Notes to Condensed Consolidated Financial Statements (Unaudited)
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1.
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Description of the Business
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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.
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2.
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Summary of Significant Accounting Policies
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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.
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
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.
Contract Balances
Information about receivables, contract assets and contract liabilities is as follows:
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($ thousands)
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June 30, 2019
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December 31, 2018
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Balance Sheet Classification
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Receivables, net
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948,520
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949,085
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Trade and other receivables, net
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Contract assets:
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Current
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83,860
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58,739
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Other current assets
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Non-current
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77,929
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69,691
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Other non-current assets
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161,789
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128,430
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Contract liabilities:
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Current
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(78,309
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(72,005
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Other current liabilities
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Non-current
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(58,798
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(67,022
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Other non-current liabilities
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(137,107
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(139,027
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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 $71.5 million, respectively.
Transaction Price Allocated to Remaining Performance Obligations
At June 30, 2019, unsatisfied performance obligations for contracts expected to be greater than one year or contracts for which we do not have a right to consideration from the customer in the amount that corresponds to the value to the customer for our performance completed to date were approximately 5% of our annual revenue for 2018, of which approximately 31% is expected to be satisfied within one year and the remainder is expected to be satisfied over the subsequent nine years.
At December 31, 2018, unsatisfied performance obligations for contracts expected to be greater than one year or contracts for which we do not have a right to consideration from the customer in the amount that corresponds to the value to the customer for our performance completed to date were approximately 3% of our annual revenue for 2018, of which approximately 25% is expected to be satisfied within one year and the remainder is expected to be satisfied over the subsequent seven years.
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($ thousands)
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June 30, 2019
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December 31, 2018
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Raw materials
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113,543
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140,143
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Work in progress
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32,517
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32,835
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Finished goods
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118,851
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109,720
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264,911
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282,698
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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:
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($ thousands)
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Balance Sheet Classification
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June 30, 2019
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Assets
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Operating ROU asset
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Operating lease right-of-use assets
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360,021
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Finance ROU asset, net (1)
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Other non-current assets
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34,391
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Total lease assets
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394,412
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Liabilities
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Operating lease liability, current
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Other current liabilities
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52,556
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Finance lease liability, current
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Other current liabilities
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7,366
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Operating lease liability, non-current
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Operating lease liabilities
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325,477
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Finance lease liability, non-current
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Other non-current liabilities
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36,422
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Total lease liabilities
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421,821
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(1) Finance ROU assets are recorded net of accumulated amortization of $3.6 million at June 30, 2019.
Weighted average lease terms and discount rates at June 30, 2019 are as follows:
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Weighted Average
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Remaining Lease Term (in years)
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Discount Rate
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Operating leases
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8.81
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6.82
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%
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Finance leases
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6.63
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5.61
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%
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Components of lease expense are as follows:
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For the three months ended
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For the six months ended
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($ thousands)
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June 30, 2019
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June 30, 2019
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Operating lease costs
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20,436
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42,588
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Finance lease costs (1)
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2,482
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4,990
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Variable lease costs (2)
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12,481
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30,205
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(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):
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Year
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Operating Leases
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Finance Leases
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Total
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2019 (1)
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38,989
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4,841
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43,830
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2020
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70,740
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9,276
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80,016
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2021
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60,829
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8,886
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69,715
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2022
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52,716
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6,775
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59,491
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2023
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48,900
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5,106
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54,006
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Thereafter
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251,887
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17,654
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269,541
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Total lease payments
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524,061
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52,538
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576,599
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Less: Imputed interest
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(146,028
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)
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(8,750
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)
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(154,778
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)
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Present value of lease liabilities
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378,033
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43,788
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421,821
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(1) Excludes the six months ended June 30, 2019.
Cash flow information and non-cash activity related to leases is as follows:
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For the six months ended
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($ thousands)
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June 30, 2019
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Cash paid for amounts included in the measurement of lease liabilities:
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Operating cash flows from operating and finance leases
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42,097
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Finance cash flows from finance leases
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3,520
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Non-cash activity:
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ROU assets obtained in exchange for lease obligations
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Operating leases
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5,802
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Finance leases
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4,055
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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.
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($ thousands)
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June 30, 2019
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December 31, 2018
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|
4.125% Senior Secured Notes due February 2020 (2)
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—
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499,167
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4.750% Senior Secured Notes due March 2020 (2)
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—
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438,252
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5.500% Senior Secured Notes due June 2020 (1)
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—
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|
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27,519
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6.250% Senior Secured Notes due February 2022 (1)
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1,488,631
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|
|
1,469,609
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|
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4.750% Senior Secured Notes due February 2023 (2)
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959,758
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|
|
964,730
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|
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5.350% Senior Secured Notes due October 2023 (1)
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60,936
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|
|
60,983
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|
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3.500% Senior Secured Notes due July 2024 (2)
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564,139
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567,179
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6.500% Senior Secured Notes due February 2025 (1)
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1,089,159
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1,088,385
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3.500% Senior Secured Notes due June 2026 (2)
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845,482
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|
|
—
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6.250% Senior Secured Notes due January 2027 (1)
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743,021
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742,667
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Senior Secured Notes, long-term
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5,751,126
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5,858,491
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Revolving Credit Facilities due July 2021 (1) (2)
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69,114
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|
|
413,381
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|
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Term Loan Facility due January 2023 (2)
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1,332,283
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1,705,395
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Long-term debt, less current portion
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7,152,523
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|
|
7,977,267
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|
|
|
|
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4.750% Senior Secured Notes due March 2020 (2)
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437,997
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|
|
—
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|
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5.500% Senior Secured Notes due June 2020 (1)
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27,444
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|
|
—
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|
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Term Loan Facility due January 2023 (2)
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364,160
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|
|
—
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Current portion of long-term debt
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|
829,601
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|
|
—
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|
|
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|
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Short-term borrowings
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55,349
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|
|
34,822
|
|
|
|
|
|
|
|
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Total Debt
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|
8,037,473
|
|
|
8,012,089
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(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:
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|
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|
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June 30, 2019
|
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($ thousands)
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Principal
|
|
Debt issuance
cost, net
|
|
Premium
|
|
Swap
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|
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
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)
|
|
—
|
|
|
—
|
|
|
1,696,443
|
|
|
Total Debt, excluding short-term borrowings
|
|
8,057,108
|
|
|
(74,050
|
)
|
|
523
|
|
|
(1,457
|
)
|
|
7,982,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
750,000
|
|
|
750,000
|
|
|
Senior Secured Notes
|
|
468,741
|
|
|
—
|
|
|
1,500,000
|
|
|
1,027,867
|
|
|
569,000
|
|
|
2,703,500
|
|
|
6,269,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facilities due July 2021
|
|
—
|
|
|
81,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81,000
|
|
|
Term Loan Facility due January 2023
|
|
364,160
|
|
|
364,160
|
|
|
364,160
|
|
|
614,520
|
|
|
—
|
|
|
—
|
|
|
1,707,000
|
|
|
Total Principal Payments
|
|
832,901
|
|
|
445,160
|
|
|
1,864,160
|
|
|
1,642,387
|
|
|
569,000
|
|
|
2,703,500
|
|
|
8,057,108
|
|
At June 30, 2019 and December 31, 2018, we were in compliance with all covenants under our debt agreements.
3.500% Senior Secured Notes due June 2026
On June 20, 2019, the Parent issued €750 million of 3.500% Senior Secured Notes due June 2026 (the "3.500% Notes") at par.
The Parent used the net proceeds from the 3.500% Notes to repurchase €437.6 million ($497.5 million) of the 4.125% Senior Secured Notes due February 2020 (the "4.125% Notes") and pay down $339.3 million of the Revolving Credit Facilities due July 26, 2021, for total consideration, excluding interest, of $845.3 million. The Company recorded a €8.5 million ($9.6 million) loss on extinguishment of debt in connection with the repurchase, which is classified in other expense, net on the consolidated statement of operations for the three and six months ended June 30, 2019.
Interest on the 3.500% Notes is payable semi-annually in arrears.
The 3.500% Notes are guaranteed by certain subsidiaries of the Parent and are secured by ownership interests of the Parent in certain of its direct subsidiaries and certain intercompany loans with principal balances in excess of $10.0 million.
Prior to June 15, 2022, the Parent may redeem the 3.500% Notes in whole or in part at 100% of their principal amount together with accrued and unpaid interest and a make-whole premium. From June 15, 2022 to June 14, 2023, the Parent may redeem the 3.500% Notes in whole or in part at 101.75% of their principal amount together with accrued and unpaid interest. From June 15, 2023 to June 14, 2024, the Parent may redeem the 3.500% Notes in whole or in part at 100.875% of their principal amount together with accrued and unpaid interest. On or after June 15, 2024, the Parent may redeem the 3.500% Notes in whole or in part at 100% of their principal amount together with accrued and unpaid interest. The Parent may also redeem the 3.500% Notes in whole but not in part at 100% of their principal amount together with accrued and unpaid interest in connection with certain tax events. Upon the occurrence of certain events, the Parent will be required to offer to repurchase all of the 3.500% Notes at a price equal to 101% of their principal amount together with accrued and unpaid interest. In certain events of default, the 3.500% Notes outstanding may become due and payable immediately.
Revolving Credit Facilities due July 2021
On July 24, 2019, the Company entered into an amendment to the Revolving Credit Facilities due July 2021. The amendment extended the final maturity date of the Revolving Credit Facilities from July 26, 2021 to July 31, 2024 and established the minimum ratio of EBITDA to total net interest costs and the maximum ratio of total net debt to EBITDA for the extended term of the revolving credit facilities. In addition, the amendment reduced the aggregate revolving facilities commitments of the lenders from $1.20 billion and €725 million to $1.05 billion and €625 million and allowed IGT Europe BV to be added as a borrower under Revolver Credit Facility B. The amendment also modified certain provisions to enhance financial flexibility and certain other non-material provisions.
Fair Value of Debt
Debt is categorized within Level 2 of the fair value hierarchy. Senior Secured Notes are valued using quoted market prices or dealer quotes for the identical financial instrument when traded as an asset in markets that are not active. All other debt is valued using current interest rates, excluding the effect of debt issuance costs.
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Carrying value (excluding swap adjustments)
|
|
7,983,581
|
|
|
7,996,073
|
|
|
Fair value
|
|
8,507,496
|
|
|
8,089,154
|
|
Interest Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Senior Secured Notes
|
|
(86,425
|
)
|
|
(86,590
|
)
|
|
(172,526
|
)
|
|
(178,092
|
)
|
|
Term Loan Facilities
|
|
(9,468
|
)
|
|
(9,848
|
)
|
|
(18,955
|
)
|
|
(20,013
|
)
|
|
Revolving Credit Facilities
|
|
(9,017
|
)
|
|
(7,033
|
)
|
|
(18,107
|
)
|
|
(13,276
|
)
|
|
Other
|
|
(1,649
|
)
|
|
(2,768
|
)
|
|
(3,000
|
)
|
|
(5,137
|
)
|
|
Interest expense
|
|
(106,559
|
)
|
|
(106,239
|
)
|
|
(212,588
|
)
|
|
(216,518
|
)
|
|
Interest income
|
|
2,699
|
|
|
3,351
|
|
|
5,659
|
|
|
6,350
|
|
|
Interest expense, net
|
|
(103,860
|
)
|
|
(102,888
|
)
|
|
(206,929
|
)
|
|
(210,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
|
($ thousands, except percentages)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Provision for income taxes
|
|
63,300
|
|
|
52,232
|
|
|
115,992
|
|
|
112,737
|
|
|
Income before provision for income taxes
|
|
102,287
|
|
|
247,431
|
|
|
235,474
|
|
|
243,432
|
|
|
Effective income tax rate (determined using an estimated annual effective tax rate)
|
|
61.9
|
%
|
|
21.1
|
%
|
|
49.3
|
%
|
|
46.3
|
%
|
The change in the effective income tax rate for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 is primarily related to the impact of the level of foreign exchange gains and losses incurred during these periods. The three months ended June 30, 2018 had significantly higher foreign exchange gains, that were subject to a lower effective tax rate, as compared to the same three month period in 2019.
The effective income tax rate for the three and six months ended June 30, 2019 of 61.9% and 49.3%, respectively, differed from the expected U.K. statutory rate of 19.0% primarily due to foreign losses with no benefit, foreign rate differential and the impact of the U.S. Tax Cuts and Jobs Act of 2017 (the "Tax Act").
The effective income tax rate for the three and six months ended June 30, 2018 of 21.1% and 46.3%, respectively, differed from the expected U.K. statutory rate of 19.0% primarily due to U.K. and foreign losses with no tax benefit, foreign rate differential and the impact of the Tax Act.
On a quarterly basis, we evaluate the realizability of the deferred income tax assets by jurisdiction and assess the need for a valuation allowance. At June 30, 2019, we believe it will be more-likely-than-not that we realize the deferred income tax assets, net of valuation allowances, recorded on the condensed consolidated balance sheet. However, should we believe that it is more-likely-than-not that the deferred income tax assets would not be realized, the tax provision would increase in the period in which we determined that the realizability was not likely. We consider the probability of future taxable income and historical profitability, among other factors, in assessing the realizability of the deferred income tax assets.
