UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of September 2019
 
Commission File Number 001-36906
 
INTERNATIONAL GAME TECHNOLOGY PLC
(Translation of registrant’s name into English)
 
66 Seymour Street, Second Floor
London, W1H 5BT
United Kingdom
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F x      Form 40-F  o
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
 
 
 






TABLE OF CONTENTS


2


PART I.
FINANCIAL INFORMATION

ITEM 1.
Condensed Consolidated Financial Statements (Unaudited)
 
INTERNATIONAL GAME TECHNOLOGY PLC
 
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 


3


International Game Technology PLC
Condensed Consolidated Balance Sheets
(Unaudited, $ thousands, except par value and number of shares)
 
 
 
Notes
 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
 

 
 

Current assets:
 
 
 
 

 
 

Cash and cash equivalents
 
 
 
400,928

 
250,669

Restricted cash and cash equivalents
 
 
 
256,105

 
261,108

Trade and other receivables, net
 
 
 
948,520

 
949,085

Inventories
 
4
 
264,911

 
282,698

Other current assets
 
 
 
489,440

 
504,061

Income taxes receivable
 
 
 
45,576

 
39,075

Total current assets
 
 
 
2,405,480

 
2,286,696

Systems, equipment and other assets related to contracts, net
 
 
 
1,350,575

 
1,404,426

Property, plant and equipment, net
 
 
 
140,033

 
185,349

Operating lease right-of-use assets
 
5
 
360,021

 

Goodwill
 
 
 
5,572,217

 
5,580,227

Intangible assets, net
 
 
 
1,940,656

 
2,044,723

Other non-current assets
 
 
 
2,030,137

 
2,108,964

Deferred income taxes
 
 
 
37,738

 
38,117

Total non-current assets
 
 
 
11,431,377

 
11,361,806

Total assets
 
 
 
13,836,857

 
13,648,502

 
 
 
 
 
 
 
Liabilities and shareholders' equity
 
 
 
 

 
 

Current liabilities:
 
 
 
 

 
 

Accounts payable
 
 
 
1,063,886

 
1,142,371

Other current liabilities
 
 
 
867,639

 
816,722

Current portion of long-term debt
 
6
 
829,601

 

Short-term borrowings
 
6
 
55,349

 
34,822

Income taxes payable
 
 
 
74,001

 
8,209

Total current liabilities
 
 
 
2,890,476

 
2,002,124

Long-term debt, less current portion
 
6
 
7,152,523

 
7,977,267

Deferred income taxes
 
 
 
450,003

 
446,083

Income taxes payable
 
 
 
25,654

 
25,654

Operating lease liabilities
 
5
 
325,477

 

Other non-current liabilities
 
 
 
386,584

 
445,445

Total non-current liabilities
 
 
 
8,340,241

 
8,894,449

Total liabilities
 
 
 
11,230,717

 
10,896,573

Commitments and contingencies
 
8
 
 
 
 
Shareholders’ equity
 
 
 
 

 
 

Common stock, par value $0.10 per share; 204,435,333 and 204,210,731 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
 
 
 
20,443

 
20,421

Additional paid-in capital
 
 
 
2,463,290

 
2,534,134

Retained deficit
 
 
 
(963,020
)
 
(1,008,193
)
Accumulated other comprehensive income
 
9
 
271,031

 
261,537

Total IGT PLC’s shareholders’ equity
 
 
 
1,791,744

 
1,807,899

Non-controlling interests
 
 
 
814,396

 
944,030

Total shareholders’ equity
 
 
 
2,606,140

 
2,751,929

Total liabilities and shareholders’ equity
 
 
 
13,836,857

 
13,648,502


The accompanying notes are an integral part of these condensed consolidated financial statements.

4


International Game Technology PLC
Condensed Consolidated Statements of Operations
(Unaudited, $ and shares in thousands, except per share amounts)
 
 
 
 
 
For the three months ended
June 30,
 
For the six months ended
June 30,
 
 
Notes
 
2019
 
2018
 
2019
 
2018
Service revenue
 
10
 
980,031

 
1,007,067

 
1,971,062

 
2,054,018

Product sales
 
10
 
254,222

 
195,271

 
408,107

 
355,276

Total revenue
 
10
 
1,234,253

 
1,202,338

 
2,379,169

 
2,409,294

 
 
 
 
 
 
 
 
 
 
 
Cost of services
 
 
 
