIFIC GAMES CORPORATION
		(Registrant)

		By:	/s/ Michael A. Quartieri
		Name:	Michael A. Quartieri
		Title:	Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Dated:	November 3, 2016

Exhibit 10.1

Employment Agreement

This Employment Agreement (this “ Agreement ”) is made as of August 4, 2016 by and between Scientific Games Corporation, a Delaware corporation (the “ Company ”), and Kevin Sheehan (“ Executive ”).

WHEREAS, 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 valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Company and Executive, the parties agree as follows.

1. Employment; Term . The Company hereby agrees to employ Executive, and Executive hereby accepts employment with the Company, in accordance with and subject to the terms and conditions set forth in this Agreement. This term of employment of Executive under this Agreement (the “ Term ”) shall be the period commencing on August 4, 2016 (the “ Effective Date ”) and ending on August 3, 2019, as may be extended in accordance with this Section 1 and subject to earlier termination in accordance with Section 4. The Term shall be extended automatically without further action by either party by one (1) additional year (added to the end of the Term), and then on each succeeding annual anniversary thereafter, unless either party shall have given written notice to the other party prior to the date which is sixty (60) days prior to the date upon which such extension would otherwise have become effective electing not to further extend the Term, in which case Executive’s employment shall terminate on the date upon which such extension would otherwise have become effective, unless earlier terminated in accordance with Section 4. A notice of non-renewal of the Term by the Company pursuant to this Section 1 shall be deemed to be a termination without Cause by the Company for purposes of this Agreement as of the end of the then Term.

2. Position and Duties . During the Term, Executive will serve as President and Chief Executive Officer of the Company and as an officer or director of any subsidiary or affiliate of the Company if elected to any such position by the stockholders or by the board of directors of any such subsidiary or affiliate, as the case may be. In such capacities, Executive shall perform such duties and shall have such responsibilities as are normally associated with such positions, and as otherwise may be assigned to Executive from time to time by or upon the authority of the board of directors of the Company (the “ Board ”). Subject to Section 4(e), Executive’s functions, 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 of Executive’s ability in such capacities, devoting all of Executive’s business time to such employment. Notwithstanding the foregoing, during the Term, Executive may (i) participate in charitable, civic, educational, professional, community or industry affairs, but service on any board shall be subject to (ii), (ii) with prior written consent for each individual board position (which may be granted or denied in the Board’s sole discretion), serve as a member of the boards of directors of for-profit and not-for-profit entities, and (iii) manage Executive’s passive personal investments, so long as such activities, individually or in the aggregate, do not materially interfere or conflict with Executive’s duties hereunder or create a potential business or fiduciary conflict.

3. Compensation .

(a) Base Salary . During the Term, Executive will receive a base salary of one million eight hundred thousand U.S. dollars (US$1,800,000) per annum (pro-rated for any partial year), payable in accordance with the Company’s regular payroll practices and subject to such deductions or amounts to be withheld as 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 such increase, constitute the “ base salary ” of Executive for purposes of this Agreement.

(b) Incentive Compensation . Executive shall have the opportunity annually to earn incentive compensation (“ Incentive Compensation ”) in amounts determined by the Compensation Committee of the Board (the “ Compensation Committee ”) in its sole discretion in accordance with the applicable incentive compensation plan of the Company as in effect from time to time (the “ Incentive Compensation Plan ”). Under such Incentive Compensation Plan, Executive shall have the opportunity annually to earn up to 100% of Executive’s base salary as Incentive Compensation at “target opportunity” (“ Target Bonus ”) and up to 200% of Executive’s base salary as Incentive Compensation at “maximum opportunity” on the terms and subject to the conditions of such Incentive Compensation Plan (any such Incentive Compensation to be subject to such deductions or amounts to be withheld as required by applicable law and regulations or as may be agreed to by Executive). Executive shall be entitled to guaranteed Incentive Compensation equal to nine hundred thousand U.S. dollars ($900,000) for the 2016 performance period, to be paid on the same date as Incentive Compensation is paid to other senior executives of the Company.

(i) The Company will make a grant to Executive in 2017 of stock options, restricted stock units or other equity awards with a grant date fair value equal to approximately 250% of Executive’s base salary, as measured in accordance with the Company’s standard practices of measuring equity value, and in accordance with the applicable plans and programs of the Company for senior executives of the Company and subject to the Company’s right to at any time amend or terminate any such plan or program, so long as any such change does not adversely affect any accrued or vested interest of Executive under any such plan or program. Executive shall be eligible (beginning in 2018) to receive an annual grant of stock options, restricted stock units or other equity awards currently expected to be targeted at approximately 250% of Executive’s base salary, in the sole discretion of the Compensation Committee and in accordance with the applicable plans and programs of the Company for senior executives of the Company and subject to the Company’s right to at any time amend or terminate any such plan or program, so long as any such change does not adversely affect any accrued or vested interest of Executive under any such plan or program.

(ii) In addition, the Company will grant to Executive within ten (10) days after the Effective Date an equity award for 2016 equal to approximately 250% of Executive’s base salary, prorated based on a fraction, the numerator of which is the number of days Executive will be employed in 2016, and the denominator of which is 365 (the “ 2016 Award ”), pursuant to an equity award agreement substantially in the form attached hereto as Exhibit A , to be entered into by and between the Company and Executive (the “ 2016 Award Agreement ”). The 2016 Award will be granted as an employment inducement award pursuant to NASDAQ Listing Rule 5635(c)(4).

(d) Expense Reimbursement . Subject to Section 3(g), the Company shall reimburse Executive for all reasonable and necessary travel, business entertainment and other business expenses incurred by Executive in connection with the performance of Executive’s duties under this Agreement, on a timely basis upon timely submission by Executive of vouchers therefor in accordance with the Company’s standard policies and procedures.

(e) Health and Welfare Benefits . Executive shall be entitled to participate, without discrimination or duplication, 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 generally available by the Company to senior executives of the Company in accordance with the terms of such plans and programs and 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 from time to time.

(f) Sign-On Award . In connection with Executive’s execution of this Agreement, the Company will grant to Executive an inducement award within ten (10) days after the Effective Date comprised of 400,000 restricted stock units (the “ Sign-On Award ”), pursuant to an equity award agreement substantially in the form attached hereto as Exhibit B , to be entered into by and between the Company and Executive (the “ Sign-On Award Agreement ”). The Sign-On Award will be granted as an employment inducement award pursuant to NASDAQ Listing Rule 5635(c)(4).

(g) Taxes and Internal Revenue Code 409A . Payment of all compensation and benefits to Executive under this Agreement shall be subject to all legally required and customary withholdings. The Company makes no representations or warranties and shall have no responsibility regarding the tax implications of the compensation and benefits to be paid to Executive under this Agreement, including under Section 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 under the Code) which may include, among others, nonqualified retirement plans, bonus plans, stock option plans, employment agreements and severance agreements. The Company reserves the right to pay compensation and provide benefits under this Agreement (including under Section 3 and Section 4) in amounts, at times and in a manner that minimizes taxes, interest or penalties as a result of Section 409A. In addition, in the event any benefits or amounts paid to Executive hereunder are deemed to be subject to Section 409A, Executive consents to the Company adopting such conforming amendments as the Company deems necessary, in its reasonable discretion, to comply with Section 409A (including delaying payment until six (6) months following termination of employment). To the extent any payments of money or other benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section 409A, such payments or other benefits may be deferred if deferral will make such payment or other benefits compliant under Section 409A, or otherwise such payments or other benefits shall be restructured, to the extent permissible under Section 409A, in a manner determined by the Company that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to Executive under this Agreement constitute deferred compensation under Section 409A, any such reimbursements or in-kind benefits shall be paid to Executive in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A.

(h) Relocation . Executive shall promptly relocate to, and shall be based in, Las Vegas, Nevada at the Company’s headquarters. Executive will be reimbursed for reasonable relocation expenses in accordance with Company policies in connection with moving his primary residence from New York to the Las Vegas area, including house-hunting trips (with his spouse), trip to enroll his children in school, temporary living expenses for up to 90 days, movement of Executive’s household goods, and reimbursement of reasonable closing costs incurred in connection with the purchase of a home in the Las Vegas area.

4. Termination of Employment . Executive’s employment may be terminated at any time prior to the end of the Term under the terms described in this Section 4, and the Term shall automatically terminate upon any termination of Executive’s employment. For purposes of clarification, except as provided in 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 stock units 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 employment hereunder 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 for other than Good Reason pursuant to this Section 4(a). In the event Executive terminates Executive’s employment for other than Good Reason, 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 withheld as 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 will be paid under the terms and conditions of such plans, programs, and arrangements (and agreements and documents thereunder)); and

(iii) reasonable business expenses and disbursements incurred by Executive prior to such termination will be reimbursed in accordance with Section 3(d).

(b) Termination By Reason of Death . If Executive dies during the Term, the last beneficiary designated by Executive by written notice to the Company (or, in the absence of such designation, Executive’s estate) shall be entitled only to the Standard Termination Payments, including any benefits that may be payable under any life insurance benefit of Executive for which the Company pays premiums, in accordance with the terms of any such benefit and subject to the right of the Company (or its applicable 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 of Executive’s “Total Disability.” For purposes of this Agreement, “ Total Disability ” shall mean Executive’s (1) becoming eligible to receive benefits under any long-term disability insurance program of the Company or (2) failure to perform the duties and responsibilities contemplated under this Agreement for a period of more than 180 days during any consecutive 12-month period due to physical or mental incapacity or impairment. In the event that Executive’s employment is terminated by the Company by reason of Total Disability, Executive shall be entitled only to the Standard Termination Payments and any amounts due under any Company disability policy.

(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 any of its subsidiaries or affiliates or evidencing moral turpitude; (iii) willful misconduct by Executive in connection with the performance of Executive’s duties hereunder; (iv) intentional breach by Executive of any material provision of this Agreement; (v) material violation by Executive of a material provision of the Company’s Code of Business Conduct; or (vi) any other willful or grossly negligent conduct of Executive that would make the continued employment of Executive by the Company materially prejudicial to the best interests of the Company. In the event Executive’s employment is terminated for “Cause,” Executive shall not be entitled to receive any compensation or 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 terminate Executive’s employment at any time without Cause, for any reason or no reason, and Executive may terminate Executive’s employment for “Good Reason.” For purposes of this Agreement “ Good Reason ” shall mean that, without Executive’s prior written consent, any of the following shall have occurred: (A) a material adverse change to Executive’s positions, titles, offices, or duties following the Effective Date from those set forth in Section 2, except, in such case, in connection with the termination of Executive’s employment for Cause or due to Total Disability, death or expiration of the Term; provided , however , that a Good Reason event shall not be deemed to have occurred if, the Company ceases to be a publicly-traded company, based on Executive’s duties changing from those of a public company chief executive officer to those of a private company chief executive officer; (B) a material decrease in base salary or material decrease in Executive’s Incentive Compensation opportunity provided under this Agreement; (C) a requirement that on a continuing basis Executive reports to anyone other than the Board; provided that Executive may be required to report to the Board through the chairman or another Board member who is not a former executive officer of the Company; and, provided , further , that in the event that the Company ceases to be a publicly-traded company, in addition to reporting to the Board, Executive may also be required to report to a senior executive of the controlling company; or (D) any other material failure by the Company 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 (A) through (D) of this Section 4(e) shall not be considered effective unless Executive shall have provided the Company with written notice of the specific reasons for such termination within thirty (30) days after he has knowledge of the event or circumstance constituting Good Reason and the Company shall have failed to cure the event or condition allegedly constituting Good Reason within thirty (30) days after such notice has been given to the Company and Executive actually terminates his employment within one (1) year following the initial occurrence of the event giving rise to Good Reason. In the event that Executive’s employment is terminated by the Company without Cause or by Executive for Good 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 a notice of non-renewal of the Term by the Executive pursuant to Section 1), 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 one times (1X) the sum of (A) Executive’s base salary and (B) an amount equal to the highest annual Incentive Compensation paid to Executive (if any) in respect of the two (2) most recent fiscal years of the Company but not more than Executive’s Target Bonus for the-then current fiscal year (provided if such termination occurs during 2016 or 2017, such amount shall be Executive’s Target Bonus for the-then current fiscal year) (such amount under this sub-clause (B), the “ Severance Bonus Amount ”), such amount under this clause (ii) payable over a period of twelve (12) months after such termination in accordance with Section 4(g); provided , however , that if termination of employment under this Section 4(e) occurs at any time prior to the first anniversary of the Effective Date, Executive shall instead be entitled to two times (2X) the sum of (A) and (B) in this sub-section (ii); and

