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Description of the Business and Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2019
Accounting Policies [Abstract] |
Description of the Business and Summary of Significant Accounting Policies | Description of the Business and Summary of Significant Accounting Policies Description of the business 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, CMSs 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 game solutions to retail consumers; and providing a comprehensive suite of digital RMG and sports wagering solutions, distribution platforms, content, products and services. We report our operations in four business segments—Gaming, Lottery, SciPlay (formerly referred to as our Social business segment) and Digital. Basis of presentation and principles of consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. The accompanying consolidated financial statements include the accounts of SGC and its wholly owned subsidiaries, and those subsidiaries in which we have a controlling financial interest. Investments in other entities in which we do not have a controlling financial interest but we exert significant influence are accounted for in our consolidated financial statements using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SciPlay Initial Public Offering and Noncontrolling Interest On May 7, 2019, SciPlay completed an initial public offering (“IPO”) for an 18.0% minority interest in our Social gaming business, after giving effect to the underwriters’ partial exercise of their over-allotment option on June 4, 2019. SciPlay has two classes of common stock - Class A common stock, which is traded on The NASDAQ Global Select Market under the symbol “SCPL,” and Class B common stock. On all matters submitted to a vote of SciPlay stockholders, Class B common stock entitles SGC to ten votes per share (for so long as the number of shares of SciPlay common stock beneficially owned by SGC represents at least 10% of SciPlay’s outstanding shares of common stock and, thereafter, one vote per share), and SciPlay Class A common stock entitles its owners to one vote per share. As of December 31, 2019, SGC owned all of the outstanding Class B common stock, which represents approximately 82.0% of SciPlay’s total outstanding shares of common stock and approximately 97.9% of the combined voting power of both classes of SciPlay’s outstanding common stock. Accordingly, SGC continues to control shares representing a majority of the combined voting power in SciPlay and continues to have a controlling financial interest in and consolidate SciPlay, subsequent to the IPO. The corporate structure of the above transaction is commonly referred to as an “Up‑C” structure, which is often used by partnerships and limited liability companies when they undertake an initial public offering of their business. The Up‑C structure allows us to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for income tax purposes following the IPO. In connection with the SciPlay IPO we also entered into the following transactions:
• | A tax receivable agreement (“TRA”), which provides for the payment by SciPlay to SGC of 85% of the amount of tax benefits, if any, that SciPlay actually realizes (or in some circumstances is deemed to realize) as a result of (i) increases in the tax basis of assets of SciPlay Parent Company, LLC (“SciPlay Parent LLC”) (a) in connection with the SciPlay IPO, (b) resulting from any redemptions or exchanges of membership interests of SciPlay Parent LLC pursuant to the SciPlay Parent LLC Operating Agreement or (c) resulting from certain distributions (or deemed distributions) by SciPlay Parent LLC and (ii) certain other tax benefits related to SciPlay’s making of payments under the TRA.
• | An Intercompany Services Agreement, under which SGC provides to SciPlay certain corporate level general and administrative services, including but not limited to, finance, corporate development, human resources,
legal (which could include liability related to litigation awards related to SciPlay), information technology and rental fees for shared assets. These expenses are charged to SciPlay and settled in cash.
• | An intellectual property license agreement (“IP License Agreement”), pursuant to which SciPlay acquired the following licenses from a restricted subsidiary of SGC for a one-time payment of $255 million: (i) an exclusive (subject to certain limited exceptions), perpetual, non-royalty bearing license to use intellectual property created or acquired by SG Gaming, or its affiliates on or before the third anniversary of the date of the IP License Agreement (the date of the IP License Agreement, the “Effective Date”), in any of the Covered Games (defined as any of SciPlay’s currently available or future social games that are developed for mobile platforms, social media platforms, internet platforms or other interactive platforms and distributed solely via digital delivery); (ii) an exclusive (subject to certain limited exceptions and payment of royalties owed to third-party licensors for SciPlay’s use of third-party licensed property) license to use third-party intellectual property licensed to SG Gaming or its affiliates on or before the third anniversary of the Effective Date, to the extent permitted to be sublicensed to SciPlay, in any of the Covered Games; (iii) a non-exclusive, perpetual, non-royalty bearing license to use intellectual property created or acquired by SG Gaming or its affiliates after the third anniversary of the Effective Date, but only in SciPlay’s currently available games; and (iv) a non-exclusive license to use third-party intellectual property licensed to SG Gaming or its affiliates after the third anniversary of the Effective Date, to the extent permitted to be sublicensed to SciPlay, but only in SciPlay’s currently available games.
As a result of the IP License Agreement described above, SciPlay is no longer required to pay to SG Gaming future royalties and or fees for use of intellectual property owned by SG Gaming or its affiliates for SciPlay’s currently available games. Accordingly, and commencing with the effectiveness of the IP License Agreement as of May 7, 2019, our Gaming business segment AEBITDA no longer benefited from these charges, while our SciPlay business segment AEBITDA increased proportionately. IP charges for the years ended December 31, 2019, 2018, and 2017 were $10 million, $26 million and $24 million, respectively.
• | SciPlay Holding Company, LLC (“SciPlay Holding”), a subsidiary of SciPlay, entered into a $150 million revolving credit agreement (the “SciPlay Revolver”) that matures in May 2024 (see Note 15).
