Walter Bugno, 61, is Executive Vice President, New Business and Strategic Initiatives, and is responsible for leading business development in jurisdictions where IGT is not present, and where — while there may be a company presence — there is no defined product segment presence. Additionally, the New Business and Strategic Initiatives group, under Mr. Bugno’s leadership, is responsible for managing new in-country initiatives during the start-up phase and offering on-demand commercial support globally for key accounts with multiple product requirements. He is also responsible for managing key strategic initiatives within existing jurisdictions as needed and as determined by company leadership.Education and Professional Credentials
University of Kentucky, J. David Rosenberg College of Law, Lexington, Kentucky Juris Doctor University of Kentucky, Gatton College of Business and Economics, Lexington, Kentucky Master of Business Administration Berea College, Berea, Kentucky Bachelor of Science, Business Administration
Prior to this role, Mr. Bugno served as Chief Executive Officer, International, where he was responsible for the management and strategic development of the International region. He worked directly with the Company’s management teams to implement the Company’s vision through the ongoing delivery of value to customers, shareholders, and employees. Mr. Bugno led the Company’s lottery, gaming, and interactive businesses throughout Europe (except Italy), as well as in the Middle East, Latin America and the Caribbean, Africa, and the Asia-Pacific region. He also oversaw private manager agreement opportunities across these regions. He joined GTECH S.p.A. (formerly known as Lottomatica Group) in July 2010 as President and CEO of SPIELO International. He led the business by capitalizing on the many growth opportunities in the gaming industry, and overseeing the Company’s long-term strategic direction. In 2012, Mr. Bugno’s portfolio expanded to include the Company’s interactive business. Under his leadership, SPIELO experienced substantial growth and became a major contributor to the Company’s total earnings. From 2006 to 2009, Mr. Bugno was the CEO of Casinos for Tabcorp Holdings Limited, Australia’s premier gambling and entertainment group. During his tenure with Tabcorp, Mr. Bugno transformed the business from being product-driven to customer-driven by revitalizing the customer casino experience with new loyalty programs, products, and customer service. Some of his successes included a new 12-year exclusive casino license with the New South Wales government, expansion of gaming products, and increases in market share.
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Prior to Tabcorp, Mr. Bugno was President of Campbell Soup Company in Asia Pacific from 2002 to 2006. He was responsible for Campbell’s food products, manufacturing, and distribution. He was previously Managing Director of Lion Nathan Australia, a division of Lion, one of Australasia’s leading beverage and food companies. Mr. Bugno grew up in Australia and Italy, and has Bachelor of Commerce and Master of Commerce degrees from the University of New South Wales, Australia.
| | Age | | Position | | Fabio Celadon, 49, is Executive Vice President, Strategy and Corporate Development, and is responsible for IGT’s Strategy, Mergers and Acquisitions and Competitive Intelligence functions. Under his direction, the organization monitors industry and competitive trends in IGT’s core and adjacent markets; develops IGT’s portfolio strategy; identifies key portfolio initiatives and supports the business unit CEOs in the identification and execution of their business unit strategic initiatives; executes the Group’s M&A strategy (mergers, acquisitions, JVs and divestitures), managing deal evaluation, structuring and negotiation, and coordinating internal cross-functional teams as well as external advisors.
Mr. Celadon most recently served as Senior Vice President, Gaming Portfolio, with responsibility for monitoring relevant technological advancements and market and competitive trends; consolidating the Company’s global research and development plan and related allocation of budgets and resources; evolving the Company’s content portfolio and consolidating hardware and content roadmaps; and, monitoring product performance and results.
Mr. Celadon previously served as Managing Director, IGT Greater China and Senior Vice President, IGT International. In this role, he was responsible for managing IGT’s business and operations across lotteries, video lotteries, sports betting and interactive, and mobile gaming in Greater China. He was also responsible for the strategic development of IGT’s business in Greater China, India, and Japan.
Prior to April 2015, Mr. Celadon served as Senior Vice President of Group Strategy and Corporate Development for GTECH S.p.A., where he was responsible for developing GTECH’s overall corporate strategy, identifying and evaluating key strategic growth initiatives, and executing the corporate development strategy through mergers, acquisitions, joint ventures, and divestitures. Mr. Celadon has also held several strategy, corporate development, and finance positions since he joined Lottomatica Group, GTECH’s predecessor-company, in 2002. Mr. Celadon served as CFO of Lottomatica from 2002 to 2004. Following the acquisition of GTECH by Lottomatica, he relocated to the U.S. where he held the position of GTECH Vice President of New Market Development before being promoted to Senior Vice President of Strategic Planning in 2008.
Prior to joining Lottomatica, he was a partner with Atlantis Capital Partners, a private equity firm, and prior to that, he worked for Morgan Stanley in London in the mergers and acquisitions department. Mr. Celadon holds a Law Degree from LUISS Guido Carli University and an MBA from Columbia Business School in New York.
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| | | Dorothy Costa, 49, is Senior Vice President, People & Transformation, and has strategic oversight for the IGT People and Transformation function, including all senior strategic business partners and the total rewards, diversity & inclusion, organization transformation and global services and talent management centers of excellence.
Ms. Costa has more than 26 years of Human Resources experience, with 22 in the lottery and gaming industry. Prior to her current role, Ms. Costa was IGT’s Vice President of People & Transformation, where she had worldwide responsibility as the Human Resources Business Partner supporting the North America business unit that includes both gaming and lottery within IGT. She also served as Senior Director of Human Resources for the Products & Services organization, which consisted of product marketing and technology solutions for lottery, gaming, interactive, and betting, as well as HR Business Partner for all corporate functions within the Company. Her areas of responsibility within these groups included staffing, compensation, employee relations, talent development, succession planning, and executive coaching. Early in her career, she worked for Citizens Financial Group in various HR roles in Rhode Island.
Ms. Costa holds a Bachelor of Science degree in Business Management from Rhode Island College, and an MBA in Organizational Leadership from Johnson & Wales University in Providence, RI. She also completed the Advanced Human Resource Executive Program at the University of Michigan, Michigan Ross School of Business Executive Education.
| | Scott Gunn, 54, is Senior Vice President, Corporate Public Affairs, and is responsible for the Company’s public affairs related to government relations strategy, and is instrumental in directing and facilitating government relationships and public engagement to advance global business interests for the Company. Mr. Gunn has been with the Company for more than 25 years, and has held positions in operations, sales, business development, and public affairs. Prior to his current role, he was Senior Vice President of Global Government Relations and North America Lottery Business Development, overseeing worldwide government relations strategy and managing the Company’s global network of government relations resources, as well as pursuing public sector market opportunities for the Company’s various lines of business in North America.
Mr. Gunn began his career at a public affairs firm in Washington, D.C. He was also an Associate at National Media Inc., where he worked on media strategy for state and federal political campaigns. He has held various positions within national and state political party organizations, and has been involved with several U.S. presidential campaigns. Mr. Gunn serves on the Board of Advisors to Reviver Auto, is chairperson of the Company’s Political Action Committee, and is a member of the Company’s Executive Diversity and Inclusion Council. He has a bachelor’s degree in Political Economics from Tulane University.
| | Wendy Montgomery, 58, is Senior Vice President, Global Brand, Marketing and Communications, and oversees the strategy for the Company’s global brand, trade shows, product marketing, and external communications, including community relations, responsible gaming, and corporate social responsibility. Prior to joining the Company in 2018 as Senior Vice President of Global Lottery Marketing, Ms. Montgomery spent 13 years at the Ontario Lottery and Gaming Corporation where she led marketing, sales, operations, policy and planning, and the iGaming business. Her previous experience spans multiple industries, including in the entertainment business in her role as Vice President and General Manager, W Network, under Corus Entertainment, Inc., and before that, in the telecommunications field as Vice President of Marketing with Star Choice Communications, Inc. She has also held leadership roles in apparel, consumer products, and food categories, and has previously lived and worked in South Africa, Israel, Eastern Europe, Canada, and the United States.
Ms. Montgomery is a graduate of the Executive Leadership Program at Queen’s University in Kingston, Canada. She holds a diploma in Marketing Management from the Institute of Marketing Management in Johannesburg, South Africa, as well as a Higher National Diploma in Business Studies from Greenwich University in London, U.K.
| | Timothy M. Rishton | | , 55, is 58 | | Senior Vice President, Chief Accounting Officer, and is responsible for overseeing Accounting and Tax, including developing and maintaining systems and internal controls over financial reporting; and the preparation of the Company's consolidated annual reporting in accordance with generally accepted accounting principles. Mr. Rishton served as the Company’s Interim Chief Financial Officer from January 2020 through April 2020.
Prior to the formation of the Company, Mr. Rishton served as the Chief Accounting Officer for GTECH S.p.A. Mr. Rishton has been with the Company (and predecessor GTECH) since 1995, and over his 25 years with the Company, he has held a series of roles with increasing responsibility, including Vice President - Finance Assistant Corporate Controller and Director of Accounting.
Before joining the Company, Mr. Rishton held various roles at Acushnet Company and Ernst & Young, where he provided assurance services to publicly listed and private company clients in a variety of industries. Mr. Rishton is a member of The American Institute of Certified Public Accountants and the Rhode Island Society of CPA’s.
Mr. Rishton received his bachelor’s degree in Accounting from the University of Rhode Island.
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61Professional Experience
•Previously served as Senior Vice President, Chief Accounting Officer where he oversaw Accounting and Tax, including developing and maintaining systems and internal controls over financial reporting, and the preparation of Contentsthe Company’s consolidated annual reporting in accordance with generally accepted accounting principles. •Served as the Company’s interim Chief Financial Officer from January 2020 through April 2020. | | | Christopher Spears•Member of the American Institute of Certified Public Accountants and the Rhode Island Society of CPA’s., 53, is Senior Vice President, General Counsel, and is responsible for leading IGT’s global legal strategy and function. In this role he is responsible for managing IGT’s internal legal team and outside legal advisors, providing counsel to IGT’s board of directors and executive leadership team and managing IGT’s legal issues across a wide range of global subject matter areas including corporate governance, compliance, litigation, mergers and acquisitions, intellectual property, licensing and commercial and operational issues.
Mr. Spears has over 25 years of legal experience with a focus on supporting the broad legal needs of global businesses, including corporate governance, securities, capital markets, mergers and acquisitions, compliance, intellectual property and litigation. Prior to joining IGT in 2017, Mr. Spears served in a series of roles of increasing responsibility at Caterpillar Inc., including as Deputy General Counsel with responsibility for global commercial law matters, corporate governance and mergers and acquisitions, Chief Ethics and Compliance Officer with responsibility for global compliance and General Counsel – Asia-Pacific based in Singapore. Before joining Caterpillar Inc., Mr. Spears was in private practice with a focus on mergers and acquisitions, securities and corporate law.
Mr. Spears holds a Bachelor of Science degree in Business Administration from Berea College and MBA and Juris Doctorate degrees from the University of Kentucky.
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–35 total years of professional experience.
–On December 14, 2023, the Company announced that Mr. Rishton would retire at the end of 2024 and that David Morgan would assume the role of Senior Vice President, Chief Accounting Office effective on January 1, 2024. During 2024, Mr. Rishton will support this leadership transition.