594,598

 
607,684

 
1,189,925

 
1,225,742

Cost of product sales
 
 
 
160,786

 
122,403

 
260,971

 
225,754

Selling, general and administrative
 
 
 
213,263

 
196,088

 
415,100

 
411,306

Research and development
 
 
 
65,383

 
63,957

 
131,501

 
135,220

Other operating (income) expense, net
 
11
 
(23,492
)
 
3,129

 
(20,195
)
 
5,200

Total operating expenses
 
 
 
1,010,538

 
993,261

 
1,977,302

 
2,003,222

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
10
 
223,715

 
209,077

 
401,867

 
406,072

 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
6
 
(103,860
)
 
(102,888
)
 
(206,929
)
 
(210,168
)
Foreign exchange (loss) gain, net
 
 
 
(41,061
)
 
172,546

 
17,541

 
75,851

Other income (expense), net
 
12
 
23,493

 
(31,304
)
 
22,995

 
(28,323
)
Total non-operating (expenses) income
 
 
 
(121,428
)
 
38,354

 
(166,393
)
 
(162,640
)
 
 
 
 
 
 
 
 
 
 
 
Income before provision for income taxes
 
7
 
102,287

 
247,431

 
235,474

 
243,432

 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
7
 
63,300

 
52,232

 
115,992

 
112,737

 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
38,987

 
195,199

 
119,482

 
130,695

 
 
 
 
 
 
 
 
 
 
 
Less: Net income attributable to non-controlling interests
 
 
 
34,131

 
33,703

 
74,372

 
52,019

Less: Net income attributable to redeemable non-controlling interests
 
 
 

 

 

 
20,326

Net income attributable to IGT PLC
 
13
 
4,856

 
161,496

 
45,110

 
58,350

 
 
 
 
 
 
 
 
 
 
 
Net income attributable to IGT PLC per common share - basic
 
13
 
0.02

 
0.79

 
0.22

 
0.29

Net income attributable to IGT PLC per common share - diluted
 
13
 
0.02

 
0.79

 
0.22

 
0.29

 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares - basic
 
13
 
204,407

 
204,118

 
204,309

 
203,859

Weighted-average shares - diluted
 
13
 
204,412

 
204,516

 
204,532

 
204,345

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


5


International Game Technology PLC
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, $ thousands)
 
 
 
 
 
For the three months ended
June 30,
 
For the six months ended
June 30,
 
 
Notes
 
2019
 
2018
 
2019
 
2018
Net income
 
 
 
38,987

 
195,199

 
119,482

 
130,695

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
Change in foreign currency translation:
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
9
 
22,084

 
(97,491
)
 
(2,555
)
 
(62,390
)
Reclassification of income to net income
 
9
 

 

 
(46
)
 

Total foreign currency translation adjustments
 
 
 
22,084

 
(97,491
)
 
(2,601
)
 
(62,390
)
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized (loss) gain on cash flow hedges:
 
 
 
 

 
 

 
 

 
 

Unrealized gain (loss) on cash flow hedges
 
9
 
97

 
3,051

 
872

 
(3,061
)
Reclassification of (income) loss to net income
 
9
 
(546
)
 
172

 
(732
)
 
1,397

Total change in unrealized (loss) gain on cash flow hedges
 
 
 
(449
)
 
3,223

 
140

 
(1,664
)
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on available-for-sale securities
 
9
 
2,819

 
(185
)
 
4,023

 
1,040

 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on defined benefit plans
 
9
 
(61
)
 

 
(124
)
 

 
 
 
 
 
 
 
 
 
 
 
Other
 
9
 
748

 

 
748

 

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), before tax
 
 
 
25,141

 
(94,453
)
 
2,186

 
(63,014
)
 
 
 
 
 
 
 
 
 
 
 
Income tax benefit (provision) related to items of other comprehensive income (loss)
 
9
 
59

 
(784
)
 
(26
)
 
349

Other comprehensive income (loss)
 
 
 
25,200

 
(95,237
)
 
2,160

 
(62,665
)
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
64,187

 
99,962

 
121,642

 
68,030

 
 
 
 
 
 
 
 
 
 
 
Less: Total comprehensive income attributable to non-controlling interests
 
 
 
43,010

 
34,117

 
67,038

 
52,389

Less: Total comprehensive income attributable to redeemable non-controlling interests
 
 
 

 

 

 
20,326

Total comprehensive income (loss) attributable to IGT PLC
 
 
 
