Income Tax Expense (Tables)

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Schedule of components of income (loss) before income taxes

The components of income (loss) before income taxes are as follows:

	Years Ended December 31,
	2012			2011			2010
United States	$	(98,335	)	$	(86,085	)	$	(84,751	)
Foreign	50,329			89,498			79,438
Income (loss) before income tax expense	$	(48,006	)	$	3,413		$	(5,313	)

Schedule of components of the provision for income taxes

The components of the provision for income taxes are as follows:

	Years Ended December 31,
	2012			2011			2010
Current
U.S. Federal	$	(133	)	$	440		$	7,565
U.S. State	(90		)	215			25
Foreign	9,969			13,504			6,210
Total	9,746			14,159			13,800
Deferred
U.S. Federal	3,154			2,000			100,982
U.S. State	687			87			16,882
Foreign	1,034			(263		)	12,224
Total	4,875			1,824			130,088
Total income tax expense	$	14,621		$	15,983		$	143,888

Schedule of reconciliation of the U.S. federal statutory tax rate to the actual tax rate

The reconciliation of the U.S. federal statutory tax rate to the actual tax rate is as follows:

	Years Ended December 31,
	2012		2011		2010
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
U.S. state income taxes, net of federal benefit	7.0	%	(132.2	)%	141.9	%
Federal benefit of R&D and AMT credits, net	4.8	%	(2.5	)%	9.5	%
Foreign earnings at lower rates than U.S. federal rate	13.8	%	(530.2	)%	170.9	%
Federal (benefit) expense of U.S. permanent differences	(56.1	)%	246.9	%	(251.9	)%
Federal valuation allowance adjustments	(35.1	)%	853.3	%	(2,816.1	)%
Other	0.1	%	(1.6	)%	1.8	%
Effective income tax rate	(30.5	)%	468.7	%	(2,708.9	)%

Schedule of deferred income taxes

The deferred income tax balances are established using the enacted statutory tax rates and are adjusted for changes in such rates in the period of change.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share amounts)

(19) Income Tax Expense (Continued)

	December 31,
	2012			2011
Deferred tax assets:
Inventory valuation	$	11,426		$	9,844
Reserves and other accrued expenses	3,683			6,215
Compensation not currently deductible	7,139			9,168
Employee pension benefit included in other comprehensive (loss) income	5,348			3,097
Unrealized losses and income from derivative financial instruments included in other comprehensive (loss) income	470			—
Share based compensation	10,144			26,326
Net operating loss carry forwards	166,673			136,018
Tax credit carry forwards	32,750			41,881
Differences in financial reporting and tax basis for:
Property and Equipment	17,115			14,649
Valuation allowance	(241,156		)	(236,296		)
Realizable deferred tax assets	13,592			10,902
Deferred tax liabilities:
Deferred costs and prepaid expenses	(2,781		)	(2,795		)
Unrealized losses and income from derivative financial instruments included in other comprehensive (loss) income	—			(44		)
Differences in financial reporting and tax basis for:
Identifiable intangible assets	(61,092		)	(51,628		)
Total deferred tax liabilities	(63,873		)	(54,467		)
Net deferred tax liabilities on balance sheet	(50,281		)	(43,565		)
Reported As:
Current deferred tax assets	6,800			3,606
Non-current deferred tax assets	6,281			12,709
Current deferred tax liabilities	(1,097		)	(3,616		)
Non-current deferred tax liabilities	(62,265		)	(56,264		)
Net deferred tax liabilities on the balance sheet	$	(50,281	)	$	(43,565	)

Schedule of unrecognized tax benefits

The Company had the following activity for unrecognized tax benefits:

	Year Ended December 31,
	2012			2011			2010
Balance at beginning of period	$	1,876		$	1,760		$	6,612
Tax positions related to current year additions	41			162			—
Additions for tax positions of prior years	89			165			211
Tax positions related to prior years reductions	—			—			—
Reductions due to lapse of statute of limitations on tax positions	—			—			(5,020		)
Settlements	(225		)	(211		)	(43		)
Balance at end of period	$	1,781		$	1,876		$	1,760