Education and Professional Credentials University of Rhode Island, Kingston, Rhode Island Bachelor of Science, Accounting
Senior Consultant
| | | | | | | | | | | | | | | | Name | | Age | | Position | Robert Vincent | | , 66, 70 | | is Chairperson of IGT Global Solutions Corporation the primary operating subsidiary for the U.S. lottery business, and represents the Company when interacting with global customers, current and potential partners, and government officials. He also serves as a senior counselor to Chief Executive Officer Marco Sala and the rest of the Company's senior leadership team.
Previously, Mr. Vincent served as the Company's Executive Vice President for Administrative Services and External Relations. He oversaw global external and internal corporate communications, media relations, branding, and social responsibility programs. He also led a centralized Administrative Services organization that included information security, global procurement, real estate/facilities, food services, environmental health and safety, and facility security and monitoring. In addition, he was involved in selected business development projects, and supported activities in compliance, investor relations, marketing communications, and government relations. Prior to that, he served as the Company's Senior Vice President of Human Resources and Public Affairs.
Before April 2015, Mr. Vincent had been affiliated with GTECH S.p.A. for more than 20 years, having served as an external consultant; as Vice President of Business Development for Dreamport, GTECH’s former gaming and entertainment subsidiary; and as Senior Vice President of Human Resources and Public Affairs for GTECH S.p.A.
Before joining the Company, he was a senior partner at RDW Group, a regional advertising and public relations company in Rhode Island. He also held senior policy and administrative positions with Rhode Island-based governments, including the Governor’s Office, Secretary of State’s Office, and the Providence Mayor’s Office. In addition, he has staffed community and government affairs efforts at Brown University in Providence.
Active in the community, Mr. Vincent serves on the Boards of the University of Rhode Island Foundation, Rhode Island Hospital Foundation, Family Service of Rhode Island, and the URI Harrington School of Communication.
Mr. Vincent received his bachelor’s degree in Political Science from the University of Rhode Island.(1)
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Professional Experience –Notable Roles •Assumed honorary role in 2019 as: Chairperson for the primary operating subsidiary of the U.S. lottery business and represents the Company when interacting with global customers, current and potential partners, and government officials; and senior counselor to the Chief Executive Officer and the Company’s senior leadership team. •Previously served as the Company’s Executive Vice President for Administrative Services and External Relations, overseeing global external and internal corporate communications, media relations, branding, social responsibility programs, information security, global procurement, real estate/facilities, food services, environmental health and safety and facility security and monitoring. •Serves on the Boards of the University of Rhode Island Foundation, Rhode Island Hospital Foundation, Family Services of Rhode Island, the University of Rhode Island Foundation 2004-2023, the Greater Providence Chamber of Commerce, the Providence Performing Arts Center, and the University of Rhode Island Harrington School of Communication.
There–48 total years of professional experience.
Education and Professional Credentials University of Rhode Island, Kingston, Rhode Island Bachelor of Arts, Political Science
Except for the relationship between Marco Drago, Enrico Drago, and Lorenzo Pellicioli described above, there are no familial relationships among any of the Parent’s directors, senior managers, or the senior consultant set forth above.consultant.
Separation & Divestiture
In connection with the Separation & Divestiture, Marco Sala will continue to serve as Executive Chair of the Board. Vincent Sadusky will continue to serve as Chief Executive Officer until the Closing, and the Board will conduct a search for the Parent’s next Chief Executive Officer. Massimiliano Chiara will continue in his role as Chief Financial Officer of the Parent, and the Parent’s remaining executive leadership will remain unchanged with the exception that Renato Ascoli will serve as Chief Executive Officer of the Parent’s Global Lottery business.
After Closing, the Parent’s Chief Executive Officer, Vincent Sadusky, will serve as Chief Executive Officer of the Combined Company, with Fabio Celadon, the Parent’s Executive Vice President, Strategy and Corporate Development, assuming the role of Chief Financial Officer of the Combined Company. The Parent will appoint Vincent Sadusky, James McCann and one other to the Board of Directors of the Combined Company while De Agostini will appoint Marco Sala, Enrico Drago and a third individual to be named later. The balance of the directors of the Combined Company will be appointed by Everi.
B. Compensation Non-Executive Director Compensation The Parent’s compensation policy for non-executive directors is to provide an annual cash retainer payable in quarterly tranches as well as equity awards typically in the form of a restricted stockshare unit (“RSU”) award vesting on an annual basis.basis, or such other form of equity awards under the Company’s 2021 Equity Incentive Plan (the “Equity Incentive Plan”). Additional cash retainers are provided for the non-executive directors serving as Chairpersons of the Board, and/or the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee as well as the Lead Independent Director. Awards to non-executive directors under the Long-Term Incentive (“LTI”) Compensation Plan (“LTIP”) vest over the service period of the award.
LTIP - Annual Equity Awards for Continuing Non-Executive Directors
On the date ofAn RSU award is normally granted to each annual meeting of the Parent’s shareholders (“AGM”) eachexisting non-executive director continuingannually, and to serve after that date will automatically be granted an awarda new non-executive director at the time of RSUs which vest on the AGM date of the next financial year. appointment.
The number of RSUs covered by each such award will beis generally determined by dividing (1) the Annual Equity Award grant valueGrant Value (see table below in the “Annual Compensation” section) by (2) the closing price of an ordinary share as of the date of grant, (rounded downprorated accordingly in respect of grants made to new non-executive directors. Awarded RSUs normally vest at the next annual general meeting (“AGM”) of the Parent after grant date, subject to continued service of the non-executive director as a director of the Parent. Where a non-executive director resigns from their directorship prior to the nearest whole unit).
LTIP - Initial Equity Awards for New Non-Executive Directors
Each newservice, and any outstanding RSUs held by the non-executive director will be granted an award of RSUs determined by dividing (1) a pro-rata portion of the Annual Equity Award value by (2) the closing share pricebecome fully vested as of the date of grant. The pro-rata portiontheir termination of the Annual Equity Award valueservice. Further, any outstanding RSUs held by a non-executive director will equal the Annual Equity Award value multiplied by the fraction which results from the following formula:
X - Y
X
where:
•X is the number of daysautomatically vest in full in the period beginning with (and including) the dateevent of the AGM immediately preceding the appointment date (the Previous AGM) and ending on (and including) the date of the AGM immediately after the appointment date (the Next AGM); and
•Y is the number of days in the period beginning with (and including) the date of the Previous AGM and ending on (and including) the appointment date.
Initial equity awards granted to non-executive directors will vest on the date of the AGM that first occurs after the grant date.their death or disability.
Annual Compensation | | Position | | Fees ($)(1) | | RSUs ($)(2) | | ($ in thousands) | | ($ in thousands) | | Fees ($)(1) | | RSUs ($)(2) | | Non-executive Director | Non-executive Director | | 100,000 | | | 200,000 | | | Chairperson additional compensation | | 50,000 | | | 50,000 | | Chairperson additional compensation(3) | | | Lead Independent Director additional compensation | Lead Independent Director additional compensation | | 20,000 | | | 20,000 | | | Committee Chairpersons additional compensation: | Committee Chairpersons additional compensation: | | | Audit Committee | Audit Committee | | 40,000 | | | — | | | Audit Committee | | | Audit Committee | | | Compensation Committee | Compensation Committee | | 30,000 | | | — | | | Nominating and Corporate Governance Committee | Nominating and Corporate Governance Committee | | 20,000 | | | — | |
(1) All fees are established in USD but paid quarterly in GBP, with the amount paid converted from USD to GBP based on the exchange rate in effect on the date of processing the payment. (2) The number of RSUs granted is calculated by dividing the grant value listed in this column by the closing price of an ordinary share price as of the date of grant.
20202023 Plan Year Actual Compensation
The following table sets forth the approximate compensation received or earned, calculated in accordance with the Companies ActCA 2006 and relevant regulations, as applicable, by the Company’s non-executive directors during the year ended December 31, 2020.2023. Amounts are presented in $ thousands. | | | | | | | | | | | | | | | | | | | | | | | | | | | Name & Position(s)(1) | | Fees ($) | | Taxable Benefits ($)(2) | | RSUs ($)(3) | | Total | Lorenzo Pellicioli Non-executive Director Chairperson of the Board | | 150,000 | | | — | | | 345,662 | | | 495,662 | | James F. McCann Non-executive Director Vice-Chairperson of the Board Lead Independent Director Chairperson of the Nominating and Corporate Governance Committee | | 140,000 | | | 20,478 | | | 304,180 | | | 464,658 | | Paget L. Alves(4) Non-executive Director | | 48,974 | | | 9,441 | | | — | | | 58,415 | | Beatrice H. Bassey(5) Non-executive Director | | 78,077 | | | — | | | 330,552 | | | 408,629 | | Alberto Dessy(6) Non-executive Director | | 109,377 | | | — | | | 276,537 | | | 385,914 | | Marco Drago Non-executive Director | | 100,000 | | | — | | | 276,537 | | | 376,537 | | Heather J. McGregor Non-executive Director | | 100,000 | | | — | | | 276,537 | | | 376,537 | | Dr. Samantha Ravich Non-executive Director | | 100,000 | | | — | | | 276,537 | | | 376,537 | | Vincent L. Sadusky Non-executive Director Chairperson of the Audit Committee | | 140,000 | | | 6,720 | | | 276,537 | | | 423,257 | | Gianmario Tondato da Ruos Non-executive Director Chairperson of the Compensation Committee | | 130,000 | | | — | | | 276,537 | | | 406,537 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Name & Position(s) | | Fees ($) | | Taxable Benefits | | RSUs ($)(1) | | Total | James F. McCann Non-executive Director Vice-Chairperson of the Board Lead Independent Director Chairperson of the Nominating and Corporate Governance Committee | | 140 | | | 15 | | | 228 | | | 383 | | Alberto Dessy(2) Non-executive Director | | 124 | | | — | | | 208 | | | 332 | | Marco Drago Non-executive Director | | 100 | | | — | | | 208 | | | 308 | | Ashley M. Hunter Non-executive Director | | 100 | | | — | | | 208 | | | 308 | | Heather J. McGregor Non-executive Director | | 100 | | | — | | | 208 | | | 308 | | Lorenzo Pellicioli Non-executive Director | | 100 | | | — | | | 208 | | | 308 | | Maria Pinelli Non-executive Director Chairperson of the Audit Committee | | 140 | | | 15 | | | 208 | | | 363 | | Dr. Samantha Ravich Non-executive Director | | 100 | | | — | | | 208 | | | 308 | | Gianmario Tondato da Ruos Non-executive Director Chairperson of the Compensation Committee | | 130 | | | — | | | 208 | | | 338 | |
(1) Marco Sala, the Company’s Chief Executive Officer, and Massimiliano (Max) Chiara, the Company’s Chief Financial Officer, also serve on the board of directors, but do not receive any additional compensation for such service. Please see the Executive Officer Compensation section below for information regarding Mr. Sala and Mr. Chiara’s compensation. (2) Relates to reimbursable meal and travel expenses for attending Board of Director meetings in the U.K.
(3) Amount reflects the number of RSUs granted at the 2020 AGMon May 9, 2023, multiplied by $12.14,$28.00, the three-month ending stockshare price as of December 31, 2020.2023. The RSUs are scheduled to vest on the date of the 20212024 AGM. Ms. Bassey’s RSU also includes a pro-rated award for her services from March 20, 2020 to June 25, 2020, the amount of which is equal to the number of shares granted times the stock price on the vesting date, $8.78.