21,177

 
65,845

 
54,604

 
(4,685
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


6


International Game Technology PLC
Condensed Consolidated Statements of Cash Flows
(Unaudited, $ thousands)
 
 
For the six months ended June 30,
 
 
2019
 
2018
Cash flows from operating activities
 
 

 
 

Net income
 
119,482

 
130,695

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation
 
209,271

 
202,448

Amortization
 
137,201

 
136,450

Service revenue amortization
 
103,935

 
111,115

Stock-based compensation expense
 
12,502

 
17,119

Debt issuance cost amortization
 
11,523

 
11,534

Loss on extinguishment of debt
 
9,628

 
29,584

Deferred income taxes
 
6,515

 
(9,817
)
Foreign exchange gain, net
 
(17,541
)
 
(75,851
)
Gain on sale of assets
 
(63,239
)
 
(1,129
)
Other non-cash costs, net
 
31,392

 
1,610

Changes in operating assets and liabilities, excluding the effects of acquisitions:
 
 

 
 

Trade and other receivables
 
49,059

 
49,832

Inventories
 
802

 
(20,787
)
Upfront Italian license fees
 

 
(366,270
)
Accounts payable
 
(57,317
)
 
(56,732
)
Other assets and liabilities
 
38,508

 
(39,651
)
Net cash provided by operating activities
 
591,721

 
120,150

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Capital expenditures
 
(231,003
)
 
(258,967
)
Proceeds from sale of assets
 
65,429

 
6,065

Other
 
2,545

 
1,458

Net cash used in investing activities
 
(163,029
)
 
(251,444
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Principal payments on long-term debt
 
(833,129
)
 
(1,058,753
)
Dividends paid - non-controlling interests
 
(129,394
)
 
(125,808
)
Dividends paid
 
(81,729
)
 
(81,553
)
Return of capital - non-controlling interests
 
(70,399
)
 
(53,600
)
Net payments of financial liabilities
 
(11,395
)
 
(36,586
)
Payments in connection with extinguishment of debt
 
(8,598
)
 
(24,281
)
Debt issuance costs paid
 
(5,934
)
 
(4,047
)
Capital increase - non-controlling interests
 
1,075

 
134,536

Net proceeds from short-term borrowings
 
19,573

 
73,980

Proceeds from long-term debt
 
846,975

 
863,911

Other
 
(6,733
)
 
(17,696
)
Net cash used in financing activities
 
(279,688
)
 
(329,897
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents
 
149,004

 
(461,191
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents
 
(3,748
)
 
22,352

Cash and cash equivalents and restricted cash and cash equivalents at the beginning of the period
 
511,777

 
1,305,430

Cash and cash equivalents and restricted cash and cash equivalents at the end of the period
 
657,033

 
866,591

 
 
 
 
 
Supplemental Cash Flow Information
 
 
 
 
Interest paid
 
(211,591
)
 
(262,886
)
Income taxes (paid) refunded
 
(49,777
)
 
13,313


The accompanying notes are an integral part of these condensed consolidated financial statements.

7


International Game Technology PLC
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited, $ thousands)
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
IGT PLC
Equity
 
Non-
Controlling
Interests
 
Total
Equity
Balance at December 31, 2018
20,421

 
2,534,134

 
(1,008,193
)
 
261,537

 
1,807,899

 
944,030

 
2,751,929

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
40,254

 

 
40,254

 
40,241

 
80,495

Other comprehensive loss, net of tax

 

 

 
(6,827
)
 
(6,827
)
 
(16,213
)
 
(23,040
)
Total comprehensive income (loss)

 

 
40,254

 
(6,827
)
 
33,427

 
24,028

 
57,455

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based payment expense

 
9,590

 

 

 
9,590

 

 
9,590

Capital increase

 

 

 

 

 
333

 
333

Return of capital

 

 

 

 

 
(28,888
)
 
(28,888
)
Dividends declared

 
(40,842
)
 

 

 
(40,842
)
 
(128,868
)
 
(169,710
)
Other

 

 
86

 

 
86

 
4,167

 
4,253

Balance at March 31, 2019
20,421

 
2,502,882

 
(967,853
)
 
254,710

 
1,810,160

 
814,802

 
2,624,962

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
4,856

 

 
4,856

 
34,131

 
38,987

Other comprehensive income, net of tax

 

 