We had $26.6 million of reserves for uncertain tax positions at June 30, 2019 and December 31, 2018.
We recognize interest and penalties related to income tax matters in income tax expense. At June 30, 2019 and December 31, 2018, $16.9 million and $16.4 million, respectively, of interest and penalties were accrued for uncertain tax positions.
|
|
|
|
8.
|
Commitments and Contingencies
|
Commitments
Yeonama Holdings Co. Limited ("Yeonama")
Prior to the second quarter of 2019, we had invested €19.8 million to obtain a 30% ownership in Yeonama and a commitment to invest up to an additional €1.5 million in Yeonama. This commitment expired in the second quarter of 2019 when we sold our ownership interest in Yeonama. Refer to Note 12, Other Income (Expense), Net, for a further discussion of this sale.
Legal Proceedings
From time to time, the Parent and/or one or more of its subsidiaries are party to legal, regulatory, or administrative proceedings
regarding, among other matters, claims by and against the Company, and injunctions by third parties arising out of the ordinary course of business. Licenses are also subject to legal challenges by competitors, including Sisal and Stanley International Betting Limited, seeking to annul awards made to the Company. The Parent and/or one or more of its subsidiaries are also, from time to time, subjects of or parties to ethics and compliance inquiries and investigations related to the Company’s ongoing operations. The following matters were described in Note 17 within the Company's 2018 Form 20-F.
Texas Fun 5’s Instant Ticket Game
Five lawsuits have been filed against IGT Global Solutions Corporation (f/k/a GTECH Corporation) in Texas state court arising out of the Fun 5’s instant ticket game sold by the Texas Lottery Commission ("TLC") from September 14, 2014 to October 21, 2014. Plaintiffs allege each ticket’s instruction for Game 5 provided a 5x win (five times the prize box amount) any time the "Money Bag" symbol was revealed in the "5X BOX". However, TLC awarded a 5x win only when (1) the "Money Bag" symbol was revealed and (2) three symbols in a pattern were revealed.
|
|
|
|
(a)
|
Steele, James et al. v. GTECH Corp., filed on December 9, 2014, in Travis County (No. D1GN145114). Through intervenor actions, over 1,200 plaintiffs claim damages in excess of $500.0 million. GTECH Corporation’s plea to the jurisdiction for dismissal based on sovereign immunity was denied. GTECH Corporation appealed. The appellate court ordered that plaintiffs' sole remaining claim should be reconsidered. On April 27, 2018, IGT Global Solutions Corporation petitioned for Texas Supreme Court review and the Texas Supreme Court has scheduled a hearing on December 3, 2019.
|
|
|
|
|
(b)
|
Nettles, Dawn v. GTECH Corp. et al., filed on January 7, 2015, in Dallas County (No. 051501559CV). Plaintiff claims damages in excess of $4.0 million. GTECH Corporation and the Texas Lottery Commission won pleas to the jurisdiction for dismissal based on sovereign immunity. Plaintiff lost her appeal and petitioned for Texas Supreme Court review. The Texas Supreme Court has scheduled a hearing on December 3, 2019.
|
|
|
|
|
(c)
|
Guerra, Esmeralda v. GTECH Corp. et al., filed on June 10, 2016, in Hidalgo County (No. C277716B). Plaintiff claims damages in excess of $0.5 million.
|
|
|
|
|
(d)
|
Wiggins, Mario & Kimberly v. IGT Global Solutions Corp., filed on September 15, 2016, in Travis County (No. D1GN16004344). Plaintiffs claim damages in excess of $1.0 million.
|
|
|
|
|
(e)
|
Campos, Osvaldo Guadalupe et al. v. GTECH Corp., filed on October 20, 2016, in Travis County (No. D1GN16005300). Plaintiffs claim damages in excess of $1.0 million.
|
We dispute the claims made in each of these cases and continue to defend against these lawsuits.
Illinois State Lottery
On February 2, 2017, putative class representatives of retailers and lottery ticket purchasers alleged the Illinois Lottery collected millions of dollars from sales of instant ticket games and wrongfully ended certain games before all top prizes had been sold. Raqqa, Inc. et al. v. Northstar Lottery Group, LLC, was filed in Illinois state court, St. Clair County (No. 17L51) against Northstar Lottery Group LLC, a consortium in which the Parent indirectly holds an 80% controlling interest. The claims include tortious interference with contract, violations of Illinois Consumer Fraud and Deceptive Practices Act, and unjust enrichment. The lawsuit was removed to the U.S. District Court for the Southern District of Illinois. On May 9, 2018, IGT Global Solutions Corporation and Scientific Games International, Inc. were added as defendants. On March 15, 2017, a second lawsuit, Atteberry, Dennis et al. v. Northstar Lottery Group, LLC, was filed in Illinois state court, Cook County (No. 2017CHO3755) seeking damages on the same matter. We dispute the claims made in both cases and continue to defend against these lawsuits.
Dividends
We declared cash dividends per share during the periods presented as follows:
|
|
|
|
|
|
|
|
|
|
|
Per share amount ($)
|
|
2019
|
|
2018
|
|
First quarter
|
|
0.20
|
|
|
0.20
|
|
|
Second quarter
|
|
0.20
|
|
|
0.20
|
|
|
Total cash dividends declared
|
|
0.40
|
|
|
0.40
|
|
Accumulated Other Comprehensive Income ("AOCI")
The following tables detail the changes in AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on:
|
|
|
|
Less: OCI attributable
to non-controlling
interests
|
|
Total
AOCI
attributable
to IGT PLC
|
|
($ thousands)
|
|
Foreign
Currency
Translation
|
|
Cash
Flow
Hedges
|
|
Hedge of
Net
Investment
|
|
Available
for Sale
Securities
|
|
Defined
Benefit
Plans
|
|
Other
|
|
|
|
Balance at December 31, 2018
|
|
247,362
|
|
|
(1,240
|
)
|
|
(5,518
|
)
|
|
6,195
|
|
|
(4,454
|
)
|
|
(748
|
)
|
|
19,940
|
|
|
261,537
|
|
|
Change during period
|
|
(24,639
|
)
|
|
775
|
|
|
—
|
|
|
1,204
|
|
|
(63
|
)
|
|
—
|
|
|
16,213
|
|
|
(6,510
|
)
|
|
Reclassified to operations (1)
|
|
(46
|
)
|
|
(186
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(232
|
)
|
|
Tax effect
|
|
—
|
|
|
(82
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(85
|
)
|
|
OCI
|
|
(24,685
|
)
|
|
507
|
|
|
—
|
|
|
1,201
|
|
|
(63
|
)
|
|
—
|
|
|
16,213
|
|
|
(6,827
|
)
|
|
Balance at March 31, 2019
|
|
222,677
|
|
|
(733
|
)
|
|
(5,518
|
)
|
|
7,396
|
|
|
(4,517
|
)
|
|
(748
|
)
|
|
36,153
|
|
|
254,710
|
|
|
Change during period
|
|
22,084
|
|
|
97
|
|
|
—
|
|
|
2,819
|
|
|
(61
|
)
|
|
748
|
|
|
(8,879
|
)
|
|
16,808
|
|
|
Reclassified to operations (1)
|
|
—
|
|
|
(546
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(546
|
)
|
|
Tax effect
|
|
—
|
|
|
59
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
OCI
|
|
22,084
|
|
|
(390
|
)
|
|
—
|
|
|
2,819
|
|
|
(61
|
)
|
|
748
|
|
|
(8,879
|
)
|
|
16,321
|
|
|
Balance at June 30, 2019
|
|
244,761
|
|
|
(1,123
|
)
|
|
(5,518
|
)
|
|
10,215
|
|
|
(4,578
|
)
|
|
—
|
|
|
27,274
|
|
|
271,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on:
|
|
|
|
Less: OCI attributable
to non-controlling
interests
|
|
Total
AOCI
attributable
to IGT PLC
|
|
($ thousands)
|
|
Foreign
Currency
Translation
|
|
Cash
Flow
Hedges
|
|
Hedge of
Net
Investment
|
|
Available
for Sale
Securities
|
|
Defined
Benefit
Plans
|
|
Other
|
|
|
|
Balance at December 31, 2017
|
|
338,146
|
|
|
(649
|
)
|
|
(4,578
|
)
|
|
11,588
|
|
|
(4,839
|
)
|
|
(748
|
)
|
|
1,249
|
|
|
340,169
|
|
|
Change during period
|
|
35,101
|
|
|
(6,112
|
)
|
|
—
|
|
|
1,225
|
|
|
—
|
|
|
—
|
|
|
44
|
|
|
30,258
|
|
|
Reclassified to operations (1)
|
|
—
|
|
|
1,225
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,225
|
|
|
Tax effect
|
|
2,094
|
|
|
7
|
|
|
(969
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,133
|
|
|
OCI
|
|
37,195
|
|
|
(4,880
|
)
|
|
(969
|
)
|
|
1,226
|
|
|
—
|
|
|
—
|
|
|
44
|
|
|
32,616
|
|
|
Balance at March 31, 2018
|
|
375,341
|
|
|
(5,529
|
)
|
|
(5,547
|
)
|
|
12,814
|
|
|
(4,839
|
)
|
|
(748
|
)
|
|
1,293
|
|
|
372,785
|
|
|
Change during period
|
|
(97,491
|
)
|
|
3,051
|
|
|
—
|
|
|
(185
|
)
|
|
—
|
|
|
—
|
|
|
(414
|
)
|
|
(95,039
|
)
|
|
Reclassified to operations (1)
|
|
—
|
|
|
172
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
172
|
|
|
Tax effect
|
|
—
|
|
|
(788
|
)
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(784
|
)
|
|
OCI
|
|
(97,491
|
)
|
|
2,435
|
|
|
—
|
|
|
(181
|
)
|
|
—
|
|
|
—
|
|
|
(414
|
)
|
|
(95,651
|
)
|
|
Balance at June 30, 2018
|
|
277,850
|
|
|
(3,094
|
)
|
|
(5,547
|
)
|
|
12,633
|
|
|
(4,839
|
)
|
|
(748
|
)
|
|
879
|
|
|
277,134
|
|
(1) Cash flow hedges were reclassified into service revenue on the condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018.
The structure of our internal organization is customer-facing aligned around four segments operating in three regions as follows:
|
|
|
|
•
|
North America Gaming and Interactive
|
We monitor the operating results of our segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating income. Segment accounting policies are consistent with those of the condensed consolidated financial statements.
Corporate support expenses, which are not allocated to the segments, are principally composed of selling, general and administrative expenses and other expenses that are managed at the corporate level, including restructuring, transaction, corporate and Board of Directors’ expenses.
Purchase accounting principally represents the depreciation and amortization of acquired tangible and intangible assets in connection with acquired companies.