(4) Mr. Alves did not stand for re-election at the 2020 AGM and his term ended on June 25, 2020. Mr. Alves received a prorated amount of compensation for his services during the year.
(5) Ms. Bassey was appointed to the board of directors on March 20, 2020 and received a prorated amount of compensation for her services during the year.
(6)(2) Includes a 4% stipend related to Italian regulatory requirements.
Executive Officer Compensation Total Executive Officer Compensation
The following table sets forth the approximate 20202023 compensation received or earned, calculated in accordance with the Companies ActCA 2006 and relevant regulations, as applicable, by the Company’s executive officers as of December 31, 2020,2023, including Marco Sala, CEO;Executive Chair of the Board; Vincent Sadusky, CEO and Executive Director of the Board; Renato Ascoli, CEO, Global Gaming; Walter Bugno, Executive Vice President of New Business and Strategic Initiatives; Fabio Cairoli, CEO Global Lottery; Fabio Celadon, Executive Vice President of Strategy and Corporate Development; Massimiliano (Max) Chiara, Executive Vice President, CFO and CFO;Executive Director of the Board; Dorothy Costa, Senior Vice President, People & Transformation; Enrico Drago, CEO, PlayDigital; Scott Gunn, Senior Vice President of Corporate Public Affairs; Wendy Montgomery, Senior Vice President, Global Brand, Marketing, Communications and Communications;Sustainability; Timothy Rishton, Senior Vice President and Chief Accounting Officer; and Christopher Spears, SeniorExecutive Vice President and General Counsel. Also included is compensation paid to Alberto Fornaro, former Executive Vice President and CFO who resigned from the Company effective January 31, 2020; Mario Di Loreto, who served as Executive Vice President of People & Transformation until April 6, 2020 and as Senior Advisor to IGT Group CEO effective April 6, 2020 until his resignation on December 31, 2020; Timothy Rishton, Senior Vice President and Chief Accounting Officer, who served as interim CFO upon
Mr. Fornaro’s departure on January 31, 2020 until Mr. Chiara joined the Company on April 6, 2020; and Robert Vincent, Chairperson of IGT Global Solutions Corporation who provides consulting services to the Company, the fees for which are included as “Other” compensation in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Salary ($)(1) | | 2020 Bonus ($)(2) | | Equity Awards ($)(3) | | Other ($)(4)(5) | | Total
($) | Marco Sala,
Chief Executive Officer | | 979,998 | | — | | 3,368,947 | | 1,476,872 | | 5,825,817 | Max Chiara,
Chief Financial Officer | | 453,846 | | — | | 1,054,735 | | 795,465 | | 2,304,046 | Other Executive Officers &
Senior Consultant | | 3,974,608 | | — | | 5,067,127 | | 9,240,737 | | 18,282,472 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ($ in thousands) | | Salary | | 2023 Bonus(3) | | Equity Awards(4)(5) | | Other(6) | | Total | Marco Sala, Executive Chair(1) | | 1,006 | | 1,965 | | 15,158 | | 1,715 | | 19,844 | Vincent Sadusky, Chief Executive Officer(2) | | 1,681 | | 2,505 | | 3,480 | | 314 | | 7,980 | Massimiliano Chiara,
Chief Financial Officer | | 800 | | 1,243 | | 5,098 | | 649 | | 7,790 | Other Executive Officers &
Senior Consultant | | 3,847 | | 4,979 | | 9,403 | | 5,383 | | 23,612 |
(1)Effective March 1, 2023, Mr. Sala’s annual salary is $1,000,000as Executive Chair of the Board was increased 20% to $900,000 paid monthly, of which 70% is paid in GBP and 30% in EUR, both of which are converted using fiscal year-to-date exchange rates. In addition to base salary, the amount includes true-up payments related to foreign currency fluctuations and tax equalization, per his employment contract. Mr. Sala’s 2020 salary also reflects a 50% reduction from the April 2020 to September 2020 period. Mr. Chiara’s annual salary is $800,000 paid bi-weekly. He joined the Company in April 2020, therefore his salary reflects a prorated annual amount as well as a 30% reduction for the April 2020 to September 2020 period.
(2)The short-term incentive plan (STIP) was cancelled for In addition to base salary, the 2020 fiscal year.amount includes true-up payments related to tax equalization. (3) AmountRepresents the short-term incentive compensation earned for the 2023 fiscal year, expected to be paid in March 2024. In addition to the annual bonus, Mr. Sala’s amount includes an estimated true-up payment related to foreign currency fluctuations and tax equalization, per his employment contract. (4) Mr. Sala’s, Mr. Sadusky’s, and Mr. Chiara’s equity awards compensation represents 145% achievement of the 2021-2023 performance conditions for performance share units (“PSUs”) granted in 2021 and 2022, which will vest 50% in 2024 and 2025, respectively, based on their continued service. Other executive officers’ equity awards compensation represents a weighted-average 95% achievement of the 2021-2023 performance conditions for PSUs granted in 2021, which will vest 50% in 2024 and 2025, respectively, based on their continued service. The amount of compensation reflects the total number of RSUs granted in 2020shares expected to vest multiplied by $12.14, theIGT’s three-month ending stockaverage closing share price as of December 31, 2020. The performance-based2023, which was $28.00. (5) Mr. Sala’s equity awards compensation also includes 100% achievement of the Co-investment Plan performance conditions for certain PSUs subject to the 2018 to 2020 performance period did not meet threshold achievement and therefore no sharesstock options granted in 2021, which will vest with respect100% upon shareholders’ approval of the Company’s 2023 financial statements at the 2024 AGM. The amount of compensation reflects the total number of shares expected to such performance-based PSUs.vest multiplied by IGT’s three-month average closing share price as of December 31, 2023, which was $28.00. Equity compensation for stock options also considers a grant date strike price of $20.37. (4)(6) Represents the value of certain health, welfare, and other benefits received by the executive officers during 20202023 (including tax preparation, employer contributions to post-retirement plans, relocation benefits, and taxable life insurance premiums paid). Also includespaid, car allowances, housing allowances, private air travel, and perquisites.) Mr. Sala’s other compensation also includes tax equalization of $228,363 related to benefits received in 2020.2023. Mr. Chiara’s other compensation also includes $500,000, the firstfourth installment of a $2.0 million bonus to be paid in four equal installments, provided to compensate Mr. Chiara for his forfeited compensation at his previous employer. The amount in Other Executive Officers & Senior Consultant also includes severance and benefits payments to Mr. Di Loreto pursuant to his separation agreement and consulting fees paid to Mr. Vincent.
(5) Mr. Sala’s 2020 compensation includes a $766,717 pension contribution related to his 2019 STIP. In future periods, the Company will report any accrued pension contribution as part of compensation for the period in which it is accrued, rather than paid.
Key
Short-Term Incentive Compensation Decisions RelatedPlans The Company's 2023 short-term incentive (“STI”) compensation plans are performance-based and designed to COVID-19encourage achievement of both short-term financial results and longer-term strategic objectives. The STI plans recognize growth achievement with an opportunity to earn an incentive on the upside, as well as limit the downside potential. Payments under the STI plans were based on the Company's 2023 financial performance and individual Management by Objectives (“MBOs”). The Company's executive officers participated in the same STI plans as other employees during 2023.
As a resultExecutive Officers STI
For purposes of the global onsetSTI plans, financial performance was measured based on Consolidated Adjusted EBITDA (“AEBITDA”), Consolidated Adjusted Operating Income ("AOI"), excluding Purchase Price Accounting, and Adjusted Consolidated Net Debt. Executive officers focused on a specific business unit will have other targeted metrics, such as a Business Unit AOI or Business Unit AEBITDA metric, in lieu of the coronavirus (COVID-19),Consolidated AOI metrics. STI targets as a percentage of base salary are 100% for the CEO, 150% for the Executive Chair, and between 70% and 100% for the Company's other executive officers. STI payouts could be adjusted to account for unusually negative or positive financial results due to events outside of the control of the
Company's executive officers. All STI objectives had a mix of financial and individual metrics, which is presented in the table below. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level | | Financial Performance | | Individual MBO | | Financial Metric Mix | | Corporate | | 80% | | 20% | | 25% Consolidated AEBITDA | | 25% Consolidated AOI | | 30% Net Debt | | N/A | | Global Gaming | | 80% | | 20% | | 20% Consolidated AEBITDA | | 30% Gaming AEBITDA | | 10% Net Debt | | 20% Gaming Gross Margin | | Global Lottery | | 80% | | 20% | | 20% Consolidated AEBITDA | | 50% Lottery AOI | | 10% Net Debt | | N/A | | PlayDigital | | 80% | | 20% | | N/A | | 40% PlayDigital AEBITDA | | N/A | | 40% PlayDigital Revenue Growth |
All financial objectives were established by the Compensation Committee approved six-month salary reductions, effective April 1, 2020 through September 30, 2020, of 50% for Mr. Sala and 30% for Mr. Chiara. Other executives received salary reductions ranging from 20% to 50%the Board for the same six-month period. These salary reductions further impacted certain global leadership roles on a declining percentage scaleExecutive Chair of the Board and the CEO, and by the Board for the same six-month period. In addition,other executive officers, upon recommendation of the Compensation Committee cancelled the 2020 Short-Term Incentive Plan (STIP) for all eligible employees, including the executive officers.Committee.
Historically, IGT has awarded equity in the form of Performance Share Units (PSUs), which vest based on achievement against predetermined company financial performance targets. This practice, however, proved challenging in 2020 amid the COVID-19 pandemic. Establishing forward-looking performance metrics during this continued time of uncertainty led the Committee to consider alternatives for this year’s process. The Compensation Committee altered historical practice of granting PSUs and approved a one-time restricted stock unit (RSU) award, as permitted under IGT’s 2015 Equity Incentive Plan, deeming this a more appropriate way to recognize the global eligible employee population, including executive officers, for their extraordinary efforts to ensure IGT's success during this unprecedented year.
Long-Term Incentive Compensation Plans
The Company’s 2015 Equity Incentive Planlong-term incentive (“LTI”) compensation plan provides for several different types of stock-based awards including stock options, restricted stock and RSUs, both time and performance-based. No stock options were granted under the LTI plan in 2023.
The principal purposes of granting LTI awards are to assist the Company in attracting and retaining executive officers, to provide a market-competitive total compensation package, and to motivate recipients to increase shareholder value by enabling them to participate in the value created, thus aligning their interests with those of the Company’s shareholders.
Grants of LTIPSUs
PSUs were granted in 2023 that will vest 50% in 2026 and 2027, respectively, based on cumulative performance over the 2023-2025 period and continued service through the applicable vesting date. The awards provide for full vesting in the event of the participant’s death, and pro rata vesting in the event of disability.
The vesting of the PSUs granted in 2023 is tied to the following performance metrics: –Cumulative Consolidated Adjusted Free Cash Flow; –Cumulative Consolidated AEBITDA, Cumulative Global Lottery AEBITDA less Capital Expenditures, or Cumulative Global Gaming AEBITDA less Capital Expenditures, depending on the employee’s respective business unit; and –Relative Total Shareholder Return (“TSR”) performance against the Russell 3000 Mid Cap Market Index.
