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Intangible Assets, net and Goodwill | 3 Months Ended
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Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract] |
Intangible Assets, net and Goodwill | Intangible Assets, net and Goodwill Intangible Assets, net The following tables present certain information regarding our intangible assets as of March 31, 2020 and December 31, 2019.
| As of |  |  |  |  |  |  |  |  |  |  |  |
| March 31, 2020 |  |  |  |  |  |  |  | December 31, 2019 |  |  |  |
| Gross Carrying Value |  | Accumulated Amortization |  |  |  | Net Balance |  | Gross Carrying Value |  | Accumulated Amortization |  | Net Balance
Amortizable intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships | $ | 1,064 |  |  | $ | (398) |  |  |  |  | $ | 666 |  |  | $ | 1,086 |  |  | $ | (383) |  |  | $ | 703 |
Intellectual property | 915 |  |  | (573) |  |  |  |  | 342 |  |  | 931 |  |  | (563) |  |  | 368 |
Licenses | 563 |  |  | (361) |  |  |  |  | 202 |  |  | 548 |  |  | (329) |  |  | 219 |
Brand names | 120 |  |  | (73) |  |  |  |  | 47 |  |  | 123 |  |  | (72) |  |  | 51 |
Trade names | 116 |  |  | (34) |  |  |  |  | 82 |  |  | 116 |  |  | (31) |  |  | 85 |
Patents and other | 24 |  |  | (15) |  |  |  |  | 9 |  |  | 24 |  |  | (15) |  |  | 9 |
| 2,802 |  |  | (1,454) |  |  |  |  | 1,348 |  |  | 2,828 |  |  | (1,393) |  |  | 1,435 |
Non-amortizable intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Trade names | 83 |  |  | (2) |  |  |  |  | 81 |  |  | 83 |  |  | (2) |  |  | 81 |
Total intangible assets | $ | 2,885 |  |  | $ | (1,456) |  |  |  |  | $ | 1,429 |  |  | $ | 2,911 |  |  | $ | (1,395) |  |  | $ | 1,516 |
The following reflects intangible amortization expense included within D&A:
| Three Months Ended |  |  |  |  |  |
| March 31, |  |  |  |  |  |
| 2020 |  | 2019 |  |  |  |
Amortization expense | $ | 65 |  |  | $ | 77 |  |  |  |  |
Goodwill Legacy U.K. Gaming Impairment Charge We test goodwill for impairment annually as of October 1 of each fiscal year or more frequently if events arise or circumstances change that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. A substantial portion of our legacy U.K. Gaming reporting unit revenue comes from Ladbrokes Coral Group (acquired by GVC Holdings PLC in March 2018), which operates LBOs in the U.K. In May 2018, the U.K. government published its decision mandating that the maximum stakes limit on fixed-odds betting terminals be reduced from £100 to £2, which was effective as of April 1, 2019. As a result of this change, LBO operators began to rationalize their retail operations, which among other measures has included closure of certain LBO shops. Consequently, as of October 1, 2019, we concluded that an elevated risk of goodwill impairment existed for our legacy U.K. Gaming reporting unit as adverse changes in projections for future operating results or other key assumptions, such as projected revenue, profit margin, capital expenditures or cash flows associated with investments included in that reporting unit could lead to future goodwill impairments. During the first quarter of 2020, the COVID-19 disruptions resulted in the widespread closures of LBO shops across the U.K., which, along with global economic uncertainty, contributed to further deterioration in business conditions from our 2019 annual goodwill test date. This had an adverse effect on our legacy U.K. Gaming reporting unit, which necessitated performing a quantitative goodwill impairment test during the first quarter of 2020. We performed this quantitative impairment test by comparing the fair value of our legacy U.K. Gaming reporting unit to its carrying value, including goodwill. As described in further detail below, the fair value of our legacy U.K. Gaming reporting unit was determined using a combination of both an income approach, based on the present value of discounted cash flows, and a market approach. Due to current market volatility and limited market data points specific to the nature of our legacy U.K. Gaming reporting unit operations, we placed greater weight on the income approach than on the market approach. As a result of this analysis, during the first quarter of 2020 we recognized a partial impairment charge totaling $54 million, which is the amount by which the carrying value exceeded the estimated fair value. This impairment charge resulted in no tax benefit. We used projections of revenues, profit margin, operating costs, capital expenditures and cash flows that primarily considered general economic and market conditions and estimated future results including the estimated impact of the COVID-19 disruptions. We used a range of different scenarios and derived estimated fair value based on an equal weighting of these scenarios to reflect the economic uncertainty resulting from the COVID-19 disruptions and the timing and magnitude of the economic recovery following the COVID-19 disruptions coupled with the impact of the regulatory change. The following ranges of the key estimates and assumptions were used in the discounted cash flow analysis: •Revenue growth for FY 2021 between negative 9% and negative 20%, an average revenue growth for FY 2022 to FY 2027 between positive 3% and positive 5%, and terminal revenue growth rate of positive 2.0%; •An average profit margin ranging from 13% to 23%; •Assumptions regarding future capital expenditures reflective of maintaining our current customer contracts; and •An overall discount rate ranging from 8.5% to 10.0%. In our market comparable analysis, we considered revenue and EBITDA multiples ranging from 2.1x to 2.7x and 5.7x to 7.5x, respectively, and ultimately selected multiples at the low end of the range. The legacy U.K. Gaming reporting unit is included in our Gaming business segment. The table below reconciles the change in the carrying value of goodwill by business segment for the period from December 31, 2019 to March 31, 2020.
|  | Gaming(1) |  | Lottery |  | SciPlay |  | Digital |  | Totals
Balance as of December 31, 2019 |  | $ | 2,449 |  |  | $ | 349 |  |  | $ | 115 |  |  | $ | 367 |  |  | $ | 3,280 |
Impairment |  | (54) |  |  | — |  |  | — |  |  | — |  |  | (54) |
Foreign currency adjustments |  | (33) |  |  | (5) |  |  | — |  |  | (26) |  |  | (64) |
Balance as of March 31, 2020 |  | $ | 2,362 |  |  |  | $ | 344 |  |  | $ | 115 |  |  | $ | 341 |  |  | $ | 3,162 |
(1) Accumulated goodwill impairment charges for the Gaming segment as of March 31, 2020 were $989 million. |  |  |  |  |  |  |  |  |  |

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- Definition The entire disclosure for goodwill and intangible assets. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -URI http://asc.fasb.org/topic&trid=2144416 + Details
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