Segment information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2019
|
|
($ thousands)
|
|
North America Gaming and Interactive
|
|
North America Lottery
|
|
International
|
|
Italy
|
|
Segment Total
|
|
Corporate Support
|
|
Purchase Accounting
|
|
Total
|
|
Operating and Facilities Management Contracts
|
|
—
|
|
|
202,283
|
|
|
67,065
|
|
|
190,355
|
|
|
459,703
|
|
|
—
|
|
|
—
|
|
|
459,703
|
|
|
Machine gaming
|
|
105,678
|
|
|
24,600
|
|
|
12,216
|
|
|
137,549
|
|
|
280,043
|
|
|
—
|
|
|
—
|
|
|
280,043
|
|
|
Lottery Management Agreements
|
|
—
|
|
|
35,661
|
|
|
—
|
|
|
—
|
|
|
35,661
|
|
|
—
|
|
|
—
|
|
|
35,661
|
|
|
Other services
|
|
64,719
|
|
|
13,557
|
|
|
32,124
|
|
|
94,043
|
|
|
204,443
|
|
|
—
|
|
|
181
|
|
|
204,624
|
|
|
Service revenue
|
|
170,397
|
|
|
276,101
|
|
|
111,405
|
|
|
421,947
|
|
|
979,850
|
|
|
—
|
|
|
181
|
|
|
980,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming machines
|
|
73,104
|
|
|
—
|
|
|
81,689
|
|
|
—
|
|
|
154,793
|
|
|
—
|
|
|
—
|
|
|
154,793
|
|
|
Lottery product
|
|
—
|
|
|
32,250
|
|
|
3,157
|
|
|
—
|
|
|
35,407
|
|
|
—
|
|
|
—
|
|
|
35,407
|
|
|
Systems and other
|
|
30,404
|
|
|
617
|
|
|
32,621
|
|
|
380
|
|
|
64,022
|
|
|
—
|
|
|
—
|
|
|
64,022
|
|
|
Product sales
|
|
103,508
|
|
|
32,867
|
|
|
117,467
|
|
|
380
|
|
|
254,222
|
|
|
—
|
|
|
—
|
|
|
254,222
|
|
|
Total revenue
|
|
273,905
|
|
|
308,968
|
|
|
228,872
|
|
|
422,327
|
|
|
1,234,072
|
|
|
—
|
|
|
181
|
|
|
1,234,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
85,359
|
|
|
78,003
|
|
|
29,963
|
|
|
133,476
|
|
|
326,801
|
|
|
(55,012
|
)
|
|
(48,074
|
)
|
|
223,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2018
|
|
($ thousands)
|
|
North America Gaming and Interactive
|
|
North America Lottery
|
|
International
|
|
Italy
|
|
Segment Total
|
|
Corporate Support
|
|
Purchase Accounting
|
|
Total
|
|
Operating and Facilities Management Contracts
|
|
—
|
|
|
197,341
|
|
|
70,126
|
|
|
193,097
|
|
|
460,564
|
|
|
—
|
|
|
—
|
|
|
460,564
|
|
|
Machine gaming
|
|
108,267
|
|
|
25,383
|
|
|
13,095
|
|
|
162,172
|
|
|
308,917
|
|
|
—
|
|
|
—
|
|
|
308,917
|
|
|
Lottery Management Agreements
|
|
—
|
|
|
38,914
|
|
|
—
|
|
|
—
|
|
|
38,914
|
|
|
—
|
|
|
—
|
|
|
38,914
|
|
|
Other services
|
|
60,893
|
|
|
12,840
|
|
|
39,531
|
|
|
85,226
|
|
|
198,490
|
|
|
—
|
|
|
182
|
|
|
198,672
|
|
|
Service revenue
|
|
169,160
|
|
|
274,478
|
|
|
122,752
|
|
|
440,495
|
|
|
1,006,885
|
|
|
—
|
|
|
182
|
|
|
1,007,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming machines
|
|
62,168
|
|
|
—
|
|
|
52,005
|
|
|
—
|
|
|
114,173
|
|
|
—
|
|
|
—
|
|
|
114,173
|
|
|
Lottery product
|
|
—
|
|
|
34,037
|
|
|
8,315
|
|
|
—
|
|
|
42,352
|
|
|
—
|
|
|
—
|
|
|
42,352
|
|
|
Systems and other
|
|
22,781
|
|
|
60
|
|
|
15,682
|
|
|
223
|
|
|
38,746
|
|
|
—
|
|
|
—
|
|
|
38,746
|
|
|
Product sales
|
|
84,949
|
|
|
34,097
|
|
|
76,002
|
|
|
223
|
|
|
195,271
|
|
|
—
|
|
|
—
|
|
|
195,271
|
|
|
Total revenue
|
|
254,109
|
|
|
308,575
|
|
|
198,754
|
|
|
440,718
|
|
|
1,202,156
|
|
|
—
|
|
|
182
|
|
|
1,202,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
65,578
|
|
|
80,428
|
|
|
36,103
|
|
|
130,951
|
|
|
313,060
|
|
|
(52,237
|
)
|
|
(51,746
|
)
|
|
209,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2019
|
|
($ thousands)
|
|
North America Gaming and Interactive
|
|
North America Lottery
|
|
International
|
|
Italy
|
|
Segment Total
|
|
Corporate Support
|
|
Purchase Accounting
|
|
Total
|
|
Operating and Facilities Management Contracts
|
|
—
|
|
|
410,385
|
|
|
136,638
|
|
|
394,057
|
|
|
941,080
|
|
|
—
|
|
|
—
|
|
|
941,080
|
|
|
Machine gaming
|
|
205,568
|
|
|
49,652
|
|
|
24,569
|
|
|
276,260
|
|
|
556,049
|
|
|
—
|
|
|
—
|
|
|
556,049
|
|
|
Lottery Management Agreements
|
|
—
|
|
|
67,863
|
|
|
—
|
|
|
—
|
|
|
67,863
|
|
|
—
|
|
|
—
|
|
|
67,863
|
|
|
Other services
|
|
120,521
|
|
|
29,964
|
|
|
67,031
|
|
|
188,195
|
|
|
405,711
|
|
|
—
|
|
|
359
|
|
|
406,070
|
|
|
Service revenue
|
|
326,089
|
|
|
557,864
|
|
|
228,238
|
|
|
858,512
|
|
|
1,970,703
|
|
|
—
|
|
|
359
|
|
|
1,971,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming machines
|
|
136,553
|
|
|
—
|
|
|
117,013
|
|
|
—
|
|
|
253,566
|
|
|
—
|
|
|
—
|
|
|
253,566
|
|
|
Lottery product
|
|
—
|
|
|
46,256
|
|
|
7,564
|
|
|
—
|
|
|
53,820
|
|
|
—
|
|
|
—
|
|
|
53,820
|
|
|
Systems and other
|
|
51,200
|
|
|
890
|
|
|
48,114
|
|
|
517
|
|
|
100,721
|
|
|
—
|
|
|
—
|
|
|
100,721
|
|
|
Product sales
|
|
187,753
|
|
|
47,146
|
|
|
172,691
|
|
|
517
|
|
|
408,107
|
|
|
—
|
|
|
—
|
|
|
408,107
|
|
|
Total revenue
|
|
513,842
|
|
|
605,010
|
|
|
400,929
|
|
|
859,029
|
|
|
2,378,810
|
|
|
—
|
|
|
359
|
|
|
2,379,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
134,046
|
|
|
153,798
|
|
|
43,547
|
|
|
280,750
|
|
|
612,141
|
|
|
(113,436
|
)
|
|
(96,838
|
)
|
|
401,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2018
|
|
($ thousands)
|
|
North America Gaming and Interactive
|
|
North America Lottery
|
|
International
|
|
Italy
|
|
Segment Total
|
|
Corporate Support
|
|
Purchase Accounting
|
|
Total
|
|
Operating and Facilities Management Contracts
|
|
—
|
|
|
402,782
|
|
|
141,761
|
|
|
407,013
|
|
|
951,556
|
|
|
—
|
|
|
—
|
|
|
951,556
|
|
|
Machine gaming
|
|
213,756
|
|
|
49,919
|
|
|
27,399
|
|
|
336,360
|
|
|
627,434
|
|
|
—
|
|
|
—
|
|
|
627,434
|
|
|
Lottery Management Agreements
|
|
—
|
|
|
74,636
|
|
|
—
|
|
|
—
|
|
|
74,636
|
|
|
—
|
|
|
—
|
|
|
74,636
|
|
|
Other services
|
|
109,704
|
|
|
26,183
|
|
|
84,127
|
|
|
180,019
|
|
|
400,033
|
|
|
—
|
|
|
359
|
|
|
400,392
|
|
|
Service revenue
|
|
323,460
|
|
|
553,520
|
|
|
253,287
|
|
|
923,392
|
|
|
2,053,659
|
|
|
—
|
|
|
359
|
|
|
2,054,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming machines
|
|
112,098
|
|
|
—
|
|
|
82,078
|
|
|
—
|
|
|
194,176
|
|
|
—
|
|
|
—
|
|
|
194,176
|
|
|
Lottery product
|
|
—
|
|
|
50,314
|
|
|
10,957
|
|
|
—
|
|
|
61,271
|
|
|
—
|
|
|
—
|
|
|
61,271
|
|
|
Systems and other
|
|
62,302
|
|
|
140
|
|
|
36,917
|
|
|
470
|
|
|
99,829
|
|
|
—
|
|
|
—
|
|
|
99,829
|
|
|
Product sales
|
|
174,400
|
|
|
50,454
|
|
|
129,952
|
|
|
470
|
|
|
355,276
|
|
|
—
|
|
|
—
|
|
|
355,276
|
|
|
Total revenue
|
|
497,860
|
|
|
603,974
|
|
|
383,239
|
|
|
923,862
|
|
|
2,408,935
|
|
|
—
|
|
|
359
|
|
|
2,409,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
122,737
|
|
|
156,824
|
|
|
57,662
|
|
|
278,085
|
|
|
615,308
|
|
|
(105,559
|
)
|
|
(103,677
|
)
|
|
406,072
|
|
|
|
|
|
11.
|
Other Operating (Income) Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Gain on sale of assets to distributor
|
|
(25,946
|
)
|
|
—
|
|
|
(25,946
|
)
|
|
—
|
|
|
Other
|
|
2,454
|
|
|
3,129
|
|
|
5,751
|
|
|
5,200
|
|
|
|
|
(23,492
|
)
|
|
3,129
|
|
|
(20,195
|
)
|
|
5,200
|
|
Gain on Sale of Assets to Distributor
During the second quarter of 2019, we sold used, non-premium equipment to a distributor, which resulted in a gain of $25.9 million in the condensed consolidated statements of operations for the three and six months ended June 30, 2019.
|
|
|
|
12.
|
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Redemption and tender premium
|
|
(8,521
|
)
|
|
(24,256
|
)
|
|
(8,521
|
)
|
|
(24,256
|
)
|
|
Unamortized debt issuance costs
|
|
(1,097
|
)
|
|
(4,259
|
)
|
|
(1,097
|
)
|
|
(4,259
|
)
|
|
Other
|
|
18
|
|
|
(1,355
|
)
|
|
2
|
|
|
(133
|
)
|
|
Total debt related
|
|
(9,600
|
)
|
|
(29,870
|
)
|
|
(9,616
|
)
|
|
(28,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of investments
|
|
33,882
|
|
|
—
|
|
|
33,882
|
|
|
—
|
|
|
Other
|
|
(789
|
)
|
|
(1,434
|
)
|
|
(1,271
|
)
|
|
325
|
|
|
|
|
23,493
|
|
|
(31,304
|
)
|
|
22,995
|
|
|
(28,323
|
)
|
Debt Related
During the second quarter of 2019, we redeemed the 4.125% Notes, resulting in a $9.6 million loss on extinguishment of debt for the three and six months ended June 30, 2019. Further details of this transaction are disclosed in Note 6, Debt.
During the second quarter of 2018, we repurchased a portion of the 4.125% Notes and a portion of the 4.750% Senior Secured Notes due March 2020, resulting in a $29.6 million loss on extinguishment of debt for the three and six months ended June 30, 2018.
Gain on Sale of Investments
In May 2019, we sold our ownership interest in Yeonama resulting in a pre-tax gain of €26.1 million ($29.1 million at the May 31, 2019 exchange rate).
The following table presents the computation of basic and diluted income per share of common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
|
($ and shares in thousands, except per share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to IGT PLC
|
|
4,856
|
|
|
161,496
|
|
|
45,110
|
|
|
58,350
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares - basic
|
|
204,407
|
|
|
204,118
|
|
|
204,309
|
|
|
203,859
|
|
|
Incremental shares under stock-based compensation plans
|
|
5
|
|
|
398
|
|
|
223
|
|
|
486
|
|
|
Weighted-average shares - diluted
|
|
204,412
|
|
|
204,516
|
|
|
204,532
|
|
|
204,345
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to IGT PLC per common share - basic
|
|
0.02
|
|
|
0.79
|
|
|
0.22
|
|
|
0.29
|
|
|
Net income attributable to IGT PLC per common share - diluted
|
|
0.02
|
|
|
0.79
|
|
|
0.22
|
|
|
0.29
|
|
Stock options totaling 1.0 million for the three and six months ended June 30, 2019 were excluded from the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common shares for the period, and therefore, the effect would have been antidilutive. No stock options were excluded from the computations for the three and six months ended June 30, 2018.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, included in this report, as well as "Item 5. Operating and Financial Review and Prospects" and "Item 18. Financial Statements" in the Company's 2018 Form 20-F.
The following discussion includes certain forward-looking statements. Actual results may differ materially from those discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this report and in "Item 3.D. Risk Factors" and "Item 5.G. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995" included in the Company's 2018 Form 20-F.
Certain totals in the tables included in Item 2 may not add due to rounding.
Overview
The Company 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. The Company's state-of-the-art information technology platforms and software enable distribution of its products and services through land-based systems, the internet and mobile devices.
The structure of our internal organization is customer-facing aligned around four segments operating in three regions as follows:
|
|
|
|
•
|
North America Gaming and Interactive
|
Key Factors Affecting Operations and Financial Condition
There have been no material changes to "Key Factors Affecting Operations and Financial Condition" as disclosed in "Item 5.A. Operating Results" in the Company's 2018 Form 20-F.
Critical Accounting Estimates
The Company's consolidated financial statements are prepared in conformity with United States Generally Accepted Accounting Principles ("GAAP") which require the use of estimates, judgments and assumptions that affect the carrying amount of assets and liabilities and the amounts of income and expenses recognized. The estimates and underlying assumptions are based on information available at the date that the financial statements are prepared, based on historical experience, and are considered to be reasonable and realistic.
The Company periodically and continuously reviews its estimates and assumptions. Actual results for those areas requiring management judgment or estimates may differ from those recorded in the consolidated financial statements due to the occurrence of events and the uncertainties which characterize the assumptions and conditions on which the estimates are based.
The areas which require greater subjectivity of management in making estimates and judgments and where a change in such underlying assumptions could have a significant impact on the Company's consolidated financial statements are discussed in "Critical Accounting Estimates" as disclosed in "Item 5.A. Operating Results" in the Company's 2018 Form 20-F and are fully described in "Notes to the Consolidated Financial Statements—2. Summary of Significant Accounting Policies" included in "Item 18. Financial Statements" in the Company's 2018 Form 20-F.
There have been no material changes to these Critical Accounting Estimates.