 
16,321

 
16,321

 
8,879

 
25,200

Total comprehensive income

 

 
4,856

 
16,321

 
21,177

 
43,010

 
64,187

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based payment expense

 
2,912

 

 

 
2,912

 

 
2,912

Capital increase

 

 

 

 

 
742

 
742

Shares issued upon exercise of stock options
22

 
(1,617
)
 

 

 
(1,595
)
 

 
(1,595
)
Return of capital

 

 

 

 

 
(41,465
)
 
(41,465
)
Dividends declared

 
(40,887
)
 

 

 
(40,887
)
 
(706
)
 
(41,593
)
Other

 

 
(23
)
 

 
(23
)
 
(1,987
)
 
(2,010
)
Balance at June 30, 2019
20,443

 
2,463,290

 
(963,020
)
 
271,031

 
1,791,744

 
814,396

 
2,606,140



8


International Game Technology PLC
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited, $ thousands)
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
IGT PLC
Equity
 
Non-
Controlling
Interests
 
Total
Equity
Balance at December 31, 2017
20,344

 
2,676,854

 
(1,032,372
)
 
340,169

 
2,004,995

 
349,936

 
2,354,931

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income

 

 
(103,146
)
 

 
(103,146
)
 
18,316

 
(84,830
)
Other comprehensive income (loss), net of tax

 

 

 
32,616

 
32,616

 
(44
)
 
32,572

Total comprehensive (loss) income

 

 
(103,146
)
 
32,616

 
(70,530
)
 
18,272

 
(52,258
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adoption of new accounting standards

 

 
45,527

 

 
45,527

 

 
45,527

Stock-based payment expense

 
14,172

 

 

 
14,172

 

 
14,172

Shares issued upon exercise of stock options
12

 
(1,801
)
 

 

 
(1,789
)
 

 
(1,789
)
Dividends declared

 
(40,196
)
 

 

 
(40,196
)
 
(728
)
 
(40,924
)
Other

 
149

 
(516
)
 

 
(367
)
 

 
(367
)
Balance at March 31, 2018
20,356

 
2,649,178

 
(1,090,507
)
 
372,785

 
1,951,812

 
367,480

 
2,319,292

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
161,496

 

 
161,496

 
33,703

 
195,199

Other comprehensive (loss) income, net of tax

 

 

 
(95,651
)
 
(95,651
)
 
414

 
(95,237
)
Total comprehensive income (loss)

 

 
161,496

 
(95,651
)
 
65,845

 
34,117

 
99,962

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reclassification of redeemable non-controlling interests

 

 

 

 

 
377,243

 
377,243

Capital increase

 

 

 

 

 
134,536

 
134,536

Stock-based payment expense

 
2,947

 

 

 
2,947

 

 
2,947

Shares issued upon exercise of stock options
2

 
251

 

 

 
253

 

 
253

Shares issued under stock award plans
62

 
(10,574
)
 

 

 
(10,512
)
 

 
(10,512
)
Return of capital

 

 

 

 

 
(53,600
)
 
(53,600
)
Dividends declared

 
(41,357
)
 

 

 
(41,357
)
 
(112,491
)
 
(153,848
)
Other

 
1

 
(1
)
 

 

 

 

Balance at June 30, 2018
20,420

 
2,600,446

 
(929,012
)
 
277,134

 
1,968,988

 
747,285

 
2,716,273


The accompanying notes are an integral part of these condensed consolidated financial statements.

9


International Game Technology PLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
1.
Description of the Business
 
International Game Technology PLC (the "Parent"), together with its consolidated subsidiaries, is a leading commercial operator and provider of technology in the regulated worldwide gaming markets that operates and provides a full range of services and leading-edge technology products across all gaming markets, including lotteries, machine gaming, sports betting, interactive gaming and commercial services. Our state-of-the-art information technology platforms and software enable distribution of our products and services through land-based systems, the internet and mobile devices.
 
When used in these notes, unless otherwise specified or the context otherwise indicates, all references to "IGT PLC," the "Company," "we," "our," or "us" refer to the business and operations of the Parent and its consolidated subsidiaries.
 
2.
Summary of Significant Accounting Policies
 
Basis of Preparation

The accompanying condensed consolidated financial statements and notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, these interim financial statements do not include all of the information and note disclosures required by GAAP for complete financial statements, but reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the interim period results. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2018 Form 20-F.