(iii) in lieu of any Incentive Compensation for the year in which such termination occurs, payment of an amount equal to (A) the Incentive Compensation (if any) which would have been payable to Executive had Executive remained in employment with the Company during the entire year in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Executive was employed in the year in which such termination occurs and the denominator of which is the total number of days in the year in which such termination occurs, payable when bonuses are paid to other executives of the Company, but no later than March 15 following the end of the year in which such termination occurs; and

(iv) if Executive elects to continue medical coverage under the Company’s group health plan in accordance with COBRA, an amount equal to the monthly premiums for such coverage less the amount of employee contributions for similarly-situated active employees of the Company, 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 of any equity award made to Executive, full vesting of any unvested stock options and any unvested restricted stock units held by Executive immediately prior to such termination (provided that any such stock options (together with any other vested stock options) held by Executive will cease being exercisable upon the earlier of ninety (90) days after such termination and the scheduled expiration date of such stock options), and, in all other respects, all stock options, restricted stock units and other equity-based awards held by Executive shall be governed by the plans and programs and the agreements and other documents pursuant to which the awards were granted; provided , however , that in the event such termination occurs prior to the Compensation Committee’s determination as to the satisfaction of any performance criteria 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 a determination is or has been made by the Compensation Committee that such criteria have been satisfied, at which time such stock options and/or restricted stock units will vest (and, in the case of any such stock options, will become exercisable) to the extent contemplated by the terms of such award (it being understood and agreed, for the avoidance of doubt, that such stock options or restricted stock units will immediately be forfeited to the extent contemplated 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 equity-based awards shall be made on the date that is six (6) months plus one (1) day following expiration of the Term.

(f) Termination by the Company without Cause or by Executive for Good Reason in connection with a Change in Control . In the event Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason pursuant to Section 4(e) and such termination occurs upon, or within one (1) year immediately following, a “Change in Control” (as defined below), Executive shall be entitled (without duplication) to the payments and benefits described in Section 4(e), except that, solely in the case of an amount otherwise payable under Section 4(e)(ii) for terminations occurring on or after the one (1) year anniversary of the Effective Date, 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 be payable over a period of twenty-four (24) months after termination in accordance with Section 4(g) of this Agreement; provided , however , to the extent that such amount under Section 4(e)(ii) is exempt from Section 409A and/or if such Change in Control constitutes a change in ownership, change in effective control or a change in ownership of a substantial portion of the assets of the Company under Regulation Section 1.409A-3(i)(5), such amount otherwise payable under Section 4(e)(ii) shall be paid in a lump sum in accordance with Section 4(g) of this Agreement.

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 the Company and any subsidiary or affiliate and any employee benefit plan sponsored or maintained by the Company or any subsidiary or affiliate (including any trustee of such plan acting as trustee) or any current stockholder of 20% or more of the outstanding common stock of the Company, directly or indirectly, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing at least 40% of the combined voting power of the Company’s then-outstanding securities; (ii) the stockholders of the Company approve a merger, consolidation, recapitalization, or reorganization of the Company, or a reverse stock split of any class of voting securities of the Company, or the consummation of any such transaction if stockholder approval is not obtained, other than any such transaction that would result in at least 60% of the total voting power represented by the voting securities of the Company or the surviving entity outstanding immediately after such transaction being beneficially owned by persons who together beneficially owned at least 80% of the combined voting power of the voting securities of the Company outstanding immediately prior to such transaction; provided that, for purposes of this Section 4(f), such continuity of ownership (and preservation of relative voting power) shall be deemed to be satisfied if the failure to meet such 60% threshold is due solely to the acquisition of voting securities by an employee benefit plan of the Company or such surviving entity or of any subsidiary of the Company or such surviving entity; (iii) the stockholders of the Company approve a plan of complete liquidation of the Company, an agreement for the sale or disposition by the Company 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 a director 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 the Company’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 nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board.

(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 benefits received or to be received by Executive pursuant to this Agreement would constitute deferred compensation subject to Section 409A, and (iii) the deferral of the commencement of any such payments or benefits otherwise payable hereunder as a result of such separation of service is necessary in order to prevent any accelerated or additional tax under Section 409A, such payments shall be made as follows: (x) no payments for a six-month period following the date of Executive’s separation of service with the Company; (y) an amount equal to the aggregate sum that would have been otherwise payable during the initial six-month period paid in a lump sum on the first payroll date following six (6) months following the date of Executive’s separation of service with the Company (subject to such deductions or amounts to be withheld as required by applicable law and regulations); and (z) 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 the remaining amount due in equal installments in accordance with the Company’s standard payroll practices (subject to such deductions or amounts to be withheld as required by applicable law and regulations).

(h) Mitigation . In the event the Company terminates Executive’s employment without Cause or Executive terminates his employment for Good Reason and Executive is employed by or otherwise engaged to provide services to another person 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, (i) Executive shall immediately advise the Company of such employment or engagement and his compensation therefor (including any health insurance benefits to which he is entitled in connection therewith), (ii) the Company’s obligation to make continued insurance payments to or on behalf of Executive shall be reduced by any insurance coverage obtained by Executive during the applicable period through such other employment or engagement (without regard to when such coverage is paid) and (iii) the Company’s obligation to make payments pursuant to Section 4(e)(ii) (or, as the case may be, its obligation pursuant to Section 4(f) to make payments equal to two (2) times the amount contemplated in Section 4(e)(ii) for terminations occurring after the one (1) year anniversary of the Effective Date) shall be reduced by any base salary or fee arrangements or target annual bonus payable to Executive for the applicable period through such other employment or engagement in the same pay period as earned with target bonus allocated equally over the period and also including any up-front payments or deferred payments structured to avoid the obligations under this paragraph; provided , however , that in the event that any such amounts shall have been paid to Executive in a lump sum pursuant to Section 4(f), Executive shall promptly repay the Company the portion of such amounts which would not have been previously paid if the payment was structured in monthly installments as opposed to a lump sum. Executive shall promptly notify the Company of his new compensation arrangement with the new entity and respond to reasonable inquiries. Any amount improperly paid to Executive shall be promptly refunded to the Company.

(i) Set-Off . To the fullest extent permitted by law and provided an acceleration of income or the imposition of an additional tax under Section 409A would not result, any amounts otherwise due to Executive hereunder (including any payments pursuant to this Section 4) shall be subject to set-off with respect to any amounts Executive otherwise owes the Company or any subsidiary or affiliate thereof.

(j) No Other Benefits or Compensation . Except as may be specifically provided under this Agreement, under any other effective 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 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 such termination or resignation. Executive acknowledges and agrees that he is entitled to no compensation or benefits from the Company or any of its subsidiaries or affiliates of any kind or nature whatsoever in respect of periods prior to the date of this Agreement. Executive acknowledges and agrees that he shall not receive any fees or other compensation (including equity compensation) for Board service.

(k) Release of Employment Claims; Compliance with Section 5 . Executive agrees, as a condition to receipt of any termination payments and benefits provided for in this Section 4 (other than the Standard Termination Payments), that Executive will execute a general release agreement, in a form reasonably satisfactory to the Company, releasing any and all claims arising out of Executive’s employment and the termination of such employment. Such release agreement will not impose upon Executive any non-competition, non-solicitation, non-disparagement or similar restrictive covenant not otherwise set forth herein or in any other agreement entered into by Executive prior to the date of the release, nor shall the release agreement impose upon Executive any post-termination restrictions or service requirements not otherwise set forth herein or in any other agreement entered into by Executive prior to the date of the release. The Company shall provide Executive with the proposed form of general release agreement referred to in the immediately preceding sentence no later than seven (7) days following the date of termination. Executive shall thereupon have 21 days or, if required by the Older Workers Benefit Protection Act, 45 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 revoke such general release agreement. Absent such revocation, such general release agreement shall become binding on Executive. If Executive does not revoke such general release agreement, payments contingent on such general release agreement that constitute deferred compensation under Section 409A (if any) shall be paid on the later of the 60 th day after the date of termination or the date such payments are otherwise scheduled to be paid pursuant 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 or materially breaches Section 5.1, 5.2 , 5.3, 5.4, or 5.8.

(l) Section 280G . If the aggregate of all amounts and benefits due to the Executive under this Agreement or any other plan, program, agreement or arrangement of the Company or any of its affiliates, which, if received by the Executive in full, would constitute “parachute payments,” as such term is defined in and under Section 280G of the Code (collectively, “ Change in Control Benefits ”), reduced by all Federal, state and local taxes applicable thereto, including the excise tax imposed pursuant to Section 4999 of the Code, is less than the amount the Executive would receive, after all such applicable taxes, if the Executive received aggregate Change in Control Benefits equal to an amount which is $1.00 less than three (3) times the Executive's “base amount,” as defined in and determined under Section 280G of the Code, then such Change in Control Benefits shall be reduced or eliminated to the extent necessary so that the Change in Control Benefits received by the Executive will not constitute parachute payments. If a reduction in the Change in Control Benefits is necessary, reduction shall occur in the following order unless the Executive elects in writing a different order, subject to the Company's consent (which shall not be unreasonably withheld or delayed): (i) severance payment based on multiple of base salary and/or Target Bonus; (ii) other cash payments; (iii) any pro-rated bonus paid as severance; (iv) acceleration of vesting of stock options with an exercise price that exceeds the then fair market value of stock subject to the option, provided such options are not permitted to be valued under Treasury Regulations Section 1.280G-1 Q/A – 24(c); (v) any equity awards accelerated or otherwise valued at full value, provided such equity awards are not permitted to be valued under Treasury Regulations Section 1.280G-1 Q/A – 24(c); (vi) acceleration of vesting of stock options with an exercise price that exceeds the then fair market value of stock subject to the option, provided such options are permitted to be valued under Treasury Regulations Section 1.280G-1 Q/A – 24(c); (vii) acceleration of vesting of all other stock options and equity awards; and (viii) within any category, reductions shall be from the last due payment to the first.

It is possible that after the determinations and selections made pursuant to the preceding paragraph that the Executive will receive Change in Control Benefits that are, in the aggregate, either more or less than the amounts contemplated by the preceding paragraph (hereafter referred to as an “ Excess Payment ” or “ Underpayment ,” respectively). If there is an Excess Payment, the Executive shall promptly repay the Company an amount consistent with this paragraph. If there is an Underpayment, the Company shall pay the Executive an amount consistent with this paragraph.