Consolidated Results
The discussion below includes information calculated at constant currency. The Company calculates constant currency by applying the prior-year/period exchange rates to current financial data expressed in local currency in order to eliminate the impact of foreign exchange rate fluctuations originating from translating the income statement of the Company's foreign entities into U.S. dollars. These constant currency measures are non-GAAP measures. Although the Company does not believe that these measures are a substitute for GAAP measures, it does believe that such results after excluding the impact of currency fluctuations period-on-period provide additional useful information to investors regarding operating performance on a local currency basis.
Comparison of the three months ended June 30, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
June 30, 2019
|
|
June 30, 2018
|
|
($ thousands)
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
Service revenue
|
|
980,031
|
|
|
79.4
|
|
|
1,007,067
|
|
|
83.8
|
|
|
Product sales
|
|
254,222
|
|
|
20.6
|
|
|
195,271
|
|
|
16.2
|
|
|
Total revenue
|
|
1,234,253
|
|
|
100.0
|
|
|
1,202,338
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
594,598
|
|
|
48.2
|
|
|
607,684
|
|
|
50.5
|
|
|
Cost of product sales
|
|
160,786
|
|
|
13.0
|
|
|
122,403
|
|
|
10.2
|
|
|
Selling, general and administrative
|
|
213,263
|
|
|
17.3
|
|
|
196,088
|
|
|
16.3
|
|
|
Research and development
|
|
65,383
|
|
|
5.3
|
|
|
63,957
|
|
|
5.3
|
|
|
Other operating (income) expense, net
|
|
(23,492
|
)
|
|
(1.9
|
)
|
|
3,129
|
|
|
0.3
|
|
|
Total operating expenses
|
|
1,010,538
|
|
|
81.9
|
|
|
993,261
|
|
|
82.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
223,715
|
|
|
18.1
|
|
|
209,077
|
|
|
17.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(103,860
|
)
|
|
(8.4
|
)
|
|
(102,888
|
)
|
|
(8.6
|
)
|
|
Foreign exchange (loss) gain, net
|
|
(41,061
|
)
|
|
(3.3
|
)
|
|
172,546
|
|
|
14.4
|
|
|
Other income (expense), net
|
|
23,493
|
|
|
1.9
|
|
|
(31,304
|
)
|
|
(2.6
|
)
|
|
Total non-operating (expenses) income
|
|
(121,428
|
)
|
|
(9.8
|
)
|
|
38,354
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
102,287
|
|
|
8.3
|
|
|
247,431
|
|
|
20.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
63,300
|
|
|
5.1
|
|
|
52,232
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
38,987
|
|
|
3.2
|
|
|
195,199
|
|
|
16.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interests
|
|
34,131
|
|
|
2.8
|
|
|
33,703
|
|
|
2.8
|
|
|
Net income attributable to IGT PLC
|
|
4,856
|
|
|
0.4
|
|
|
161,496
|
|
|
13.4
|
|
Service revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
$ Change
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
170,397
|
|
|
169,160
|
|
|
1,237
|
|
|
0.7
|
|
|
North America Lottery
|
|
276,101
|
|
|
274,478
|
|
|
1,623
|
|
|
0.6
|
|
|
International
|
|
111,405
|
|
|
122,752
|
|
|
(11,347
|
)
|
|
(9.2
|
)
|
|
Italy
|
|
421,947
|
|
|
440,495
|
|
|
(18,548
|
)
|
|
(4.2
|
)
|
|
Operating Segments
|
|
979,850
|
|
|
1,006,885
|
|
|
(27,035
|
)
|
|
(2.7
|
)
|
|
Corporate Support
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Purchase Accounting
|
|
181
|
|
|
182
|
|
|
(1
|
)
|
|
(0.5
|
)
|
|
|
|
980,031
|
|
|
1,007,067
|
|
|
(27,036
|
)
|
|
(2.7
|
)
|
The following table sets forth constant currency changes in service revenue for the three months ended June 30, 2019 compared to the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Change
|
|
($ thousands)
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
1,462
|
|
|
0.9
|
|
|
North America Lottery
|
|
1,717
|
|
|
0.6
|
|
|
International
|
|
(5,581
|
)
|
|
(4.5
|
)
|
|
Italy
|
|
2,963
|
|
|
0.7
|
|
|
Operating Segments
|
|
561
|
|
|
0.1
|
|
|
Corporate Support
|
|
—
|
|
|
—
|
|
|
Purchase Accounting
|
|
—
|
|
|
—
|
|
|
|
|
561
|
|
|
0.1
|
|
North America Gaming and Interactive segment
The following table sets forth changes in service revenue for the three months ended June 30, 2019 compared to the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Machine gaming
|
|
(2,429
|
)
|
|
(2,589
|
)
|
|
Other services
|
|
3,891
|
|
|
3,826
|
|
|
|
|
1,462
|
|
|
1,237
|
|
The principal drivers of the $1.5 million constant currency increase in service revenue were as follows:
|
|
|
|
•
|
A decrease of $2.4 million in Machine gaming, primarily driven by a shift in the mix of the installed base and a decrease in the average yield due to product mix; and
|
|
|
|
|
•
|
An increase of $3.9 million in Other services, principally due to a $5.6 million increase in sports betting; partially offset by a decrease of $2.0 million in usage-based royalties as a result of a contract renegotiation in the first quarter of 2019.
|
North America Lottery segment
The following table sets forth changes in service revenue for the three months ended June 30, 2019 compared to the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Operating and Facilities Management Contracts
|
|
4,945
|
|
|
4,943
|
|
|
Lottery Management Agreements
|
|
(3,253
|
)
|
|
(3,253
|
)
|
|
Machine gaming
|
|
(783
|
)
|
|
(783
|
)
|
|
Other services
|
|
808
|
|
|
716
|
|
|
|
|
1,717
|
|
|
1,623
|
|
The principal drivers of the $1.7 million constant currency increase in service revenue were as follows:
|
|
|
|
•
|
An increase of $4.9 million in Operating and Facilities Management Contracts, principally driven by strong same store revenue (revenue from existing customers as opposed to new customers) growth of 7.2%, primarily due to an increase of 5.4% in instant tickets and draw-based games and an increase of 23.8% in multi-state jackpot activity and recent contract wins and extensions with several customers within the United States, partially offset by the impact of the conclusion of the Illinois supply contract in the first quarter of 2019; and
|
|
|
|
|
•
|
A decrease of $3.3 million in Lottery Management Agreements ("LMA"), primarily related to a decrease in the amount of expected LMA incentives earned in the three months ended June 30, 2019 compared to the three months ended June 30, 2018.
|
International segment
The following table sets forth changes in service revenue for the three months ended June 30, 2019 compared to the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Operating and Facilities Management Contracts
|
|
(787
|
)
|
|
(3,060
|
)
|
|
Machine gaming
|
|
350
|
|
|
(879
|
)
|
|
Other services
|
|
(5,144
|
)
|
|
(7,408
|
)
|
|
|
|
(5,581
|
)
|
|
(11,347
|
)
|
The principal driver of the $5.6 million constant currency decrease in service revenue was a decrease of $5.1 million in Other services, principally due to:
|
|
|
|
•
|
A decrease of $2.4 million in interactive, primarily driven by lower levels of remote game server and multi-jackpot activity;
|
|
|
|
|
•
|
A decrease of $1.0 million in system service revenue, principally within Europe; and
|
|
|
|
|
•
|
A decrease of $0.9 million in commercial services, primarily related to Latin America.
|
Italy segment
The following table sets forth changes in service revenue for the three months ended June 30, 2019 compared to the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue Change
|
|
($ thousands)
|
|
Constant Currency
|
|
$ Change
|
|
Operating and Facilities Management Contracts
|
|
6,962
|
|
|
(2,741
|
)
|
|
Machine gaming
|
|
(17,701
|
)
|
|
(24,623
|
)
|
|
Other services
|
|
13,702
|
|
|
8,816
|
|
|
|
|
2,963
|
|
|
(18,548
|
)
|
The principal drivers of the constant currency changes in service revenues for each of the core services are discussed below.
Operating and Facilities Management Contracts
The following table sets forth constant currency changes in Operating and Facilities Management Contracts for the three months ended June 30, 2019 when compared to the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Change
|
|
($ thousands)
|
|
$
|
|
%
|
|
Lotto
|
|
6,088
|
|
|
5.2
|
%
|
|
Instant Tickets
|
|
874
|
|
|
1.1
|
%
|
|
|
|
6,962
|
|
|
3.6
|
%
|
Lotto
At constant currency, Lotto for the three months ended June 30, 2019 increased by $6.1 million compared to the three months ended June 30, 2018, principally due to a 6.0% increase in 10eLotto wagers and a 1.7% increase in core wagers as a result of an increase in bets and growing player frequency.
Wagers for the three months ended June 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
Change
|
|
(€ millions)
|
|
2019
|
|
2018
|
|
€
|
|
%
|
|
10eLotto
|
|
1,507
|
|
|
1,422
|
|
|
85
|
|
|
6.0
|
|
|
Core
|
|
479
|
|
|
471
|
|
|
8
|
|
|
1.7
|
|
|
Million Day
|
|
47
|
|
|
54
|
|
|
(7
|
)
|
|
(13.0
|
)
|
|
Late Numbers
|
|
31
|
|
|
33
|
|
|
(2
|
)
|
|
(6.1
|
)
|
|
|
|
2,064
|
|
|
1,980
|
|
|
84
|
|
|
4.2
|
|
Instant tickets
At constant currency, instant tickets for the three months ended June 30, 2019 increased by $0.9 million compared to the three months ended June 30, 2018, principally due to a 0.9% increase in wagers primarily related to the performance of 10€ tickets and a 1.6% increase in the average price point (the average value of the tickets sold).
Total wagers for the three months ended June 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
Change
|
|
(€ millions)
|
|
2019
|
|
2018
|
|
€
|
|
%
|
|
Total wagers
|
|
2,257
|
|
|
2,237
|
|
|
20
|
|
|
0.9
|
Machine gaming
At constant currency, Machine gaming for the three months ended June 30, 2019 decreased by $17.7 million compared to the three months ended June 30, 2018, primarily driven by an increase in gaming machine taxes related to the Prelievo Unico Erariale ("PREU") increase in September 2018 and January 2019 and a decrease in total machines installed due to a regulator-mandated reduction in Amusement with prize ("AWP") machines; partially offset by a 2.2% increase in total wagers.
PREU for AWP increased on an average quarter basis from 19.00% for the three months ended June 30, 2018 to 21.48% for the three months ended June 30, 2019. PREU for Video Lottery Terminals ("VLT") increased on an average quarter basis from 6.00% for the three months ended June 30, 2018 to 7.77% for the three months ended June 30, 2019.
Total wagers for the three months ended June 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
Change
|
|
(€ millions)
|
|
2019
|
|
2018
|
|
€
|
|
%
|
|
VLT wagers
|
|
1,427
|
|
|
1,407
|
|
|
20
|
|
|
1.4
|
|
AWP wagers
|
|
916
|
|
|
885
|
|
|
31
|
|
|
3.5
|
|
Total wagers
|
|
2,343
|
|
|
2,292
|
|
|
51
|
|
|
2.2
|
Total wagers and machines installed correspond to the management of VLTs and AWPs under the Company's licenses.
Other services
At constant currency, Other services for the three months ended June 30, 2019 increased by $13.7 million compared to the three months ended June 30, 2018, driven primarily by:
|
|
|
|
•
|
An increase of $8.8 million in commercial services, primarily related to an increase in POS fees as a result of a new service offering;
|
|
|
|
|
•
|
A 3.3% increase in sports betting wagers (€252.0 million for the three months ended June 30, 2019 compared to €244.0 million for the three months ended June 30, 2018) and a slightly lower combined payout in sports betting (82.3% for the three months ended June 30, 2019 compared to 82.9% for the three months ended June 30, 2018); and
|
|
|
|
|
•
|
An increase of 10.7% in interactive game wagers (€508.0 million for the three months ended June 30, 2019 compared to €459.0 million for the three months ended June 30, 2018).
