Scientific Games Reports First Quarter 2014 Results

NEW YORK, May 8, 2014 /PRNewswire/ -- Scientific Games Corporation (Nasdaq: SGMS) ("Scientific Games" or the "Company"), a leading diversified supplier of games and technology to the gaming and lottery industries, today reported financial results for the first quarter ended March 31, 2014.

"First quarter revenue rose to $388 million reflecting the first full quarter of contribution from the WMS acquisition and 7% revenue growth in our lottery business," said President and Chief Executive Officer David L. Kennedy. "Although we are seeing challenging gaming industry conditions that have negatively impacted our gaming product sales results, we believe that Scientific Games is relatively well positioned due to the diversity of revenue streams in our lottery and gaming businesses and the opportunities created by our integration efforts.

"Our first quarter results included a $60 million year-over-year increase in cash flow from operating activities and a $37 million year-over-year increase in free cash flow, reflecting the benefit of the WMS acquisition, favorable working capital changes, distributed earnings from our equity investments and our return-focused approach to capital allocation," Mr. Kennedy commented.  "We continued to accelerate our integration initiatives in the 2014 first quarter and believe we remain on track to achieve at least $60 million of cost savings on an annualized run-rate basis by the end of 2014."

Summary Financial Results⁽¹⁾

Attributable EBITDA, free cash flow and EBITDA from equity investments (discussed below) are non-GAAP financial measures defined below under "Non-GAAP Financial Measures" and reconciled to GAAP measures in the accompanying supplemental tables at the end of this release.
(1)   Scientific Games sold the installed base of gaming machines in its pub business on March 25, 2013. The related results of operations are presented as discontinued operations in the Company's financial statements for the 2013 first quarter. All financial results referenced in this press release are for continuing operations only, unless otherwise noted.
(2)   Our definition of attributable EBITDA, which is derived from the definition in our credit agreement, was modified in the 2013 fourth quarter as a result of the replacement of our prior credit agreement with our new credit agreement in connection with the acquisition of WMS. Historical amounts have been conformed to the revised definition and recast to exclude discontinued operations. Under the revised definition, 2013 first quarter attributable EBITDA decreased by $1.0 million.

Merger Integration Update

Following the completion of the WMS acquisition on October 18, 2013, Scientific Games began executing its detailed integration plans aimed at making operations more effective and reducing the Company's cost structure.  Based on the progress of its integration-related actions to date and further integration efforts planned for 2014, the Company continues to expect to achieve at least $60 million of cost synergies on an annualized run-rate basis by the end of 2014. The Company continues to expect to achieve a total of $100 million in cost savings on an annualized run-rate basis by the end of 2015. Included in the expectations for annualized cost synergies is at least $55 million of annualized cost synergies from actions already initiated or completed.

"Our comprehensive integration initiatives have generated significant cost reductions," said Scott D. Schweinfurth, Executive Vice President and Chief Financial Officer. "Across our global operations, we are focused on generating additional efficiencies, executing our strategies to capitalize on new revenue opportunities and identifying additional opportunities to increase free cash flow."

As previously announced, in the 2014 first quarter, the Company took actions to strengthen its focus on its core businesses, including by:

• Divesting its equity interest in Sportech PLC for cash proceeds of $44.9 million, which resulted in a $14.5 million gain; and
• Selling its online real-money U.K. B2C gaming operation and exiting its managed services online gaming business in Belgium, which resulted in $3.4 million of employee termination and restructuring costs and a gain in other income (expense), net, of approximately $1 million.

2014 First Quarter Business Update

Gaming Segment

Financial results and revenue metrics presented below include the results of operations for WMS in the 2014 first quarter but not in the 2013 first quarter. All WMS results are included in the Company's Gaming segment. In addition, the results of the Company's video gaming systems operations, previously included in the Lottery Systems segment, are now included in the Gaming segment for all periods presented herein.