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 the Company’s confidential records and proprietary information renders Executive special and unique within the Company’s industries. In consideration of the amounts that may hereafter be paid to Executive pursuant to this Agreement (including 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)), 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 or operations: (i) (A) involving the design, development, manufacture, production, sale, lease, license, provision, operation or management (as the case may be) of (1) instant lottery tickets or games or any related marketing, warehouse, distribution, category management or other services or programs; (2) lottery-related terminals or vending machines (whether clerk-operated, self-service or otherwise), (3) gaming machines, terminals or devices (including video or reel spinning slot machines, video poker machines, video lottery terminals and fixed odds betting terminals), (4) lottery, video gaming (including server-based gaming), sports betting or other wagering or gaming systems, regardless of whether such systems are land-based, internet-based or mobile (including control and monitoring systems, local or wide-area progressive systems and redemption systems); (5) lottery-, real money gaming- or social gaming-related proprietary or licensed content (including themes, entertainment and brands), platforms, websites and loyalty and customer relationship management programs regardless of whether any of the foregoing are land-based, internet-based or mobile-based; (6) social casino games or websites or mobile phone or tablet applications (or similar known, or hereafter existing, technologies) featuring social casino games or any related marketing, distribution, or other services or programs; (7) interactive casino gaming products or services, including interactive casino-game themed games and platforms for websites or mobile phone or tablet applications (or similar known, or hereafter existing, technologies); (8) gaming utility products (including shufflers, card-reading shoes, deck checkers and roulette chip sorters), table games (including live, simulated, online, social gaming, interactive and electronic) and related products and services; (9) slot accounting, casino management, casino marketing, player tracking, lottery, video lottery, bingo or similar gaming- or casino-related systems and related peripheral hardware, software and services; (10) prepaid cellular or other phone cards; or (11) 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 (1) through (10) above; or (B) in which the Company is then or was within the previous 12 months engaged, or in which the Company, to Executive’s knowledge, contemplates to engage in 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 has obtained proprietary or confidential information; and (iii) which were conducted anywhere in the United States or in any other geographic area in which such business was conducted or contemplated to be conducted by the Company. Notwithstanding anything to the contrary in the foregoing, the holding of up to one percent (1%) of the outstanding equity in a publicly traded entity for passive investment purposes shall not, in and of itself, be construed as engaging in a Competing Business.

(b) In further consideration of the amounts that may hereafter be paid to Executive pursuant to this Agreement (including Sections 3 and 4), Executive agrees that, during the Term (including any extensions thereof) and during the Covered Time, Executive shall not, directly or indirectly: (i) solicit or attempt to induce any of the employees, agents, consultants or representatives of the Company to terminate his, her, or its relationship with the Company; (ii) solicit or attempt to induce any of the employees, agents, consultants or representatives of the Company to become employees, agents, consultants or representatives of any other person or entity; (iii) solicit or attempt to induce any customer, vendor or distributor of the Company to curtail or cancel any business with the Company; or (iv) hire any person who, to Executive’s actual knowledge, is, or was within 180 days prior to such hiring, an employee of the Company.

(c) During the Term (including any extensions thereof) and during the Covered Time, Executive agrees that upon the earlier of Executive’s (i) negotiating with any Competitor (as defined below) concerning the possible employment of Executive by the Competitor, (ii) responding to (other than for the purpose of declining) an offer of employment from a Competitor, or (iii) becoming employed by a Competitor, (A) Executive will provide copies of Section 5 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 the Term or during the Covered Time, Executive will promptly provide notice to the Company of such circumstances. Executive further agrees that the 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 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 a business similar to the business of the Company but nevertheless agrees and acknowledges that the consideration provided under this Agreement (including Sections 3 and 4) is sufficient to justify such restrictions. In consideration thereof and in light of Executive’s education, skills and abilities, Executive agrees that Executive will not assert in any forum 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 of Executive’s employment (the “ Date of Termination ”) and ending twelve (12) months after the Date of Termination.

5.2 Proprietary Information; Inventions.

(a) Executive acknowledges that, during the course of Executive’s employment with the Company, Executive necessarily will have (and during any employment by, or affiliation with, the Company prior to the Term has had) access to and made use of proprietary information and confidential records of the Company. Executive covenants that Executive shall not during the Term or at any time thereafter, directly or indirectly, use for Executive’s own purpose or for the benefit of any person or entity other than the Company, nor otherwise disclose to any person or entity, any such proprietary information, unless and to the extent such disclosure has 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 the Company; (ii) the name and/or address of any customer or vendor of the Company 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 its customers or vendors or competitors, or under development by or being tested by the Company but not at the time offered generally to customers or vendors; (iv) any information relating to the Company’s computer software, computer systems, pricing or marketing methods, 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 information that, 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 and procedures or manuals; (ix) any information belonging to customers, vendors or any other person or entity which the Company, to Executive’s actual knowledge, has agreed to hold in confidence; and (x) all written, graphic, electronic data and other material containing any of the foregoing. Executive acknowledges 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, information that becomes available to Executive on an unrestricted, non-confidential basis from a source other than the Company or any of its directors, officers, employees, agents or other representatives (without breach of any obligation of confidentiality of which Executive has knowledge, after reasonable inquiry, at the time of the relevant disclosure to Executive), or general gaming industry information to the extent not particularly related or proprietary to the Company that was already known to Executive at the time Executive commences his employment with 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 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 or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such information (provided that in such case Executive shall first give the Company prompt written notice of any such legal requirement, disclose no more information than is so required and cooperate fully with all efforts by the Company to obtain a protective order or similar confidentiality treatment for such information), (C) such information or records becomes generally known to the public without his violation of this Agreement, or (D) disclosed to Executive’s spouse, attorney and/or his personal tax and financial advisors to 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 be deemed to be a breach of this Section 5.2 or Section 5.3 by Executive.

(b) Executive 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 Executive during 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 any manner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made on the Company’s time or with the use of the Company’s facilities or materials. Executive shall further: (i) promptly disclose such Inventions to the Company; (ii) assign to the Company, without additional compensation, all patent 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) give testimony in support of Executive’s inventorship. If any Invention is described in a patent application or is disclosed to third parties, directly or indirectly, by Executive within two (2) years after the termination of Executive’s employment with the Company, it is to be presumed that the Invention was conceived or made during the Term. Executive agrees that Executive 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 C to this Agreement.

5.3 Confidentiality and Surrender of Records .

(a) 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 by law, directly or indirectly publish, make known or in any fashion disclose any confidential records to, or permit any inspection or copying of confidential records by, any person or entity other than in the course of such person’s or entity’s employment or retention by the Company, nor shall Executive retain, and will deliver promptly to the Company, any of the same following termination of Executive’s employment hereunder for any reason or upon request by the Company. For purposes hereof, “ confidential records ” means those portions of correspondence, memoranda, files, manuals, books, lists, financial, operating or marketing records, magnetic tape, or electronic or other media or equipment of any kind in Executive’s possession or under Executive’s control or accessible to Executive which contain any proprietary information. All confidential records shall be and remain the sole property of the Company during the Term and thereafter.

(b) Notwithstanding anything herein to the contrary, nothing in this Agreement shall (i) prohibit Executive from making reports of possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or of any other whistleblower protection provisions of state or federal law or regulation, or (ii) require notification or prior approval by the Company of any reporting described in clause (i). Executive understands that activities protected by Sections 5.2 and 5.3 may include disclosure of trade secret or confidential information within the limitations permitted by the Defend Trade Secrets Act (“ DTSA ”). And, in this regard, Executive acknowledges notification that under the DTSA no individual will be held criminally or civilly liable under Federal or State trade secret law for disclosure of a trade secret (as defined in the Economic Espionage Act) that is: (A) made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney, and made solely for the purpose of reporting or investigating a suspected violation of law; or, (B) made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal so that it is not made public. And, an individual who pursues a lawsuit for retaliation by an employer for reporting a suspected violation of the law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal, and does not disclose the trade secret, except as permitted by court order.

5.4 Non-disparagement . Executive shall not, during the Term and thereafter, disparage in any material respect the Company, any affiliate of the Company, any of their respective businesses, any of their respective officers, directors or employees, or the reputation of any of the foregoing persons or entities. Notwithstanding the foregoing, nothing in this Agreement shall preclude Executive 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 to undertake or perform the duties described herein by any contract, agreement or restrictive covenant. Executive covenants that Executive shall not employ the trade secrets or proprietary information of any other person in connection with Executive’s employment by the Company without such person’s authorization.

5.6 Forfeiture of Outstanding Equity Awards; “Clawback” Policies . The provisions of Section 4 notwithstanding, if Executive 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, contemporaneous with, 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 or program, any incentive-based compensation or benefits contemplated under this Agreement (including Incentive Compensation and equity-based awards) shall be subject to recovery by the Company under any compensation recovery or “clawback” policy, generally applicable to senior 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 and Consumer Protection Act and the rules and regulations of the Securities and Exchange Commission thereunder or the requirements of any 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 to and use of confidential records and proprietary information, any violation by Executive of any of the undertakings contained in this Section 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 jurisdiction restraining any violation or threatened violation of any undertaking contained in this Section 5. Executive waives posting of any bond otherwise necessary to secure such injunction or other equitable relief. Rights and remedies provided for in this Section 5 are cumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any other agreement or applicable law.

5.8 Cooperation with Regard to Litigation . Executive agrees to cooperate reasonably with the Company, during the Term and thereafter (including following Executive’s termination of employment for any reason), by providing information to the Company regarding matters related to his term of employment and by being available to testify on behalf of the Company in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative. In addition, except to the extent that Executive has or intends to assert in good faith an interest or position adverse to or inconsistent with the interest or position of the Company, Executive agrees to cooperate reasonably with the Company, during the Term and thereafter (including following Executive’s termination of employment for any reason), to assist the Company in any such action, suit, or proceeding by providing information 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) all reasonable travel and communication expenses actually incurred in connection with Executive’s cooperation and assistance.

5.9 Survival . The provisions of this Section 5 shall survive the termination of the Term and any termination or expiration of this Agreement.

5.10 Company . For purposes of this Section 5, references to the “ Company ” shall include the Company and each subsidiary and/or affiliate of the Company (and each of their respective joint ventures and equity method investees).

6. Code of Conduct . Executive acknowledges that he has read the Company’s Code of Business Conduct and agrees to abide by such Code of Business Conduct, as amended or supplemented from time to time, and other policies applicable to employees and executives of the Company.

7. Indemnification . The Company shall indemnify Executive to the full extent permitted under the Company’s Certificate of Incorporation 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 the Company or of any subsidiary or affiliate of the Company. This provision shall survive termination of employment.