AEBITDA and TSR were selected as performance measures to provide a strong focus on profit and alignment to shareholder returns, respectively. Adjusted Free Cash Flow is designed to focus on deleveraging and reducing the Net Debt. AEBITDA and Adjusted Free Cash Flow performance are independently scored using separate payout curves; the outcomes of which could result in vested shares that are greater than, equal to, or less than the original amount of total target shares. The performance factor is the product of the individual AEBITDA and Adjusted Free Cash Flow payout curves, multiplied by the relative TSR performance factor.
Actual vesting under the award can range from 0% to 145% of target if all maximum performance targets are met. Financial objectives were established by the Compensation Committee and reviewed by the Board, consistent with the authorization provided by the Company’s shareholders.
The table below sets forth the time-based RSUsPSUs granted pursuant to the Company’s compensation plans to its executive officers during 2020, which will vest 50% on December 31, 2021 and the remaining 50% will vest on December 31, 2022, based on continued service through the applicable vesting dates.2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | No. of
Shares | | Grant Date Fair Value | | Vesting
Period | | Grant
Date | | Per Share Market Price on Date of Grant | | Marco Sala, Chief Executive Officer | | 277,508 | | | $ | 9.08 | | | 2020-2022 | | November 6, 2020 | | $ | 9.08 | | | Max Chiara, Chief Financial Officer | | 86,881 | | | $ | 9.08 | | | 2020-2022 | | November 6, 2020 | | $ | 9.08 | | | Other Executive Officers | | 417,391 | | | $ | 9.08 | | | 2020-2022 | | November 6, 2020 | | $ | 9.08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | No. of Target Shares | | Grant Date Fair Value | | Vesting
Period | | Grant
Date | | Per Share Market Price on Date of Grant | | Marco Sala, Executive Chair | | 73,260 | | | $ | 28.36 | | | 2023-2027 | | 05/05/23 | | $ | 27.49 | | | | | | | | | | | | | | Vincent Sadusky, Chief Executive Officer | | 164,835 | | | $ | 28.36 | | | 2023-2027 | | 05/05/23 | | $ | 27.49 | | | Massimiliano Chiara, Chief Financial Officer | | 73,260 | | | $ | 28.36 | | | 2023-2027 | | 05/05/23 | | $ | 27.49 | | | | | | | | | | | | | | Other executive officers | | 174,910 | | | $ | 28.36 | | | 2023-2027 | | 05/05/23 | | $ | 27.49 | | | 18,498 | | $ | 33.30 | | | 2023-2027 | | 07/27/23 | | $ | 33.30 | |
No performance-basedVesting of RSUs and PSUs or stock options were granted in 2020.
Performance against 2018 to 2020 performance conditions for the PSUs vesting (2018 PSUs)
The equity awards amounttable below sets forth the PSUs that vested pursuant to the Company’s compensation plans for its executive officers during 2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Grant
Date | | Vest Date | | No. of
Shares | | Per Share Market Price on Vest Date | | Marco Sala, Executive Chair | | May 18, 2021 | | May 1, 2023 | | 102,201 | | | $ | 28.66 | | | | | | | | | | | | | | | | | | | | | Massimiliano Chiara, Chief Financial Officer | | May 18, 2021 | | May 1, 2023 | | 60,693 | | | $ | 28.66 | | | | | | | | | | | | Other executive officers | | May 18, 2021 | | May 1, 2023 | | 135,371 | | | $ | 28.66 | | | | | | | | | | |
PSU Performance Results
A portion of the compensation included in the 2020 officerequity awards section of the executive compensation table reflects the PSUs granted in 2018,2021 where the vesting of whichmeasurement period for the performance conditions was completed in 2023. Vesting was dependent on cumulative performance over the three financial years endingended on December 31, 20202023 and continued service until April 1, 2021May 2024 for 50% of the PSUs earned and April 1, 2022May 2025 for the remaining 50% of PSUs earned.
| | | | | | | | | | | | | | | | | Weighting | | | | | Performance % of Target | Payout % | | Corporate | | | | | | | | | Adjusted Free Cash Flow | 75% | | | | | 134% | 116% | | Consolidated AEBITDA | 25% | | | | | 110% | 116% | | Relative TSR Modifier | | | | | | 154% | 125% | Corporate performance results (% of target)(1) | 145% | Corporate total units earned (% of maximum)(2) | 100% | | Global Lottery | | | | | | | | | Adjusted Free Cash Flow | 35% | | | | | 134% | 116% | | Global Lottery AEBITDA less Capital Expenditures | 65% | | | | | 120% | 116% | | Relative TSR Modifier | | | | | | 154% | 125% | Global Lottery performance results (% of target)(1) | 145% | Global Lottery total units earned (% of maximum)(2) | 100% | Global Gaming (3) | | | | | | | | | Adjusted Free Cash Flow | 35% | | | | | 134% | 116% | | Global Gaming AEBITDA less Capital Expenditures | 65% | | | | | 75% | —% | | Relative TSR Modifier | | | | | | 154% | 125% | Global Gaming performance results (% of target)(1) | 51% | Global Gaming total units earned (% of maximum)(2) | 35% |
The vesting of the 2018 PSUs were tied to first achieving a three-year Cumulative Consolidated Adjusted EBITDA of at least 92.5% adjusted by an Adjusted Net Debt scoring factor measured on the Adjusted EBITDA/Adjusted Net Debt Scoring Matrix that positively or negatively adjusts the Adjusted EBITDA payout based on Adjusted Net Debt results versus the plan target.(1) The performance results calculated as the sum of these awards(a) the weighted performance of Adjusted Free Cash Flow Payment Matrix (116%) and (b) either the weighted performance of Consolidated AEBITDA, Global Lottery AEBITDA less Capital Expenditures, or .Global Gaming AEBITDA less Capital Expenditures. This calculated payout % is further modifiedthen multiplied by the Company’s relative total shareholder return performance against the Russell Mid Cap Market Index. Given the impact of COVID-19 on the Company’s financial results, threshold Adjusted EBITDA performance for vesting was not achieved and the Compensation Committee did not use discretion to vest any portion of the 2018 PSUs. The performance achieved against the performance targets is shown below.
| | | | | | | | | | | | | | | | | | | | | | ($ in millions) | Threshold | Target | Maximum | 2020 Performance | Performance % of Target | Payout % | 2018 - 2020
Adjusted Cumulative EBITDA | 4,867 | 5,262 | 5,525 | 4,565 | 87% | —% | | Adjusted Net Debt | 7,681 | 7,381 | 7,081 | 6,968 | 106% | —% | | EBITDA/Net Debt Matrix Result | —% | Relative TSR(1) Modifier | <25th | 60th | >75th | 8.0% | 13% | 75.0% | Performance results (% of target)(2) | —% | Total PSUs earned (% of maximum)(3) | —% |
(1) Total Shareholder Return (TSR)percentile payout (125%).
(2) EBITDA/Net Debt Matrix Result payout (0.0%) multiplied by Relative TSR Percentile payout (75.0%). (3) The maximum number of shares to be earned under the 2018 PSU plan is 145% of target.
(3) PlayDigital executive officers are included in the Global Gaming LTI plan.
Marco Sala’s Co-Investment Plan
In 2021, the Company entered into a Co-Investment Plan with Marco Sala. Mr. Sala’s appointment to executive chair of the Board, effective January 24, 2022, did not impact any of the vesting conditions for awards granted under the plan.The Co-Investment Plan is intended to align Mr. Sala’s interests with those of the Company’s shareholders. Under the Co-Investment Plan, the Company matched Mr. Sala’s commitment to hold his ordinary shares on a 1:1 basis (up to 470,000 shares), comprising a matching grant of up to 345,000 shares, awarded half in PSUs and half in stock options on May 11, 2021, and a matching grant of up to 125,000 shares awarded in PSUs on July 28, 2021.
The vesting of certain PSUs and options awarded under the Co-Investment Plan is dependent upon achievement of certain performance conditions for the measurement period ended December 31, 2023 and continued service until May 2024. Upon shareholders’ approval of the Company’s 2023 financial statements at the AGM in May 2024, these shares will vest at target: | | | | | | | | | | | | | | | | | | | | | | | | | | | Metric(1) | | Type of Condition | | Performance % of Target | | Target Performance Shares Subject to Metric | | Target Performance Options Subject to Metric | | | | | | | | | | | Consolidated Adjusted Free Cash Flow | | Performance | | 134% | | 64,688 | | | 64,688 | | | Consolidated Adjusted EBITDA | | Performance | | 110% | | 21,562 | | | 21,562 | | | Deleverage Achievement | | Performance | | 88%(2) | | 62,500 | | | — | | | Portfolio Analysis Achievement | | Performance | | N/A | | 31,250 | | | — | | | Diversity and Inclusion | | Performance | | N/A | | 31,250 | | | — | | | | | | | | 211,250 | | | 86,250 | |
(1) The PSUs and stock options subject to the Absolute TSR financial metric were excluded since the measurement period ends upon approval of the Company’s 2023 financial statements at the 2024 AGM. (2) The deleverage achievement metric is above target at 88% of the Company’s target Leverage Ratio at December 31, 2023.
Amounts accrued for pensions and similar benefits At December 31, 2020,2023, the total amount accrued by the Company to provide pension, retirement, or similar benefits was $13.6for its executive officers is $0.2 million.
Severance Arrangements
Certain executive officers of the Company are entitled to severance payments and benefits if such executive officer’s employment is terminated other than for cause under either individual employment agreements or pursuant to provisions of national collective agreements for executives of the industry.
66United States Executive Officers
The employment agreements with United States-based executive officers (i.e., Messrs. Celadon, Chiara, Gunn, Rishton, Sadusky, and Spears and Mses. Costa and Montgomery) generally provide for the following benefits upon a termination other than for “cause”: •18 months of base salary; •18 months of short-term incentives (“STI”)STI (based upon a three-year average) and perquisites; •18 months tax preparation; •any accrued but unpaid STI earned for the prior fiscal year; •a prorated STI for the current fiscal year based on actual performance; •18 months of health and welfare benefits continuation; and •18 months following termination of employment to exercise vested stock options, unless the options otherwise expire under the original terms and conditions of the award.award during such 18-month period.
In addition, upon the United StatesStates-based executive officer’s death or disability, the executive officer will be entitled to the following benefits under the employment agreements: •18 months of base salary; •18 months of STI compensation (based upon a three-year average) and perquisites; •18 months of tax preparation; •any accrued but unpaid STI earned for the prior fiscal year; •a prorated STI for the current fiscal year based on actual performance; •24 months of health and welfare benefits continuation; and •18 months following termination of employment to exercise vested stock options, unless the options otherwise expire under the original terms and conditions of the award.award during such 18-month period.
Upon US-basedUnited States-based executive officer’s retirement from the Company, thesethe employment agreements also provide for accelerated vesting of a portion of an executive officer’s outstanding RSUs and PSUs and an ability to exercise vested options until the expiration date.