As a result of these transactions, we received $312 million in net proceeds from the offering (net of $30 million used by SciPlay to pay the offering fees and balance retained by SciPlay for general corporate purposes), which has enabled us to make substantial payments to reduce our debt. The noncontrolling interest share of equity in SciPlay is reflected as a component of the noncontrolling interest in the accompanying consolidated balance sheets and was $104 million as of December 31, 2019. Significant Accounting Policies Additional accounting policy disclosures are provided within the applicable Notes. Cash and cash equivalents Cash and cash equivalents include all cash balances and highly liquid investments with an original maturity of three months or less. We place our temporary cash investments with high credit quality financial institutions. At times, such investments in U.S. accounts may be in excess of the Federal Deposit Insurance Corporation insurance limit. Restricted cash We are required by gaming regulations to maintain sufficient reserves in restricted cash accounts to be used for the purpose of funding payments to WAP jackpot winners. Restricted cash balances are based primarily on the jackpot meters displayed to slot players or for previously won jackpots and vary by jurisdiction. Compliance with maintaining adequate restricted cash balances and complying with appropriate investment guidelines for jackpot funding is periodically reported to gaming authorities. Minimum guarantees We enter into long-term license agreements with third parties in which we are obligated to pay a minimum guaranteed amount of royalties, typically periodically over the life of the contract. These license agreements provide us with access to a portfolio of major brands to be used across our business segments in building our strong brand presence across multiple channels of distributions. We account for the minimum guaranteed obligations within accrued and other long-term liabilities at the onset of the license arrangement and record a corresponding licensed asset within intangible assets, net. The licensed intangible assets related to the minimum guaranteed obligations are amortized over the term of the license agreement with the amortization expense recorded in D&A. The long-term liability related to the minimum guaranteed obligations is reduced as royalty payments are made as required under the license agreement. We assess the recoverability of license agreements whenever events arise or circumstances change that indicate the carrying value of the licensed asset may not be recoverable. Recoverability of the licensed asset and the amount of impairment, if any, are determined using our policy for intangible assets with finite useful lives. Amortization expense related to these licenses and recorded in D&A for the years ended December 31, 2019, 2018 and 2017 was $81 million, $61 million and $69 million, respectively. The following are our total minimum guaranteed obligations for the periods presented:
|  | As of December 31,
|  | 2019 |  | 2018
Accrued liabilities |  | $ | 39 |  |  | $ | 50 |
Other long-term liabilities |  | 172 |  |  | 212 |
Total minimum guarantee obligations |  | $ | 211 |  |  | $ | 262 |
Weighted average remaining term (in years) |  | 4.7 |  |  | 4.2 |
The following are our remaining expected future payments of minimum guarantee obligations:
| Year Ended December 31,
| 2020 |  | 2021 |  | 2022 |  | 2023 |  | 2024 |  | After 2024
Expected future payments | $39 |  | $47 |  | $42 |  | $27 |  | $28 |  | $28
Other assets We capitalize debt issuance costs associated with long-term line-of-credit arrangements and amortize such amounts ratably over the term of the arrangement as an adjustment to interest expense. We assess the recoverability of our other long-term assets whenever events arise or circumstances change that indicate the carrying value of the asset may not be recoverable. Advertising costs The cost of advertising is expensed as incurred and totaled $125 million, $102 million and $83 million in 2019, 2018 and 2017, respectively. R&D R&D relates primarily to software product development costs and is expensed as incurred until technological feasibility has been established. Employee related costs associated with product development are included in R&D. Foreign currency translation We have significant operations where the local currency is the functional currency, including our operations in the U.K., Europe, Australia and Canada. Assets and liabilities of foreign operations are translated at period-end rates of exchange and results of operations are translated at the average rates of exchange for the period. Gains or losses resulting from translating the foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive loss in stockholders’ deficit. Gains or losses resulting from foreign currency transactions are included in other (expense) income, net. Comprehensive loss We include and classify in comprehensive loss unrealized gains and losses from our foreign currency translation adjustments, certain gains or losses associated with pension or other post-retirement benefits, including prior service costs or credits and transition assets or obligations, the effective portion of derivative financial instruments designated as hedging instruments, and net investment non-derivative hedge of our investments in certain of our international subsidiaries. New Accounting Guidance - Recently Adopted The FASB issued ASU No. 2016-02, Leases (Topic 842) in 2016. ASU 2016-02 combined with all subsequent amendments (collectively, “ASC 842”) requires balance sheet recognition for all leases with a lease term greater than one year to be recorded as a lease liability (on a discounted basis) with a corresponding right-of-use asset. This guidance also expands the required quantitative and qualitative disclosures for lease arrangements and gives rise to other changes impacting certain aspects of lessee and lessor accounting. We adopted ASC 842 as of January 1, 2019 using the optional transition method provided by ASU 2018-11, and applied both the lessee package of practical expedients and the available lessor practical expedients. See Note 14 for our lease accounting policy and the adoption impact of ASC 842 on our consolidated financial statements. In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The standard allows companies to make an election to reclassify from Accumulated Other Comprehensive Income (AOCI) to retained earnings the stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. This ASU is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The amendments in this updated guidance should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. corporate federal income tax rate in the Tax Act is recognized. We adopted this standard effective January 1, 2019. We elected not to reclassify the income tax effects of the Tax Cuts and Jobs Act from AOCI to retained earnings. The adoption of this guidance did not have a material effect on our consolidated financial statements. New Accounting Guidance - Not Yet Adopted The FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) in 2016. The new guidance replaces the incurred loss impairment methodology in current U.S. 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 is effective for us beginning January 1, 2020. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We do not expect a material impact on our consolidated financial statements from the adoption of this guidance. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures on fair value measurements in ASC 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The new guidance is effective for us beginning January 1, 2020. We do not expect a material impact on our consolidated financial statements from the adoption of this guidance. We do not expect that any other recently issued accounting guidance will have a significant effect on our consolidated financial statements.

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- Definition The entire disclosure for the business description and accounting policies concepts. Business description describes the nature and type of organization including but not limited to organizational structure as may be applicable to holding companies, parent and subsidiary relationships, business divisions, business units, business segments, affiliates and information about significant ownership of the reporting entity. Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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