8. Assignability; Binding Effect . Neither this Agreement nor the rights or obligations hereunder of the parties shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution and as specified below. The Company may assign this Agreement and the Company’s rights and obligations hereunder to any affiliate of the Company, provided that upon any such assignment the Company shall remain liable for the obligations to Executive hereunder. This Agreement shall be binding upon and inure to the benefit of Executive, Executive’s heirs, executors, administrators, and beneficiaries, and shall be binding upon 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 parties with 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 by either party with respect thereto except as expressly set forth herein. Except as contemplated by Section 3(g), this Agreement shall not be modified, amended or terminated except by a written instrument signed by each of the parties. Any waiver of any term or provision hereof, or of the application of any such term or provision to any circumstances, shall be in writing signed by the party charged with giving 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 operate as a waiver thereof, and no single or partial exercise by either party of any 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 circumstances shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement, or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be enforced to the fullest extent permitted by law. If any provision of this Agreement, or any part thereof, is held to be invalid or unenforceable because of the scope or duration of or the area covered by such provision, the parties agree that the court making such determination shall reduce the scope, duration and/or area of such provision (and shall substitute appropriate provisions for any such invalid or unenforceable provisions) in order to make such provision enforceable to the fullest extent permitted by law and/or shall delete specific words and phrases, and such modified provision shall then be enforceable and shall be enforced. The parties recognize that if, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants contained in this Agreement, then that invalid or unenforceable covenant contained in this Agreement shall be deemed eliminated from these provisions to the extent necessary to permit the remaining separate covenants to be enforced. In the event that any court determines that the time period or the area, or both, are unreasonable and that any of 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 of Executive’s employment hereunder, or of this Agreement, shall so survive such termination, whether or not such provisions expressly state 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 of New York 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, unemployment compensation, and any other claim that is non-arbitrable under applicable law, final and binding arbitration shall be the exclusive forum for any dispute or controversy between them, including, without limitation, disputes arising under or in connection 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 relief in connection with any alleged actual or threatened violation of any provision of Section 5. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. For purposes of entering such judgment or seeking injunctive relief with regard to Section 5, the Company and Executive hereby consent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the Southern District of New York; (ii) the Supreme Court of New York County, New York; or (iii) any other court having jurisdiction; provided that damages for any alleged violation 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 exclusively subject to final and binding arbitration 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 arising under federal state or local law), including 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 Association in New York, New York before three arbitrators, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association in effect at the time of submission to arbitration. The Company and Executive hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Company shall pay all costs uniquely attributable to arbitration, including the administrative fees and costs of the arbitrators. Each party shall pay that party’s own costs and attorney fees, if any, unless the arbitrators rule otherwise. Executive understands that he is giving up no substantive rights, and this Agreement simply governs forum. 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 so ordered by the arbitrators.



EXECUTIVE INITIALS: [ ]		COMPANY INITIALS: [ ]

(c) WAIVER OF JURY TRIAL . BY SIGNING THIS AGREEMENT, EXECUTIVE AND THE COMPANY ACKNOWLEDGE THAT THE RIGHT TO A COURT TRIAL AND TRIAL BY JURY IS OF VALUE, AND KNOWINGLY AND VOLUNTARILY WAIVE THAT RIGHT FOR ANY DISPUTE SUBJECT TO THE TERMS OF THIS 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 that ambiguities are to be construed against the drafter is, and shall be, inapplicable. If any language in this Agreement is found or claimed to be ambiguous, each party shall have the same opportunity to present evidence as to the actual intent of the parties with respect to any such ambiguous language without any inference or presumption being drawn against any party.

15. Notices . All notices and other communications to be given or to otherwise be made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument delivered in person or duly sent by certified mail or by a recognized national courier service, postage or charges prepaid, (a) to 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 the Company’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 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 to a party or parties to this Agreement unless otherwise indicated or the context requires otherwise. 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” is disjunctive but not exclusive and (c) words in this Agreement using the singular or plural number also include the plural or singular number, respectively, and the use of any gender herein shall be deemed to include the other genders. References in this Agreement to “dollars” or “$” are to U.S. dollars. When a reference is made in this Agreement to a law, statute or legislation, such reference shall be to such law, statute or legislation as it may be amended, modified, extended or re-enacted from time to 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.

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IN WITNESS WHEREOF, each of the parties has duly executed this Agreement as of the date above written.



	SCIENTIFIC GAMES CORPORATION

	By:	/s/ Richard M. Haddrill
	Name:	Richard M. Haddrill
	Title:	Executive Vice Chairman



	EXECUTIVE

	/s/ Kevin Sheehan
	Name: Kevin Sheehan

Exhibit A

2016 Award Agreement

Exhibit B

Sign-On Award Agreement

Exhibit C

Inventions

None.

Exhibit 10.4

Modification Agreement

This Modification Agreement (this “ Modification Agreement ”) is made as of August 4, 2016 by and between Scientific Games Corporation, a Delaware corporation (the “ Company ”), and Michael Gavin Isaacs (“ Executive ”).

WHEREAS, the Company and Executive are parties to that certain Employment Agreement, dated as of June 9, 2014, and amended on October 29, 2015 (the “ Employment Agreement ”);

WHEREAS, the Company and Executive wish to amend certain terms of the Employment Agreement, effective as of August 4, 2016, and the parties hereto wish to enter into this Modification Agreement in connection with such modifications; and

WHEREAS, the Company and Executive wish to agree upon the terms of Executive’s transition from employee to consultant in the future and wish to enter into this Modification Agreement in connection with such transition.

1. Amendment of Employment Agreement .

a. Section 1 of the Employment Agreement shall be deleted and replaced with the following:

1. Employment: Term . The Company hereby agrees to employ Executive, and Executive hereby accepts employment with the Company, in accordance with and subject to the terms and conditions set forth in this Agreement. The term of employment of Executive under this Agreement (the “ Term ”) shall be the period commencing on June 9, 2014 (the “ Effective Date ”) and ending on December 31, 2016, subject to earlier termination in accordance with Section 4.

b. Section 2 of the Employment Agreement shall be amended by inserting the following after the last sentence of Section 2:

“Notwithstanding the foregoing, effective as of August 4, 2016, Executive shall cease to be President and Chief Executive Officer of the Company, and shall instead have the title of Vice Chairman. Executive shall also (i) participate in sales calls and other calls introducing the Company’s new Chief Executive Officer to customers, (ii) participate in internal business and strategy meetings, (iii) participate in specific strategic and other initiatives, and (iv) participate in external industry events; all as requested by the Company’s Chief Executive Officer or the Chairman of the Board or either of their respective designees.”

c. Section 4(e) of the Employment Agreement shall be amended by inserting the following sentence after the end of the second sentence in the introductory paragraph:

“Notwithstanding the foregoing, under no circumstances shall any modifications to the Employment Agreement made pursuant to the Modification Agreement dated as of August 4, 2016 constitute a Good Reason event for purposes of this Agreement.”

d. Section 5.1(e) of the Employment Agreement shall be deleted and replaced with the following:

(e) For purposes of this Section 5.1, “ Covered Time ” shall mean the period beginning on the date of termination of Executive’s employment under this Agreement (the “ Date of Termination ”) and ending twenty-four (24) months after the Date of Termination.

e. Except as set forth in this Modification Agreement, all terms and conditions of the Employment Agreement shall remain unchanged and in full force and effect in accordance with their terms. All references to the “Agreement” in the Employment Agreement shall refer to the Employment Agreement as amended by this Modification Agreement.

2. Consulting Agreement . Provided that Executive is employed with the Company on December 31, 2016, and that Executive has delivered to the Company, and not revoked, a release agreement, substantially in the form attached hereto as Exhibit A (the “ Release ”), the consulting agreement attached hereto as Exhibit B (the “ Consulting Agreement ”) shall become effective as of January 1, 2017. In the event the foregoing conditions are not satisfied, the Consulting Agreement shall be null and void and of no effect.

3. Equity Arrangements . Any outstanding equity awards held by Executive as of the date of Executive’s transition from employee to consultant pursuant to the Consulting Agreement shall continue to vest during the term of Executive’s consulting arrangement as if Executive was still an employee of the Company, and shall be modified as provided in the Consulting Agreement.

4. This Modification Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. Delivery of an executed counterpart of a signature page of this Modification Agreement by electronic transmission shall be effective as delivery of a manually executed counterpart of this Modification Agreement.

5. Sections 8 through 16 of the Employment Agreement shall be incorporated herein as if set forth herein but with all references to “Agreement” deemed to state “Modification Agreement.”

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IN WITNESS WHEREOF, each of the parties has duly executed this Modification Agreement as of the date first above written.



	SCIENTIFIC GAMES CORPORATION

	By:	/s/ Richard M. Haddrill
	Name:	Richard M. Haddrill
	Title:	Executive Vice Chairman



	EXECUTIVE


	/s/ Michael Gavin Isaacs
	Name: Michael Gavin Isaacs

Exhibit A

Release

[attached]

RELEASE AGREEMENT

In consideration of the promises contained herein, you hereby enter into this release agreement (the “ Release Agreement ”) as of _____________, 2016.

WHEREAS, Scientific Games Corporation (the “ Company ”) and you entered into a Modification Agreement dated August 4, 2016 (the “ Modification Agreement ”), whereby the Company and you agreed that you would transition from an employee to a consultant on January 1, 2017 pursuant to a Consulting Agreement between you and the Company (the “ Consulting Agreement ”); and

WHEREAS, pursuant to the Modification Agreement, the effectiveness of the Consulting Agreement is conditioned on your entering into this Release Agreement.

NOW THEREFORE, you hereby agree to the following:

1. General Release of Claims . In consideration of the Company entering into the Consulting Agreement and other good and valuable consideration, which you acknowledge are not otherwise owed to you, you understand and agree that you are knowingly and voluntarily releasing, waiving and forever discharging, to the fullest extent permitted by law, on your own behalf and on behalf of your agents, assignees, attorneys, heirs, executors, administrators and anyone else claiming by or through you (collectively referred to as the “ Releasors ”), the Company, its affiliates, subsidiaries and members, predecessors, successors or assigns, and any of its or their past or present parents, affiliates, subsidiaries and members, predecessors, successors or assigns; and any of its or their past or present shareholders; and any of its or their past or present directors, executives, members, officers, insurers, attorneys, employees, consultants, agents, both individually and in their business capacities, and employee benefits plans and trustees, fiduciaries, and administrators of those plans (collectively referred to as the “ Released Parties ”), of and from any and all claims under local, state or federal law, whether known or unknown, asserted and unasserted, that you and/or the other Releasors have or may have against Released Parties as of the day you sign this Release Agreement, including but not limited to all matters relating to or in any way arising out of any aspect of your employment with the Company, separation from employment with the Company, or your treatment by the Company while in the Company’s employ, all claims under any applicable law, and all other claims, charges, complaints, liens, demands, causes of action, obligations, damages (including punitive or exemplary damages), liabilities or the like (including without limitation attorneys’ fees and costs) (collectively “ Claims ”), including but not limited to all Claims for:

(a) salary and other wages, including, but not limited to, overtime if applicable, incentive compensation and other bonuses, severance pay, paid time off, or any benefits under the Employee Retirement Income Security Act of 1974, as amended or any other applicable local, state or federal law;

(b) discrimination, harassment or retaliation based upon race, color, national origin, ancestry, religion, marital status, sex, sexual orientation, citizenship status, pregnancy or any pregnancy related disability, family status, leave of absence (including but not limited to the Family Medical Leave Act or any other federal, state or local leave laws), handicap (including but not limited to The Rehabilitation Act of 1973), medical condition or disability, or any other characteristic covered by law under Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Americans with Disabilities Act, as amended, Sections 1981 through 1988 of the Civil Rights Act of 1866, and any other federal, state, or local law prohibiting discrimination in employment, the Worker Adjustment and Retraining Notification Act, or any other federal, state or local law concerning plant shutdowns, mass layoffs, reductions in force or other business restructuring;

(c) discrimination, harassment or retaliation based upon age under the Age Discrimination in Employment Act as amended by the Older Workers Benefit Protection Act of 1990 and as further amended (the “ ADEA ”), or under any other federal, state, or local law prohibiting age discrimination;

(d) 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 without limitation breach of any express or implied covenants of any employment agreement that may be applicable to you;

(e) defamation, negligence, infliction of emotional distress, violation of public policy, wrongful or constructive discharge, or any employment-related tort recognized under any applicable local, state, or federal law;

(f) any violation of any Fair Employment Practices Act, Equal Rights Act; Civil Rights Act; Minimum Fair Wages Act; Equal Pay Act; or Payment of Wages Act; or any comparable federal, state or local law;

(g) any violation of the Immigration Reform and Control Act, or any comparable federal, state or local law;

(h) any violation of the Fair Credit Reporting Act, or any comparable federal, state or local law;

(i) any violation of the Family and Medical Leave Act;

(j) any violation of the Nevada Fair Employment Practices Act (Nev. Rev. Stat. §613.310 et seq.), any Nevada wage and hour law (Nev. Rev. Stat. §608.016 et seq.), or any comparable federal, state or local law and any violation of any comparable statute, regulation, or law of any country or nation;

(k) costs, fees, or other expenses, including attorneys’ fees; and

(l) any other claim, charge, complaint, lien, demand, cause of action, obligation, damages, liabilities or the like of any kind whatsoever, whether under U.S. law or the law of another nation, including, without limitation, any claim that this Release Agreement was induced or resulted from any fraud or misrepresentation by Company.