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
$ Change
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
103,508
|
|
|
84,949
|
|
|
18,559
|
|
|
21.8
|
|
|
North America Lottery
|
|
32,867
|
|
|
34,097
|
|
|
(1,230
|
)
|
|
(3.6
|
)
|
|
International
|
|
117,467
|
|
|
76,002
|
|
|
41,465
|
|
|
54.6
|
|
|
Italy
|
|
380
|
|
|
223
|
|
|
157
|
|
|
70.4
|
|
|
Operating Segments
|
|
254,222
|
|
|
195,271
|
|
|
58,951
|
|
|
30.2
|
|
|
Corporate Support
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Purchase Accounting
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
254,222
|
|
|
195,271
|
|
|
58,951
|
|
|
30.2
|
|
The following table sets forth changes in product sales for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 on a constant currency basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Change
|
|
($ thousands)
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
18,652
|
|
|
22.0
|
|
|
North America Lottery
|
|
(1,067
|
)
|
|
(3.1
|
)
|
|
International
|
|
45,110
|
|
|
59.4
|
|
|
Italy
|
|
172
|
|
|
77.1
|
|
|
Operating Segments
|
|
62,867
|
|
|
32.2
|
|
|
Corporate Support
|
|
—
|
|
|
—
|
|
|
Purchase Accounting
|
|
—
|
|
|
—
|
|
|
|
|
62,867
|
|
|
32.2
|
|
North America Gaming and Interactive segment
The following table sets forth changes in product sales for the three months ended June 30, 2019 compared to the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Sale Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Gaming machines
|
|
10,993
|
|
|
10,936
|
|
|
Systems and other
|
|
7,659
|
|
|
7,623
|
|
|
|
|
18,652
|
|
|
18,559
|
|
The principal drivers of the $18.7 million constant currency increase in product sales were as follows:
|
|
|
|
•
|
An increase of $11.0 million in Gaming machines, principally associated with 111 more machines sold during the current period, along with an increase in the average selling price driven by product mix; and
|
|
|
|
|
•
|
An increase of $7.7 million in Systems and other, primarily driven by systems related sales to a new casino opening in Massachusetts.
|
North America Lottery segment
The following table sets forth changes in product sales for the three months ended June 30, 2019 compared to the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Sale Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Lottery product
|
|
(1,646
|
)
|
|
(1,787
|
)
|
|
Systems and other
|
|
579
|
|
|
557
|
|
|
|
|
(1,067
|
)
|
|
(1,230
|
)
|
The principal driver of the $1.1 million constant currency decrease in product sales was the $1.6 million decrease in Lottery product, primarily related to lottery point-of-sale machines and hardware sales in Massachusetts in the prior period, partially offset by lottery hardware and systems sales with several customers within the United States and an increase in instant ticket printing sales in the current period.
International segment
The following table sets forth changes in product sales for the three months ended June 30, 2019 compared to the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Sales Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Lottery product
|
|
(4,872
|
)
|
|
(5,158
|
)
|
|
Gaming machines
|
|
31,487
|
|
|
29,685
|
|
|
Systems and other
|
|
18,495
|
|
|
16,938
|
|
|
|
|
45,110
|
|
|
41,465
|
|
The principal drivers of the $45.1 million constant currency increase in product sales were as follows:
|
|
|
|
•
|
A decrease of $4.9 million in Lottery product, primarily related to product sales in Europe in the prior period;
|
|
|
|
|
•
|
An increase of $31.5 million in Gaming machines, primarily driven by a $17.5 million increase in terminal sales in Latin America and a $10.4 million increase in VLT sales in Europe; and
|
|
|
|
|
•
|
An increase of $18.5 million in Systems and other, principally due to a $20.0 million increase in software sales, primarily driven by an increase in AWP sales in Europe; partially offset by a $1.3 million decrease in system product sales, primarily related to sales in Asia Pacific in the prior period.
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Change
|
|
$ Change
|
|
($ thousands)
|
|
$
|
|
%
|
|
$
|
|
%
|
|
Cost of services
|
|
3,093
|
|
|
0.5
|
|
(13,086
|
)
|
|
(2.2
|
)
|
|
Cost of product sales
|
|
41,228
|
|
|
33.7
|
|
38,383
|
|
|
31.4
|
|
|
Selling, general and administrative
|
|
21,454
|
|
|
10.9
|
|
17,175
|
|
|
8.8
|
|
|
Research and development
|
|
3,364
|
|
|
5.3
|
|
1,426
|
|
|
2.2
|
|
|
Other operating (income) expense, net
|
|
(26,620
|
)
|
|
> (200.0)
|
|
(26,621
|
)
|
|
> (200.0)
|
|
|
Total operating expenses
|
|
42,519
|
|
|
4.3
|
|
17,277
|
|
|
1.7
|
|
Information on the primary drivers of changes in operating expenses are as follows:
Cost of services
Cost of services increased $3.1 million on a constant currency basis for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, principally due to:
|
|
|
|
•
|
A $5.8 million increase in the North America Gaming and Interactive segment, primarily related to:
|
|
|
|
|
◦
|
A $3.3 million increase in other costs, principally due to a vendor contract cancellation;
|
|
|
|
|
◦
|
A $2.1 million increase in depreciation and amortization;
|
|
|
|
|
•
|
A $6.5 million increase in the North America Lottery segment, primarily related to:
|
|
|
|
|
◦
|
A $2.4 million increase in depreciation and amortization expense, primarily driven by capital expenditure requirements arising from new contract wins and extensions with several customers in the United States;
|
|
|
|
|
◦
|
A $1.8 million increase in other expenses, primarily driven by an increase in LMA reimbursable expenses and communication lease expense;
|
|
|
|
|
◦
|
A $1.4 million increase in outside services, principally due to an increase in sports betting and equipment removal costs;
|
|
|
|
|
•
|
A $9.1 million decrease in the Italy segment, primarily related to:
|
|
|
|
|
◦
|
A $4.7 million decrease in marketing and advertising expense, primarily related to costs incurred for lottery games that did not recur in the current period and the timing of when marketing and advertising expense will be incurred in 2019; and
|
|
|
|
|
◦
|
A $4.4 million decrease in POS fees, primarily related to a decrease in VLT and AWP POS fees, partially offset by an increase in commercial services POS fees.
|
Cost of product sales
Cost of product sales increased $41.2 million on a constant currency basis for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, principally due to:
|
|
|
|
•
|
An $8.6 million increase in the North America Gaming and Interactive segment, primarily related to the $18.7 million increase in product sales and the product mix sold during the three months ended June 30, 2019; and
|
|
|
|
|
•
|
A $35.5 million increase in the International segment, primarily related to the $45.1 million increase in product sales and the product mix sold during the three months ended June 30, 2019.
|
Selling, general and administrative
Selling, general and administrative expense increased $21.5 million on a constant currency basis for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, principally due to an $11.0 million increase in other expenses within the North America Gaming and Interactive segment primarily related to legal costs related to a legal settlement and a $7.5 million increase in the International segment due to the reduction of an earn out liability settled in the prior period.
Research and development
Research and development expense increased $3.4 million on a constant currency basis for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, principally due to a $4.0 million increase in the North America Gaming and Interactive segment.
Other operating (income) expense, net
The components of other operating (income) expense, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
Gain on sale of assets to distributor
|
|
(25,946
|
)
|
|
—
|
|
|
Other
|
|
2,454
|
|
|
3,129
|
|
|
|
|
(23,492
|
)
|
|
3,129
|
|
Gain on sale of assets to distributor
During the three months ended June 30, 2019, the Company recognized a $25.9 million gain on the sale of the Company's non-premium install base in Oklahoma to a distributor in the North America Gaming and Interactive segment.
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
June 30,
|
|
$ Change
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
85,359
|
|
|
65,578
|
|
|
19,781
|
|
|
30.2
|
|
|
North America Lottery
|
|
78,003
|
|
|
80,428
|
|
|
(2,425
|
)
|
|
(3.0
|
)
|
|
International
|
|
29,963
|
|
|
36,103
|
|
|
(6,140
|
)
|
|
(17.0
|
)
|
|
Italy
|
|
133,476
|
|
|
130,951
|
|
|
2,525
|
|
|
1.9
|
|
|
Operating Segments
|
|
326,801
|
|
|
313,060
|
|
|
13,741
|
|
|
4.4
|
|
|
Corporate Support
|
|
(55,012
|
)
|
|
(52,237
|
)
|
|
(2,775
|
)
|
|
(5.3
|
)
|
|
Purchase Accounting
|
|
(48,074
|
)
|
|
(51,746
|
)
|
|
3,672
|
|
|
7.1
|
|
|
|
|
223,715
|
|
|
209,077
|
|
|
14,638
|
|
|
7.0
|
|
The following table sets forth constant currency changes in operating income (loss) for the three months ended June 30, 2019 compared to the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Change
|
|
($ thousands)
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
17,886
|
|
|
27.3
|
|
|
North America Lottery
|
|
(2,320
|
)
|
|
(2.9
|
)
|
|
International
|
|
(4,031
|
)
|
|
(11.2
|
)
|
|
Italy
|
|
10,329
|
|
|
7.9
|
|
|
Operating Segments
|
|
21,864
|
|
|
7.0
|
|
|
Corporate Support
|
|
(4,611
|
)
|
|
(8.8
|
)
|
|
Purchase Accounting
|
|
3,655
|
|
|
7.1
|
|
|
|
|
20,908
|
|
|
10.0
|
|
Operating margin for each of the Company's operating segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin
|
|
|
|
For the three months ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
North America Gaming and Interactive
|
|
31.2
|
%
|
|
25.8
|
%
|
|
North America Lottery
|
|
25.2
|
%
|
|
26.1
|
%
|
|
International
|
|
13.1
|
%
|
|
18.2
|
%
|
|
Italy
|
|
31.6
|
%
|
|
29.7
|
%
|
North America Gaming and Interactive
Segment operating margin increased from 25.8% for the three months ended June 30, 2018 to 31.2% for the three months ended June 30, 2019, principally due to the gain on sale of the non-premium install base in Oklahoma to a distributor, partially offset by an increase in selling, general and administrative expenses, primarily related to legal costs related to on-going litigation.
North America Lottery
Segment operating margin decreased slightly from 26.1% for the three months ended June 30, 2018 to 25.2% for the three months ended June 30, 2019, principally due to an increase in depreciation and amortization expense and a decrease in the amount of expected LMA incentives earned.
International
Segment operating margin decreased from 18.2% for the three months ended June 30, 2018 to 13.1% for the three months ended June 30, 2019, principally due to product mix and the increase in selling, general and administrative expenses, principally related to the remeasurement of an earn out liability in the prior period.
Italy
Segment operating margin increased from 29.7% for the three months ended June 30, 2018 to 31.6% for the three months ended June 30, 2019, principally due to performance from Lotto, sports betting and interactive along with a decrease in marketing and advertising expense, partially offset by machine gaming.
Non-operating expenses
Interest expense, net
Interest expense, net for the three months ended June 30, 2019 increased by $1.0 million compared to the three months ended June 30, 2018, as detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
June 30,
|
|
Change
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
Senior Secured Notes
|
|
(86,425
|
)
|
|
(86,590
|
)
|
|
(165
|
)
|
|
(0.2
|
)
|
|
Term Loan Facilities
|
|
(9,468
|
)
|
|
(9,848
|
)
|
|
(380
|
)
|
|
(3.9
|
)
|
|
Revolving Credit Facilities
|
|
(9,017
|
)
|
|
(7,033
|
)
|
|
1,984
|
|
|
28.2
|
|
|
Other
|
|
(1,649
|
)
|
|
(2,768
|
)
|
|
(1,119
|
)
|
|
(40.4
|
)
|
|
Interest expense
|
|
(106,559
|
)
|
|
(106,239
|
)
|
|
320
|
|
|
0.3
|
|
|
Interest income
|
|
2,699
|
|
|
3,351
|
|
|
652
|
|
|
19.5
|
|
|
Interest expense, net
|
|
(103,860
|
)
|
|
(102,888
|
)
|
|
972
|
|
|
0.9
|
|
Foreign exchange (loss) gain, net
The Company recorded foreign exchange losses, net of $41.1 million and foreign exchange gains, net of $172.5 million for the three months ended June 30, 2019 and 2018, respectively, principally due to non-cash foreign exchange losses and gains on euro denominated debt.
Other income (expense), net
The components of other income (expense), net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
June 30,
|
|
Change
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
Gain on sale of investments
|
|
33,882
|
|
|
—
|
|
|
33,882
|
|
|
-
|
|
|
Debt related transactions
|
|
(9,600
|
)
|
|
(29,870
|
)
|
|
20,270
|
|
|
(67.9
|
)
|
|
Other
|
|
(789
|
)
|
|
(1,434
|
)
|
|
645
|
|
|
(45.0
|
)
|
|
|
|
23,493
|
|
|
(31,304
|
)
|
|
54,797
|
|
|
(175.0
|
)
|
Gain on sale of investments
In May 2019, the Company sold its ownership interest in Yeonama Holdings Co. Limited ("Yeonama") resulting in a pre-tax gain of €26.1 million ($29.1 million).
Debt related transactions
In June 2019, the Company redeemed its €437.6 million 4.125% Senior Secured Notes due February 2020 ("4.125% Notes") for total consideration, excluding interest, of €445.1 million ($506.0 million) and recorded a $9.6 million loss on extinguishment of debt in connection with the purchase.
In June 2018, the Company offered to purchase up to €500 million of its €700 million 4.125% Senior Secured Notes due February 2020 ("4.125% Notes") and its €500 million 4.750% Senior Secured Notes due March 2020 ("4.750% Notes"). The Company purchased €262.4 million ($303.6 million) of its 4.125% Notes and €112.1 million ($129.7 million) of its 4.750% Notes for total consideration, excluding interest, of €395.5 million ($457.5 million) and recorded a $29.6 million loss on extinguishment of debt in connection with the purchase.
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
June 30,
|
|
($ thousands, except percentages)
|
|
2019
|
|
2018
|
|
Provision for income taxes
|
|
63,300
|
|
|
52,232
|
|
|
Income before provision for income taxes
|
|
102,287
|
|
|
247,431
|
|
|
Effective income tax rate (determined using an estimated annual effective tax rate)
|
|
61.9
|
%
|
|
21.1
|
%
|
The change in the effective income tax rate for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 is primarily related to the impact of the level of foreign exchange gains and losses incurred during these periods. The three months ended June 30, 2018 had significantly higher foreign exchange gains, that were subject to a lower effective tax rate, as compared to the same three month period in 2019.