Supplemental Table: WMS Full Quarter Comparative Results

The information set forth in the supplemental table below presents standalone historical data for WMS relating to the three months ended March 31, 2014 and March 31, 2013, and is provided as supplemental information. The information relating to the three months ended March 31, 2013 has been derived from the books and records of WMS and is not intended to be an indicator of the Company's future results. The supplemental information set forth in the table below should be read in conjunction with the historical financial statements of WMS that are incorporated by reference in the Company's Current Report on Form 8-K/A filed with the SEC on December 17, 2013.

Gaming Segment First Quarter Financial Highlights

• Revenue increased $155.6 million principally due to $156.6 million of revenue from WMS, partially offset by a decline in services revenue of our U.K. gaming business ("UK Gaming")
• Services revenue increased $92.7 million, reflecting $93.4 million of revenue from WMS and a benefit of $1.1 million from favorable foreign currency translation, partially offset by a decline in our UK Gaming business
  • Our average installed base of 9,142 WAP and premium participation gaming machines generated average daily revenue of $70.13 per unit, a 1% increase over the amount reported by WMS in the prior-year period, despite the casino industry challenges. The increase in the average daily revenue reflected the positive performance of new games and the shift in the installed footprint to more WAP units. The installed base of WAP and premium participation units as of March 31, 2014 included 3,775 WAP and 5,301 premium participation units compared to 3,346 WAP and 6,238 premium participation units for WMS as of March 31, 2013
  • Our average installed base of other leased and participation units rose to 28,989 units, reflecting the addition of 2,609 other leased units within the WMS footprint and an increase in the total average installed footprint of UK Gaming customers. The average daily revenue from other leased and participation units decreased from $11.75 to $11.47 per unit
• Services revenue from our interactive gaming business increased to $30.8 million reflecting the acquisition of WMS; social gaming revenue is reported on a gross revenue basis before platform fees reflecting a change in the payment settlement process by Facebook®, which change represented $6.1 million of the interactive services revenue in the 2014 first quarter and an equal amount in cost of services
  • The growth in revenue from social gaming activities largely reflected the approximately 1.3 million average DAU for the Company's social casinos in the 2014 first quarter compared to the approximately 0.6 million average DAU reported by WMS in the prior-year period, partially offset by a decline in ARPDAU reflecting the impact of a significantly larger player audience and growth in players on mobile platforms
• Product sales revenue increased $62.9 million, primarily reflecting $63.2 million in revenue from WMS. New gaming machine sales reflected shipments of 2,036 new WMS gaming machines to U.S. and Canadian customers, comprised of 1,247 replacement units for casino operators, 405 Illinois video gaming terminals (VGTs) and 384 units for new casino openings and expansions. The 1,478 new unit shipments to international customers included 1,197 WMS units. Other product sales revenue increased by $16.4 million principally due to $16.3 million from WMS, which included sales of conversion kits, used gaming machines and parts, as well as game content subscription revenue
  • New unit shipments for WMS declined to 3,233 units compared with 5,263 WMS units in the prior-year period; shipments for WMS in the prior-year quarter included 2,732 replacement units for U.S. and Canadian casino operators, 259 units for new casino openings and expansions in the U.S. and Canada, 628 VLTs for Canadian customers, no Illinois VGTs, and 1,644 units shipped to international customers
  • Unit shipment declines reflected challenging gaming industry conditions, including lower casino revenue in many U.S. regional gaming jurisdictions, which we believe has resulted in constrained capital spending by casino operators along with increased competition; in addition, we believe our ship share declined modestly from that achieved in the December 2013 quarter; the decline in international new unit shipments was due in part to import limitations in Argentina
  • The average selling price for WMS gaming machines declined by $297 per unit from the prior-year period, primarily reflecting lower average prices on international Bluebird®2 lite units and a shift in the mix of product sales that included a greater number of lower-priced VGTs
  • New unit shipments included 1,576 Blade™ gaming machines, which represented 49% of total WMS global new unit shipments
  • With more than 40 video game themes now available for the Blade™ cabinet, including four game themes developed specifically for Asian markets, the Blade gaming machines continue to perform strongly, with the original six game themes outperforming casino house average by approximately 20% one year after launch, as reported by customers
• Operating loss increased $12.7 million principally due to higher expenses:
  • Selling, general and administrative expense increased $36.8 million primarily from WMS
  • Research and development expense increased $24.9 million primarily from WMS
  • Employee termination and restructuring costs reflected $5.2 million of charges associated with integration-related cost savings actions
  • Depreciation and amortization increased $52.6 million, of which $50.9 million was from WMS, including incremental depreciation and amortization related to purchase accounting associated with the acquisition.  During the March 2014 quarter, we revised the depreciable lives of certain acquired intangible assets from a range of four to ten years to a range of three to eight years, which increased depreciation and amortization by $3.7 million in the 2014 March quarter

