Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Subsequent to the filing of our 2011 Annual Report on Form 10-K, we adjusted the estimated fair values of certain assets acquired as part of our acquisition of Barcrest on September 23, 2011 to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date. The adjustments resulted in an increase in goodwill of approximately $2,040, an increase in other assets of approximately $1,490, a decrease in inventory of approximately $1,970, a decrease in the current portion of deferred income taxes of approximately $1,090 and a decrease in prepaid expenses, deposits and other current assets of approximately $470. We have applied the adjustment retrospectively to the Consolidated Balance Sheet as of December 31, 2011.

Intangible Assets

The following presents certain information on our intangible assets as of December 31, 2012 and 2011. Amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives with no estimated residual values.



Intangible Assets	Gross Carrying Amount		Accumulated Amortization		Net Balance
Balance as of December 31, 2012
Amortizable intangible assets:
Patents	$	13,741	$	6,113	$	7,628
Customer lists	41,471		25,349		16,122
Licenses	84,852		66,688		18,164
Intellectual property	24,268		20,107		4,161
Non-compete agreements	421		73		348
Lottery contracts	1,500		1,297		203
	166,253		119,627		46,626
Non-amortizable intangible assets:
Trade names	39,783		2,118		37,665
Total intangible assets	$	206,036	$	121,745	$	84,291
Balance as of December 31, 2011
Amortizable intangible assets:
Patents	$	12,941	$	5,260	$	7,681
Customer lists	35,742		20,511		15,231
Licenses	78,556		56,706		21,850
Intellectual property	23,335		18,102		5,233
Non-compete agreements	—		—		—
Lottery contracts	1,500		1,195		305
	152,074		101,774		50,300
Non-amortizable intangible assets:
Trade names	38,677		2,118		36,559
Total intangible assets	$	190,751	$	103,892	$	86,859

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share amounts)

(8) Goodwill and Intangible Assets (Continued)

The aggregate intangible asset amortization expense for the years ended December 31, 2012, 2011 and 2010 was approximately $17,600, $15,300 and $13,700, respectively. The estimated intangible asset amortization expense for the year ending December 31, 2013 and each of the subsequent four years is approximately $17,200, $11,800, $7,300, $3,500 and $1,700, respectively.

Goodwill

The table below reconciles the change in the carrying amount of goodwill, by reporting segment, for the period from December 31, 2010 to December 31, 2012.



Goodwill	Printed Products			Lottery Systems			Gaming			Totals
Balance at December 31, 2010	$	335,481		$	186,944		$	241,490		$	763,915
Acquisitions	—			2,637			7,048			9,685
Foreign currency adjustments	(1,361		)	(2,961		)	(885		)	(5,207		)
Balance at December 31, 2011	334,120			186,620			247,653			768,393
Acquisitions	5,018			9,913			3,638			18,569
Foreign currency adjustments	1,389			1,382			11,365			14,136
Reallocation of Goodwill	(12,767		)	12,767			—			—
Balance at December 31, 2012	$	327,760		$	210,682		$	262,656		$	801,098

Due to changes in our management authority structure in 2012, we changed the designation of our CODM as defined under ASC 350, Intangibles - Goodwill and Other (“ASC 350”). As a result, we determined that we have seven operating segments based on the financial information regularly reviewed by the CODM, which we also determined represent our reporting units as defined under ASC 350. Our seven reporting units are Printed Products; Licensed Properties; U.S. Lottery Systems; International Lottery Systems; China Lottery; Video Systems; and Gaming. Previously we had three operating segments and reporting units as of December 31, 2011 and therefore the identification of seven reporting units required the reallocation of the goodwill balance to each reporting unit based on a relative fair value approach in accordance with ASC 350. As a result, $12,800 of goodwill was reallocated between Printed Products and Lottery Systems reportable segments which reflects the creation of the China Lottery reporting unit which includes all our operations in China including our equity investment in Beijing CITIC Scientific Games Technology Co., Ltd. ("CSG") as of December 31, 2012.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share amounts)

(8) Goodwill and Intangible Assets (Continued)

Our annual impairment valuation as of December 31, 2012 produced estimated fair values of equity for all of our reporting units under our old and new structures in excess of the carrying value of equity for all of our reporting units. The estimated fair values of equity for each of our Printed Products, Licensed Properties, International Lottery Systems, China Lottery and Video Systems reporting units were substantially in excess of the carrying value of such reporting unit. Although the estimated fair value of equity for our U.S. Lottery and Gaming reporting units were in excess of the respective carrying value, to illustrate the sensitivity of these reporting units, a decrease in the fair value of equity of more than 25% for our U.S. Lottery Systems or more than 20% for our Gaming reporting unit could potentially result in an impairment of goodwill. The estimate of a reporting unit's fair value requires the use of several assumptions and estimates regarding the reporting unit's future cash flows, growth rates, market comparables and weighted average cost of capital, among others. Significant judgment is required in the forecasting of future operating results, which are used in the preparation of projected cash flows. Any significant adverse changes in key assumptions about these businesses and their prospects such as changes in our strategy or products, the loss of key customers, regulatory licensing or adverse changes in economic and market conditions may cause a change in the estimation of fair value valuation of our reporting units and could result in an impairment charge that could be material to our financial statements.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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