Scientific Games Reports Third Quarter 2014 Results

NEW YORK, Oct. 30, 2014 /PRNewswire/ -- Scientific Games Corporation (NASDAQ: SGMS) ("Scientific Games" or the "Company"), a leading global supplier of games and technology to gaming and lottery operators, today reported its financial results for the third quarter ended September 30, 2014. 

Third quarter revenue increased to $415.6 million from $234.4 million in the prior-year quarter, primarily reflecting the contribution of WMS operations and a 9% increase in total lottery revenue.  Attributable EBITDA, a non-GAAP financial measure, increased $38.3 million from the prior-year quarter to $128.2 million. The Company incurred a net loss of $69.8 million, or $0.82 per share, inclusive of: a $19.7 million, or $0.23 per share, non-cash impairment charge to write down the Company's equity investment in its Northstar Illinois joint venture; $5.9 million, or $0.07 per share, of transaction- and financing-related costs associated with the pending acquisition of Bally Technologies, Inc. (NYSE: BYI) ("Bally"); and $1.9 million, or $0.02 per share, of employee termination and restructuring expense. In the prior-year period, the Company reported a net loss from continuing operations of $0.4 million, or $0.01 per share, inclusive of $2.5 million, or $0.03 per share, of WMS-related transaction costs.

"During the quarter, the Company generated $126 million of cash flow from operations, which after $62 million of capital expenditures resulted in $65 million of free cash flow," said Gavin Isaacs, President and Chief Executive Officer. "While our operating results still require further improvement to achieve the level of performance we expect, we believe we are making solid progress in utilization of working capital, implementation of WMS-related integration initiatives, strengthening the organization-wide focus on disciplined cost management and directing capital allocation only toward our highest-return opportunities."

For the nine months ended September 30, 2014, revenue increased $531.6 million from the prior-year period to $1,220.6 million, primarily reflecting the contribution from WMS' operations.  Attributable EBITDA increased to $383.1 million from $252.0 million.  The net loss increased to $187.2 million from $26.7 million, primarily reflecting an operating loss of $16.3 million, which includes $13.0 million of transaction-related costs and legal contingencies, and $12.4 million of employee termination and restructuring expense, compared to operating income of $49.2 million in the prior-year period. In addition, the net loss for the first nine months of 2014 was also impacted by a $25.9 million loss on early extinguishment of debt, the $19.7 million non-cash impairment charge referenced above and $8.0 million related to the Company's share of an estimated net shortfall accrual recorded by its Northstar Illinois joint venture, and $67.6 million of higher interest expense, partially offset by a $14.5 million gain on the sale of the equity investment in Sportech PLC. In the prior-year nine month period, the Company had $9.5 million of transaction- and financing-related expenses and $0.3 million of employee termination and restructuring expense.

"In addition to the progress being made with the WMS integration, we are focused on the potential to meaningfully increase free cash flow following the Bally acquisition, which we continue to anticipate closing this quarter, and deploying our free cash flow to reduce net debt," Isaacs continued.  "Reflecting the superb efforts of our integration teams, our plans are now expected to yield greater expected financial savings than originally anticipated. As a result, we are increasing our estimate of annual cost synergies anticipated to be realized from the pending Bally transaction by the end of 2016 from $220 million to $235 million. In addition, we now expect to realize an additional $15 million in annual cost synergies from the WMS acquisition, bringing the total to $115 million in annual cost savings by the end of 2015, of which slightly more than half has been achieved to date. We expect to incur an additional $3 million of costs to achieve the additional $15 million of expected WMS cost synergies and an additional $4 million of costs to achieve the incremental $15 million of anticipated cost synergies from the pending Bally acquisition.

"With contributions from WMS, the exciting launch of the MONOPOLY MILLIONAIRES' CLUB™ lottery game on October 19, 2014, and increased projections for cost synergies expected to increase free cash flow, we remain confident the combination of Scientific Games and Bally will deliver significant strategic and financial benefits as we bring together two organizations with similar cultures: a customer-first approach and deep-rooted passion for the development of great gaming entertainment. The collaborative and productive integration planning by our teams has reinforced this belief," Isaacs added.

Completion of the Bally acquisition is subject to approval by Bally's stockholders, receipt of certain gaming regulatory approvals and other customary closing conditions.