Gaming Segment Business Development Highlights

• In late March 2014, we launched our new 3-reel mechanical Blade Stepper gaming machine and shipped 135 units to customers, with favorable initial customer feedback and performance
• Launched the Gold Fish^® Social Slots game app, a second social gaming site
• Entered into several new online gaming content agreements for real-money gaming services, including with bwin.Party digital entertainment

Instant Products Segment

Instant Products Segment First Quarter Financial Highlights

• Instant games revenue increased $3.4 million, inclusive of an unfavorable impact from foreign currency translation of $0.6 million, which reflected:
  • a $3.9 million increase primarily as a result of higher lottery retail sales by our U.S. and certain international customers to which we supply instant games on a participation basis, as well as the benefit from the first-year sales of instant games to our Northstar New Jersey joint venture and our new customer in Panama;
  • a $2.4 million decrease primarily from international customers, including Italy, to which we supply instant games on a price-per-unit basis; and
  • a $1.9 million increase in licensing and player loyalty revenue, primarily driven by promotional and linked games
• Total instant game retail sales of our U.S. customers grew 3.7%, while our revenue from these customers grew by 7.7%, led by higher retail sales in those jurisdictions where we supply instant games on a participation basis
• Operating income increased $1.7 million reflecting higher revenue and $0.8 million in lower depreciation and amortization, partially offset by an $0.8 million increase in selling general and administrative expense

Instant Products Segment Business Development Highlights

• Entered into a three-year price-per-unit instant games contract to continue serving as the primary supplier to La Francaise des Jeux ("FDJ"), the operator of the French National Lottery and the second largest instant game lottery in the world, which includes options for FDJ to extend the contract for three additional one-year periods
• Recently commenced sales of instant games in Greece; we have a 16.5% equity interest in the operator of the Greek State Lotteries, for which we have exclusive responsibility for game design, production and supply of instant games
• Our instant games contract with Loto-Quebec expired in January 2014; we expect to continue to supply instant games to this customer under the previous contract terms until a new contract becomes effective in the second quarter, which will represent a significantly smaller proportion of the customer's business
• Completed the installation of a new, state-of-the-art instant games printing press at the Company's Alpharetta, Georgia facility, which provides increased production capacity for our instant games

Lottery Systems Segment

Lottery Systems Segment First Quarter Financial Highlights

• Lottery systems revenue increased $9.9 million, inclusive of a favorable impact from foreign currency translation of $0.5 million, which reflected:
  • A $2.3 million increase in services revenue, primarily reflecting an increase in sports betting service revenue from international customers, and
  • A $7.6 million increase in product sales revenue, primarily reflecting higher hardware and software sales to international customers
• Operating income was essentially flat as the $9.9 million increase in revenue and $1.0 million of lower research and development expense was offset by a less profitable revenue mix and a $1.7 million increase in depreciation and amortization