The employment agreement with Mr. Bugno requires a six month notice period and provides consideration for non-compete provisions over a 12 month period to be paid monthly over the period in addition to a severance payment upon a termination other than for “cause.” Each payment approximates two times Mr. Bugno’s base salary.Italian Executive Officers
Pursuant to the terms of the Italian national collective agreement for executives of the industry (Contratto Collettivo Nazionale di Lavoro per i Dirigenti di Aziende produttrici di beni e servizi), Messrs. Sala (30% of employment), Ascoli and CairoliDrago are generally entitled, unless ad hoc agreements provide differently, to the following severance payments and benefits upon a termination of employment by IGT Lottery S.p.A. (formerly Lottomatica Holding S.r.l.) other than for “cause,” a resignation for “good reason,” or due to the executive officer’s death or disability: •severance pay determined under the collective agreement; •any accrued but unpaid STI earned for the prior fiscal year; and •a notice indemnity equal to a minimum of six and a maximum of 12 months of total base salary and STI compensation. Under the Lottomatica service agreement, Executive Chair Service and Severance Arrangements
Mr. Sala’s base salary as Executive Chair of the Board is €244,479£523,732 ($300,000) at December 31, 2020 divided into 13 equal gross installments, plus additional benefits, including a company car.630,000) and €252,720 ($270,000) under his service agreements with the Parent (70%) and IGT Lottery S.p.A. (30%), respectively. In connection with his appointment as Executive Chair, certain arrangements in Mr. Sala also receives an integrative pension fund in accordance with Italian law. Mr. Sala also has aSala’s service agreement with the Parent (70% of employment), under which Mr. Sala shall be paid a salary of £512,070 ($700,000 as of December 31, 2020) per annum and this salary shall be reviewed by the Board annually, but the Parent is under no obligation to award an increase in salary.were restructured.
Mr. Sala’s service agreement with the Parent (70% of employment) can be terminated by either party on the giving of six months’ notice, if not, immediately for cause. Mr. Sala cannot resign without prior approval from the Board. Following termination of employment, for a period of 24 months thereafter, Mr. Sala is subject to certain restrictive covenants, including restrictions on soliciting or providing goods or services to certain customers, employing or enticing away from the group certain persons employed by any group company or being involved with any business in competition with any group company, among others. As consideration for compliance with the post-employment restrictive covenants, Mr. Sala is entitled to a lump sumfixed payment amount upon termination of employment equal to two years’ base salary and any STI payments for the two financial years prior to the dateGBP equivalent of termination.$7.5 million.
According to a severance agreement entered into between the Company and Mr. Sala, (which supersedes a stability agreement originally entered into on February 20, 2012 between Mr. Sala and legacy GTECH S.p.A. and then assigned to Lottomatica S.p.A. as part of the merger), subject to Mr. Sala continuing to work during his notice period, he is entitled to a severance payment equal to one year’s base salary (plus any amounts owed to Mr. Sala) and a pro-rated STI payment as of the date of termination based on the projection of the Company’s full year business and financial results. The severance payment is subject to the Company determining that Mr. Sala is a good leaver which includes, but is not limited to, circumstances involving redundancy, permanent incapacity, or retirement with the agreement of the Company. No severance payment will be made if Mr. Sala’s employment is terminated for cause. The table below sets out the payments pursuant to provisions ofUnder Mr. Sala’s IGT Lottery S.p.A. service andagreement (30% of employment), he is entitled to the severance agreements with the Parent assuming a termination of employment as of December 31, 2020.
| | | | | | | | | | | | | | | | | Period | | Estimated Value at December 31, 2020 ($) (1)
| Severance Provisions | | | | | Base Pay | | 12-months | | 1,000,000 | | STI | | Pro-rated at termination date (2)
| | | Non-Compete Provisions | | | | | Additional Base Pay | | Actual base for last 2 years | | 2,000,000 | | Projected STI | | Actual payout for last 2 years (2018 & 2019) | | 4,802,550 | | | | Total Value | | 7,802,550 | |
(1) Excludes impact of FX payments and tax equalization, per Mr. Sala’s employment contract, which is calculated as ofbenefits described in the payment dates.“Italian Executive Officers” section above.
(2) The short-term incentive plan was cancelled for the 2020 fiscal year. As of December 31, 2020, the pro-rated amount Mr. Sala would be entitled to is $0.
The Parent will also fully reimburse all executives for business expenses incurredChange in accordance with Company policy.Control
In the event of a change in control, the Parent’s equity incentive planEquity Incentive Plan provides for full accelerated vesting of all outstanding share options, share appreciation rights and full-value awards (other than performance-based awards), when a replacement award is not provided. In addition, any performance-based award for which a replacement award is not issued will be deemed to be earned and payable with all applicable performance metrics deemed achieved at the greater of: (a) the applicable target level; or (b) the level of achievement as determined by the Compensation Committee not later than the date of the change in control, taking into account performance through the latest date preceding the change in control as to which performance can practically be determined, but in no case, later than the end of the applicable performance period. In the event of the termination of service of a participant other than for cause within 24 months following a change in control, all replacement awards held by such participant will fully vest and be deemed to be earned in full, with all applicable performance metrics deemed achieved at the greater of: (a) the applicable target level; or (b) the level of achievement as determined by the Compensation Committee taking into account performance through the latest date preceding the termination of service as to which performance can, as a practical matter, be determined (but not later than the applicable performance period).
C. Board Practices As of February 24, 2021,March 7, 2024, the Board consists of 11 members. The current directors12 members who were elected by shareholder vote on June 25, 2020, other than Marco Sala, who was elected to a term of three years at the Company’s annual general meeting in 2018.May 9, 2023. See “Item 6.A. Directors and Senior Management”Management” above. The term of office of the current Board will expire at the conclusion of the next annual general meeting of the Company. Each director may be re-elected at any subsequent general meeting of shareholders. None of the Parent’s directors have service contracts with the Parent (or any subsidiary) providing for benefits upon termination of employment as a director, although Mr. Sala and Mr. Chiara have entered into severance arrangements with the Parent as described in section “Item 6.B. Compensation - Severance Arrangements”.director. The directors are responsible for the management of the Company’s business, for which purpose they may exercise all of the powers of the Parent whether relating to the management of the business or not. As described above in section “Item 6.A. Directors and Senior Management,” as of February 24, 2021,March 7, 2024, the Board is comprised ofof: (i) seven (7) independent directors including James F. McCann, the Vice Chairperson of the Board and Lead Independent Director,Director; and (ii) fourfive (5) non-independent directors, including the Parent’s CEO, Marco Sala,Vincent Sadusky, the Parent’s CFO, Massimiliano Chiara, the Board’s Chairperson,Executive Chair, Marco Sala, Lorenzo Pellicioli, and Marco Drago. Messrs. PellicioliDrago and DragoPellicioli are the chief executive officerChair Emeritus and chairpersonChair of the board,Board, respectively, of De Agostini, the Parent’s controlling shareholder. Mr. Sala was appointed toalso serves on the board as CEO of De Agostini on June 27, 2020.Agostini. The Board hasmaintains the following committees: (1)(i) an Audit Committee, (2)Committee; (ii) a Nominating and Corporate Governance Committee,Committee; and (3)(iii) a Compensation Committee. The membership of each committee meets the independence and eligibility requirements of the NYSE and applicable law. The members of each committee are appointed by and serve at the discretion of the Board until
such member’s successor is duly elected and qualified or until such member’s earlier resignation or removal. The chairperson of each committee is appointed by the Board.
The Audit Committee The Parent’s Audit Committee is primarily responsible for, among other things, assisting the Board’s oversight of:
•the integrity of the Parent’s financial statements;statements and forecasts; •the Parent’s compliance with legal and regulatory requirements; •the independent registered public accounting firm’s qualifications and independence; •the performance of the Parent’s internal audit function and independent registered public accounting firm; and •the Parent’s internal controls over financial reporting and systems of disclosure controls and procedures.procedures, including the review of related party transactions and other accounting and treasury matters. The Audit Committee oversees risk assessment and risk management, including financial, compliance, strategic and operational risk exposures, including sustainability and climate-related risk, cybersecurity, and information security. The Audit Committee and managementmaymake recommendations to the Board for any changes, amendments, and modifications to the Parent’s ethical codes of practice, such as the Code of Conduct and the Code of Ethics, and promptly disclosing any waivers for directors or executive officers, as required by applicable law.
The Board reviews the adequacy and effectiveness of the Company’s enterprise risk management program, including the approval of risk appetites for the Company’s key risks. The Audit Committee receives periodic reports from management, reviews updates to the Company’s principal and emerging risks, and conducts deep dive reviews of risk management activities.
Since 2022, the Audit Committee also holds dedicated sessions to receive and discuss updates and demonstrations on data protection and cybersecurity and engages with management on the Company’s incident prevention plans and policies, threat-detection measures and prompt response to malicious activity and attacks to ensure the Company is well placed to meet the evolving risks and external threats in this area.
The Audit Committee regularly meets with the external auditor, the CFO, the General Counsel, the CAO, the Chief Compliance Officer and Internal Audit in separate, closed sessions. The Audit Committee regularly reports to the Board on the matters for which it has oversight responsibility.
As of February 24, 2021,March 7, 2024, the Audit Committee consists of Vincent L. SaduskyMaria Pinelli (chairperson), Alberto Dessy, and Heather J. McGregor. Each member of the Audit Committee must meet the financial literacy requirement, as such qualification is interpreted by the Board in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the Audit Committee. In addition, at least one (1) member of the Audit Committee must have accounting or related financial management expertise, as the Board interprets such qualification in its business judgment. See “Item 16A.
Audit Committee Financial Expert”Expert” of this annual report on Form 20-F for additional information regarding Audit Committee financial experts. The Compensation Committee The purpose of the Compensation Committee is to dischargedischarges the responsibilities of the Board relating to compensation of the Parent’s executives and directors. The Compensation Committee is responsible for, amongdirectors and other things:human capital management matters, which include:
•ensuring that provisions regarding disclosure of information, including pensions, as set out in the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (U.K.), are fulfilled; •producing a report of the Parent’s remuneration policy and practices to be included in the Parent’s U.K. annual reportAnnual Report and ensureAccounts and ensuring that it is approved by the Board and put to shareholders for approval at the annual general meeting in accordance with the Companies ActCA 2006; •reviewing management recommendations and advising management on broad compensation policies, such as salary ranges, deferred compensation, incentive programs, pension, and executive stock plans; •reviewing and approving goals and objectives relevant to the CEO’s compensation, evaluating the CEO’s performance in light of those goals and objectives and reviewing the results of such evaluations with the Board, and setting the CEO’s compensation level based on this evaluation; •monitoring issues associated with CEO succession (in non-emergencies)reviewing and management development;approving the compensation, incentive compensation plans and equity-based plans of the Company’s Executive Chair (if any); •making recommendations to the Board with respect to non-CEO executive officer (excluding the Executive Chair) compensation, incentive compensation plans and equity-based plans that are subject to Board approval; •monitoring issues associated with succession and management development of the CEO and other senior executives; •monitoring and assessing performance conditions applicable to any long- and short-term incentive plans adopted by the Company; •reviewing and recommending director compensation;the amount of compensation paid to directors for Board and committee service and for serving as the Chairperson of a committee or Chairperson of the Board; •creating, modifying, amending, terminating, and monitoring compliance with stockshare ownership guidelines for directors and executives and directors;of the Company; •designing, reviewing and amending the Company’s policies relating to anti-harassment and coercion, and providing oversight of the enforcement of such policies by the Company’s People & Transformation department; •evaluating risks associated with the Parent’s compensation and benefits policies, plans and programs and discussing with management procedures to identify and mitigate such risks; and
•overseeing, reviewing, monitoring, and, where appropriate or required, making recommendations to the Board on human capital management matters, including culture and employee engagement and diversity, equity and inclusion.
