Note 10 - Fair Value Measurements

12 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Text Block]

10.             FAIR VALUE MEASUREMENTS

Financial Assets (Liabilities) Carried at Fair Value

	Fair Value			Level 1		Level 2			Level 3
September 30, 2012
Money market funds	$	77.0		$	77.0	$	-		$	-
Derivative assets		118.2			-		118.2			-
Derivative liabilities		(119.7	)		-		(119.7	)		-
Acquisition contingent consideration payable		(116.4	)		-		-			(116.4	)
September 30, 2011
Money market funds	$	76.9		$	76.9	$	-		$	-
Investments in unconsolidated affiliates		9.3			-		-			9.3
Derivative assets		90.8			-		90.8			-
Derivative liabilities		(93.2	)		-		(93.2	)		-

Valuation Techniques and Balance Sheet Presentation

Money market funds were primarily money market securities valued based on quoted market prices in active markets.

Derivative assets and liabilities were valued using quoted forward pricing from bank counterparties, LIBOR credit default swap rates for non-performance risk, and net settlement amounts where appropriate. These are presented primarily as components of other assets, other liabilities, and notes payable. See Note 11.

Acquisition contingent consideration payable related to DoubleDown reaching certain earnings targets was valued with a DCF model applied to the expected payments determined based on probability-weighted internal earnings projections. We applied a rate of probability (10% - 80%) to each scenario, as well as a risk-adjusted discount rate of 19%, to derive the estimated fair value at September 30, 2012. Changes in the projections and/or the probabilities are the most significant assumptions and result in directionally similar changes in the fair value. Discount rate changes cause a directionally opposite change in the fair value. Acquisition contingent consideration payable was presented as a component of other liabilities, $42.8 million current and $73.6 million noncurrent. An increase of $16.4 million to the payable fair value was recorded during the fourth quarter to contingent acquisition related costs on the income statement along with $14.6 million of accrued retention plan compensation. Changes in fair value were primarily due to the time-value of money and updated probability-weighted internal earnings projections. See Note 20.

Reconciliation of Items Carried at Fair Value Using Significant Unobservable Inputs (Level 3)

Years Ended September 30,	2012						2011			2010
	Investments in Unconsolidated Affiliates			Acquisition Contingent Consideration Payable			Investments in Unconsolidated Affiliates			Investments in Unconsolidated Affiliates			Investments in ARS and Put Rights
Beginning balance	$	9.3		$	-		$	21.3		$	78.4		$	21.3
Gain (loss) included in:
Other income (expense) - other		(0.7	)		-			(2.1	)		(19.5	)		0.3
Other comprehensive income		-			-			0.1			(0.7	)		-
Issuances		-			(88.9	)		-			-			-
Accretion (interest and fair value adjustment)		0.6			(27.5	)		2.2			3.0			-
Settlements		(9.2	)		-			(12.2	)		(39.9	)		(21.6	)
Ending balance	$	-		$	(116.4	)	$	9.3		$	21.3		$	-
Net change in unrealized gain (loss) included in earnings related to instruments still held	$	-		$	-		$	(2.1	)	$	(19.5	)	$	-

Financial Assets (Liabilities) Not Carried at Fair Value

	Carrying Value			Fair Value			Level 1			Level 2			Level 3			Unrealized Gain (Loss)
September 30, 2012
Jackpot investments	$	355.9		$	422.0		$	422.0		$	-		$	-		$	66.1
Contracts & notes receivable		357.5			353.5			-			-			353.5			(4.0	)
Jackpot liabilities		(481.0	)		(503.0	)		-			-			(503.0	)		(22.0	)
Debt		(1,726.9	)		(1,955.4	)		(1,815.4	)		(140.0	)		-			(228.5	)
September 30, 2011
Jackpot investments	$	387.8		$	458.9		$	458.9		$	-		$	-		$	71.1
Contracts & notes receivable		293.5			294.6			-			-			294.6			1.1
Jackpot liabilities		(508.4	)		(521.6	)		-			-			(521.6	)		(13.2	)
Debt		(1,553.1	)		(1,879.5	)		(1,879.5	)		-			-			(326.4	)

Valuation Techniques and Balance Sheet Presentation

Jackpot investments were valued based on quoted market prices.

Contracts and notes receivable were valued using DCF, incorporating expected payments and market interest rates relative to the credit risk of each customer (low 7.5%, medium 8%, high 9.5% - 11%). Credit risk is determined on a number of factors, including customer size, type, financial condition, historical collection experience, account aging, and credit ratings derived from credit reporting agencies and other industry trade reports. Contracts are secured by the underlying assets sold and notes are secured by the developed property and/or other assets. The high risk category includes most of our development financing loans in new markets and customers in regions with a history of currency or economic instability, such as South/Central America. See Notes 4 and 5.

Jackpot liabilities were valued using DCF, incorporating expected future payment timing, estimated funding rates based on the treasury yield curve, and IGT's nonperformance credit risk. Expected annuity payments over 1-25 years (average 10 years) were discounted using the 10-year treasury yield curve rate (1.64%) for the estimated funding rate and the 10-year credit default swap rate (1.74%) for nonperformance risk. The present value (carrying value) of the expected lump sum payments were discounted using the 3-month treasury yield curve rate (.09%) with the 1-year credit default swap rate (.42%) for the current amounts and the 1-year treasury yield curve rate (.16%) with the 2-year credit default swap rate (.72%) for noncurrent amounts. Significant increases (decreases) in any of these inputs in isolation would result in a lower (higher) fair value measurement. Generally, changes in the estimated funding rates do not correlate with changes in nonperformance credit risk.

The majority of our debt was level 1 and valued using quoted market prices or dealer quotes for the identical financial instrument when traded as an asset in an active market. Outstanding borrowings under our revolving credit facility were level 2 and fair value was determined using DCF of expected payments at current borrowing rates. Carrying values in the table excluded swap adjustments and equity components of convertible debt.

Level 3 Valuation Process

Our valuation policies and procedures are determined by the Accounting Department, which ultimately reports to the Chief Financial Officer, in coordination with appropriate business asset owners and third-party valuation services when needed. Changes in fair value and methods for calibration, back testing, and other testing procedures of pricing models are evaluated through analytical review by managers of the responsible Accounting Department quarterly, by the Global Controller at inception and periodically with significant changes. Material valuations are discussed with the Audit Committee at inception and periodically if changes are significant or if impairment charges are recorded. Third-party information is evaluated for consistency with the FASB ASC for fair value measurement through analytical review and in-depth discussions with a variety of valuation experts.

Unobservable inputs are used only to the extent that observable inputs are not available and reflect management assumptions that cannot be corroborated with observable market data about what market participants would use in pricing the asset or liability, including assumptions about risk. Our unobservable inputs consist primarily of expected cash flows, stock price volatility, and other rates derived through extrapolation or interpolation. These inputs are developed based on the best information available, including trends deduced from available historical information and future expectations, using company specific data and market or industry published data. These inputs are validated for reasonableness by analytic comparison to other relevant valuation statistics whenever possible. Unobservable inputs depend on the facts and circumstances specific to a given asset or liability and require significant professional judgment.