NOTE

GOODWILL AND INTANGIBLES

Changes in the carrying amount of goodwill are as follows (in thousands):

	Gross Carrying Amount
	EGM			Table Products		Interactive(1)		Total
Balance at December 31, 2019	$	279,228		$	7,821	$	-	$	287,049
Foreign currency adjustments		(3,776	)		-		-		(3,776	)
Impairment		-			-		-		-
Balance at March 31, 2020	$	275,452		$	7,821	$	-	$	283,273

(

)

Accumulated goodwill impairment charges for the Interactive segment as of

March 31, 2020

were

$8.4

million.

During the

first

quarter of

2020,

our EGM and Table Products reporting units' operating results were significantly lower than expectations, driven by the rapid nationwide spread of the novel coronavirus and the actions taken by state and tribal governments and businesses, including the closure of casinos, in an attempt to contain the virus. Many of our customers have temporarily closed their operations and the markets that we serve have been significantly and adversely impacted, which was considered to be a triggering event. These closures have resulted in a reduction of gaming operations revenues particularly related to our leased EGMs and table products as we have ceased to bill our customers from the date that they closed. The closures have also impacted equipment sales revenue due to a decline in our customer demand to purchase our EGMs and other products during the closures. Accordingly, we performed a quantitative assessment, or “Step

1”

analysis, as of

March 31, 2020

to analyze whether this triggering event resulted in an impairment of associated goodwill in these

two

reporting units. There is

balance of goodwill in the Company’s other reporting unit.

Based on our quantitative analysis, the fair value was

34%

greater than the carrying value for the EGM reporting unit and

21%

greater for the Table Products reporting unit. As of

October 1, 2019 (

the date of the Company’s annual impairment assessment), the fair values of the EGM reporting unit and the Table Products reporting unit were

50%

and

111%

greater than their respective carrying values. We estimated the fair value of both reporting units using the discounted cash flow method. The most significant factor in the assessment was the projected cash flows adjusted for the estimated adverse impact of COVID-

on the Company’s operations. Our projected cash flows for the current year are dependent on our assumptions for when our casino customers will reopen. The current year projected cash flows and those for future years are also impacted by our estimate of when the operations of our casino customers will return to pre-COVID-

levels. Given the ongoing impacts of COVID-

across our business, the long-range cash flow projections that we use to assess the fair value of our businesses and assets for purposes of impairment testing are subject to greater uncertainty than normal. If our projections do

not

align with our actual results in future quarters, we will update the projected cash flows, which

may

result in an impairment of goodwill. Other factors included in the discounted cash flow calculation were the discount rate of

10%

for EGM and

14%

for Table Products and the long-term growth rate of

for both reporting units. As of

October 1, 2019,

the discount rates utilized in the discounted cash flow projections were

10%

and

14%

for the EGM and Table Products reporting units, respectively.

Intangible assets consist of the following (in thousands):

		March 31, 2020							December 31, 2019
	Useful Life	Gross		Accumulated			Net Carrying		Gross		Accumulated			Net Carrying
	(years)	Value		Amortization			Value		Value		Amortization			Value
Indefinite lived trade names	Indefinite	$	12,126	$	-		$	12,126	$	12,126	$	-		$	12,126
Trade and brand names	5 - 7		14,870		(13,766	)		1,104		14,870		(13,209	)		1,661
Customer relationships	5 - 12		216,258		(123,702	)		92,556		219,788		(120,384	)		99,404
Contract rights under development and placement fees	1 - 7		48,878		(10,747	)		38,131		48,180		(8,888	)		39,292
Gaming software and technology platforms	1 - 7		165,298		(101,062	)		64,236		162,391		(96,193	)		66,198
Intellectual property	10 - 12		19,345		(8,040	)		11,305		19,345		(7,575	)		11,770
		$	476,775	$	(257,317	)	$	219,458	$	476,700	$	(246,249	)	$	230,451

Intangible assets are amortized over their respective estimated useful lives ranging from

one

twelve

years. Amortization expense related to intangible assets was

$13.4

million and

$10.9

million for the

three

months ended

March 31, 2020

and

2019

, respectively.

Management reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. There were

impairments recorded for the period ended

March 31, 2020.

We recorded impairments related to internally developed gaming titles of

$0.4

million for the period ended

March

31,

2019

as it was determined by Management that the gaming titles would

longer be used.

The Company enters into development agreements and placement fee agreements with certain customers to secure floor space under lease agreements for its gaming machines. Amounts paid in connection with the development agreements are repaid to the Company in accordance with the terms of the agreement, whereas placements fees are

not

reimbursed. For development agreements in the form of a loan, interest income is recognized on the repayment of the notes based on the stated rate or, if

not

stated explicitly in the development agreement, on an imputed interest rate. If the stated interest rate is deemed to be other than a market rate or zero, a discount is recorded on the note receivable as a result of the difference between the stated and market rate and a corresponding intangible asset is recorded. The intangible asset is recognized in the financial statements as a contract right under development agreement and amortized as a reduction in revenue over the term of the agreement. Placement fees can be in the form of cash paid upfront or free lease periods and are accreted over the life of the contract and the expense is recorded as a reduction of revenue. We recorded a reduction of gaming operations revenue from the accretion of contract rights under development agreements and placement fees of

$1.9

million and

$1.3

million for the

three

months ended

March 31, 2020

and

2019

, respectively.