Lottery Systems Segment Business Development Highlights

• Entered into a three-year contract extension with the Delaware Lottery to continue our supply of lottery and central monitoring and control systems, which contemplates the placement of a minimum of 450 VLTs at charitable gaming organizations, which will be reflected in the gaming segment
• Entered into an eight-year contract with the North Dakota Lottery, an existing customer, to provide an online lottery system, related services, marketing support and the Sciplay™ interactive platform, which includes systems for internet subscriptions and player rewards programs, with an additional two-year extension held by the lottery

Earnings and EBITDA from Equity Investments

• Earnings from equity investments decreased $0.6 million, as a small increase in earnings from LNS was offset by decreases in earnings from our other equity investments
• The $1.1 million increase in EBITDA from equity investments was primarily attributable to increased EBITDA from LNS and RCN, partially offset by lower EBITDA from CSG

Liquidity and Capital Resources

• At March 31, 2014, cash and cash equivalents were $169.1 million, an increase of $15.4 million compared to December 31, 2013
• Total debt of $3.2 billion at March 31, 2014 was essentially flat compared to December 31, 2013
• Net cash provided by operating activities increased $60.1 million, reflecting a $17.4 million increase in net earnings after adjustments for non-cash items and $26.7 million of favorable working capital and other changes, both primarily due to the acquisition of WMS, as well as a $16.0 million increase in distributed earnings from our equity method investees
• Free cash flow was $23.7 million, an increase of $36.8 million compared to the prior-year period, principally reflecting the improvement in net cash provided by operating activities, partially offset by a $23.3 million increase in capital expenditures
• Total capital expenditures increased $23.3 million, primarily due to the inclusion of $36.5 million of capital expenditures by WMS, partially offset by a reduction in lottery and UK Gaming capital expenditures
  • As previously announced, based on existing contractual obligations and planned investments, we currently expect to invest up to $280 million in capital expenditures in 2014
• The Company made an equity investment of $17.7 million in ITL related to UK Gaming's roll-out of terminals for Ladbrokes and received a $22.4 million return of capital payment from LNS and $44.9 million of cash proceeds from the sale of its equity interest in Sportech PLC, of which $14.5 million represented a gain on sale
• As previously announced, the Company repurchased 2.0 million shares of its common stock for approximately $29.5 million in the 2014 first quarter; as of May 8, 2014, the Company has approximately $75.0 million available for share repurchases under its existing stock repurchase program

Conference Call Details

Scientific Games will host a conference call today, May 8, at 4:30 pm ET to review results and discuss other topics. To access the call live via a listen-only webcast, please visit www.scientificgames.com and click on the webcast link under the Investor Information section.  To access the call by telephone, please dial (800) 510-9691 (U.S. and Canada) or (617) 614-3453 (international). The conference ID is SGMS. A replay of the webcast will be archived in the Investor Information section on our website.    

About Scientific Games

Scientific Games Corporation is a leading developer of technology-based products and services and associated content for worldwide gaming and lottery markets.  The Company's portfolio includes instant and draw-based lottery games; electronic gaming machines and game content; server-based lottery and gaming systems; sports betting technology; loyalty and rewards programs; and social, mobile and interactive content and services.  For more information, please visit: www.scientificgames.com.

