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 Part I, Item 1 "Condensed Consolidated Financial Statements" and Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q and under Part I, Item 1 "Business," Item 1A "Risk Factors" and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2019 10-K. This "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the disclosures and information contained and referenced under "Forward-Looking Statements" and "Risk Factors" included in this Quarterly Report on Form 10-Q and "Risk Factors" included in our 2019 10-K. As used in this MD&A, the terms "we," "us," "our" and the "Company" mean SGC together with its consolidated subsidiaries.



BUSINESS OVERVIEW
We are a leading developer of technology-based products and services and
associated content for the worldwide gaming, lottery, social and digital gaming
industries. Our portfolio of revenue-generating activities primarily includes
supplying gaming machines and game content, casino-management systems and table
game products and services to licensed gaming entities; providing instant and
draw-based lottery products, lottery systems and lottery content and services to
lottery operators; providing social casino solutions to retail consumers; and
providing a comprehensive suite of digital RMG and sports wagering solutions,
distribution platforms, content, products and services.
Recent Events - Impact of COVID-19
In March 2020, the World Health Organization declared the rapidly spreading
COVID-19 outbreak a pandemic. In response to the COVID-19 pandemic, governments
across the world implemented measures to prevent its spread including the
temporary closure of all non-essential businesses and travel restrictions, which
have affected and continue to affect our business segments in a number of ways.
The closure and phased in reopening of gaming establishments during the latter
part of the second quarter of 2020 have impacted a substantial amount of our
gaming and, to a lesser extent, lottery operations. The reopening of gaming
establishments began during the latter part of the second quarter of 2020,
however, significant health and safety measures continue to be taken to ensure
the safety of players which continues to negatively affect our gaming business
segment as these measures are implemented and observed. These safety and social
distancing measures include the reduction of floor occupancy, limitation of the
number of players allowed at table games and a reduction of slot machines
available for play, among others.
Impact on Business Operations and Financial Results
Our Gaming business segment is especially impacted due to the widespread
temporary closures and restricted re-opening of a substantial number of gaming
operations establishments coupled with global economic uncertainty. The COVID-19
pandemic remains a rapidly evolving situation. Although businesses began
reopening during the latter part of the second quarter of 2020, our
Participation gaming business revenue and cash flows continue to be
significantly negatively affected, as they are largely driven by players'
disposable incomes and level of gaming activity. New social distancing
requirements that were implemented in many jurisdictions have and are expected
to continue to have a negative impact on the amount of customer traffic within
gaming establishments. The COVID-19 disruptions continue to cause prolonged
periods of closures and modified operating schedules and may result in changes
in customer behaviors, including a reduction in consumer discretionary spending
as a result of the uncertainty caused by the pandemic and unemployment levels.
Additionally, our gaming machine and table product sales largely depend on our
customers' liquidity and operating results, which has negatively impacted the
replacement cycle and demand for gaming machines, table products and
opportunities from new or expanded markets. Further, we have granted customer
concessions for a portion of the time for which such customers' operations were
impacted by closures or quarantines. Also, based on historical gaming customers'
orders and our manufacturing capacity, a substantial portion of gaming machine
sales are fulfilled in the third month of each quarter. Since March when the
COVID-19 disruptions became widespread, gaming machine sales revenues have been
and continue to be particularly negatively impacted. We believe this negative
trend could reduce the capital expenditures of casino operators and continue to
lengthen the replacement cycles of their existing gaming machines.
Unfavorable economic conditions caused by COVID-19 could continue to impact the
timing of cash receipts from our Gaming customers. In addition, unfavorable
economic conditions have caused, and could continue to cause, some of our Gaming
customers to temporarily close gaming venues or ultimately declare bankruptcy,
which would adversely affect our business. In recent years, our Gaming business
has expanded the use of extended payment term financing for gaming machine