The condensed consolidated financial statements are stated in thousands of U.S. dollars (except share and per share data) unless otherwise indicated. Certain reclassifications have been made to prior periods to align with the current period presentation. All references to "U.S. dollars," "U.S. dollar" and "$" refer to the currency of the United States of America. All references to "euro" and "€" refer to the currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended.

Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies on the balance sheet dates and the reported amounts of revenue and expense during the reporting periods.

We evaluate our estimates continuously and base them on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates if the assumptions prove incorrect. To the extent there are material differences between actual results and these estimates, our future results could be materially and adversely affected. We believe the accounting policies described in Note 2 of our 2018 Form 20-F require us to make significant judgments and estimates in the preparation of our condensed consolidated financial statements.

Our most critical accounting estimates include revenue recognition, allowance for doubtful accounts and credit losses, income taxes, legal and other contingencies and evaluation of long-lived assets for impairment.

Significant Accounting Policies

There have been no material changes to our significant accounting policies described in Note 2 of our 2018 Form 20-F other than the adoption of new guidance for lease accounting, as described below.

Leases

We determine whether a contract is or contains a lease at inception. As a lessee, we recognize right-of-use ("ROU") assets and lease liabilities on the lease commencement date based on the present value of lease payments over the lease term. ROU assets also include any upfront lease payments or initial direct costs and are adjusted for lease incentives received.


10


We consider renewal and termination options, including whether they are reasonably certain to be exercised, in determining the lease term and establishing the ROU assets and lease liabilities. ROU assets and lease liabilities are calculated using our incremental borrowing rate, which is based on the lease currency and length of the lease, unless the implicit rate is determinable.

Most of our lease contracts contain both lease and non-lease components. As a lessee, we combine lease and non-lease components into a single lease component for all classes of underlying assets except certain communication equipment. For certain communication equipment, we allocate the consideration between lease and non-lease components based on relative standalone price. Lease expense is recognized on a straight-line basis over the lease term.

Variable lease payments are generally expensed as incurred except for certain rent payments that depend on an index, which are included in lease payments using the index rate in effect as of the lease commencement date.

Short-term leases, which are leases with an initial term of 12 months or less with no purchase options that are reasonably certain of exercise, are not recognized on the balance sheet. The rental payments are recognized as lease expense on a straight-line basis over the lease term.

Certain of our lottery and commercial gaming arrangements include leases for equipment installed at customer locations as part of our long-term technology service contracts. As the lessor, we combine lease and non-lease components for all classes of underlying assets in arrangements that involve operating leases. The single combined component is accounted for under Accounting Standards Codification ("ASC") 842, Leases, or ASC 606, Revenue from Contracts with Customers ("ASC 606"), depending on which component is the predominant component in the arrangement. If a component cannot be combined, the consideration is allocated between the lease component and the non-lease component based on relative standalone selling price.

New Accounting Standards - Recently Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASU 2016-02") to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. In 2017, 2018, and 2019, the FASB amended ASU 2016-02. We adopted ASU 2016-02 and subsequent amendments (collectively "ASC 842") as of January 1, 2019.

We used the optional transition method which resulted in a cumulative effect adjustment to retained earnings on January 1, 2019. We elected to apply the package of practical expedients and to use hindsight in determining the lease term and assessing impairment. Our election of the hindsight practical expedient resulted in longer lease terms for certain existing leases.

The adoption of the new standard resulted in the recognition of ROU assets and lease liabilities of $419.5 million and $445.2 million, respectively. The adoption did not materially impact our condensed consolidated statements of operations, comprehensive income, or cash flows.

While lessor accounting is largely unchanged under ASC 842, certain of our lottery and gaming arrangements include leases for implicitly or explicitly identified equipment installed at customer locations as part of our long-term technology service contracts. In these arrangements, we are typically compensated based on a percentage of sales or other forms of variable payment. While most of these leases will be classified as operating leases, certain of these are leases that could be classified as sales-type financing leases either at inception or upon modification of existing contracts in future periods. After electing the practical expedient to combine lease and non-lease components as the lessor for an operating lease, most contracts will fall under the guidance of ASC 606 because the predominant component of a technology service contract is for non-lease components.