Comparison of the six months ended June 30, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
|
|
|
|
June 30, 2019
|
|
June 30, 2018
|
|
($ thousands)
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
Service revenue
|
|
1,971,062
|
|
|
82.8
|
|
|
2,054,018
|
|
|
85.3
|
|
|
Product sales
|
|
408,107
|
|
|
17.2
|
|
|
355,276
|
|
|
14.7
|
|
|
Total revenue
|
|
2,379,169
|
|
|
100.0
|
|
|
2,409,294
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
1,189,925
|
|
|
50.0
|
|
|
1,225,742
|
|
|
50.9
|
|
|
Cost of product sales
|
|
260,971
|
|
|
11.0
|
|
|
225,754
|
|
|
9.4
|
|
|
Selling, general and administrative
|
|
415,100
|
|
|
17.4
|
|
|
411,306
|
|
|
17.1
|
|
|
Research and development
|
|
131,501
|
|
|
5.5
|
|
|
135,220
|
|
|
5.6
|
|
|
Other operating (income) expense, net
|
|
(20,195
|
)
|
|
(0.8
|
)
|
|
5,200
|
|
|
0.2
|
|
|
Total operating expenses
|
|
1,977,302
|
|
|
83.1
|
|
|
2,003,222
|
|
|
83.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
401,867
|
|
|
16.9
|
|
|
406,072
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(206,929
|
)
|
|
(8.7
|
)
|
|
(210,168
|
)
|
|
(8.7
|
)
|
|
Foreign exchange gain, net
|
|
17,541
|
|
|
0.7
|
|
|
75,851
|
|
|
3.1
|
|
|
Other income (expense), net
|
|
22,995
|
|
|
1.0
|
|
|
(28,323
|
)
|
|
(1.2
|
)
|
|
Total non-operating expenses
|
|
(166,393
|
)
|
|
(7.0
|
)
|
|
(162,640
|
)
|
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
235,474
|
|
|
9.9
|
|
|
243,432
|
|
|
10.1
|
|
|
Provision for income taxes
|
|
115,992
|
|
|
4.9
|
|
|
112,737
|
|
|
4.7
|
|
|
Net income
|
|
119,482
|
|
|
5.0
|
|
|
130,695
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interests
|
|
74,372
|
|
|
3.1
|
|
|
52,019
|
|
|
2.2
|
|
|
Less: Net income attributable to redeemable non-controlling interests
|
|
—
|
|
|
—
|
|
|
20,326
|
|
|
0.8
|
|
|
Net income attributable to IGT PLC
|
|
45,110
|
|
|
1.9
|
|
|
58,350
|
|
|
2.4
|
|
Service revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
June 30,
|
|
$ Change
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
326,089
|
|
|
323,460
|
|
|
2,629
|
|
|
0.8
|
|
|
North America Lottery
|
|
557,864
|
|
|
553,520
|
|
|
4,344
|
|
|
0.8
|
|
|
International
|
|
228,238
|
|
|
253,287
|
|
|
(25,049
|
)
|
|
(9.9
|
)
|
|
Italy
|
|
858,512
|
|
|
923,392
|
|
|
(64,880
|
)
|
|
(7.0
|
)
|
|
Operating Segments
|
|
1,970,703
|
|
|
2,053,659
|
|
|
(82,956
|
)
|
|
(4.0
|
)
|
|
Corporate Support
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Purchase Accounting
|
|
359
|
|
|
359
|
|
|
—
|
|
|
—
|
|
|
|
|
1,971,062
|
|
|
2,054,018
|
|
|
(82,956
|
)
|
|
(4.0
|
)
|
The following table sets forth constant currency changes in service revenue for the six months ended June 30, 2019 compared to the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Change
|
|
($ thousands)
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
3,087
|
|
|
1.0
|
|
|
North America Lottery
|
|
4,802
|
|
|
0.9
|
|
|
International
|
|
(10,561
|
)
|
|
(4.2
|
)
|
|
Italy
|
|
(6,749
|
)
|
|
(0.7
|
)
|
|
Operating Segments
|
|
(9,421
|
)
|
|
(0.5
|
)
|
|
Corporate Support
|
|
—
|
|
|
—
|
|
|
Purchase Accounting
|
|
—
|
|
|
—
|
|
|
|
|
(9,421
|
)
|
|
(0.5
|
)
|
North America Gaming and Interactive segment
The following table sets forth changes in service revenue for the six months ended June 30, 2019 compared to the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Machine gaming
|
|
(7,783
|
)
|
|
(8,189
|
)
|
|
Other services
|
|
10,870
|
|
|
10,818
|
|
|
|
|
3,087
|
|
|
2,629
|
|
The principal drivers of the $3.1 million constant currency increase in service revenue were as follows:
|
|
|
|
•
|
A decrease of $7.8 million in Machine gaming, primarily driven by a shift in the mix of the installed base and a decrease in the average yield due to product mix; and
|
|
|
|
|
•
|
An increase of $10.9 million in Other services, principally due to an increase of $8.3 million in poker revenue, primarily due to two multi-year poker site license contracts and a $6.2 million increase in sports betting, partially offset by a decrease of $2.8 million in usage-based royalties as a result of a contract renegotiation in the first quarter of 2019.
|
North America Lottery segment
The following table sets forth changes in service revenue for the six months ended June 30, 2019 compared to the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Operating and Facilities Management Contracts
|
|
7,607
|
|
|
7,604
|
|
|
Lottery Management Agreements
|
|
(6,773
|
)
|
|
(6,773
|
)
|
|
Machine gaming
|
|
(268
|
)
|
|
(268
|
)
|
|
Other services
|
|
4,236
|
|
|
3,781
|
|
|
|
|
4,802
|
|
|
4,344
|
|
The principal drivers of the $4.8 million constant currency increase in service revenue were as follows:
|
|
|
|
•
|
An increase of $7.6 million in Operating and Facilities Management Contracts, principally driven by strong same store revenue (revenue from existing customers as opposed to new customers) growth of 4.9%, primarily due to an increase of 5.3% in instant tickets and draw-based games and an increase of 2.6% in multi-state jackpot activity and a reversal of contra-revenue related to service level agreement provisions incurred in the prior period, partially offset by the impact of the conclusion of the Illinois supply contract in the first quarter of 2019;
|
|
|
|
|
•
|
A decrease of $6.8 million in Lottery Management Agreements, primarily related to a $4.0 million decrease in pass through service revenue related to the timing of reimbursable expenses from a LMA contract and a decrease in the amount of expected LMA incentives earned in the six months ended June 30, 2019 compared to the six months ended June 30, 2018; and
|
|
|
|
|
•
|
An increase of $4.2 million in Other services, principally due to the launch of sports betting in Rhode Island in the last quarter of 2018 and the expansion of an online jackpot game in Canada.
|
International segment
The following table sets forth changes in service revenue for the six months ended June 30, 2019 compared to the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Operating and Facilities Management Contracts
|
|
1,048
|
|
|
(5,123
|
)
|
|
Machine gaming
|
|
177
|
|
|
(2,830
|
)
|
|
Other services
|
|
(11,786
|
)
|
|
(17,096
|
)
|
|
|
|
(10,561
|
)
|
|
(25,049
|
)
|
The principal drivers of the $10.6 million constant currency decrease in service revenue were as follows:
|
|
|
|
•
|
An increase of $1.0 million in Operating and Facilities Management Contracts, principally driven by same store revenue growth of 3.6%, primarily due to a 2.8% increase in instant tickets and draw-based games and a 16.7% increase in multi-jackpot activity; and
|
|
|
|
|
•
|
A decrease of $11.8 million in Other services, principally due to a decrease of $5.3 million in software service sales, primarily driven by a $4.1 million decrease in Europe and a decrease of $5.0 million in interactive, primarily driven by lower levels of remote game server and multi-jackpot activity.
|
Italy segment
The following table sets forth changes in service revenue for the six months ended June 30, 2019 compared to the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue Change
|
|
($ thousands)
|
|
Constant Currency
|
|
$ Change
|
|
Operating and Facilities Management Contracts
|
|
13,875
|
|
|
(12,956
|
)
|
|
Machine gaming
|
|
(41,543
|
)
|
|
(60,101
|
)
|
|
Other services
|
|
20,919
|
|
|
8,177
|
|
|
|
|
(6,749
|
)
|
|
(64,880
|
)
|
The constant currency movements in service revenues for each of the core activities within the Italy segment are discussed below.
Operating and Facilities Management Contracts
The following table sets forth constant currency changes in Operating and Facilities Management Contracts for the six months ended June 30, 2019 when compared to the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Change
|
|
($ thousands)
|
|
$
|
|
%
|
|
Lotto
|
|
14,013
|
|
|
5.8
|
|
|
Instant Tickets
|
|
(138
|
)
|
|
(0.1
|
)
|
|
|
|
13,875
|
|
|
3.4
|
|
Lotto
At constant currency, Lotto for the six months ended June 30, 2019 increased by $14.0 million compared to the six months ended June 30, 2018, principally due to a 6.2% increase in 10eLotto wagers as a result of an increase in bets and a 10.2% increase in Million Day wagers which launched in February 2018.
Wagers for the six months ended June 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
June 30,
|
|
Change
|
|
(€ millions)
|
|
2019
|
|
2018
|
|
€
|
|
%
|
|
10eLotto
|
|
3,051
|
|
|
2,873
|
|
|
178
|
|
|
6.2
|
|
|
Core
|
|
980
|
|
|
975
|
|
|
5
|
|
|
0.5
|
|
|
Million Day
|
|
97
|
|
|
88
|
|
|
9
|
|
|
10.2
|
|
|
Late Numbers
|
|
78
|
|
|
79
|
|
|
(1
|
)
|
|
(1.3
|
)
|
|
|
|
4,206
|
|
|
4,015
|
|
|
191
|
|
|
4.8
|
|
Instant tickets
At constant currency, instant tickets for the six months ended June 30, 2019 decreased by $0.1 million compared to the six months ended June 30, 2018, primarily driven by a 0.9% decrease in the number of tickets sold due to one less day of sales in the current period when compared to the prior period, partially offset by a 1.0% increase in the average price point (the average value of the tickets sold).
Total wagers for the six months ended June 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
June 30,
|
|
Change
|
|
(€ millions)
|
|
2019
|
|
2018
|
|
€
|
|
%
|
|
Total wagers
|
|
4,643
|
|
|
4,645
|
|
|
(2
|
)
|
|
—
|
|
Machine gaming
At constant currency, Machine gaming for the six months ended June 30, 2019 decreased by $41.5 million compared to the six months ended June 30, 2018, primarily driven by an increase in gaming machine taxes related to the PREU increase in September
2018 and January 2019 and a decrease in total machines installed due to a regulator-mandated reduction in AWP machines; partially offset by a 2.1% increase in total wagers.
PREU for AWP increased on average quarter basis from 19.00% for the six months ended June 30, 2018 to 21.37% for the six months ended June 30, 2019 and PREU for VLT increased on average quarter basis from 6.00% for the six months ended June 30, 2018 to 7.63% for the six months ended June 30, 2019.
Total wagers for the six months ended June 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
June 30,
|
|
Change
|
|
(€ millions)
|
|
2019
|
|
2018
|
|
€
|
|
%
|
|
VLT wagers
|
|
2,930
|
|
|
2,848
|
|
|
82
|
|
|
2.9
|
|
|
AWP wagers
|
|
1,856
|
|
|
1,840
|
|
|
16
|
|
|
0.9
|
|
|
|
|
4,786
|
|
|
4,688
|
|
|
98
|
|
|
2.1
|
|
Total wagers and machines installed correspond to the management of VLTs and AWPs under the Company's licenses.
Other services
At constant currency, Other services for the six months ended June 30, 2019 increased by $20.9 million compared to the six months ended June 30, 2018, driven primarily by:
|
|
|
|
•
|
An increase of $16.3 million in commercial services, primarily related to an increase in POS fees as a result of a new service offering during the six months ended June 30, 2019;
|
|
|
|
|
•
|
A 7.1% increase in sports betting wagers (€526.0 million for the six months ended June 30, 2019 compared to €491.0 million for the six months ended June 30, 2018), partially offset by a higher combined payout in sports betting (82.8% for the six months ended June 30, 2019 compared to 82.1% for the six months ended June 30, 2018); and
|
|
|
|
|
•
|
An increase of 4.8% in interactive game wagers (€997.0 million for the six months ended June 30, 2019 compared to €951.0 million for the six months ended June 30, 2018).