Company Contacts

Investor Relations:
Bill Pfund   (847) 785-3167

Media Relations:
Mollie Cole   (773) 961-1194

Forward-Looking Statements 

In this press release, the Company makes "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," "continue," "believe," "expect," "anticipate," "targeted," "should," "could," "potential," "opportunity," or similar terminology. 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 lottery retail sales or gross gaming revenues and reductions in or constraints on capital spending by gaming or lottery operators; slow growth of new gaming jurisdictions; slow addition of casinos in existing jurisdictions; declines in the replacement cycle of gaming machines; ownership changes and consolidation in the casino industry; opposition to legalized gaming or the expansion thereof; technological changes; ability to adapt to, and offer products that keep pace with, evolving technology; ability to develop successful gaming concepts and content; laws and government regulation, including those relating to gaming licenses and environmental laws; inability to identify and capitalize on trends and changes in the lottery and gaming industries, including the expansion of interactive gaming; dependence upon key providers in our social gaming business; retention and renewal of existing contracts and entry into new or revised contracts; level of our indebtedness; availability and adequacy of cash flows to satisfy obligations or future needs; restrictions and covenants in our debt agreements; protection of our intellectual property; ability to license third party intellectual property; intellectual property rights of others; security and integrity of our software and systems; reliance on or failures in our information technology systems; natural events that disrupt our operations or those of our customers, suppliers or regulators; inability to benefit from, and risks associated with, strategic equity investments and relationships; inability of our joint venture to meet the net income targets or otherwise to realize the anticipated benefits under its private management agreement with the Illinois Lottery; 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 (including as a result of a protest); failure to realize the anticipated benefits related to the award to our consortium of an instant ticket concession in Greece; inability to complete and integrate future acquisitions; failure to achieve the intended benefits of the WMS acquisition, including due to the inability to realize synergies in the anticipated amounts or within the contemplated time-frames or cost expectations, or at all; restructuring costs; revenue recognition standards; impairment charges; 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 and restrictions on the import of our products; dependence on our employees; litigation and other liabilities relating to our business, including relating to our contracts and licenses, our products and systems, our employees, intellectual property and our strategic relationships; influence of certain stockholders; and stock price volatility. Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in the Company's filings with the Securities and Exchange Commission ("SEC") (including our Annual Report on Form 10-K filed with the SEC on March 17, 2014 and in our subsequent periodic reports), including under the heading "Risk Factors" in the Company's periodic reports.  Forward-looking statements speak only as of the date they are made and, except for the Company's ongoing obligations under the U.S. federal securities laws, the Company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

The Company's management uses the following non-GAAP financial measures in conjunction with GAAP financial measures:  attributable EBITDA, free cash flow and EBITDA from equity investments (each, as described more fully below).  These non-GAAP financial measures are presented as supplemental disclosures.  They should not be considered in isolation of, as a substitute for, or superior to, the financial information prepared in accordance with GAAP, and should be read in conjunction with the Company's financial statements filed with the SEC.  The non-GAAP financial measures used by the Company may differ from similarly titled measures presented by other companies.

The Company's management uses these non-GAAP financial measures to, among other things: (i) monitor and evaluate the performance of the Company's business operations, as well as the performance of its equity investments; (ii) facilitate management's internal comparisons of the Company's historical operating performance; (iii) facilitate management's external comparisons of the Company's results to the historical operating performance of other companies that may have different capital structures and debt levels; and (iv) analyze and evaluate financial and strategic planning decisions regarding future operating investments and operating budgets.  Accordingly, the Company's management believes that these non-GAAP financial measures are useful as they provide investors with information regarding the Company's financial condition and operating performance that is an integral part of management's reporting and planning processes

In particular, the Company's management believes that attributable EBITDA is helpful because this non-GAAP financial measure eliminates the effects of unusual, infrequent or other items that management believes have less bearing on the Company's underlying operating performance. Moreover, management believes attributable EBITDA and EBITDA from equity investments are useful to investors because a significant and increasing amount of the Company's business is conducted through its equity investments, and those measures eliminate financial items from the equity investees' earnings that management believes have less bearing on the equity investees' performance.  Management believes that attributable EBITDA and free cash flow provide useful information regarding the Company's liquidity and its ability to service debt and fund investments.  Management also believes that free cash flow is useful for investors because it provides them with an important perspective on the cash available for debt repayment and other strategic measures, after making necessary capital investments in property and equipment to support the Company's ongoing business operations. In addition, attributable EBITDA and free cash flow (calculated by subtracting total capital expenditures from attributable EBITDA) are metrics used in determining performance-based bonuses (subject to certain additional adjustments in the discretion of the Company's compensation committee).