New Accounting Standards - Not Yet Adopted

In April 2019, the FASB issued ASU No. 2019-04, Codification improvements to Topic 326, Financial instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”). This update clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01 respectively). The amendments related to ASU 2016-13 and ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The amendments related to ASU 2017-12 are effective January 1, 2020, with early adoption permitted. We will adopt ASU 2019-04 upon the effective dates and are currently evaluating the impact of adoption.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which provides guidance around disclosure requirements for fair value measurement

11


of investments. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact and timing of adopting this guidance.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") and subsequent amendments, which replaces the incurred loss impairment methodology in current 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, and 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. Additionally, the guidance permits irrevocable election of the fair value option on an instrument-by-instrument basis for certain financial assets previously measured at amortized cost. ASU 2016-13 and subsequent amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted beginning January 1, 2018. Application of ASU 2016-13 and subsequent amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We will adopt ASU 2016-13 upon the effective date and are currently evaluating the impact of adoption.

We do not currently expect that any other recently issued accounting guidance will have a significant effect on the consolidated financial statements.

3.
Revenue Recognition

Contract Balances
 
Information about receivables, contract assets and contract liabilities is as follows: 
($ thousands)
 
June 30, 2019
 
December 31, 2018
 
Balance Sheet Classification
Receivables, net
 
948,520

 
949,085

 
Trade and other receivables, net
 
 
 
 
 
 
 
Contract assets:
 
 
 
 
 
 
Current
 
83,860

 
58,739

 
Other current assets
Non-current
 
77,929

 
69,691

 
Other non-current assets
 
 
161,789

 
128,430

 
 
 
 
 
 
 
 
 
Contract liabilities:
 
 
 
 
 
 
Current
 
(78,309
)
 
(72,005
)
 
Other current liabilities
Non-current
 
(58,798
)
 
(67,022
)
 
Other non-current liabilities
 
 
(137,107
)
 
(139,027
)
 
 
 
The amount of revenue recognized during the three and six months ended June 30, 2019 that was included in the contract liabilities balance at December 31, 2018 was $11.9 million and $34.4 million, respectively. The amount of revenue recognized during the three and six months ended June 30, 2018 that was included in the contract liabilities balance at January 1, 2018 was $35.9 million and $71.5 million, respectively.

Transaction Price Allocated to Remaining Performance Obligations

At June 30, 2019, unsatisfied performance obligations for contracts expected to be greater than one year or contracts for which we do not have a right to consideration from the customer in the amount that corresponds to the value to the customer for our performance completed to date were approximately 5% of our annual revenue for 2018, of which approximately 31% is expected to be satisfied within one year and the remainder is expected to be satisfied over the subsequent nine years.

At December 31, 2018, unsatisfied performance obligations for contracts expected to be greater than one year or contracts for which we do not have a right to consideration from the customer in the amount that corresponds to the value to the customer for our performance completed to date were approximately 3% of our annual revenue for 2018, of which approximately 25% is expected to be satisfied within one year and the remainder is expected to be satisfied over the subsequent seven years.


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4.
Inventories
($ thousands)
 
June 30, 2019
 
December 31, 2018
Raw materials
 
113,543

 
140,143

Work in progress
 
32,517

 
32,835

Finished goods
 
118,851

 
109,720

 
 
264,911

 
282,698

5.
Leases

Lessee

We have operating and finance leases for real estate (warehouses, office space, data centers), vehicles, communication equipment, and other equipment. Many of our real estate leases include one or more options to renew, while some include termination options. Certain vehicle and equipment leases include residual value guarantees and options to purchase the leased asset. We consider the options and whether they are reasonably certain to be exercised in determining the lease term and establishing the ROU assets and liabilities.

Many of our real estate leases include variable payments for maintenance, real estate taxes, and insurance that are determined based on the actual costs incurred by the landlord. Some of our equipment leases include variable payments that are determined based on a percentage of sales.

The classification of our operating and finance leases in the condensed consolidated balance sheets are as follows:
($ thousands)
 
Balance Sheet Classification
 
June 30, 2019
Assets
 
 
 
 
     Operating ROU asset
 
Operating lease right-of-use assets
 
360,021

     Finance ROU asset, net (1)
 
Other non-current assets
 
34,391

Total lease assets
 
 
 
394,412

 
 
 
 
 
Liabilities
 
 
 
 
    Operating lease liability, current
 
Other current liabilities
 
52,556

    Finance lease liability, current
 
Other current liabilities
 
7,366

    Operating lease liability, non-current
 
Operating lease liabilities
 
325,477

    Finance lease liability, non-current
 
Other non-current liabilities
 
36,422

Total lease liabilities
 
 
 
421,821

(1) Finance ROU assets are recorded net of accumulated amortization of $3.6 million at June 30, 2019.

