New Accounting Guidance - Recently Adopted

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. We adopted the guidance at the beginning of the first quarter of 2017. The adoption of this guidance did not result in a net cumulative-effect adjustment to accumulated loss, as the previously unrecognized excess tax benefit of $10.1 million was fully offset by an increase in the valuation allowance as of December 31, 2016. The excess tax benefit recognized in our provision for income taxes for the three and nine months ended September 30, 2017 was immaterial. In addition, we elected to continue to account for forfeitures by estimating the expected forfeitures over the course of a vesting period.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We adopted the guidance retrospectively at the beginning of first quarter 2017. The adoption of this guidance resulted in increases to the cash, cash equivalents and restricted cash beginning-of-period and end-of period line item totaling $38.1 million and $41.6 million, respectively, which now includes restricted cash, and a $3.5 million decrease in net cash used in investing activities for the nine months ended September 30, 2016.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new amendments, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. We adopted this guidance prospectively at the beginning of the first quarter of 2017, which will simplify our future goodwill impairment testing, if testing necessitates an impairment charge.

New Accounting Guidance - Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 combined with all subsequent amendments (collectively ASC 606) provides guidance outlining a single comprehensive revenue model in accounting for revenue from contracts with customers. ASC 606 supersedes existing revenue recognition guidance, including industry-specific guidance, and replaces it with a five-step revenue model with a core principle 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." This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We will adopt this guidance at the beginning of the first quarter of 2018, using a modified retrospective application approach.

We continue to assess the anticipated impact of adopting this guidance in revenue recognition for our business segments. The following table summarizes the anticipated impact to the financial statements based on our assessment completed to date:



Business Segment	Revenue Type	Anticipated Impact
Gaming	Gaming operations Gaming machine sales Gaming systems Table products and other	Ÿ We anticipate the following impact on the net amount of revenue for WAP jackpot payments, which will no longer be treated as an expense but rather as a reduction to revenue: WAP jackpot expense of $5.5 million and $17.9 million for the three and nine months ended September 30, 2017, respectively, and $6.1 million and $22.9 million for the three and nine months ended September 30, 2016, respectively, would have been recognized as a reduction to revenue. Ÿ We do not anticipate a material impact on timing or amount of revenue, other than the WAP impact disclosed above. Ÿ We do not anticipate a material impact on timing or amount of revenue. Ÿ We anticipate impact on timing of revenue recognition primarily related to certain hardware products and professional services, for which timing of revenue recognition might accelerate. While we do not anticipate this will result in a material impact on our consolidated financial statements, we are in the process of quantifying this change. Ÿ We do not anticipate a material impact on timing or amount of revenue. We do not anticipate a material impact on timing or amount of revenue on our U.K. gaming operations, which includes gaming operations, machine sales and to a lesser extent gaming system revenue streams.
Lottery	Instant products under POS Lottery - other	Ÿ We anticipate there may be a material impact on the timing and amount of revenue for our instant products revenues generated under POS arrangements. Timing of recognition- currently, we recognize revenue under POS arrangements when such amounts become fixed or determinable, which is when retail sales occur. Under ASC 606, we have concluded that control transfers to the lottery authorities when the lotteries have taken delivery of shipments of instant products. This will accelerate revenue when compared to the current timing of recognition. Adoption impact- upon adoption of ASC 606, the amount that we expect to receive from our lottery customers for inventory that remains unsold through retail sales will be recognized as an adjustment (both the revenue and cost of such instant products) to retained earnings. As of December 31, 2016, approximately $55 million of revenue related to instant products was not recognized because those tickets had not been sold by lottery retailers; accordingly, under ASC 606 this amount would be recognized directly to retained earnings as opposed to being recognized as future revenue upon the occurrence of retail sales. Because the ultimate effect of this adoption is highly dependent on shipment of instant products under POS arrangements in the fourth quarter, we can not quantify the adoption impact at December 31, 2017. Future impact- because of the timing change described above, revenues and associated operating income may be materially impacted depending on timing of shipments of instant products. We also expect that future revenues under POS arrangements could be much more volatile than we have experienced under current accounting. However, because the timing of future shipments is not known, we can not estimate the impact on future revenues and associated operating income. Ÿ We anticipate other immaterial impacts on timing and amount of revenue related to our other instant product and lottery systems arrangements which we anticipate would result in a shift in the timing of revenue recognition from 2017 to 2018 by less than $12 million in the aggregate.
Interactive	All	Ÿ We do not anticipate a material impact on timing or amount of revenue.

Additionally, as disclosed in our 2016 10-K, ASC 606 will significantly increase revenue disclosure requirements; however many of these newly required disclosures, including disaggregation of revenue and discussion of deferred revenue are included in revenue presented in this Note 1. We currently do not anticipate significant changes to our business processes and systems to support the adoption of the new guidance and are currently assessing an impact on our internal controls. We will continue to monitor and assess the impact of any changes to the standard and interpretations as they become available.

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 Sheet. 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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The new guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, we will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The new guidance will be effective for us beginning January 1, 2020, with early adoption permitted beginning January 1, 2018. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact and timing of adopting this guidance, including potentially early adopting this guidance.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new guidance clarifies the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating the impact of adopting this guidance.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The new guidance makes improvements to simplify the application of hedge accounting guidance while also creating more transparency for results presented on the face of the financial statements and footnotes. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of adopting this guidance.