Excluded from the release set forth in this Section 1 are: (i) any Claims or rights to enforce this Release Agreement, the Employment Agreement with the Company dated as of June 9, 2014, as modified and amended (the “ Employment Agreement ”), the Modification Agreement or the Consulting Agreement, (ii) Claims arising after the date you sign this Release Agreement, (iii) any Claims that you cannot lawfully release, and (iv) any rights to indemnification or coverage under director’s and officer’s liability insurance. Notwithstanding anything to the contrary contained herein, including in Section 2 below, also excluded from the release set forth in this Section 1 is your right to file a charge with an administrative agency (including the Equal Employment Opportunity Commission and the National Labor Relations Board) or participate in any agency investigation. You are, however, to the extent allowed by law, waiving your right to recover money or other damages in connection with any such charge or investigation. You are also, to the extent allowed by law, waiving your right to recover money in connection with a charge filed by any other individual or by the Equal Employment Opportunity Commission, National Labor Relations Board or any other federal, state or local agency.

Furthermore, notwithstanding anything herein to the contrary, nothing in this Release Agreement shall (i) prohibit you from making reports of possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or of any other whistleblower protection provisions of state or federal law or regulation, or (ii) require notification or prior approval by the Company of any reporting described in clause (i).


2.	Additional Agreements by Employee.

(a) BY SIGNING THIS RELEASE AGREEMENT YOU ARE KNOWINGLY AND VOLUNTARILY WAIVING ANY RIGHTS (KNOWN OR UNKNOWN) TO BRING OR PROSECUTE A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE RELEASED PARTIES WITH RESPECT TO ANY OF THE CLAIMS DESCRIBED ABOVE IN SECTION 1. You agree that the release set forth above will bar all claims or demands of every kind, known or unknown, referred to above in Section 1 and further agree that no non-governmental person, organization or other entity acting on your behalf has in the past filed any lawsuit, arbitration or proceeding asserting any claim that is waived or released under this Release Agreement. You further agree that you will not in the future seek, encourage or request that any non-governmental person, organization or other entity acting on your behalf, file any lawsuit, arbitration or proceeding asserting any claim that is waived or released under this Release Agreement. If a court of fact finder of competent jurisdiction finds that you have broken this promise and have filed or caused to be filed a lawsuit, arbitration or other proceeding asserting any Claim waived in this Release Agreement, (i) you will pay for all reasonable costs, including reasonable attorneys’ fees, incurred by the Released Parties in defending against such Claim (unless such Claim is a charge with the Equal Employment Opportunity Commission or the National Labor Relations Board); (ii) you give up any right to individual damages in connection with any administrative, arbitration or court proceeding with respect to your employment with and/or termination from employment with the Company, including damages, reinstatement or attorneys' fees; and (iii) if you are awarded money damages, you will assign to the Released Parties your right and interest to all such money damages. If any claim is not subject to release, to the extent permitted by law, you waive any right or ability to be a class or collective action representative or to otherwise participate in any putative or certified class, collective or multi-party action or proceeding based on such a claim in which Company or any other Released Party is a party. Furthermore, if you are made a member of a class or collective action in any proceeding without your prior knowledge or consent, you agree to opt out of the class or collective action at the first opportunity. Notwithstanding the foregoing, this Section 2 does not limit your right to challenge the validity of this Release Agreement in a legal proceeding under the Older Workers Benefit Protection Act, 29 U.S.C. § 626(f), with respect to claims under the ADEA. This Section also is not intended to and shall not limit the right of a court to determine, in its discretion, that the Company is entitled to restitution, recoupment or setoff of any payments made to you by the Company should this Release Agreement be found to be invalid as to the release of claims under the ADEA.

(b) You agree that you shall not solicit, encourage, assist or participate (directly or indirectly) in bringing any Claims or actions against any of the Released Parties by other current or former employees, officers or third parties, except as compelled by subpoena or other court order or legal process, and only after providing the Company with prior notice of any such subpoena, order or legal process and an opportunity to timely contest such process. Notwithstanding the foregoing, nothing in this Release Agreement shall preclude you from making truthful statements that are required by applicable law, regulation or legal process.

(c) You represent and warrant that you have not filed any administrative, judicial or other form of complaint or initiated any claim, charge, complaint or formal legal proceeding, nor are you a party to any such claim, against any of the Released Parties, and that you will not make such a filing at any time hereafter based on any events or omissions occurring prior to the date of execution of this Release Agreement. You understand and agree that this Release Agreement will be pleaded as a full and complete defense to any action, suit or proceeding which is or may be instituted, prosecuted or maintained by you, your agents, assignees, attorneys, heirs, executors, administrators and anyone else claiming by or through you.

(d) You agree that you will reasonably cooperate with the Company, its parents, subsidiaries or affiliates with respect to matters or issues which took place or arose during your tenure with the Company, specifically including, without limitation, any attorney retained by any of them, in connection with any pending or future internal investigation or judicial, administrative or regulatory matter, proceeding or investigation. You acknowledge and agree that such reasonable cooperation may include, but shall not be limited to, your making yourself available for meetings, interviews, depositions, statements, testimony or the signing of affidavits, and providing to the Company any documents or information in your possession or under your control relating to any such internal investigation or judicial, administrative or regulatory matter, proceeding or investigation, provided that any such meetings, interviews, depositions, statements or testimony do not unduly interfere with your work schedule, or other post-Company duties. The Company shall pay you (or reimburse, if already paid by you), all reasonable, out of pocket expenses actually incurred in connection with your cooperation and assistance including, without limitation, reasonable fees and disbursements of counsel, if any, chosen by you if you reasonably determine in good faith, on the advice of counsel, that the Company’s counsel may not ethically represent you in connection with such action, suit or proceeding due to actual conflicts of interests. You represent and warrant that you have and will accurately, completely and truthfully disclose to the Company any and all materials and information requested, including, without limitation, in connection with any pending or future internal investigation or judicial, administrative or regulatory matter, proceeding or investigation involving conduct in which you were involved or had knowledge in connection with your employment with the Company.

(e) You agree to cooperate with the Company and take all necessary steps to effectuate this Release Agreement, each of its terms and the intent of you and the Company.


3.	Affirmations . In signing this Release Agreement, you are affirming that:

(a) You have been paid and/or have received all compensation, wages, bonuses (with the exception of any 2016 bonus that will be paid in the first quarter of 2017), commissions, overtime and/or benefits to which you may be entitled. You affirm that you have been granted or not been denied any leave to which you were entitled under the Family and Medical Leave Act or related state or local leave or disability accommodation laws;

(b) You are not eligible to receive payments or benefits under any other Company and/or other Released Party’s severance pay policy, plan, practice or arrangement;

(d) You have not complained of and you are not aware of any fraudulent activity or any act(s) which would form the basis of a claim of fraudulent or illegal activity by the Company or any other Released Party that you have not reported to the Company in writing. You also affirm that you have not been retaliated against for reporting any allegations of wrongdoing by any Released Party, including any allegations of corporate fraud. You acknowledge that this Release Agreement does not limit the Company’s or your rights, where applicable, to file or to participate in an investigative proceeding of any federal, state or local governmental agency. To the extent permitted by law, you agree that if such an administrative claim is made, you shall not be entitled to recover any individual monetary relief or other individual remedies;

(e) You acknowledge and agree that all of the Company’s decisions regarding your pay and benefits through the date of your execution of this Release Agreement were not discriminatory based on age, disability, race, color, sex, religion, national origin, or any other classification protected by law;

(f) On or about your last day of employment, the Company provided you with timely and adequate notice of your right to continue group insurance benefits under COBRA (unless such notice was not required to be given because, on the day before termination, you did not receive group health insurance benefits through the Company and thus are not a qualified beneficiary within the meaning of COBRA); and

(g) You acknowledge and agree that if you breach the provisions of this Release Agreement, that the Company will have the right to seek an appropriate remedy against you, which may include, but not be limited to, injunctive relief, termination of your consulting service under the Consulting Agreement (pursuant to the second sentence of Section 5.2 of the Consulting Agreement), in which case it will be treated as a material breach and a “Cause” termination, other monetary damages, and the payment of the Company’s attorneys’ fees. Notwithstanding such actions of the Company, all of your obligations hereunder shall be continuing and enforceable including but not limited to your release of claims, and the Company shall be entitled to pursue all remedies against you available at law or in equity for such breach.

4. Enforcement and Arbitration . This Release Agreement shall be governed by and construed in accordance with the laws of the State of Nevada applicable to agreements made and to be wholly performed within that State, without regard to its conflict of laws provisions and except as prohibited by law.

(a) Any dispute, controversy or claim not resolved by you and the Company arising out of or relating to this Release Agreement, or the breach thereof, shall be settled by arbitration and administered in accordance with the Rules of the American Arbitration Association. Venue for the conduct of the arbitration shall be Las Vegas, Nevada, except that, at the direction of the arbitral tribunal or with the consent of you and the Company, particular hearings in aid of such arbitration may be held in other places. The arbitral tribunal shall render its reasoned award on any claims and counterclaims within six months after the filing of a demand for arbitration. Judgment upon the award rendered by the Arbitrator(s) may be entered in any Court having jurisdiction there. You expressly agree as a term of this Release Agreement to arbitrate that the factual findings of the arbitral tribunal shall be final absent manifest or material error and rulings on questions of law or mixed questions of fact and law shall be reviewed under the “clearly erroneous” standard of review and not under a “manifest disregard of the law” or other standard, notwithstanding federal, state, commonwealth decisional or other law concerning such standard to the contrary.

(b) The remedies expressly provided in this Release Agreement for breach thereof by the Company or you shall constitute the sole and exclusive remedies to the aggrieved party, and all other remedies which might be otherwise available under the law of any jurisdiction are hereby waived by both Company and you. Should any provision of this Release Agreement, excluding the general release in Section 1 above, be declared illegal or unenforceable and cannot be modified to be enforceable, such provision shall immediately become null and void, leaving the remainder of this Release Agreement in full force and effect.

EMPLOYEE INITIALS:_______COMPANY INITIALS: ________

5. Non-Admission of Wrongdoing . You and the Company agree that neither this Release Agreement nor the furnishing of the consideration for this Release Agreement shall be deemed or construed at any time for any purpose as an admission by any of the Released Parties of any liability, wrongdoing, or unlawful conduct of any kind, and the Released Parties do specifically deny, any violation of any local, state, federal, or other law, whether regulatory, common or statutory. Additionally, this Release Agreement and its existence or terms will not be admissible in any proceeding other than a proceeding to enforce the terms of this Release Agreement.

6. Amendment . You understand and agree that this Release Agreement may not be modified, altered or changed except upon express written consent of you and the Company wherein specific reference is made to this Release Agreement.