Weighted average lease terms and discount rates at June 30, 2019 are as follows:
 
 
Weighted Average
 
 
Remaining Lease Term (in years)
 
Discount Rate
Operating leases
 
8.81
 
6.82
%
Finance leases
 
6.63
 
5.61
%


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Components of lease expense are as follows:
 
 
For the three months ended
 
For the six months ended
($ thousands)
 
June 30, 2019
 
June 30, 2019
Operating lease costs
 
20,436

 
42,588

Finance lease costs (1)
 
2,482

 
4,990

Variable lease costs (2)
 
12,481

 
30,205

(1) Finance lease costs include amortization of ROU assets of $1.9 million and $3.6 million for the three and six months ended June 30, 2019, respectively, and interest on lease liabilities of $0.6 million and $1.3 million for the three and six months ended June 30, 2019, respectively.
(2) Variable lease costs include immaterial amounts related to short-term leases and sublease income.

Maturities of operating and finance lease liabilities at June 30, 2019 are as follows ($ thousands):
Year
 
Operating Leases
 
Finance Leases
 
Total
2019 (1)
 
38,989

 
4,841

 
43,830

2020
 
70,740

 
9,276

 
80,016

2021
 
60,829

 
8,886

 
69,715

2022
 
52,716

 
6,775

 
59,491

2023
 
48,900

 
5,106

 
54,006

Thereafter
 
251,887

 
17,654

 
269,541

Total lease payments
 
524,061

 
52,538

 
576,599

Less: Imputed interest
 
(146,028
)
 
(8,750
)
 
(154,778
)
Present value of lease liabilities
 
378,033

 
43,788

 
421,821

(1) Excludes the six months ended June 30, 2019.

Cash flow information and non-cash activity related to leases is as follows:
 
 
For the six months ended
($ thousands)
 
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
     Operating cash flows from operating and finance leases
 
42,097

     Finance cash flows from finance leases
 
3,520

 
 
 
Non-cash activity:
 
 
ROU assets obtained in exchange for lease obligations
 
 
     Operating leases
 
5,802

     Finance leases
 
4,055


Lessor

We have various arrangements for commercial gaming and lottery equipment under which we are the lessor. These leases generally meet the criteria for operating lease classification. Lease income for operating leases is included within service revenue, while lease income for sales type leases is included within product sales, in the condensed consolidated statements of operations. Lease income was approximately 6% of total revenue for the three and six months ended June 30, 2019 and 2018.


14


6.
Debt
 
($ thousands)
 
June 30, 2019
 
December 31, 2018
4.125% Senior Secured Notes due February 2020 (2)
 

 
499,167

4.750% Senior Secured Notes due March 2020 (2)
 

 
438,252

5.500% Senior Secured Notes due June 2020 (1)
 

 
27,519

6.250% Senior Secured Notes due February 2022 (1)
 
1,488,631

 
1,469,609

4.750% Senior Secured Notes due February 2023 (2)
 
959,758

 
964,730

5.350% Senior Secured Notes due October 2023 (1)
 
60,936

 
60,983

3.500% Senior Secured Notes due July 2024 (2)
 
564,139

 
567,179

6.500% Senior Secured Notes due February 2025 (1)
 
1,089,159

 
1,088,385

3.500% Senior Secured Notes due June 2026 (2)
 
845,482

 

6.250% Senior Secured Notes due January 2027 (1)
 
743,021

 
742,667

Senior Secured Notes, long-term
 
5,751,126

 
5,858,491

 
 
 
 
 
Revolving Credit Facilities due July 2021 (1) (2)
 
69,114

 
413,381

Term Loan Facility due January 2023 (2)
 
1,332,283

 
1,705,395

Long-term debt, less current portion
 
7,152,523

 
7,977,267

 
 
 
 
 
4.750% Senior Secured Notes due March 2020 (2)
 
437,997

 

5.500% Senior Secured Notes due June 2020 (1)
 
27,444

 

Term Loan Facility due January 2023 (2)
 
364,160

 

Current portion of long-term debt
 
829,601

 

 
 
 
 
 
Short-term borrowings
 
55,349

 
34,822

 
 
 
 
 
Total Debt
 
8,037,473

 
8,012,089

(1) U.S. dollar-denominated debt
(2) Euro-denominated debt
The principal balance of each debt obligation, excluding short-term borrowings, reconciles to the condensed consolidated balance sheet as follows:
 