•overseeing the design, review, and amendment of the Company’s policies relating to anti-harassment and coercion, as appropriate, and providing oversight of the enforcement of such policies by People & Transformation; •exercising any discretion or judgment on compensation issues in accordance with the remuneration policies of the Company, including any clawback and malus policies adopted by the Company; •overseeing, in conjunction with other Board committees delegated with such authority (if any), engagement with investors/shareholders and proxy advisory firms on executive compensation matters; and •together with the Audit Committee, evaluating risks associated with the Company’s employees and employee-benefit related risks, including the Company’s compensation and benefits policies, plans, and programs and discussing with management procedures to identify and mitigate such risks. The Compensation Committee also reviews, monitors, and makes recommendations to the Board on talent tracking, development, and retention through customized training and career progression plans, and succession planning. Workplace safety and employee health and well-being ranked to the level of the Compensation Committee’s attention.
As of February 24, 2021,March 7, 2024, the Compensation Committee consists of Gianmario Tondato da Ruos (chairperson), Alberto Dessy, and Samantha Ravich.
The Nominating and Corporate Governance Committee The Nominating and Corporate Governance Committee is responsible for, among other things:
•recommending to the Board, consistent with criteria approved by the Board, the names of qualified persons to be nominated for election or re-election as directors (including, in consultation with the Compensation Committee, the CEO’s successor) and the membership and chairperson of each Board committee;
•reviewing each Director’sdirector’s character and integrity prior to appointment and in connection with re-nomination decisions and Board evaluations; •reviewing, at least annually, the appropriate skills and characteristics required of Board members in the context of the current composition of the Board and its committees; •periodically reviewing the size, composition (including diversity), and leadership of the Board and committees thereof and recommending any proposed changes to the Board; •reviewing directorships in other public companies held by or offered to directors and senior officers of the Parent with a view to ensuring that such external positions do not have a negative impact on the performance of such director; •making recommendations to the Board for any changes, amendments, and modifications to the Parent’s code of conduct and promptly disclosing any waivers for directors or executive officers, as required by applicable law;
•reviewing and reassessing from time to time the Parent’s Corporate Governance Guidelines and recommending any changes to the Board; •determining, at least annually, the independence of each director under the independence requirements of the NYSE and any other regulatory requirements and report such findings to the Board; •overseeing, at least annually, the evaluation of the performance of the Board and each Board committee, as well as individual directors where appropriate; •assisting the Parent in making the periodic disclosures related to the Nominating and Corporate Governance Committee and required by rules issued or enforced by the SEC, the Companies ActCA 2006, and any other rules and regulations of applicable law; •periodically reviewing and making recommendations to the Board concerning CEO emergency succession plans; •giving due consideration to the Parent’s legal obligations in the context of nominations and corporate governance, including any changes in applicable law and to recommendations and associated guidance from advisors, professional bodies, and proxy advisory firms; •overseeing the Company’s strategy on sustainability and monitoring implementation of the Company’s sustainability program, including review of the Company’s public disclosures regarding ESG matters; and •overseeing, management’s corporate social responsibility programin conjunction with other Board committees delegated with such authority (if any), engagement with investors/shareholders and giving due considerationproxy advisory firms on ESG matters.
The Nominating and Corporate Governance Committee periodically reviews: (i) the size, composition (including from a personal and professional diversity standpoint), working and leadership of the Board and its committees; and (ii) key attributes of directors (including eligibility, independence, and Audit Committee members’ financial literacy/expertise) to diversitydetect any gaps against market benchmarks — including the U.S. Spencer Stuart Board Index and inclusion,S&P MidCap 400 Index — and suggest adjustments, where appropriate. The Nominating and Corporate Governance Committee also reviews proposed shareholder resolutions, proxy advisor guidelines and voting recommendations, as well as voting results, and oversees IGT’s global sustainability environmentalplan and social matters that could impact the Company, the environment or the communities in which the Company operates.its integration into business plans. As of February 24, 2021,March 7, 2024, the Nominating and Corporate Governance Committee consists of Mr.James McCann (chairperson), Beatrice BasseyAshley M. Hunter, and Samantha Ravich. The charters for each of the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee are available at www.igt.com; information contained thereon, including each committee charter, is not included in, or incorporated by reference into, this annual report on Form 20-F.
Indemnification of Members of the Board The Parent has committed, to the fullest extent permitted under applicable law, to indemnify and hold harmless (and advance any expenses incurred, provided that the person receiving such advancement undertakes to repay such advances if it is ultimately determined such person was not entitled to indemnification), each of the Parent’s and its subsidiaries’ present and former directors, officers, and employees against all costs and expenses (including attorneys’ fees), judgments, fines, losses, claims, damages, liabilities, and settlement amounts paid in connection with any claim, action, suit, proceeding, or investigation arising out of or related to such person’s service as a director, officer, or employee of the Parent or any of its subsidiaries.
D. Employees As of December 31, 2020, the Company2023, IGT conducted business in more than 100 countries on six continentsjurisdictions around the world and had 11,04811,016 employees. The Company believes that its relationship with its employees is generally satisfactory. Most of the Company’sIGT’s employees are not represented by any labor union. However, labor agreements are common in some countries around the world, and the Company recognizes such arrangements and works closely with the applicable work councils. Relations with the Company’s mid-level employees and production workers in Italy are subject to Italy’s national collective bargaining agreement for the metalworks industry.tertiary sector,
distribution, and services (CCNL Terziario, della Distribuzione e dei Servizi). Relations with the Company’s executives in Italy are subject to the national collective bargaining agreement for executives in the industry companies producing services (CCNL Dirigenti Industria). During the last four years, the CompanySince inception of these agreements, IGT has not experienced any strike that significantly influenced its business activities. In the United States, three organizational(3) bargaining units, totaling less than 100 employees, have elected representation by third-party union organizations. Collective bargaining agreements are in place with two of the organizational units and the Company is negotiating in good faith a collective bargaining agreement with the third organizational unit.
Human Capital
IGT recognizes human capital development as a critical strategic process and actively builds employee skills and capabilities in an agile and outcome-focused way. In addition to offering well-structured and competitive reward and benefit packages designed to attract and retain the employees, the Company invests in training and career development opportunities to support its employees in their careers and strives to create a fair and inclusive culture that values unity, diversity, and belonging in its people, players, customers, and communities.
Career development is a partnership between each employee, their manager, and the Company and requires a conscious choice to grow and stretch individual capabilities and further a professional career. Employees and managers have a responsibility to drive their individual growth and development, with IGT providing the resources necessary to achieve these goals. New capabilities are developed through learning experiences, specific trainings, coaching, mentoring, and feedback. Individual Development Plans, aligned to personal growth goals and business objectives, enable employees to develop the most needed skills to reach individual goals. To support development, IGT has designed upskilling and reskilling plans to ensure people’s employability and to keep the Company competitive in the market.
Diversity, Equity, and Inclusion
IGT understands that its employees’ unique backgrounds, experiences, and perspectives should reflect its global customers and the local communities where the Company operates. Diversity must be supported by a fair and inclusive culture that enables all employees to feel valued, respected, engaged, and empowered to contribute to the business.
The Company is operated under twoestablished the Office of Diversity, Equity, & Inclusion (“DE&I”) to guide strategic DE&I initiatives and ensure that these topics continue to stay in focus and are embedded throughout the Company’s business segments supported by central corporate support functions.processes.
Employees by Segment | | | | | | | | | | | | | | | | | | | | | | | | At December 31, | | | 2020 | | 2019 | | 2018 | | Global Lottery | | 4,205 | | | 4,356 | | | 3,764 | | | Global Gaming | | 5,421 | | | 5,981 | | | 6,695 | | | Corporate and Other | | 1,422 | | | 1,585 | | | 1,641 | | | | | 11,048 | | | 11,922 | | | 12,100 | |
On July 1, 2020, the Company adopted a new organizational structure focused on two business segments: Global Lottery and Global Gaming, along with a streamlined corporate support function. The chart above recasts the prior period employee information to conform to the current year presentation. | | | | | | | | | | | | | | | | | | | | | | | | At December 31, | | | 2023 | | 2022 | | 2021 | | Global Lottery | | 4,187 | | | 4,166 | | | 4,404 | | | Global Gaming | | 4,601 | | | 4,410 | | | 4,258 | | | PlayDigital | | 730 | | | 745 | | | 435 | | | Corporate and Other | | 1,498 | | | 1,465 | | | 1,389 | | | | | 11,016 | | | 10,786 | | | 10,486 | |
The chart above includes 15, 131,Company maintains three (3) primary business segments: Global Lottery; Global Gaming; and 147PlayDigital supported by central corporate support functions.
•The Company had 60, 101, and 93 interns and temporary employees at December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively.
As of December 31, 2020,2023, the proportion of women among permanent employees was 31.46%32% and 20.33%22% of employees with the title of vice president or higher were female.
In 2020, 7682023, 874 employees left the Company voluntarily. The staff voluntary attrition rate was 6.70%8%, compared to 7.32%11% in 20192022 and 7.88% in 2018.2021. Additionally, 784235 employees had their employment involuntarily terminated, 5135 of which were workforce reductions.
E. SSharehare Ownership Executive Stock Ownership Requirements On July 28, 2015, the Board approved share ownership guidelines for Senior Vice Presidents and above. These executive share ownership guidelines were most recently amended on October 25, 2023. Below is a summary of the guidelines. | | | | | | | | | | Policy Effective Date: | | July 28, 2015 | | Stock Ownership Guidelines apply to: | | Share plans starting in 2015
Any award vesting after the Policy Effective Date
Unvested Options as of the Policy Effective Date | | Covered Executives: | | Executive Chair
CEO
Business Unit CEOs and Executive Vice Presidents
Senior Vice Presidents | | Ownership Requirement Multiple of Base Salary: | | Executive Chair 5x
CEO - 5X5x
Business Unit CEOs and Executive Vice Presidents - 3X3x
Senior Vice Presidents reporting to the CEO - 1X1x
Senior Vice Presidents not reporting to the CEO - 0.5x | | Shares Included in Ownership: | | All ordinary shares in the Company beneficially owned regardless(regardless of whether they are fromsuch shares were acquired (i) on the market, (ii) through the exercise of share options, or (iii) through the vesting of other equity awards), including shares owned outright and shares held in trust for the benefit of the executive or their family members.
This includes any shares (i) allocated to an executive pursuant to a share allocation plan or other equity award plan of the ParentCompany or purchased onany of its predecessor companies that have vested, or (ii) resulting from the market Vested shares heldexercise of share options, but in a trust to benefit the executive or family members
Shares under the legacy GTECH planseither case where vesting has been determined (earned) but shares have not yet been releaseddelivered to the executive.