7. Right to Consider, Rescind and Revoke Acceptance . This Release Agreement is intended to comply with the Older Workers Benefit Protection Act of 1990 with regard to your waiver of rights under the ADEA. In signing this Release Agreement, you understand and agree that:

(a) You are specifically advised to consult with an attorney of your own choosing before you sign this Release Agreement, as it waives and releases rights you have or may have under federal, state and local law, including but not limited to the ADEA. You acknowledge that you will bear all expenses incurred by you in the negotiation and preparation of this Release Agreement, and the Company will bear all fees incurred by it.

(b) You will have up to twenty-one (21) calendar days from the separation date to decide whether to accept and sign this Release Agreement. In the event you do sign this Release Agreement, you may revoke or rescind your acceptance within seven (7) calendar days of signing it, and it will not become effective or enforceable until the eighth (8 ^th ) day after you sign it (the “ Release Agreement Effective Date ”). In order to effectively revoke or rescind your acceptance, the revocation or rescission must be in writing and postmarked within the seven (7) calendar day period, and properly addressed to:

Scientific Games Corporation

6650 S. El Camino Road

Las Vegas, NV 89118

Attention: David Smail

You acknowledge that if you do not accept this Release Agreement in the manner described above, it will be withdrawn and of no effect. You acknowledge and agree that, if you revoke your acceptance of this Release Agreement, this Release Agreement shall be null and void, having no further force or effect, and that this Release Agreement will not be admissible as evidence in any judicial, administrative or arbitral proceeding or trial. You further acknowledge that if the Release Agreement is not revoked in the time period set forth above, you shall have forever waived your right to revoke this Release Agreement, and it shall thereafter have full force and effect as of the Release Agreement Effective Date.

(c) Any and all questions regarding the terms of this Release Agreement have been asked and answered to your complete satisfaction.

(d) You acknowledge that the consideration provided for hereunder is in addition to anything of value to which you already are entitled and the consideration provided for herein is good and valuable.

(e) You are entering into this Release Agreement voluntarily, of your own free will, and without any coercion or undue influence of any kind or type whatsoever.

(f) Any modifications of or revisions to this Release Agreement do not re-start the consideration period, described in paragraph (b) of this Section 7.

(g) You understand that the releases contained in this Release Agreement do not extend to any rights or claims that you have under the ADEA that first arise after execution of this Release Agreement

[ Signature appears on the following page .]

I have decided to accept this Release Agreement and to fulfill the promises I have made in this Release Agreement. I hereby freely and voluntarily assent to all the terms and conditions in this Release Agreement. I understand that this Release Agreement will become binding as of the 8 ^th day after I sign it, and I am signing this Release Agreement as my own free act with the full intent of releasing the Released Parties from all Claims , as described in Section 1 above, including but not limited to those under the Age Discrimination in Employment Act (ADEA) .

________________________________ Date: ____________________

Michael Gavin Isaacs

Exhibit B

Consulting Agreement

Exhibit 10.5

AGREEMENT AND GENERAL RELEASE

In consideration of the promises contained herein, Scientific Games Corporation, 6650 S. El Camino Road, Las Vegas, NV 89118 (the “ Company ”) and Jeffrey Johnson (“ you ”), agree that:

WHEREAS, you have been employed pursuant to an employment agreement effective as of August 1, 2011, as amended May 28, 2015 (the “ Employment Agreement ”); and

WHEREAS, you and the Company wish to resolve all matters related to your employment with the Company, on the terms and conditions expressed in this Agreement and General Release (“ Agreement ”).

NOW THEREFORE, in consideration of the mutual promises contained herein, the parties, intending to be legally bound, agree as follows:

1. Last Day of Employment . Your last day of employment with the Company is September 30, 2016 (the “ Separation Date ”). The parties acknowledge and agree that effective on the Separation Date, you will have “separated from service” with the Company within the meaning of Section 409A (as defined below).

2. Severance Benefits In Return for Signing .

(a) Separation Benefits . In return for your signing this Agreement, it becoming irrevocable and you complying with the promises made by you in this Agreement, the Company will provide you with the following severance benefits (the “ Severance Benefits ”) described below. You acknowledge and agree that the Severance Benefits are separate from and in addition to what you are already entitled to receive from the Company. Furthermore, if you are rehired by the Company or hired by any affiliate of the Company as an employee, all Severance Benefits will terminate as of the commencement date of such employment. The Severance Benefits are:

(i)

The Company will pay you an amount equal to three hundred and fifty-five thousand dollars ($355,000), which is equal to twelve (12) months of your base salary, less required and/or authorized deductions and withholdings (including withholding at the supplemental rate as required), as severance pay (the “ Severance Payments ”). Such Severance Payments shall be in the amounts set forth in Exhibit A attached to this Agreement, less required and/or authorized deductions and withholdings (including withholding at the supplemental rate as required) and shall be payable on the payroll dates set forth on Exhibit A attached to this Agreement and in accordance with the Company’s payroll practices.

(ii)

If you choose to elect continuation coverage by properly and timely electing COBRA coverage under and pursuant to COBRA, 29 U.S.C. § 1161 et seq., the Company will pay the employer and employee shares of the COBRA premiums (based on your current coverage elections) for twelve (12) months commencing on the first full month following the Separation Date. After twelve (12) months, you will be responsible for paying the entire COBRA premium. You will receive information on your opportunity to elect COBRA coverage under separate cover. Notwithstanding the foregoing, if the payment by the Company of such COBRA premium payments will subject or expose the Company to taxes or penalties, you and the Company shall enter into a substitute arrangement pursuant to which the Company will not be subjected or exposed to taxes or penalties and you will be provided with payments or benefits with an equivalent economic value, after tax.


(iii)	Within thirty (30) days after May 15, 2017, the Company will pay you a lump sum payment, subject to applicable withholding, equal to Eighty One Thousand Seven Hundred Forty Three dollars ($81,743).

(iv)

No later than March 15, 2017, payment of a lump sum amount, subject to applicable withholdings, equal to seventy-five percent (75%) of any annual bonus that would have been payable to you for Fiscal Year 2016 pursuant to the 2016 SGICP Cash Bonus Plan, had you remained in employment with the Company through December 31, 2016, calculated and as approved by the Compensation Committee of the Board of Directors of the Company (the " Compensation Committee ").

(v)

Subject to approval by the Company’s Compensation Committee in its sole discretion, effective as of the date of the Compensation Committee’s next meeting, the Company will accelerate and vest 2,500 shares of the Company’s Class A Common Stock (the “ Equity ”) awarded to you pursuant to that certain Scientific Games Corporation 2003 Incentive Compensation Plan Restricted Stock Unit Award dated December 20, 2013; provided, however, the actual number of shares of Equity vested may be less if taxes are withheld at the time the Equity vests. For the avoidance of doubt, the Equity will remain outstanding from the Separation Date through the date of the Compensation Committee’s next meeting, and if the acceleration of the Equity contemplated in the prior sentence is not approved by the Compensation Committee, the Equity will be immediately forfeited on the date of the Compensation Committee’s next meeting for no consideration. Any other form of equity or equity-based compensation granted to you by the Company, including, without limitation, any outstanding grants of restricted stock units, restricted stock or stock options, are automatically forfeited for no consideration on the Separation Date.


(b)	Additional Obligations . Additionally, the Company acknowledges the following obligations to you:


(i)	The Company shall pay you your regular base salary, accrued and unpaid up to and including the Separation Date pursuant to applicable law, less required and/or authorized deductions and withholdings, and payable in accordance with Company’s regular payroll practices;


(ii)	The Company agrees to reimburse you for all reasonable and necessary out-of-pocket business related expenses you incurred prior to the Separation Date, provided that you shall submit reasonable documentation of such expenses prior to the Separation Date and in accordance with the applicable Company policy;

(iii)

Following the Separation Date, you shall be entitled to any amount arising from your participation in, or benefits under, any employee benefit plans, programs or arrangements that become payable as a result of your separation from the Company, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements and pursuant to applicable law; and

(iv)

In consideration for you being available no more than thirty (30) hours per month to answer accounting and business related questions for the period from October 1 through December 31, 2016, and subject to you entering into a consulting agreement with the Company, the Company will pay you a sum equal to thirty seven thousand eight hundred dollars ($37,800), less required and/or authorized deductions and withholdings, payable as follows: $12,600, less required and/or authorized deductions and withholdings, on or before October 31, 2016, $12,600, less required and/or authorized deductions and withholdings, on or before November 30, 2016, and $12,600, less required and/or authorized deductions and withholdings, on or before December 31, 2016.


(c)	No Other Benefits . Except as provided in this Agreement, you shall not be entitled to receive any other payment, benefit or other form of compensation as a result of your employment or the termination thereof.


(d)	Tax Withholding . All payments made by the Company to you hereunder except for COBRA payments, expense reimbursements and expenses incurred by the Company pursuant to Section 2, if any, shall be subject to all applicable withholding deductions.

3. No Severance Benefits Unless You Sign this Agreement and Do Not Revoke It . You understand and agree that you will not receive any of the Severance Benefits specified in Section 2 above unless: (a) you sign and do not revoke or rescind this Agreement within the time period specified below, and (b) you fulfill all of the promises contained herein.

4. General Release of Claims . In consideration for the Severance Benefits specified in Section 2 above, which you acknowledge are not otherwise owed to you, you understand and agree that you are knowingly and voluntarily releasing, waiving and forever discharging, to the fullest extent permitted by law, on your own behalf and on behalf of your agents, assignees, attorneys, heirs, executors, administrators and anyone else claiming by or through you (collectively referred to as the “ Releasors ”):

the Company, and its affiliates, subsidiaries and members, predecessors, successors or assigns, and any of its or their past or present parents, affiliates, subsidiaries and members, predecessors, successors or assigns; and any of its or their past or present shareholders; and any of its or their past or present directors, executives, members, officers, insurers, attorneys, employees, consultants, agents, both individually and in their business capacities, and employee benefits plans and trustees, fiduciaries, and administrators of those plans (collectively referred to as the “ Released Parties ”),

of and from any and all claims under local, state or federal law, whether known or unknown, asserted and unasserted, that you and/or the other Releasors have or may have against Released Parties as of the day you sign this Agreement, including but not limited to all matters relating to or in any way arising out of any aspect of your employment with the Company, separation from employment with the Company, or your treatment by the Company while in the Company’s employ, all claims under any applicable law, and all other claims, charges, complaints, liens, demands, causes of action, obligations, damages (including punitive or exemplary damages), liabilities or the like (including without limitation attorneys’ fees and costs) (collectively “ Claims ”), including but not limited to all Claims for:


(a)	salary and other wages, including, but not limited to, overtime if applicable, incentive compensation and other bonuses, severance pay, paid time off or any benefits under the Employee Retirement Income Security Act of 1974, as amended or any other applicable local, state or federal law;

(b)

discrimination, harassment or retaliation based upon race, color, national origin, ancestry, religion, marital status, sex, sexual orientation, citizenship status, pregnancy or any pregnancy related disability, family status, leave of absence (including but not limited to the Family Medical Leave Act or any other federal, state or local leave laws), handicap (including but not limited to The Rehabilitation Act of 1973), medical condition or disability, or any other characteristic covered by law under Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Americans with Disabilities Act, as amended, Sections 1981 through 1988 of the Civil Rights Act of 1866, and any other federal, state, or local law prohibiting discrimination in employment, the Worker Adjustment and Retraining Notification Act, or any other federal, state or local law concerning plant shutdowns, mass layoffs, reductions in force or other business restructuring;


(c)	discrimination, harassment or retaliation based upon age under the Age Discrimination in Employment Act as amended by the Older Workers Benefit Protection Act of 1990 and as further amended (the “ ADEA ”), or under any other federal, state, or local law prohibiting age discrimination;


(d)	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 without limitation breach of any express or implied covenants of any employment agreement that may be applicable to you;


(e)	defamation, negligence, infliction of emotional distress, violation of public policy, wrongful or constructive discharge, or any employment-related tort recognized under any applicable local, state, or federal law;


(f)	any violation of any Fair Employment Practices Act, Equal Rights Act; Civil Rights Act; Minimum Fair Wages Act; Equal Pay Act; or Payment of Wages Act; or any comparable federal, state or local law;


(g)	any violation of the Immigration Reform and Control Act, or any comparable federal, state or local law;


(h)	any violation of the Fair Credit Reporting Act, or any comparable federal, state or local law;


(i)	any violation of the Family and Medical Leave Act;


(j)	any violation of the Atlanta Anti-Discrimination Ordinance, the Georgia Age Discrimination in Employment Act, the Georgia Wage Payment and Work Hour Laws, and any comparable federal, state or local law and any violation of any statute, regulation, or law of any country or nation;


(k)	costs, fees, or other expenses, including attorneys’ fees; and


(l)	any other claim, charge, complaint, lien, demand, cause of action, obligation, damages, liabilities or the like of any kind whatsoever, including, without limitation, any claim that this Agreement was induced or resulted from any fraud or misrepresentation by Company.