Attributable EBITDA

"Attributable EBITDA," as used herein, is a non-GAAP financial measure that is presented herein as supplemental disclosure that is reconciled to net income (loss) as set forth in the schedules titled Reconciliation of Net Loss to Attributable EBITDA below. 

Attributable EBITDA is derived from the definition of "consolidated EBITDA" in our credit agreement.  In connection with the WMS acquisition, on October 18, 2013, the Company terminated its prior credit agreement and entered into the new credit agreement.  The definition of "consolidated EBITDA" in the new credit agreement is different from the definition in the prior credit agreement.  As a result, the definition of "attributable EBITDA" as used herein is different from the definition of "attributable EBITDA" used in the Company's pre-acquisition earnings releases.  In order to enhance comparability, attributable EBITDA for prior periods presented herein is based on the new definition of attributable EBITDA, and a schedule reconciling the differences between the two attributable EBITDA definitions is set forth in the schedule entitled Reconciliation of Attributable EBITDA Based on Definition under Prior Credit Agreement to Attributable EBITDA Based on Definition under New Credit Agreement below.

Like the definition of attributable EBITDA in our prior earnings releases, attributable EBITDA as used herein includes our consolidated EBITDA plus (without duplication) our pro rata share of the EBITDA of our joint ventures and minority equity investments, subject to adjustments only to the extent contemplated by the definition of "consolidated EBITDA" in our new credit agreement ("credit agreement adjustments").  The credit agreement adjustments that we use for attributable EBITDA have changed to some extent as a result of our new credit agreement, including the following:

• the adjustment for software license royalty payments to Playtech Limited or its affiliates (subject to a cap) has been eliminated under the new definition;
• the new definition includes adjustments for extraordinary, unusual or non-recurring charges (including legal and settlement costs), certain non-cash charges and charges or expenses attributable to cost savings initiatives and restructurings, whereas the corresponding adjustments under the old definition were limited to extraordinary charges or losses under GAAP, certain non-cash non-recurring write-downs under GAAP, and certain charges (subject to a cap) in connection with reductions in workforce, contract losses, discontinued operations, shutdown expenses and cost reduction initiatives;
• the adjustment for merger and other transaction fees and expenses is not capped in connection with a transaction that was not consummated; and
• the new definition includes adjustments for proceeds from business interruption insurance, realized and unrealized gains and losses from derivative and foreign exchange transactions and, subject to certain conditions, charges and expenses to the extent indemnified by a third party.

The Company anticipates that it will not include certain credit agreement adjustments in attributable EBITDA for purposes of the Company's earnings releases (and has not included those adjustments in the calculation of attributable EBITDA in this earnings release).  For example, the Company does not expect to give effect in attributable EBIDTA to certain "pro forma" adjustments contemplated by the new credit agreement (including adjustments for acquisitions or dispositions), expected cost savings and other synergies, franchise taxes or Sarbanes-Oxley compliance costs. Attributable EBIDTA for purposes of the Company's earnings releases will not include any add-backs beyond those contemplated by the credit agreement adjustments.