Note that Unearned Performance Shares do not count towards the Stock Ownership Guidelines until earned. (i.e., Performance Factor has not been determined/applied) | Legacy GTECHPlan Holding Requirements: | | Holding requirements stated in legacy GTECHLegacy Plans are still in effect, in addition to the new Stock Ownership Guidelines | Additional Holding Requirement - Not in Compliance with Stock Ownership Requirements:Requirements*: | | Minimum number of shares equal to 50% of afterthose resulting from each particular vesting of awards or from each exercise of share options (in either case net of any shares withheld or sold to cover tax optionswithholding requirements, or shares thatexercise price relating to the vest or are exercised after the effective dateexercise, or broker fees (if any)) until that individual has met their applicable target level of the Stock Ownership Guidelinesshare ownership defined under “Ownership Requirement Multiple of Base Salary”. | Additional Holding Requirement - In Compliance with Stock Ownership Requirements:Requirements*: | | Minimum number of shares equal to 20% of afterthose resulting from each particular vesting of awards, or from the exercise of share options (in either case net of any shares withheld or sold to cover tax optionswithholding requirements, or exercise price relating to the vest or exercise, or broker fees (if any)) for at least 3 years from the date of vest or exercise of such awards or share options. | | Executive Directors | | Each Executive Director must hold all net settled shares that are exercised or vestreceived under a plan of the Parent for a period of 3at least five years followingfrom the exercise or vest date of grant. The period expires on the fifth anniversary of the date of grant, provided the relevant director meets their holding requirements under the Executive Share Ownership Guidelines. | | Executive Director Post-Employment Holding Requirement | | Each Executive Director is required to hold: (i) for the period beginning upon cessation of their employment and ending on the first anniversary of such cessation, such number of shares equal to the target level defined in the Executive Share Ownership Guidelines (or if they hold a lower number of shares at the time of cessation of their employment, such lower number of shares); and (ii) for the period beginning upon the first anniversary of cessation of their employment and ending on the second anniversary of such cessation, such number of shares equal to 50% of the target level under these Executive Share Ownership Guidelines (or if they hold a lower number of shares at the first anniversary of cessation of their employment, such lower number of shares). |
*Additional Holding Requirement only applicable to Covered Executives who are not Executive Directors.
Director Stock Ownership Requirements Beginning November 10, 2020 (or five years after joining the Board if such date is subsequent to November 10, 2020), each non-executive director is expected to hold, for as long as they remain on the Board, ordinary shares of the Parent that have a fair market value equal to at least three (3) times the base annual retainer amount then in effect for non-executive directors. The current base annual retainer amount is $100,000. Non-compliant non-executive directors are prohibited from selling shares of the Parent until they have met their applicable target level of share ownership, excluding any shares sold to cover any applicable tax withholding requirements, the exercise price of any share options, nominal value of shares, or broker fees (if any).
The following table sets forth information, as of February 24, 2021,March 7, 2024, regarding the beneficial ownership of the Parent’s ordinary shares, including: •each member of the Board; •each executive officer and senior consultant of the Parent; and •all members of the Board, executive officers, and senior consultant, taken together.
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, the Parent believes that each shareholder identified in the table possesses sole voting and investment power over all ordinary shares of the Parent shown as beneficially owned by that shareholder. Percentage of beneficial ownership is based on approximately 204.9200.5 million ordinary shares (excluding treasury shares) of the Parent outstanding as of February 24, 2021. March 7, 2024.
| | Name of Beneficial Owner | Name of Beneficial Owner | | Number of Ordinary Shares(1) | | Number of Ordinary Shares issuable upon vest within 60 days(2) | | Percentage(3) | Name of Beneficial Owner | | Number of
Ordinary
Shares | | Number of Ordinary Shares issuable upon vest within 60 days | | Percentage(1) | | Directors: | Directors: | | | | | | | Directors: | | | | | | | | Lorenzo Pellicioli | | 117,325 | | | — | | | 0.06 | | | Marco Sala | | | Vincent L. Sadusky | | | James F. McCann | James F. McCann | | 113,029 | | | — | | | 0.06 | | | Beatrice H. Bassey | | 6,081 | | | — | | | Less than 0.005 | | Massimiliano Chiara | Massimiliano Chiara | | — | | | — | | | Less than 0.005 | | Alberto Dessy | Alberto Dessy | | 41,088 | | | — | | | 0.02 | | | Marco Drago | Marco Drago | | 44,367 | | | — | | | 0.02 | | | Ashley M. Hunter | | | Heather J. McGregor | Heather J. McGregor | | 16,936 | | | — | | | 0.01 | | | Dr. Samantha F. Ravich | | 9,802 | | | — | | | Less than 0.005 | | Vincent L. Sadusky | | 51,035 | | | — | | | 0.02 | | | Marco Sala | | 1,401,491 | | | 35,254 | | | 0.70 | | | Gianmario Tondato da Ruos | | 40,117 | | | — | | | 0.02 | | | Lorenzo Pellicioli | | | Maria Pinelli | | | Samantha F. Ravich | | | Gianmario Tondato Da Ruos | | | Non-Director Executive Officers: | Non-Director Executive Officers: | | | | | | | Non-Director Executive Officers: | | | | | | Renato Ascoli | Renato Ascoli | | 237,723 | | | 15,426 | | | 0.12 | | | Walter Bugno | | 249,915 | | | 11,225 | | | 0.13 | | | Fabio Cairoli | | 66,159 | | | 9,978 | | | 0.04 | | | | Fabio Celadon | | | Fabio Celadon | | | Fabio Celadon | Fabio Celadon | | 22,058 | | | 2,287 | | | 0.01 | | | Dorothy Costa | Dorothy Costa | | 1,292 | | | 457 | | | Less than 0.005 | | Enrico Drago | | | Scott Gunn | Scott Gunn | | 8,202 | | | 2,702 | | | 0.01 | | | Wendy Montgomery | Wendy Montgomery | | — | | | — | | | Less than 0.005 | | David T. Morgan | | David T. Morgan | | 8,512 | | | — | | | Less than 0.005 | | Timothy M. Rishton | | | Christopher Spears | Christopher Spears | | 2,102 | | | 3,215 | | | Less than 0.005 | | 2,428,722 | | | 80,544 | | | 1.22 | | | | 2,374,428 | |
(1) Includes shares issuable upon the exercise of options which are exercisable as of February 24, 2021, the details of which are included in the “Amount Exercisable (Vested)” in the table below. (2) Represents performance share units expected to vest in the next 60 days, fractional amounts have been rounded down to the nearest whole number. Excludes shares issuable upon the exercise of options.
(3) Any securities not outstanding that are subject to options or conversion privileges exercisable within 60 days of February 24, 2021March 7, 2024 are deemed outstanding for the purpose of computing the percentage of outstanding securities of the class owned by any person holding such securities and by all Board members and executive officers as a group, but are not deemed outstanding for the purpose of computing the percentage of the class owned by any other individual person. Except where noted, percentages have been rounded to the nearest hundredth.
The table below sets forth the options on the Parent’s ordinary shares granted to Mr. Sala that were outstanding as of February 24, 2021.March 7, 2024. As of such date, no executive officer other than Mr. Sala held outstanding options. Further, none of the directors held outstanding options, other than Mr. Sala. For each of the option grants listed below, the options are exercisable for ordinary shares of the Parent, and there is no purchase price applicable to the options other than the exercise price indicated below. | | Name | Name | | Grant Date | | Amount of
Shares
Underlying
Grant | | Amount
Exercisable (Vested) | | Amount
Unexercisable (Unvested) | | Exercise
Price | | Expiration Date | Name | | Grant Date | | Amount of
Shares
Underlying
Grant | | Amount
Exercisable (Vested) | | Amount
Unexercisable (Unvested) | | Exercise
Price | | Expiration Date | | Marco Sala | Marco Sala | | November 30, 2015 | | 250,000 | | | 250,000 | | | — | | | $ | 15.53 | | | May 17, 2022 | Marco Sala | | May 11, 2021 | | 172,500 | | | — | | — | | 172,500 | | | $ | | $ | 20.37 | | | (1) | | (1) | | May 15, 2018 | | 172,500 | | | — | | 172,500 | | | $ | 30.12 | | | May 15, 2024 |
(1) The options will expire on the fourth anniversary of the vesting date, which is the date on which the audited financial statements for the Company’s fiscal year ended December 31, 2023 are approved by the shareholders of the Company at its annual general meeting, which is expected to occur on May 14, 2024. For a further discussion of stock-based employee compensation, please see “Notes to the Consolidated Financial Statements—22. 21. Stock-Based Compensation.Compensation”included in “Item 18. Financial Statements”.
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation 73
Not applicable.
Item 7.Major Shareholders and Related Party Transactions
A. Major Shareholders At February 24, 2021,March 7, 2024, the Parent’s outstanding capital stock consisted of 204,856,564200,482,249 ordinary shares having a nominal value of $0.10 per share, 204,856,564207,355,445 Special Voting Shares of $0.000001 each, and 50,000 sterling non-voting shares of £1.00 each, held by Intertrust Corporate Services (UK) Limited. Each ordinary share carries one (1) vote and each special voting share carries 0.9995 votes. The following table sets forth information with respect to beneficial ownership of the Parent’s ordinary shares by persons known by the Parent to beneficially own 5% or more of voting rights as a result of their ownership of ordinary shares, andincluding by election to exercise the votes of Special Voting Shares by placing the associated ordinary shares on the Loyalty Register as of February 24, 2021.March 7, 2024. | | Name of Beneficial Owner | Name of Beneficial Owner | Number of
Ordinary
Shares Owned | Percent of
Ordinary
Shares Owned | Number of Ordinary Shares on the Loyalty Register | Percent of Total
Voting Power | Name of Beneficial Owner | Number of
Ordinary
Shares Owned | Percent of Ordinary Shares Owned(1) | Number of Ordinary Shares on the Loyalty Register | Percent of Total Voting Power(1) | | De Agostini S.p.A. | De Agostini S.p.A. | 103,422,324 | | 50.49 | % | 85,422,324 | | 65.05 | % | De Agostini S.p.A. | 85,422,324 | 42.61% | 85,422,324 | 59.75% | Blackrock, Inc. (1) | 11,480,172 | | 5.60 | % | — | | 4.00 | % | The Bank of New York Mellon Corporation(2) | | The Bank of New York Mellon Corporation(2) | 13,061,821 | 6.52% | — |
(1) (1)Excluding treasury shares. (2) Information based onAccording to the information provided in a Schedule 13G report filed with the SEC dated February 2, 2021 by Blackrock, Inc.The Bank of New York Mellon Corporation (“BNY Mellon”) on January 24, 2024, BNY Mellon has sole voting power over 12,902,834 ordinary shares, shared voting power over 34,422 ordinary shares, sole dispositive power over 9,914,257 ordinary shares and shared dispositive power over 3,147,564 ordinary shares.
At February 24, 2021,March 7, 2024, B&D Holding S.p.A. (“B&D Holding”) owned 61.24%59.80% of De Agostini. Marco Drago is the chairpersonPresident and a director of B&D Holding, and Lorenzo Pellicioli is a director of B&D Holding. B&D Holding is in turn owned by members of the Boroli and Drago families.
Significant Changes in Ownership
Prior to January 1, 2018, De Agostini's wholly-owned subsidiary, DeA Partecipazioni S.p.A., held 10,073,006 ordinary shares. Effective January 1, 2018, DeA Partecipazioni S.p.A. merged into De Agostini, resulting in the transfer of ownership of 10,073,006 ordinary shares from DeA Partecipazioni S.p.A. to De Agostini.