Excluded from the release set forth in this Section 4 are: (i) any Claims or rights to enforce this Agreement against the Company, (ii) Claims arising after the date you sign this Agreement, and (iii) any Claims that you cannot lawfully release. Notwithstanding anything to the contrary contained herein, including in Section 5 below, also excluded from the release set forth in this Section 4 is your right to file a charge with an administrative agency (including the Equal Employment Opportunity Commission and the National Labor Relations Board) or participate in any agency investigation. You are, however, to the extent allowed by law, waiving your right to recover money or other damages in connection with any such charge or investigation. You are also, to the extent allowed by law, waiving your right to recover money in connection with a charge filed by any other individual or by the Equal Employment Opportunity Commission, National Labor Relations Board or any other federal, state or local agency.

Furthermore, notwithstanding anything herein to the contrary, nothing in this Agreement shall (i) prohibit you from making reports of possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or of any other whistleblower protection provisions of state or federal law or regulation, or (ii) require notification or prior approval by the Company of any reporting described in clause (i).

5. Additional Agreements by Employee .

(a)

BY SIGNING THIS AGREEMENT YOU ARE KNOWINGLY AND VOLUNTARILY WAIVING ANY RIGHTS (KNOWN OR UNKNOWN) TO BRING OR PROSECUTE A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE RELEASED PARTIES WITH RESPECT TO ANY OF THE CLAIMS DESCRIBED ABOVE IN SECTION 4. You agree that the release set forth above will bar all claims or demands of every kind, known or unknown, referred to above in Section 4 and further agree that no non-governmental person, organization or other entity acting on your behalf has in the past or will in the future file any lawsuit, arbitration or proceeding asserting any claim that is waived or released under this Agreement. If you break this promise and file a lawsuit, arbitration or other proceeding asserting any Claim waived in this Agreement, (i) you will pay for all costs, including reasonable attorneys’ fees, incurred by the Released Parties in defending against such Claim (unless such Claim is a charge with the Equal Employment Opportunity Commission or the National Labor Relations Board); (ii) you give up any right to individual damages in connection with any administrative, arbitration or court proceeding with respect to your employment with and/or termination from employment with the Company, including damages, reinstatement or attorneys' fees; and (iii) if you are awarded money damages, you will assign to the Released Parties your right and interest to all such money damages. If any claim is not subject to release, to the extent permitted by law, you waive any right or ability to be a class or collective action representative or to otherwise participate in any putative or certified class, collective or multi-party action or proceeding based on such a claim in which Company or any other Released Party is a party. Furthermore, if you are made a member of a class or collective action in any proceeding without your prior knowledge or consent, you agree to opt out of the class or collective action at the first opportunity. Notwithstanding the foregoing, this Section 5 does not limit your right to challenge the validity of this Agreement in a legal proceeding under the Older Workers Benefit Protection Act, 29 U.S.C. § 626(f), with respect to claims under the ADEA. This Section also is not intended to and shall not limit the right of a court to determine, in its discretion, that the Company is entitled to restitution, recoupment or setoff of any payments made to you by the Company should this Agreement be found to be invalid as to the release of claims under the ADEA.

(b)

You agree that you shall not solicit, encourage, assist or participate (directly or indirectly) in bringing any Claims or actions against any of the Released Parties by other current or former employees, officers or third parties, except as compelled by subpoena or other court order or legal process, and only after providing the Company with prior notice of any such subpoena, order or legal process and an opportunity to timely contest such process. Notwithstanding the foregoing, nothing in this Agreement shall preclude you from making truthful statements that are required by applicable law, regulation or legal process.

(c)

You represent and warrant that you have not filed any administrative, judicial or other form of complaint or initiated any claim, charge, complaint or formal legal proceeding, nor are you a party to any such claim, against any of the Released Parties, and that you will not make such a filing at any time hereafter based on any events or omissions occurring prior to the date of execution of this Agreement. You understand and agree that this Agreement will be pleaded as a full and complete defense to any action, suit or proceeding which is or may be instituted, prosecuted or maintained by you, your agents, assignees, attorneys, heirs, executors, administrators and anyone else claiming by or through you.

(d)

You agree that you will cooperate with the Company, its parents, subsidiaries or affiliates with respect to matters or issues which took place or arose during your tenure with the Company, specifically including without limitation any attorney retained by any of them, 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, but shall not be limited to, you making yourself available for meetings, interviews, depositions, statements, testimony or the signing of affidavits, and providing to the Company any documents or information in your possession or under your control relating to any such litigation, regulatory matter or investigation, provided that any such meetings, interviews, depositions, statements or testimony do not unduly interfere with your work schedule or other post-Company duties. The Company shall reimburse you promptly after you submit receipts or other documents reasonably acceptable to the Company for your actual out-of-pocket expenses reasonably incurred and approved by the Company in connection with your performance under this subpart (d); provided, however, that you shall not be entitled to any expense reimbursement for time spent testifying or otherwise cooperating in any matter in which you are a defendant in the proceeding or a named subject or target of the litigation, regulatory matter or investigation. You represent and warrant that you have and will accurately, completely and truthfully disclose to the Company any and all materials and information requested, including, without limitation, in connection with any pending or future internal investigation or judicial, administrative or regulatory matter, proceeding or investigation involving conduct in which you were involved or had knowledge in connection with your employment with the Company.


(e)	You agree to cooperate with Company and take all necessary steps to effectuate this Agreement, each of its terms and the intent of the parties.

6. Affirmations . In signing this Agreement, you are affirming that:

(a)

You have been paid and/or have received all compensation, wages, bonuses, commissions, overtime and/or benefits to which you may be entitled (except as set forth in this Agreement), and if applicable, that you have reported all hours worked as of the date you sign this Agreement. You affirm that you have been granted or not been denied any leave to which you were entitled under the Family and Medical Leave Act or related state or local leave or disability accommodation laws;


(b)	You are not eligible to receive payments or benefits under any other Company and/or other Released Party’s severance pay policy, plan, practice or arrangement;


(c)	You have no known workplace injuries or occupational diseases;

(d)

You have not complained of and you are not aware of any fraudulent activity or any act(s) which would form the basis of a claim of fraudulent or illegal activity by the Company or any other Released Party that you have not reported to the Company in writing. You also affirm that you have not been retaliated against for reporting any allegations of wrongdoing by any Released Party, including any allegations of corporate fraud. Both parties acknowledge that this Agreement does not limit either party’s right, where applicable, to file or to participate in an investigative proceeding of any federal, state or local governmental agency;

(e) You acknowledge and agree that all of the Company’s decisions regarding your pay and benefits through the date of your execution of this Agreement were not discriminatory based on age, disability, race, color, sex, religion, national origin, or any other classification protected by law;

(f)

On or about the Separation Date, or within a reasonable time thereafter, the Company provided you with timely and adequate notice of your right to continue group insurance benefits under COBRA (unless such notice was not required to be given because, on the day before termination, you did not receive group health insurance benefits through the Company and thus are not a qualified beneficiary within the meaning of COBRA); and

(g)

You acknowledge and agree that if you breach the provisions of this Agreement (including, but not limited to, Sections 7, 9 and 10), that the Company will have the right to seek an appropriate remedy against you, which may include, but not be limited to, injunctive relief, the return of the Severance Benefits, other monetary damages, and the payment of the Company’s attorneys’ fees. Additionally, if you breach this Agreement, Company shall have the right, without waiving any other remedies in law or equity, to cease any further payments pursuant to Section 2. Notwithstanding such cessation of payments, all of your obligations hereunder shall be continuing and enforceable including but not limited to your release of claims, and the Company shall be entitled to pursue all remedies against you available at law or in equity for such breach.

7. Non-Disparagement . You agree not to defame, disparage or demean the Released Parties (whether orally or in writing) in any manner whatsoever. You also agree not to encourage any other person to make any statement disparaging the Released Parties in any manner whatsoever. Notwithstanding the foregoing, nothing in this Agreement shall preclude you from making truthful statements that are required by applicable law, regulation or legal process.

8. Confidentiality . You agree that it is a material condition of this Agreement that you shall keep the terms of this Agreement, strictly and completely confidential and that you will not directly or indirectly make or issue any private statement, press release or public statement, or communicate or otherwise disclose to any employee of the Company (past, present or future) or to a member of the general public, the negotiations leading 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 you may disclose the terms of this Agreement to your immediate family, attorneys, and accountants or other financial advisors so long as they agree to abide by the foregoing confidentiality restriction.

9. Return of Property. You agree that no later than your last day of employment with the Company, you will return any and all property, including all copies or duplicates thereof, belonging to the Company, including but not limited to keys, key cards, security cards, identification badges, records, papers, files, blueprints, documents, equipment, computer equipment and software, computer disks, thumb drives, documents, supplies, customer or client lists and customer or client information, “Confidential Information” (as defined below) and all copies thereof and any other Company property under your control. Notwithstanding the above, the Company agrees that you may keep the Apple Mac Book Pro laptop computer, that was provided to you by the Company, subject to the computer being copied and then wiped by the Company’s IT department on or before the Separation Date.

10. Non-Disclosure of Confidential Information .

(a)

“ Confidential Information ” shall mean any and all proprietary and confidential data or information belonging to the Company or any of its affiliates which is of tangible or intangible value to Company and is not public information or is not generally known or available to Company’s competitors but is known only to Company and its employees, independent contractors or agents to whom it must be confided in order to apply it to the uses intended. Assuming the foregoing criteria are met, Confidential Information includes, without limitation, information with respect to the operations, customers, customer lists, products, proposals, marketing strategy and services of Company and its affiliates and further includes, but is not limited to: (i) formulas, research and development techniques, processes, computer programs, software, electronic codes, mask works, inventions, innovations, patents, patent applications, discoveries, improvements, data, know-how, formats, test results, and research projects; (ii) information about costs, profits, markets, sales, contracts, lists of actual or potential customers and distributors, and information contained in proposals that are under development or have been made to actual or potential customers; (iii) business, marketing, strategic plans, know-how, including without limitation the unique manner in which the Company conducts its business; (iv) forecasts, unpublished financial information, budgets, projections, and customer identities, characteristics and agreements; and (v) employee personnel files and compensation information. Nothing herein shall be interpreted as a limitation or restriction on the provisions of the trade secrets laws or any legal rights or remedies granted thereunder and you shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, in each case, solely for the purpose of reporting or investigating a suspected violation of law, or (2) in a complaint or other document filed in a lawsuit or proceeding, if such filings is made under seal.