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
June 30,
|
|
$ Change
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
187,753
|
|
|
174,400
|
|
|
13,353
|
|
|
7.7
|
|
|
North America Lottery
|
|
47,146
|
|
|
50,454
|
|
|
(3,308
|
)
|
|
(6.6
|
)
|
|
International
|
|
172,691
|
|
|
129,952
|
|
|
42,739
|
|
|
32.9
|
|
|
Italy
|
|
517
|
|
|
470
|
|
|
47
|
|
|
10.0
|
|
|
Operating Segments
|
|
408,107
|
|
|
355,276
|
|
|
52,831
|
|
|
14.9
|
|
|
Corporate Support
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Purchase Accounting
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
408,107
|
|
|
355,276
|
|
|
52,831
|
|
|
14.9
|
|
The following table sets forth changes in product sales for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 on a constant currency basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Change
|
|
($ thousands)
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
13,654
|
|
|
7.8
|
|
|
North America Lottery
|
|
(2,782
|
)
|
|
(5.5
|
)
|
|
International
|
|
48,970
|
|
|
37.7
|
|
|
Italy
|
|
70
|
|
|
14.9
|
|
|
Operating Segments
|
|
59,912
|
|
|
16.9
|
|
|
Corporate Support
|
|
—
|
|
|
—
|
|
|
Purchase Accounting
|
|
—
|
|
|
—
|
|
|
|
|
59,912
|
|
|
16.9
|
|
North America Gaming and Interactive segment
The following table sets forth changes in product sales for the six months ended June 30, 2019 compared to the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Sale Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Gaming machines
|
|
24,728
|
|
|
24,455
|
|
|
Systems and other
|
|
(11,074
|
)
|
|
(11,102
|
)
|
|
|
|
13,654
|
|
|
13,353
|
|
The principal drivers of the $13.7 million constant currency increase in product sales were as follows:
|
|
|
|
•
|
An increase of $24.7 million in Gaming machines, principally associated with 411 more machines sold during the current period, along with an increase in the average selling price driven by product mix; and
|
|
|
|
|
•
|
A decrease of $11.1 million in Systems and other, primarily driven by:
|
|
|
|
|
◦
|
A $4.4 million decrease in systems sales, principally due to significant systems related sales in the prior period, partially offset by systems related sales to a new casino opening in Massachusetts;
|
|
|
|
|
◦
|
A $4.0 million decrease in software sales, primarily due to fewer conversions and a decrease in software deliveries; and
|
|
|
|
|
◦
|
A $2.6 million decrease in intellectual property revenue, primarily related to a multi-year license in the prior period.
|
North America Lottery segment
The following table sets forth changes in product sales for the six months ended June 30, 2019 compared to the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Sale Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Lottery product
|
|
(3,573
|
)
|
|
(4,057
|
)
|
|
Systems and other
|
|
791
|
|
|
749
|
|
|
|
|
(2,782
|
)
|
|
(3,308
|
)
|
The principal driver of the $2.8 million constant currency decrease in product sales was the decrease in Lottery product of $3.6 million, primarily related to lottery point-of-sale machines and hardware sales in Massachusetts in the prior period, partially offset by lottery hardware and systems sales with several customers within the United States and an increase in instant ticket printing sales in the current period.
International segment
The following table sets forth changes in product sales for the six months ended June 30, 2019 compared to the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Sales Change
|
|
($ thousands)
|
|
Constant
Currency
|
|
$ Change
|
|
Lottery product
|
|
(2,854
|
)
|
|
(3,393
|
)
|
|
Gaming machines
|
|
38,065
|
|
|
34,935
|
|
|
Systems and other
|
|
13,759
|
|
|
11,197
|
|
|
|
|
48,970
|
|
|
42,739
|
|
The principal drivers of the $49.0 million constant currency increase in product sales were as follows:
|
|
|
|
•
|
A decrease of $2.9 million in Lottery product, primarily related to higher product sales in Europe in the prior period;
|
|
|
|
|
•
|
An increase of $38.1 million in Gaming machines, primarily driven by a $19.8 million increase in terminal sales in Latin America and a $16.5 million increase in terminal and VLT sales in Europe; and
|
|
|
|
|
•
|
An increase of $13.8 million in Systems and other, principally due to a $22.5 million increase in software sales, primarily driven by an increase in AWP sales in Europe; partially offset by a $9.5 million decrease in system product sales, primarily related to sales in Asia Pacific in the prior period.
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Change
|
|
$ Change
|
|
($ thousands)
|
|
$
|
|
%
|
|
$
|
|
%
|
|
Cost of services
|
|
7,595
|
|
|
0.6
|
|
(35,817
|
)
|
|
(2.9
|
)
|
|
Cost of product sales
|
|
39,551
|
|
|
17.5
|
|
35,217
|
|
|
15.6
|
|
|
Selling, general and administrative
|
|
14,350
|
|
|
3.5
|
|
3,794
|
|
|
0.9
|
|
|
Research and development
|
|
1,003
|
|
|
0.7
|
|
(3,719
|
)
|
|
(2.8
|
)
|
|
Other operating (income) expense, net
|
|
(25,392
|
)
|
|
> (200.0)
|
|
(25,395
|
)
|
|
> (200.0)
|
|
|
Total operating expenses
|
|
37,107
|
|
|
1.9
|
|
(25,920
|
)
|
|
(1.3
|
)
|
Information on the primary drivers of changes in operating expenses are as follows:
Cost of services
Cost of services increased $7.6 million on a constant currency basis for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, principally due to:
|
|
|
|
•
|
A $17.0 million increase in the North America Gaming and Interactive segment, primarily related to:
|
|
|
|
|
◦
|
A $10.6 million increase in depreciation and amortization;
|
|
|
|
|
◦
|
A $3.1 million increase in other costs, principally due to a vendor contract cancellation;
|
|
|
|
|
◦
|
A $2.4 million increase in licensing and royalties, primarily related to multi-year poker site licenses;
|
|
|
|
|
•
|
An $11.7 million increase in the North America Lottery segment, primarily related to:
|
|
|
|
|
◦
|
A $7.8 million increase in depreciation and amortization expense, primarily driven by capital expenditure requirements arising from new contract wins and extensions with several customers in the United States;
|
|
|
|
|
◦
|
A $1.5 million increase in postage and freight expense, primarily driven by increased instant ticket sales in the United States and distributions in Florida;
|
|
|
|
|
◦
|
A $1.5 million increase in outside services, principally due to an increase in sports betting and equipment removal costs;
|
|
|
|
|
•
|
A $10.1 million increase in the International segment, primarily related to:
|
|
|
|
|
◦
|
A $5.4 million increase in other operating expenses, primarily related to a lottery contract settlement;
|
|
|
|
|
◦
|
A $1.4 million increase in POS fees, principally due to the 3.6% increase in same store revenues;
|
|
|
|
|
◦
|
A $1.3 million increase in outside services, primarily due to various projects including bid activity;
|
|
|
|
|
•
|
A $27.2 million decrease in the Italy segment, primarily related to:
|
|
|
|
|
◦
|
A $15.0 million decrease in marketing and advertising expense, primarily related to costs incurred for lottery games that did not recur in the current period and the timing of when marketing and advertising expense will be incurred in 2019;
|
|
|
|
|
◦
|
An $11.4 million decrease in POS fees, primarily related to a decrease in VLT and AWP POS fees, partially offset by an increase in commercial services POS fees; and
|
|
|
|
|
•
|
A $5.6 million decrease in Purchase Accounting related to a decrease in depreciation and amortization.
|
Cost of product sales
Cost of product sales increased $39.6 million on a constant currency basis for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, principally due to:
|
|
|
|
•
|
A $5.4 million increase in the North America Gaming and Interactive segment, primarily related to the $13.7 million increase in product sales and the product mix sold during the six months ended June 30, 2019;
|
|
|
|
|
•
|
A $4.6 million decrease in the North America Lottery segment, primarily related to the $3.6 million decrease in lottery product sales; and
|
|
|
|
|
•
|
A $38.4 million increase in the International segment, primarily related to the $49.0 million increase in product sales and the product mix sold during the six months ended June 30, 2019.
|
Selling, general and administrative
Selling, general and administrative expense increased $14.4 million on a constant currency basis for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, principally due to an increase of $18.0 million in other expenses, primarily related to legal costs related to a legal settlement in the North America Gaming and Interactive segment and the reduction of an earn out liability settled in the prior period in the International segment, partially offset by a $3.6 million decrease in performance based compensation, primarily in the North America Gaming and Interactive segment.
Other operating (income) expense, net
The components of other operating (income) expense, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
Gain on sale of assets to distributor
|
|
(25,946
|
)
|
|
—
|
|
|
Other
|
|
5,751
|
|
|
5,200
|
|
|
|
|
(20,195
|
)
|
|
5,200
|
|
Gain on sale of assets to distributor
During the six months ended June 30, 2019, the Company recognized a $25.9 million gain on the sale of the Company's non-premium install base in Oklahoma to a distributor in the North America Gaming and Interactive segment.
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
June 30,
|
|
$ Change
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
134,046
|
|
|
122,737
|
|
|
11,309
|
|
|
9.2
|
|
|
North America Lottery
|
|
153,798
|
|
|
156,824
|
|
|
(3,026
|
)
|
|
(1.9
|
)
|
|
International
|
|
43,547
|
|
|
57,662
|
|
|
(14,115
|
)
|
|
(24.5
|
)
|
|
Italy
|
|
280,750
|
|
|
278,085
|
|
|
2,665
|
|
|
1.0
|
|
|
Operating Segments
|
|
612,141
|
|
|
615,308
|
|
|
(3,167
|
)
|
|
(0.5
|
)
|
|
Corporate support
|
|
(113,436
|
)
|
|
(105,559
|
)
|
|
(7,877
|
)
|
|
(7.5
|
)
|
|
Purchase Accounting
|
|
(96,838
|
)
|
|
(103,677
|
)
|
|
6,839
|
|
|
6.6
|
|
|
|
|
401,867
|
|
|
406,072
|
|
|
(4,205
|
)
|
|
(1.0
|
)
|
The following table sets forth constant currency changes in operating income (loss) for the six months ended June 30, 2019 compared to the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Change
|
|
($ thousands)
|
|
$
|
|
%
|
|
North America Gaming and Interactive
|
|
6,671
|
|
|
5.4
|
|
|
North America Lottery
|
|
(2,487
|
)
|
|
(1.6
|
)
|
|
International
|
|
(9,058
|
)
|
|
(15.7
|
)
|
|
Italy
|
|
24,152
|
|
|
8.7
|
|
|
Operating Segments
|
|
19,278
|
|
|
3.1
|
|
|
Corporate support
|
|
(12,604
|
)
|
|
(11.9
|
)
|
|
Purchase Accounting
|
|
6,770
|
|
|
6.5
|
|
|
|
|
13,444
|
|
|
3.3
|
|
Operating margin for each of the Company's operating segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin
|
|
|
|
For the six months ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
North America Gaming and Interactive
|
|
26.1
|
%
|
|
24.7
|
%
|
|
North America Lottery
|
|
25.4
|
%
|
|
26.0
|
%
|
|
International
|
|
10.9
|
%
|
|
15.0
|
%
|
|
Italy
|
|
32.7
|
%
|
|
30.1
|
%
|
North America Gaming and Interactive
Segment operating margin increased from 24.7% for the six months ended June 30, 2018 to 26.1% for the six months ended June 30, 2019, principally due to the gain on sale of the non-premium install base in Oklahoma to a distributor, partially offset by an increase in selling, general and administrative expenses, primarily related to legal costs related to on-going litigation.
North America Lottery
Segment operating margin decreased slightly from 26.0% for the six months ended June 30, 2018 to 25.4% for the six months ended June 30, 2019, principally due to an increase in depreciation and amortization expense and a decrease in the amount of expected LMA incentives earned.
International
Segment operating margin decreased from 15.0% for the six months ended June 30, 2018 to 10.9% for the six months ended June 30, 2019, principally due to the reduction in service revenue, change in product mix and increase in cost of services, primarily due to a lottery contract settlement, partially offset by an increase in selling, general and administrative expenses, principally related to the reduction of an earn out liability settled in the prior period.
Italy
Segment operating margin increased from 30.1% for the six months ended June 30, 2018 to 32.7% for the six months ended June 30, 2019, principally due to performance from Lotto, sports betting and interactive along with a decrease in marketing and advertising expense, partially offset by machine gaming.
Non-operating expenses
Interest expense, net
Interest expense, net for the six months ended June 30, 2019 decreased by $3.2 million compared to the six months ended June 30, 2018, as detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
June 30,
|
|
Change
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
Senior Secured Notes
|
|
(172,526
|
)
|
|
(178,092
|
)
|
|
(5,566
|
)
|
|
(3.1
|
)
|
|
Term Loan Facilities
|
|
(18,955
|
)
|
|
(20,013
|
)
|
|
(1,058
|
)
|
|
(5.3
|
)
|
|
Revolving Credit Facilities
|
|
(18,107
|
)
|
|
(13,276
|
)
|
|
4,831
|
|
|
36.4
|
|
|
Other
|
|
(3,000
|
)
|
|
(5,137
|
)
|
|
(2,137
|
)
|
|
(41.6
|
)
|
|
Interest expense
|
|
(212,588
|
)
|
|
(216,518
|
)
|
|
(3,930
|
)
|
|
(1.8
|
)
|
|
Interest income
|
|
5,659
|
|
|
6,350
|
|
|
691
|
|
|
10.9
|
|
|
Interest expense, net
|
|
(206,929
|
)
|
|
(210,168
|
)
|
|
(3,239
|
)
|
|
(1.5
|
)
|
Foreign exchange gain, net
The Company recorded foreign exchange gains, net of $17.5 million and $75.9 million, respectively, in the six months ended June 30, 2019 and 2018, respectively, principally due to non-cash foreign exchange gains on euro denominated debt.