 
June 30, 2019
($ thousands)
 
Principal
 
Debt issuance
cost, net
 
Premium
 
Swap
 
Total
4.750% Senior Secured Notes due March 2020
 
441,430

 
(3,433
)
 

 

 
437,997

5.500% Senior Secured Notes due June 2020
 
27,311

 

 
154

 
(21
)
 
27,444

6.250% Senior Secured Notes due February 2022
 
1,500,000

 
(9,933
)
 

 
(1,436
)
 
1,488,631

4.750% Senior Secured Notes due February 2023
 
967,300

 
(7,542
)
 

 

 
959,758

5.350% Senior Secured Notes due October 2023
 
60,567

 

 
369

 

 
60,936

3.500% Senior Secured Notes due July 2024
 
569,000

 
(4,861
)
 

 

 
564,139

6.500% Senior Secured Notes due February 2025
 
1,100,000

 
(10,841
)
 

 

 
1,089,159

3.500% Senior Secured Notes due June 2026
 
853,500

 
(8,018
)
 

 

 
845,482

6.250% Senior Secured Notes due January 2027
 
750,000

 
(6,979
)
 

 

 
743,021

Senior Secured Notes
 
6,269,108

 
(51,607
)
 
523

 
(1,457
)
 
6,216,567

 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facilities due July 2021
 
81,000

 
(11,886
)
 

 

 
69,114

Term Loan Facility due January 2023
 
1,707,000

 
(10,557
)
 

 

 
1,696,443

Total Debt, excluding short-term borrowings
 
8,057,108

 
(74,050
)
 
523

 
(1,457
)
 
7,982,124



15




 
December 31, 2018
($ thousands)
 
Principal
 
Debt issuance
cost, net
 
Premium
 
Swap
 
Total
4.125% Senior Secured Notes due February 2020
 
501,058

 
(1,891
)
 

 

 
499,167

4.750% Senior Secured Notes due March 2020
 
444,146

 
(5,894
)
 

 

 
438,252

5.500% Senior Secured Notes due June 2020
 
27,311

 

 
234

 
(26
)
 
27,519

6.250% Senior Secured Notes due February 2022
 
1,500,000

 
(11,611
)
 

 
(18,780
)
 
1,469,609

4.750% Senior Secured Notes due February 2023
 
973,250

 
(8,520
)
 

 

 
964,730

5.350% Senior Secured Notes due October 2023
 
60,567

 

 
416

 

 
60,983

3.500% Senior Secured Notes due July 2024
 
572,500

 
(5,321
)
 

 

 
567,179

6.500% Senior Secured Notes due February 2025
 
1,100,000

 
(11,615
)
 

 

 
1,088,385

6.250% Senior Secured Notes due January 2027
 
750,000

 
(7,333
)
 

 

 
742,667

Senior Secured Notes
 
5,928,832

 
(52,185
)
 
650

 
(18,806
)
 
5,858,491

 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facilities due July 2021
 
428,158

 
(14,777
)
 

 

 
413,381

Term Loan Facility due January 2023
 
1,717,500

 
(12,105
)
 

 

 
1,705,395

Total Debt, excluding short-term borrowings
 
8,074,490

 
(79,067
)
 
650

 
(18,806
)
 
7,977,267

  
Principal payments on long-term debt for the next five years and thereafter are as follows:
 
 
Calendar year
($ thousands)
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025 and
thereafter
 
Total
4.750% Senior Secured Notes due March 2020
 
441,430

 

 

 

 

 

 
441,430

5.500% Senior Secured Notes due June 2020
 
27,311

 

 

 

 

 

 
27,311

6.250% Senior Secured Notes due February 2022
 

 

 
1,500,000

 

 

 

 
1,500,000

4.750% Senior Secured Notes due February 2023
 

 

 

 
967,300

 

 

 
967,300

5.350% Senior Secured Notes due October 2023
 

 

 

 
60,567

 

 

 
60,567

3.500% Senior Secured Notes due July 2024
 

 

 

 

 
569,000

 

 
569,000

6.500% Senior Secured Notes due February 2025
 

 

 

 

 

 
1,100,000

 
1,100,000

3.500% Senior Secured Notes due June 2026
 

 

 

 

 

 
853,500

 
853,500

6.250% Senior Secured Notes due January 2027