(b)

You acknowledge that as a result of your activities as an employee of the Company, you had access to the Confidential Information which you acknowledge as information that Company has legitimate interests in protecting and keeping confidential. In recognition of Company’s need to protect its legitimate business interests, you hereby covenant and agree that you will treat and regard each item constituting Confidential Information as strictly confidential and wholly owned by Company and will not, without the prior written consent of Company, for any reason, in any fashion, either directly or indirectly, communicate to any third party, use, sell, lend, distribute, license, give, show, disclose, reproduce, copy or misappropriate, or permit any of your agents to do any of the above with respect to all or any part of the Confidential Information or any physical embodiments thereof, and may in no event take any action causing, or fail to take action necessary in order to prevent, any Confidential Information disclosed to you or developed by you to lose its character or cease to qualify as Confidential Information, except as required by judicial and governmental action and as permitted hereunder.

(c)

You acknowledge and agree that, by virtue of your position with the Company, services and access to and use of Confidential Information, any violation by you of any of the undertakings contained in this Section 10 would cause the Company immediate, substantial and irreparable injury for which it has no adequate remedy at law. Accordingly, you agree and consent to the entry of an injunction or other equitable relief by a court of competent jurisdiction restraining any violation or threatened violation of any undertaking contained in this Section 10. You waive posting of any bond otherwise necessary to secure such injunction or other equitable relief. Rights and remedies provided for in this Section 10 are cumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any other agreement or applicable law.

11. Enforcement and Arbitration . This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia applicable to agreements made and to be wholly performed within that State, without regard to its conflict of laws provisions and except as prohibited by law.

(a)

Any dispute, controversy or claim not resolved by the parties arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration and administered in accordance with the Rules of the American Arbitration Association. Venue for the conduct of the arbitration shall be Atlanta, Georgia, except that, at the direction of the arbitral tribunal or with the consent of the parties, particular hearings in aid of such arbitration may be held in other places. The arbitral tribunal shall render its reasoned award on any claims and counterclaims within six months after the filing of a demand for arbitration. Judgment upon the award rendered by the Arbitrator(s) may be entered in any Court having jurisdiction there. The parties expressly agree as a term of their agreement to arbitrate that the factual findings of the arbitral tribunal shall be final absent manifest or material error and rulings on questions of law or mixed questions of fact and law shall be reviewed under the “clearly erroneous” standard of review and not under a “manifest disregard of the law” or other standard, notwithstanding federal, state, commonwealth decisional or other law concerning such standard to the contrary.

(b)

The remedies expressly provided in this Agreement for breach thereof by the Company or You shall constitute the sole and exclusive remedies to the aggrieved party, and all other remedies which might be otherwise available under the law of any jurisdiction are hereby waived by both Company and You, except the Company’s right to enforce the “Confidentiality,” “Return of Property” and “Non-Disclosure of Confidential Information” provisions of this Agreement for which the Company specifically reserves and You specifically acknowledge the right of the Company to enforce by all legal and equitable remedies available, including specific performance and injunction. Should any provision of this Agreement, excluding the general release in Section 4 above, be declared illegal or unenforceable and cannot be modified to be enforceable, such provision shall immediately become null and void, leaving the remainder of this Agreement in full force and effect.

EMPLOYEE INITIALS:_______COMPANY INITIALS:_______

12. Non-Admission of Wrongdoing . You and the Company agree that neither this Agreement nor the furnishing of the consideration for this Agreement shall be deemed or construed at anytime for any purpose as an admission by any of the Released Parties of any liability, wrongdoing, or unlawful conduct of any kind, and the Released Parties do specifically deny, any violation of any local, state, federal, or other law, whether regulatory, common or statutory. Additionally, this Agreement, its existence or its terms will not be admissible in any proceeding other than a proceeding to enforce the terms of this Agreement.

13. Amendment . You understand and agree that this Agreement may not be modified, altered or changed except upon express written consent of both parties wherein specific reference is made to this Agreement.

14. Entire Agreement; Waiver . You understand and agree that this Agreement sets forth the entire agreement between you and the Company concerning the subject matter herein, and that it fully supersedes any prior obligation of the Company to you, as well as any agreements between you and the Company, other than any agreements relating to inventions, intellectual property, confidentiality, non-competition and/or non-solicitation, including those set forth in your Employment Agreement, equity compensation agreements and any consulting agreement entered into between you and the Company, the provisions of which you acknowledge are designed to survive the termination of your employment with Company. You acknowledge and affirm that you have not relied on any representations, promises, or agreements of any kind made to you in connection with your decision to accept this Agreement, except for those that are set forth in this Agreement. One or more waivers of a breach of any covenant, term or provision of this Agreement by any party shall not be construed as a waiver of a subsequent breach of the same covenant, term or provision, nor shall it be considered a waiver of any other then existing or subsequent breach of a different covenant, term or provision.

15. Right to Consider, Rescind and Revoke Acceptance . This Agreement is intended to comply with the Older Workers Benefit Protection Act of 1990 with regard to your waiver of rights under the Age Discrimination in Employment Act. In signing this Agreement, you understand and agree that:

(a)

You are specifically advised to consult with an attorney of your own choosing before you sign this Agreement, as it waives and releases rights you have or may have under federal, state and local law, including but not limited to the Age Discrimination in Employment Act. You acknowledge that you will bear all expenses incurred by you in the negotiation and preparation of this Agreement, and the Company will bear all fees incurred by it.

(b)

You will have up to twenty-one (21) calendar days from the Separation Date to decide whether to accept and sign this Agreement. In the event you do sign this Agreement, you may revoke or rescind your acceptance within seven (7) calendar days of signing it, and it will not become effective or enforceable until the eighth (8 ^th ) day after you sign it (the “ Effective Date ”). In order to effectively revoke or rescind your acceptance, the revocation or rescission must be in writing and postmarked within the seven (7) calendar day period, and properly addressed to:

Scientific Games

1500 Bluegrass Lakes Parkway

Alpharetta, GA 30004

Attention: Anne Steiner, Human Resources

You acknowledge that if you do not accept this Agreement in the manner described above, it will be withdrawn and of no effect. You acknowledge and agree that, if you revoke your acceptance of this Agreement, you shall receive none of the benefits provided hereunder and this Agreement shall be null and void, having have no further force or effect, and that said Agreement will not be admissible as evidence in any judicial, administrative or arbitral proceeding or trial. You further acknowledge that if the Agreement is not revoked in the time period set forth above, you shall have forever waived your right to revoke this Agreement, and it shall thereafter have full force and effect as of the Effective Date.


(c)	An y and all questions regarding the terms of this Agreement have been asked and answered to your complete satisfaction.


(d)	You acknowledge that the consideration provided for hereunder is in addition to anything of value to which you already are entitled and the consideration provided for herein is good and valuable.


(e)	You are entering into this Agreement voluntarily, of your own free will, and without any coercion or undue influence of any kind or type whatsoever.


(f)	Any modifications of or revisions to this Agreement do not re-start the consideration period, described in paragraph(b) of this Section 15.


(g)	You understand that the releases contained in this Agreement do not extend to any rights or claims that you have under the Age Discrimination in Employment Act that first arise after execution of this Agreement.

16. 409A . This Agreement is intended to comply with or be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”) or an exception thereunder and shall be interpreted, construed and administered in accordance therewith. Notwithstanding anything in this Agreement to the contrary, in the event that you are deemed to be a “specified employee” within the meaning of Section 409A(a)(2)(B)(i), no payments hereunder that are “deferred compensation” subject to Section 409A shall be made to you prior to the date that is six (6) months after your Separation Date or, if earlier, your date of death. Following any applicable six (6) month delay, all such delayed payments will be paid in a single lump sum on the first payroll date following the date that is six (6) months after your Separation Date. To the extent that any reimbursements are taxable to you, any such reimbursement payment due to you shall be paid to you in all events on or before the last day of your taxable year following the taxable year in which the related expense was incurred. The reimbursements are not subject to liquidation or exchange for another benefit and the amount of such benefits and reimbursements that you receive in one taxable year shall not affect the amount of such benefits or reimbursements that you receive in any other taxable year. For purposes of Section 409A, each installment payment, if applicable, provided under this Agreement shall be treated as a separate payment. Notwithstanding the foregoing, the Company makes no representations that the payments or benefits provided under this Agreement comply with Section 409A and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the you as a result of this Agreement failing to comply with Section 409A.

17. Resignation of Director and Officer Positions . As of the Separation Date, you will resign your position as an officer and/or director of the Company and all of the Company’s subsidiaries. You will execute and deliver to the Company any requested resignation letters documenting your resignation from such positions.

18. Miscellaneous. This Agreement may be signed in counterparts, both of which shall be deemed an original, but both of which, taken together shall constitute the same instrument. A signature made on a faxed or electronically mailed copy of the Agreement or a signature transmitted by facsimile or electronic mail shall have the same effect as the original signature. The section headings used in this Agreement are intended solely for convenience of reference and shall not in any manner amplify, limit, modify or otherwise be used in the interpretation of any of the provisions hereof. This Agreement shall be binding upon and inure to the benefit of the parties and their respective personal representatives, agents, attorneys, executors, administrators, heirs, successors and assigns.

[Signatures follow on the next page]

IN WITNESS WHEREOF, the parties hereto knowingly and voluntarily executed this Agreement and General Release as of the date set forth below:

Scientific Games Corporation



By:	/s/ Gary L. Melampy	Date: 9/30/16
Name:	Gary L. Melampy
Title:	VP, CHRO

I have decided to accept this Agreement and General Release, to fulfill the promises I have made, and to receive the Severance Benefits in Section 2 above. I hereby freely and voluntarily assent to all the terms and conditions in this Agreement and General Release. I understand that this Agreement and General Release will become a binding agreement between the Company and me as of the 8 ^th day after I sign it, and I am signing this Agreement and General Release as my own free act with the full intent of releasing the Released Parties from all Claims , as described in Section 4 above, including but not limited to those under the Age Discrimination in Employment Act (ADEA) .



/s/ Jeffrey Johnson	Date:
Jeffrey Johnson

Exhibit A

The Severance Payments referred to in Section 2(a)(i) of the Agreement will be paid on the following schedule:



Date	Payment Amount
First payroll date after March 31, 2017	$177,500, less required and/or authorized deductions and withholdings
Next 13 payroll dates	$13,653.85/payroll date, less required and/or authorized deductions and withholdings

Exhibit 31.1

Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kevin Sheehan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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 make the 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 respects the 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 in Exchange 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 the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in 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 the effectiveness 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 recent fiscal 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, the registrant’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, to the 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 reasonably likely 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 internal control over financial reporting.

Date: November 3, 2016

/s/ Kevin Sheehan

Kevin Sheehan

Chief Executive Officer

Exhibit 31.2

Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael A. Quartieri, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Scientific Games Corporation;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 3, 2016

/s/ Michael A. Quartieri

Michael A. Quartieri

Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Scientific Games Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin Sheehan, 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 the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.



	/s/ Kevin Sheehan
	Kevin Sheehan
	Chief Executive Officer
	November 3, 2016

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Michael A. Quartieri, 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 the Company.



	/s/ Michael A. Quartieri
	Michael A. Quartieri
	Chief Financial Officer
	November 3, 2016