Other income (expense), net
The components of other income (expense), net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
June 30,
|
|
Change
|
|
($ thousands)
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
Gain on sale of investments
|
|
33,882
|
|
|
—
|
|
|
33,882
|
|
|
-
|
|
|
Debt related transactions
|
|
(9,616
|
)
|
|
(28,648
|
)
|
|
19,032
|
|
|
(66.4
|
)
|
|
Other
|
|
(1,271
|
)
|
|
325
|
|
|
(1,596
|
)
|
|
> (200.0)
|
|
|
|
|
22,995
|
|
|
(28,323
|
)
|
|
51,318
|
|
|
(181.2
|
)
|
Gain on sale of investments
In May 2019, the Company sold its ownership interest in Yeonama resulting in a pre-tax gain of €26.1 million ($29.1 million).
Debt related transactions
In June 2019, the Company redeemed its €437.6 million 4.125% Notes for total consideration, excluding interest, of €445.1 million ($506.0 million) and recorded a $9.6 million loss on extinguishment of debt in connection with the purchase.
In June 2018, the Company offered to purchase up to €500 million of its €700 million 4.125% Notes and its €500 million 4.750% Notes. The Company purchased €262.4 million ($303.6 million) of its €700 million 4.125% Notes and €112.1 million ($129.7 million) of its €500 million 4.750% Notes for total consideration, excluding interest, of €395.5 million ($457.5 million) and recorded a $29.6 million loss on extinguishment of debt in connection with the purchase.
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
June 30,
|
|
($ thousands, except percentages)
|
|
2019
|
|
2018
|
|
Provision for income taxes
|
|
115,992
|
|
|
112,737
|
|
|
Income before provision for income taxes
|
|
235,474
|
|
|
243,432
|
|
|
Effective income tax rate (determined using an estimated annual effective tax rate)
|
|
49.3
|
%
|
|
46.3
|
%
|
Liquidity and Capital Resources
The Company's business is capital intensive, and requires liquidity in order to meet its obligations and fund growth. Historically, the Company's primary sources of liquidity have been cash flows from operations and, to a lesser extent, cash proceeds from financing activities, including amounts available under the Revolving Credit Facilities due 2021(1). In addition to general working capital and operational needs, the Company's liquidity requirements arise primarily from its need to meet debt service requirements and to fund capital expenditures. The Company also requires liquidity to fund any acquisitions and associated costs. The Company's cash flows generated from operating activities together with cash flows generated from financing activities have historically been sufficient to meet the Company's liquidity requirements.
The Company believes its ability to generate cash from operations to reinvest in its business, primarily due to the long-term nature of its contracts, is one of its fundamental financial strengths. Combined with funds currently available and committed borrowing capacity, the Company expects to have sufficient liquidity to meet its financial obligations and working capital requirements in the ordinary course of business for at least the next 12 months.
The cash management, funding of operations and investment of excess liquidity are centrally coordinated by a dedicated treasury team with the objective of ensuring effective and efficient management of funds.
The Company's total available liquidity was as follows:
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Revolving Credit Facilities due 2021(1)
|
|
1,944,050
|
|
|
1,601,968
|
|
|
Cash and cash equivalents
|
|
400,928
|
|
|
250,669
|
|
|
Total Liquidity
|
|
2,344,978
|
|
|
1,852,637
|
|
(1) The Company amended its Revolving Credit Facilities due 2021 on July 24, 2019 which extended the maturity date to July 2024 and reduced the amounts available under the revolving facilities from $1.20 billion and €725 million to $1.05 billion and €625 million, respectively.
The Revolving Credit Facilities due 2021 are subject to customary covenants (including maintaining a minimum ratio of EBITDA to net interest costs and a maximum ratio of total net debt to EBITDA) and events of default, none of which are expected to impact the Company's near-term liquidity or capital resources. At June 30, 2019 and December 31, 2018, the borrowers under the Revolving Credit Facilities due 2021 were in compliance with all covenants. From time to time the Company and its creditors may amend these covenants, and maintaining compliance with these covenants in the future may restrict the ability of the Company to pay dividends, repurchase shares, acquire assets of other companies, or grant security interests in its assets.
The Company holds insignificant amounts of cash in countries where there may be restrictions on transfer due to regulatory or governmental bodies. Based on the Company's review of such transfer restrictions and the cash balances held in such countries, it does not believe such transfer restrictions have an adverse impact on its ability to meet liquidity requirements at the dates represented above.
The Company has two agreements with major European financial institutions to sell certain trade receivables related to the Italy segment on a non-recourse basis. These receivables have been derecognized from the Company's consolidated balance sheet. The agreements have a three- and five-year duration, respectively, and are subject to early termination by either party. The aggregate amount of outstanding receivables is limited to a maximum amount of €300 million and €180 million for Scratch & Win and Commercial Services, respectively. At June 30, 2019 and December 31, 2018, the following receivables had been sold:
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June 30, 2019
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December 31, 2018
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(in thousands)
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euro
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$
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euro
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$
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Scratch & Win
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150,483
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171,250
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128,515
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147,150
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Commercial services
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83,531
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95,058
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74,609
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85,427
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234,014
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266,308
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203,124
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232,577
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The Company also sold trade receivables (primarily in the North America Gaming and Interactive segment) and certain outstanding customer financing receivables on a non-recourse basis. At June 30, 2019 and December 31, 2018, the following receivables had been sold:
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($ thousands)
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June 30, 2019
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December 31, 2018
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Trade receivables
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25,965
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21,383
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Customer financing receivables
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1,802
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6,865
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27,767
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28,248
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Cash Flow Summary
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For the six months ended
June 30,
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($ thousands)
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2019
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2018
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Net cash provided by operating activities
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591,721
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120,150
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Net cash used in investing activities
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(163,029
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)
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(251,444
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)
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Net cash used in financing activities
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(279,688
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(329,897
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Net cash flows
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149,004
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(461,191
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)
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Analysis of Cash Flows
Net Cash Provided By Operating Activities
During the six months ended June 30, 2019, the Company generated $591.7 million of net cash flows from operating activities, an increase of $471.6 million compared to the six months ended June 30, 2018. This increase was principally due to:
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An increase of $366.3 million related to the decrease in upfront Italian license fee payments for the six months ended June 30, 2019 compared to the six months ended June 30, 2018;
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An increase of $51.3 million related to the decrease in interest paid;
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An increase of $56.9 million in the change in other current assets, principally due to the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) in the prior period;
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An increase of $23.2 million in the change in accrued expenses related to timing;
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An increase of $21.6 million related to changes in inventories; and
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A decrease of $63.1 million related to the increase in income taxes paid.
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Net Cash Used In Investing Activities
During the six months ended June 30, 2019 and 2018, net cash flows used in investing activities were $163.0 million and $251.4 million, respectively.
Investing activities for the six months ended June 30, 2019
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Capital expenditures of $231.0 million, including:
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$80.2 million in the North America Lottery segment, principally for lottery contracts, including California, Florida and New York;
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$64.8 million in the North America Gaming and Interactive segment, primarily due to the investment in new machines in the casino installed base;
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$59.5 million in the Italy segment, principally for Lotto and Machine gaming; and
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$23.1 million in the International segment, principally related to the investment in new machines in the casino installed base.
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Investing activities for the six months ended June 30, 2018
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Capital expenditures of $259.0 million, including:
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$82.7 million in the Italy segment, principally for Lotto and Machine gaming;
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$78.6 million in the North America Gaming and Interactive segment, primarily due to the investment in new machines in the casino installed base;
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$67.4 million in the North America Lottery segment, principally for lottery contracts, including South Carolina, West Virginia and New York; and
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$26.2 million in the International segment, principally related to upgrading the casino and VLT installed base to newer machines.
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Net Cash Used in Financing Activities
During the six months ended June 30, 2019 and 2018, net cash flows used in financing activities were $279.7 million and $329.9 million, respectively.
Financing activities for the six months ended June 30, 2019
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The Company made principal payments on long-term debt of $833.1 million, primarily composed of:
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Principal payments of $497.5 million on its €437.6 million 4.125% Notes in connection with the repurchase in June 2019; and
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Net payments of $335.6 million on the Revolving Credit Facilities due July 2021;
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Dividends paid and capital returned to non-controlling shareholders of $129.4 million and $70.4 million, respectively;
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Dividends paid of $81.7 million to shareholders; and
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Proceeds of $847.0 million from the issuance of €750 million 3.500% Senior Secured Notes due June 2026;
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Financing activities for the six months ended June 30, 2018
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The Company made principal payments on long-term debt of $1.059 billion, principally composed of:
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Principal payments of $625.5 million on the 6.625% Senior Secured Notes due February 2018 upon maturity; and
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Principal payments of $433.3 million on the 4.125% Notes and the 4.750% Notes in connection with the repurchases in June 2018;
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Dividends paid and capital returned to non-controlling shareholders of $125.8 million and $53.6 million, respectively;
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Dividends paid of $81.6 million to shareholders;
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The Company received proceeds of $863.9 million from long term debt, primarily related to:
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Proceeds of $577.7 million from the issuance of €500 million 3.500% Senior Secured Notes due July 2024; and
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Net proceeds of $286.2 million from the Revolving Credit Facilities due July 2021.
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Off-Balance Sheet Arrangements
At June 30, 2019, we did not have any significant changes to off-balance sheet arrangements.
Dividends
Dividends of $81.7 million were paid to shareholders during the six months ended June 30, 2019. On August 1, 2019, the Company announced a dividend payable on August 29, 2019 to holders of record as of the close of business on August 15, 2019.
Historical payment of dividends is not an indication that dividends will be paid on any future date. The Company has not yet implemented a formal policy on dividend distributions, and any future dividend payment is subject to Board approval.
Contractual Obligations
There have been no material changes to our contractual obligations disclosed under "Item 5.F. Tabular Disclosure of Contractual Obligations" to our 2018 Form 20-F, except as disclosed in Note 6, Debt, to the condensed consolidated financial statements herein.
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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There have been no material changes to the disclosure under "Part I, Item 11. Quantitative and Qualitative Disclosures about Market Risk" included in our 2018 Form 20-F.
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Item 4.
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Controls and Procedures
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There were no changes in our internal control over financial reporting during the three months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II.
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OTHER INFORMATION
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Item 1.
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Legal Proceedings
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Please see Note 8, Commitments and Contingencies—Legal Proceedings hereto.
Other than as set forth below, there have been no material new risk factors or material changes to the existing risk factors set forth in "Part I, Item 3.D. Risk Factors", to the Company's 2018 Form 20-F.
Changing enforcement of the U.S. Interstate Wire Act of 1961 (the "Wire Act") may negatively impact the Company's operations, business, financial condition, or prospects
On January 14, 2019, the U.S. Department of Justice (the “DOJ”) published an opinion reversing its previously-issued opinion that the Wire Act, which prohibits several types of wager-related communications over a “wire communications facility,” was applicable only to sports betting (the “2019 Opinion”). The 2019 Opinion interprets the Wire Act as applying to other forms of gambling that cross state lines, though the precise scope of the 2019 Opinion is unclear, and the DOJ has not yet addressed how it plans to enforce the Wire Act in light of the 2019 Opinion. The DOJ has issued a memorandum stating that it will not enforce the 2019 Opinion prior to June 14, 2019. Further, the New Hampshire Lottery Commission and certain private parties have commenced litigation in federal district court in New Hampshire challenging the 2019 Opinion. In response to this and other lawsuits, the DOJ issued a memorandum in April 2019 acknowledging that the 2019 Opinion did not consider whether the Wire Act applies to State lotteries and their vendors, and the DOJ is now considering this issue. In connection with such acknowledgment, the DOJ also extended the non-prosecution period for State lotteries and their vendors indefinitely while they consider the question. If the DOJ concludes that the Wire Act does apply to State lotteries and/or their vendors, they would extend the non-prosecution period for an additional period of 90 days after the DOJ publicly announces such position. The non-prosecution period for other gaming operations remains in place through until June 14, 2019. On June 3, 2019, the U.S. District Court for the District of New Hampshire ruled in favor of the plaintiffs and determined that the Wire Act applies only to sports betting and related activities (the “NH Decision”). The NH Decision also set aside the 2019 Opinion. On August 16, 2019, the DOJ filed a Notice of Appeal with respect to the NH Decision. It is unclear when the DOJ will conclude its consideration of whether the Wire Act applies to State lotteries and their vendors, or whether other courts would come to the same conclusions set forth in the NH Decision. The Company’s management is evaluating the NH Decision, the 2019 Opinion, and their implications to the Company, its customers, and the industries in which the Company operates. If the Wire Act is broadly interpreted to prohibit activities in which the Company and its customers are engaged, the Company could be subject to investigations, criminal and civil penalties, sanctions and/or other remedial measures and/or the Company may be required to substantially change the way it conducts its business, any of which could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.