2014 Third Quarter Business Update

Gaming Segment

Financial results and revenue metrics presented below include the results of operations for WMS in the 2014 third quarter but not in the 2013 third 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 September 30, 2014 and September 30, 2013, and is provided as supplemental information. The information relating to the three months ended September 30, 2013 has been derived from the books and records of WMS. 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 Third Quarter Financial Highlights

• Revenue increased $163.5 million principally due to $162.5 million of revenue from WMS.
• Services revenue increased $102.5 million, primarily reflecting $98.5 million of revenue from WMS and a benefit of $2.6 million from favorable foreign currency translation in our U.K. gaming business ("UK Gaming"), partially offset by a decline in UK Gaming services revenues related to the loss of the Betfred contract in December 2013
  • WMS' installed base at September 30, 2014 of 9,054 units, comprising 3,625 WAP and 5,429 premium participation units, declined 4% from 9,437 units at September 30, 2013, which was composed of 3,682 WAP and 5,755 premium participation units; the installed base as of September 30, 2014 increased 4% sequentially from 8,732 units at June 30, 2014. The average installed base of 8,678 WAP and premium participation gaming machines generated average daily revenue of $71.95 per unit, an 8% increase over the amount reported by WMS in the prior-year period, principally due to the strong performance of new games
  • The Company's average installed base of other leased and participation units was 26,667 units, reflecting the addition of an average of 2,114 other leased units within the WMS footprint, partially offset by a decline in the UK Gaming installed base largely due to the previously announced loss of the Betfred contract. The average daily revenue from other leased and participation units increased 15% to $12.49 from $10.87 per unit reflecting a modest improvement in the UK Gaming yield and the addition of higher-yielding WMS leased units
• Interactive gaming products and services revenue was $38.5 million primarily reflecting the acquisition of WMS
  • The growth in interactive gaming revenue from social gaming activities also reflected the 78% growth in the average DAU for the Company's social casinos in the 2014 third quarter to approximately 1.6 million compared to the approximately 0.9 million average DAU in the prior-year period for WMS, partially offset by a 26% decline in ARPDAU to $0.23 reflecting the impact of a significantly larger player audience and growth in players on mobile platforms
  • Interactive gaming revenue increased 19% on a quarterly sequential basis from $32.3 million in the 2014 second quarter, reflecting an increase in DAU from 1.4 million players, an increase in ARPDAU from $0.22 plus an increase in real-money gaming revenue
• Product sales revenue increased $61.0 million, primarily due to $64.1 million in revenue from WMS.  New gaming machine sales reflected shipments of 1,933 new WMS gaming machines to U.S. and Canadian customers, comprised of an 18% increase in replacement units to 1,738 units for casino operators, 60 Illinois video gaming terminals (VGTs) and 135 units for new casino openings and expansions. New unit shipments for WMS declined 26% to 3,070 units from 4,135 units in the prior-year period, primarily reflecting the impact of fewer U.S. new casino openings and lower Illinois VGT shipments; shipments for WMS in the prior-year quarter included 1,476 replacement units for U.S. and Canadian casino operators, 385 Illinois VGTs and 692 units for new U.S. casino openings. The 1,362 new unit shipments to international customers included 1,137 WMS units and 225 UK Gaming terminals.  WMS shipped 1,582 units to international customers in the prior-year period. Other product sales revenue increased by $14.4 million principally due to $17.4 million from WMS, which included game content subscription revenue and sales of conversion kits, used gaming machines and parts
  • Unit shipment declines also reflected the continued challenging gaming industry conditions that have included increased competition and lower casino revenue in many U.S. gaming jurisdictions, which we believe has resulted in constrained capital spending by casino operators; the decline in international new unit shipments was due in part to continued import limitations in Argentina and lower shipments to Mexican customers reflecting industry challenges and fewer casino operators
  • The average selling price for WMS gaming machines declined from the prior-year period reflecting lower prices on video gaming machines and lower average prices on international Bluebird®2 units
• New unit shipments included 2,106 Blade™ gaming machines, which represented 69% of total WMS global new unit shipments, including 653 mechanical reel Blade Stepper units
• Operating loss was $7.8 million compared to operating income of $1.0 million in the prior-year quarter, primarily reflecting the acquisition of WMS
  • Selling, general and administrative expense increased $34.7 million and research and development expense increased $24.5 million, primarily from WMS
  • Employee termination and restructuring costs reflected $1.5 million of charges associated with integration-related cost savings actions
  • Depreciation and amortization increased $57.4 million, of which $58.9 million was from WMS, including incremental depreciation and amortization related to purchase accounting associated with the acquisition, partially offset by $1.0 million lower depreciation and amortization in UK Gaming