"Consolidated EBITDA" as defined in our new credit agreement means, for any period, "consolidated net income" as defined in the credit agreement for such period plus, without duplication and, if applicable, except with respect to clauses (9), (10), (16) and (19) below, to the extent deducted in calculating such consolidated net income for such period, the sum of: (1) provisions for income (or similar) taxes, including franchise, excise and similar taxes and foreign withholding taxes; (2) interest expense (net of interest income, other than interest income earned on customer accounts), net losses on interest rate hedging obligations, amortization or write-off of debt discount and debt issuance costs and commissions, premiums, discounts and other fees and charges associated with debt; (3) depreciation and amortization expense and impairment charges; (4) extraordinary, unusual or non-recurring charges, expenses or losses, including severance costs and legal and settlement costs; (5) any other non-cash charges, expenses or losses (except to the extent such charges, expenses or losses represent an accrual of or reserve for cash expenses in any future period or an amortization of a prepaid cash expense paid in a prior period); (6) non-cash stock-based compensation expenses; (7) transaction costs, fees, losses and expenses (whether or not any transaction is consummated); (8) management, monitoring, consulting and advisory fees, and due diligence expense and other transaction fees and expenses and related expenses paid; (9) proceeds from any business interruption insurance (to the extent not reflected as revenue or income); (10) certain pro forma cost savings and other synergies; (11) earn-out and similar obligations incurred in connection with any acquisition or other investment; (12) charges and expenses to the extent indemnified or insured by a third party to the extent that coverage has not been denied (other than any such denial that is being contested in good faith) and so long as such amounts are actually reimbursed within one year; (13) net realized losses relating to amounts denominated in foreign currencies resulting from the application of FASB ASC 830; (14) costs of surety bonds in connection with financing activities, (15) costs associated with compliance with the requirements of the Sarbanes-Oxley Act of 2002; (16) certain identified pro forma adjustments; (17) charges or expenses attributable to cost savings initiatives, business optimization, management changes, restructurings and integrations; (18) (a) any net loss resulting from hedge agreements and the application of FASB ASC 815 or currency translation losses related to currency re-measurements of debt and (b) the amount of loss resulting from a sale of receivables, payment intangibles and related assets in connection with a receivables financing; (19) cash receipts not included in consolidated EBITDA in any period to the extent non-cash gains relating to such receipts were deducted in the calculation of consolidated EBITDA for any previous period and not added back; and (20) up-front fees and certain other costs in connection with certain lottery or gaming licenses or concessions; minus, to the extent reflected in the statement of such consolidated net income for such period, the sum, without duplication, of:  (1) any extraordinary, unusual or non-recurring income or gains; (2) non-cash income or gains (other than the accrual of revenue in the ordinary course), subject to specified exceptions; (3) gains realized and income accrued in connection with the effect of currency and exchange rate fluctuations on intercompany balances and other balance sheet items; (4) the amount of cash received in such period in respect of any non-cash income or gain in a prior period (to the extent such non-cash income or gain previously increased consolidated net income in a prior period); (5) net realized gains relating to amounts denominated in foreign currencies resulting from the application of FASB ASC 830; and (6) (a) any net gain resulting from hedge agreements and the application of FASB ASC Topic 815, (b) any net gain resulting in such period from currency translation gains related to currency remeasurements of debt and (c) the amount of gain resulting in such period from a sale of receivables, payment intangibles and related assets in connection with a receivables financing. "Consolidated EBITDA" is subject to certain pro forma adjustments in connection with material acquisitions and dispositions as provided in the new credit agreement. "Consolidated EBITDA" also includes our pro rata share of the EBITDA of our joint ventures and minority equity investments (without duplication of amounts otherwise constituting consolidated net income, as noted above). The foregoing definition of "consolidated EBITDA" is summary in nature and is qualified in its entirety by reference to the full text of such definition in the Company's new credit agreement, a copy of which is attached as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 18, 2013.

For a complete description of the definition of "consolidated EBITDA" in the Company's prior credit agreement, see Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on August 31, 2011.

Free Cash Flow

Free cash flow, as used herein, represents net cash provided by operating activities less total capital expenditures (which includes lottery and gaming systems expenditures and other intangible assets and software expenditures).  Free cash flow is a non-GAAP financial measure that is presented herein as supplemental disclosure and is reconciled to net cash provided by operating activities in a schedule below.

EBITDA from Equity Investments

EBITDA from equity investments, as used herein, represents our share of the EBITDA (i.e., earnings (whether or not distributed to us) plus income tax expense, depreciation and amortization expense and interest (income) expense, net of other) of our joint ventures and minority investees.  EBITDA from equity investments is a non-GAAP financial measure that is presented herein as supplemental disclosure and is reconciled to earnings from equity investments in a schedule below.