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purchases primarily in the LATAM region, and we expect to continue to provide a
higher level of extended payment term financing in this business until demand
from our customers for such financings abates or our business model changes.
These financing arrangements may increase our collection risk, and if customers
are not able to pay us, whether as a result of financial difficulties,
bankruptcy or otherwise, we may incur provisions for bad debt related to our
inability to collect certain receivables. In addition, both extended payment
term financing and operating leases result in a delay in our receipt of cash,
which reduces our cash balance, liquidity and financial flexibility to respond
to changing economic events. Unfavorable economic conditions may also result in
volatility in the credit and equity markets. The difficulty or inability of our
customers to generate or obtain adequate levels of capital to finance their
ongoing operations may reduce their ability to purchase our products and
services. Refer to Note 5 for international locations with significant
concentrations of our receivables with terms longer than one year.
We increased our allowance for credit losses by $12 million and $40 million for
the three and six month periods ended June 30, 2020, respectively. These
increases were primarily related to Gaming customers in LATAM as those customers
were particularly affected by COVID-19 closures of gaming operations
establishments. In addition, customers in this region expect and have often been
granted extended payment terms. As described above, our customers in LATAM have
been and are expected to continue to be affected by the COVID-19-related
closures of gaming operations establishments and the resulting impact on both
their specific financial situations and the general macroeconomic environments
in which they operate.
During the three and six months ended June 30, 2020, we recorded $21 million and
$30 million, respectively, in inventory valuation charges (recorded in cost of
product sales) related to inventory in our Gaming business segment primarily due
to the COVID-19 disruption impacting future demand combined with a reassessment
of our Gaming product strategy. Our new Gaming leadership team brought in late
in the first quarter of 2020 began to set a new strategic plan for the Gaming
business late in the second quarter of 2020. This new strategic plan includes
revising product roadmaps and an assessment of how many and which platforms we
will support, when we end service on legacy platforms and when we stop selling
on such platforms in conjunction with new product launches. This new approach,
combined with the rapid demand reduction that took place in the second quarter
largely as a result of the COVID-19 disruptions, required us to reassess our
inventory valuation, including whether we had excess or obsolete inventory based
on the new strategic plan and related demand. In addition, the continued
closures in the LATAM region make it difficult to execute our previous strategy
of shipping legacy platforms into that market. The combination of these factors
led to the $21 million inventory valuation charge recognized in the three months
ended June 30, 2020. Our policy is to continue to review and assess these and
other factors, especially during the COVID-19 disruptions, and if such factors
or our outlook changes, we record adjustments to the valuation of inventory.
Our Lottery business segment continues to be negatively impacted primarily as a
result of lower foot traffic and reduced discretionary spending by end players,
coupled with international retail establishments that were temporarily closed
and began to re-open during the second quarter of 2020. Lottery sales were down
meaningfully early in the second quarter as a result of the pandemic, but have
since largely recovered in the U.S. and we have also seen a strong recovery in
international markets.
The temporary closure of gaming operations, disruptions to lottery operations,
travel restrictions, cancellation of sporting events, lower disposable incomes
of consumers and the adverse impact on our casino and gaming customers'
liquidity and financial results caused by the COVID-19 pandemic, had and
continues to have an adverse effect on our results of operations, cash flows and
financial condition for the first half of 2020 and into the second half of 2020
and potentially beyond.
Although gaming and lottery operations have begun to re-open, with encouraging
early performance results, we are unable to determine the ultimate magnitude and
the length of time that the pandemic disruptions will continue to impact our
results of operations, cash flows and financial condition, which will depend,
among other factors, on the currently unknowable duration of the COVID-19
pandemic, the impact of governmental regulations and actions that might continue
to be imposed in response to the pandemic, change in customer behaviors, social
distancing measures, decreased gaming establishments operating capacity, high
unemployment rates, and the pace of overall recovery of gaming and lottery
operations globally. We implemented a number of measures to reduce operating
costs and conserve liquidity. These include measures such as: reductions in both
salaries and workforce, including temporary voluntary 50% or greater reductions
in salaries by our executive leadership team (100% as to our President and Chief
Executive Officer until June 30, 2020 and 50% from July 1, 2020 to July 31,
2020), unpaid employee furloughs, temporary elimination of 401(k) matching among
other compensation and benefits reductions and deferral of all non-essential
operating and capital expenditures. We have also engaged with our vendors to
negotiate concessions on the timing and amount of payments to preserve liquidity
through the COVID-19 disruption period. We estimate that these measures resulted
in excess of $150 million in cost savings in the second quarter of 2020.
Additionally, reduced capital expenditures and the above measures are expected
to result in an overall lower future cost structure.
Impact on Liquidity
On May 8, 2020, SGC and the requisite lenders under SGI's revolving credit
facility entered into the Credit Agreement Amendment that, among other things,
implements a financial covenant relief period through the end of the first
quarter ending March 31, 2021 (the "Covenant Relief Period"), as a result of
which SGI is not required to maintain compliance with the

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consolidated net first lien leverage ratio covenant during the Covenant Relief
Period, imposes a minimum liquidity requirement (excluding SciPlay) of at least
$275 million during the Covenant Relief Period, and further restricts our
ability to incur indebtedness and liens, make restricted payments and
investments and prepay junior indebtedness during the Covenant Relief Period,
subject to certain exceptions and further subject, in some instances, to
maintaining minimum liquidity (excluding SciPlay) of at least $400 million. See
Note 1 for additional details regarding the Credit Agreement Amendment.
On April 9, 2020, we borrowed $480 million under SGI's revolving credit
facility. As of June 30, 2020, our total available liquidity (excluding our
SciPlay business segment) was $637 million. We continue to actively manage our
daily cash flows and continue to evaluate additional measures that will reduce
operating costs and conserve cash. We believe that, based on our current
projections, we will have sufficient liquidity for a period of at least one
year.
On July 1, 2020, we completed the issuance of $550 million in aggregate
principal amount of 8.625% senior unsecured notes due 2025 in a private
offering, for which we received the total net proceeds of $543 million. We used
a portion of the net proceeds to redeem all $341 million of our outstanding 2021
Notes and paid accrued and unpaid interest thereon plus related premiums, fees
and costs, which redemption was completed on July 17, 2020, and will use the
remaining net proceeds to fund working capital and general corporate purposes.
This refinancing transaction extends our significant debt maturities until 2024.
Segments
We report our operations in four business segments - Gaming, Lottery, SciPlay
and Digital - representing our different products and services. See "- Business
Segments Results" below and Note 3 for additional business segment information.
Foreign Exchange
Our results are impacted by changes in foreign currency exchange rates used in
the translation of foreign functional currencies into USD and the remeasurement
of foreign currency transactions or balances. The impact of foreign currency
exchange rate fluctuations represents the difference between current rates and
prior-period rates applied to current activity. Our exposure to foreign currency
volatility on revenue is as follows:

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