Gaming Segment Business Development Highlights

• Received favorable customer feedback on WMS' for-sale products demonstrated at the recent 2014 G2E® trade show and on WMS' newest WAP and premium participation products with licensed game themes: Elvis®, Elton John™, Austin Powers™, The Flintstones™, MAD MEN® and Gremlins™, and WMS' latest Blade cabinet series
• Entered into an agreement to provide the interactive Play4Fun Network™ to Bay Mills Resort and Casino
• Entered into six new game content agreements with online operators

Instant Products Segment

Instant Products Segment Third Quarter Financial Highlights

• Instant games revenue increased reflecting:
  • an $8.2 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 sales of instant games to our Northstar New Jersey and Hellenic Lotteries joint ventures, partially offset by the impact from our exit of certain Mexican lottery operations at the beginning of 2014
  • a $2.1 million increase from customers to which we supply instant games on a price-per-unit basis, primarily domestic customers, partially offset by a decrease from our international price-per-unit contracts, including our contract with LNS, and lower revenue from a previously announced change in our supply relationship with Loto-Quebec
  • a $9.2 million decrease in licensing and player loyalty revenue, primarily reflecting a higher number of contracts in the prior-year period
• Operating income increased $0.7 million reflecting a benefit from higher and more profitable revenue and lower depreciation and amortization expense, partially offset by an increase in selling, general and administration, research and development, and employee termination and restructuring expenses
  • The loss from equity investments was primarily attributable to a $19.7 million non-cash impairment charge to write down our Northstar Illinois equity investment, as we understand the Governor's office of the State of Illinois directed the Illinois lottery to end the private management agreement with Northstar Illinois; this non-cash charge was an add-back to the calculation of our attributable EBITDA

Instant Products Segment Business Development Highlights

• The new $5 licensed multi-state MONOPOLY MILLIONAIRES' CLUB lottery game created by Scientific Games was launched in 23 states by the Multi-State Lottery Association ("MUSL") on October 19, 2014, with additional state lotteries expected to commence in the coming months along with a new weekly syndicated TV game show that is expected to launch early in 2015
• Entered into a new two-year contract to provide instant games, licensed properties and related services to the Taiwan Lottery Co., Ltd., which includes an option for the lottery to extend the contract for two additional years
• Entered into a four-year instant games contract to continue serving as the primary supplier of instant games and value-added services to the National Lottery of Slovakia
• Awarded a three-year extension with the Colorado Lottery to continue serving as the primary supplier of instant games and related services; awarded a three-year extension with the Delaware Lottery to continue providing instant games and a cooperative services program that includes game design, marketing services, warehouse and distribution and other related services; and awarded a two-year extension with the Minnesota Lottery to continue serving as the secondary instant games supplier

Lottery Systems Segment

Lottery Systems Segment Third Quarter Financial Highlights

• Lottery systems revenue increased $16.5 million, reflecting:
  • A $0.4 million decrease in services revenue, primarily reflecting a decrease in customers' retail sales of lottery draw games, including the impact from the benefit in the prior-year quarter of two large Powerball® jackpots, partially offset by higher revenue from instant ticket validations
  • A $16.9 million increase in product sales revenue, including higher terminal and software sales to international customers and hardware sales to a U.S. customer
• Operating income decreased by $7.0 million as higher revenue was more than offset by a less profitable revenue mix, primarily reflecting higher low-margin hardware sales and lower high-margin software sales and service revenue, and an increase in depreciation and amortization related to higher capitalized software assets

Lottery Systems Segment Business Development Highlights

• In September 2014, lottery ticket retailers in Puerto Rico became eligible to sell Powerball game tickets
• Completed integrated lottery system conversions for the North Dakota and Maine Lotteries that include an online players club, our Sciplay™ interactive lottery technology enabling player registration and internet-based subscription programs and other related services

Earnings and EBITDA from Equity Investments

• The loss from equity investments was $14.0 million compared to earnings of $3.4 million in the prior-year period, as increased earnings primarily from the Hellenic Lotteries, ITL and RCN were more than offset by the impact of the $19.7 million non-cash impairment charge to write down our equity investment in Northstar Illinois
• The $1.0 million decrease in EBITDA from equity investments was primarily attributable to the disposition of the investment in Sportech PLC in the 2014 first quarter, partially offset by higher EBITDA from Hellenic Lotteries

Liquidity and Capital Resources

• At September 30, 2014, cash and cash equivalents were $132.5 million, an increase of $43.3 million compared to June 30, 2014, primarily reflecting the improvement in free cash flow
• Total debt of $3.2 billion at September 30, 2014 was essentially flat compared to June 30, 2014
• Net cash provided by operating activities for the September 2014 quarter was $126.3 million, an increase of $100.7 million from the prior-year quarter, primarily reflecting a favorable $82.0 million change in working capital compared to the prior-year period
• Total capital expenditures increased $29.8 million, primarily due to the inclusion of $37.0 million of capital expenditures by WMS and higher IT expenditures, partially offset by a reduction in lottery and UK Gaming capital expenditures
  • Based on lower-than-expected spending of capital expenditures in the nine months ended September 30, 2014, we are lowering our estimate of 2014 capital expenditures to a range of $245 million to $255 million from the previously announced range of $260 million to $270 million
• Free cash flow was $64.7 million compared to a negative $6.2 million in the prior-year period reflecting the $100.7 million increase in net cash provided by operating activities partially offset by the $29.8 million increase in capital expenditures

Conference Call Details
Scientific Games will host a conference call today, October 30, 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 (877) 415-3181 (U.S. and Canada) or +1 (857) 244-7324 (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

Austin Powers ™ & © New Line Productions, Inc. (s14)
Elvis Presley © Elvis Presley Enterprises, Inc.; ELVIS PRESLEY Reg. U.S. Pat. & Tm. Off.
The Flintstones ™ & © Hanna-Barbera. (s14)
G2E is a registered trademark of Reed Exhibitions, a division of Reed Elsevier Inc., and the American Gaming Association.  Used with permission.
Gremlins™ & © Warner Bros. Entertainment Inc. (s14)
Mad Men is a trademark of Lions Gate Television Inc. © 2014. All Rights Reserved. www.amctv.com/originals/madmen
MONOPOLY is a trademark of Hasbro. Used with permission. © 2014 Hasbro. All rights reserved.
Powerball is a registered trademark of the Multi-State Lottery Association. © 2014 Multi-State Lottery Association. All rights reserved.

Forward-Looking Statements
In this press release, Scientific Games 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," "should," "could," "potential," "opportunity," "goal," 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, reductions in or constraints on capital spending by gaming or lottery operators and credit risk relating to customers; slow growth of new gaming jurisdictions, slow addition of casinos in existing jurisdictions and declines in the replacement cycle of gaming machines; ownership changes and consolidation in the casino industry; opposition to legalized gaming or the expansion thereof; 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 gaming and lottery industries, including the expansion of interactive gaming; dependence upon key providers in our social gaming business; retention and renewal of existing contracts or entry into new or revised contracts; level of our indebtedness, higher interest rates, availability and adequacy of cash flows and liquidity to satisfy obligations or future needs, and restrictions and covenants in our debt agreements; protection of our intellectual property, ability to license third party intellectual property, and the intellectual property rights of others; security and integrity of our software and systems and 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, including (i) the 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, (ii) 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 (including as a result of a protest) and (iii) failure to realize the anticipated benefits related to the award to our consortium of an instant lottery game concession in Greece; failure to achieve the intended benefits of the acquisition of WMS, including due to the inability to realize synergies in the anticipated amounts or within the contemplated time-frames or cost expectations, or at all; inability to complete future acquisitions, including the pending acquisition of Bally due to the failure to obtain the required approvals or debt financing or otherwise; litigation relating to the pending Bally acquisition; disruption of our current plans and operations in connection with the pending Bally acquisition (whether prior to its completion or following its completion, including in connection with the integration of Bally), including departure of key personnel or inability to recruit additional qualified personnel or maintain relationships with customers, suppliers or other third parties; costs, charges and expenses relating to the pending Bally acquisition; inability to successfully integrate future acquisitions, including Bally (including SHFL entertainment, Inc. and Dragonplay Ltd.) following completion of the pending Bally acquisition; failure to realize the intended benefits of the pending Bally acquisition, including the inability to realize the anticipated synergies in the anticipated amounts or within the contemplated time-frames or cost expectations, or at all; inability to control Bally until completion of the Bally acquisition; incurrence of restructuring costs, revenue recognition standards and 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 litigation and liabilities relating to our contracts and licenses, our products and systems, our employees, intellectual property and our strategic relationships; influence of certain stockholders; and stock price volatility.  Additional information regarding risks, 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 the heading "Risk Factors" in our most recent Annual Report on Form 10-K.  Forward-looking statements speak only as of the date they are made and, except for Scientific Games' ongoing obligations under the U.S. federal securities laws, Scientific Games 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 EBITDA 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 EBITDA 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.