On May 22, 2018, De Agostini entered into a variable forward transaction (the “Variable Forward Transaction”) with Credit Suisse International (subsequently assigned to Credit Suisse Bank (Europe) S.A. (formerly known as Credit Suisse Securities, SociedadSocieded de Valores, S.A., as assignee of Credit Suisse International)) (“Credit Suisse”) relating to 18.018 million of the Company’s ordinary shares owned by De Agostini (the “Variable Forward Transaction Shares”). As part of the Variable Forward Transaction and to hedge its exposure, Credit Suisse or(or its affiliatesaffiliates) borrowed approximately 13.2 million of the Company’s ordinary shares from third-party stock lenders and subsequently sold such ordinary shares in an underwritten public offering through Credit Suisse Securities (USA) LLC, acting as the underwriter, pursuant to an automatically effective registration statement on Form F-3 (including a base prospectus) filed by the Company with the SEC on May 21, 2018.
De Agostini elected, effective as of May 25, 2018, to place all of its owned ordinary shares, including the Variable Forward Transaction Shares, on the Loyalty Register, thereby gaining the power to exercise the votes of the related Special Voting
Shares. In April 2020, De Agostini pledged the Variable Forward Transaction Shares to Credit Suisse as part of the Variable Forward Transaction and, as a result, removed the Variable Forward Transaction Shares from the Loyalty Register. As of February 24, 2021,March 7, 2024, no other shareholder has elected to place any ordinary shares on the Loyalty Register. For more information regarding the Special Voting Shares and the Loyalty Register, please see “Loyalty Plan” under “Item 10.B Memorandum and Articles of Association—Loyalty Plan.Association.”
Credit Suisse has, in the event of a De Agostini default orof similar enforcement event under the pledge, the right to vote or direct the vote and dispose of or direct the disposition of the Variable Forward Transaction Shares, but not to direct the votes of the related Special Voting Shares unless Credit Suisse subsequently elects to place such shares on the Loyalty Register in accordance with the terms of the Loyalty Plan.
The Variable Forward Transaction is equally divided into four tranches, with each tranche settled at De Agostini’s election either: (i) in cash; or (ii) by physical delivery of shares, subject to certain conditions. To satisfy their obligations, De Agostini completed the final two settlement transactions with Credit Suisse by physically delivering 4,500,000 ordinary shares on May 25, 2023 and November 29, 2023, respectively.
Voting Rights De Agostini controls the Parent but does not have different voting rights from the Parent’s other shareholders, aside from the election to exercise the votes of the Special Voting Shares related to the shares owned by De Agostini. However, through its voting rights, De Agostini has the ability to control the Company and significantly influence the decisions submitted to a vote of the Parent’s shareholders, including approval of annual dividends, the election and removal of directors, mergers or other business combinations, the acquisition or disposition of assets, and issuances of equity, and the incurrence of indebtedness.
Additional Share Information The Parent’s ordinary shares are listed on the NYSE under the symbol “IGT” and can be traded on the NYSE in U.S. dollars. The Parent’s ordinary shares may be held in the following two ways: •beneficial interests in the Parent’s ordinary shares that are traded on the NYSE are held through the book-entry system provided by The Depository Trust Company (“DTC”) and are registered in the register of shareholders in the name of Cede & Co., as DTC’s nominee; and •in certificated formform. All of the Parent’s ordinary shares are held on the U.S. registry. At February 24, 2021,March 7, 2024, there were 204155 record holders in the U.S. holding approximately 49.51%99.90% of the Parent’s outstanding ordinary shares, including ordinary shares held by Cede & Co., the nominee for DTC. Ordinary shares held through DTC may be beneficially owned by holders within or outside of the U.S. The shares held by De Agostini are beneficially owned by an entity organized under the laws of Italy. At February 24, 2021,March 7, 2024, there were 204,856,56485,422,324 Special Voting Shares of the Parent outstanding, which are all held by Computershare Company Nominees Limited in its capacity as the nominee appointed by the Parent to hold the Special Voting Shares under the terms of the Parent’s Loyalty Plan. The Parent’s Special Voting Shares are not listed on the NYSE and will be transferable only in very limited circumstances. For more information regarding the Special Voting Shares, please see “Item 10.B Memorandum and Articles of Association—Association—Loyalty Plan.”
B. Related Party Transactions
The Company engages in business transactions with certain related parties, which includeinclude: (i) entities and individuals capable of exercising control, joint control, or significant influence over the Company,Company; (ii) De Agostini or entities directly or indirectly controlled by De AgostiniAgostini; and (iii) unconsolidated subsidiaries or joint ventures of the Company. Members of the Parent’s Board, of Directors, executives with authority for planning, directing, and controlling the activities of the Company and such Directors’directors’ and executives’ close family members are also considered related parties.
The Company is majority-owned by De Agostini. Amounts receivable from De Agostini and subsidiaries of De Agostini (the(together, the “De Agostini Group”) are non-interest bearing. Transactions with the De Agostini Group include payments for support services provided and office space rented pursuant to a lease entered into prior to the formation of the Company. In addition, certain of the Company’s Italian subsidiaries havehad a corporate income tax unit agreement, and in some cases a value-added taxGroup VAT (value-added tax) agreement, with De Agostini
pursuant to which De Agostini consolidatesconsolidated certain Italian subsidiaries of De Agostini for the collection and payment of taxes to the Italian tax authority. The corporate income tax unit agreements terminated effective January 1, 2022 and the Group VAT agreements terminated on December 31, 2022. Tax-related receivables from De Agostini were $0.0$2 million and $2.0$0.4 million at December 31, 20202023 and 2019,2022, respectively. Tax-relatedThere were no tax-related payables to De Agostini were $18.7 millionat December 31, 2023 and $17.0$3 million at December 31, 2020 and 2019, respectively.2022.
The Company generally carries out transactions with related parties on commercial terms that are normal in their respective markets, considering the characteristics of the goods or services involved. For a further discussion of transactions with related parties, including transactions with De Agostini and companies in which we have strategic investments that develop software, hardware, and other technologies or provide services supporting the Company’s technologies, please see “Notes to the Consolidated Financial Statements - 24Statements—25.. Related Party Transactions.Transactions”included in “Item 18. Financial Statements”.
C. Interests of Experts and Counsel Not applicable.
Item 8.Financial Information
A. Consolidated Statements and Other Financial Information See “Item 18. Financial Statements” for the Company’s Consolidated Financial Statements including the Notes thereto and report of its independent registered accounting firm. The Company has not yet implemented a formal policy on dividend distributions.
B. Significant Changes NoExcept as disclosed elsewhere in this annual report, no significant changes have occurred since December 31, 2020,2023, the date of the financial statementstatements included in this annual report on Form 20-F. On February 28, 2024, the Parent entered into definitive agreements for the Separation & Divestiture of the Global Gaming and PlayDigital businesses with Everi. Refer to “Notes to the Consolidated Financial Statements—26. Subsequent Events” for more information.
Item 9.The Offer and Listing A. Offer and Listing Details The Parent’s ordinary shares are listed on the NYSE under the symbol “IGT.”
B. Plan of Distribution
Not applicable.
C. Markets
The Parent’s outstanding ordinary shares are listed on the NYSE under the symbol “IGT.”
D. Selling Shareholders Not applicable.
E.Dilution
Not applicable. F.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital Not applicable.
B. Memorandum and Articles of Association The Parent is a public limited company registered in England and Wales under company number 09127533. Its objects are unrestricted, in line with the default position under the Companies Act 2006, as amended.CA 2006. The following is a summary of certain provisions of the Articles and of the applicable laws of England. The following is a summary and, therefore, does not contain full details of the Articles, which are attached as Exhibit 1.1 to this annual report on Form 20-F. A description of the Company’s ordinary shares is attached as Exhibit 2.18 to this annual report on Form 20-F. The Parent’s board of directors (the “Board”)Board Directors’ interests Except as otherwise provided in the Articles, a director may not vote on or be counted in the quorum in relation to a resolution of the directors or committee of the directors concerning a matter in which he haswhere they have a direct or indirect interest which is, to histheir knowledge, a material interest (otherwise than by virtue of histheir interest in shares or debentures or other securities of or otherwise in or through the Parent), but this prohibition does not apply to any interest arising only because a resolution concerns any of the following matters: •the giving of a guarantee, security, or indemnity in respect of money lent or obligations incurred by himthe director or any other person at the request of or for the benefit of the Parent or any of its subsidiary undertakings;
•the giving of a guarantee, security, or indemnity in respect of a debt or obligation of the Parent or any of its subsidiary undertakings for which the director has assumed responsibility in whole or in part, either alone or jointly with others, under a guarantee or indemnity or by the giving of security;
•a transaction or arrangement concerning an offer of shares, debentures, or other securities of the Parent or any of its subsidiary undertakings for subscription or purchase, in which offer hethe director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which he is to participate;
•a transaction or arrangement to which the Parent is or is to be a party concerning another company (including a subsidiary undertaking of the Parent) in which hethe director or any person connected with himthem is interested (directly or indirectly) whether as an officer, shareholder, creditor, or otherwise (a “relevant company”“Relevant Company”), if hethe director and any persons connected with himthem do not to histheir knowledge hold an interest in shares (as that term is used in Sections 820 to 825 of the CA 2006) representing 1% or more of either any class of the equity share capital (excluding any share of that class held as treasury shares) in the relevant companyRelevant Company or of the voting rights available to members of the relevant company;
•a transaction or arrangement for the benefit of the employees of the Parent or any of its subsidiary undertakings (including any pension fund or retirement, death or disability scheme) which does not award himthe director a privilege or benefit not generally awarded to the employees to whom it relates; or
•a transaction or arrangement concerning the purchase or maintenance of any insurance policy for the benefit of directors or for the benefit of persons including directors.
Directors’ borrowing powers The directors may exercise all the powers of the Parent to borrow money and to mortgage or charge all or part of the undertaking, property, and assets (present or future) and uncalled capital of the Parent and, subject to the CA 2006, to issue debentures and other securities, whether outright or as collateral security for a debt, liability, or obligation of the Parent or of a third party. Directors’ shareholding requirements A director need not hold shares in the Parent to qualify to serve as a director.
Age limit There is no age limit applicable to directors in the Articles. Compliance with NYSE Rules For as long as the Parent’s ordinary shares are listed on the NYSE, the Parent willintends to comply with all NYSE corporate governance standards set forth in Section 3 of the NYSE Listed Company Manual applicable to non-controlled domestic U.S. issuers, regardless of whether the Parent is a foreign private issuer. Classes of shares The Parent has three (3) classes of shares in issue. This includes (i) ordinary shares of U.S. $0.10 each; (ii) Special Voting Shares of U.S. $0.000001 each; and (iii) sterling non-voting shares of £1.00 each (the “Sterling Non-Voting Shares”). Dividends and distributions Subject to the CA 2006, the Parent’s shareholders may declare a dividend on the Parent’s ordinary shares by ordinary resolution, and the Board may decide to pay an interim dividend to holders of the Parent’s ordinary shares in accordance with their respective rights and interests in the Parent, and may fix the time for payment of such dividend. Under English law, dividends may only be paid out of distributable reserves, defined as accumulated realized profits (so far as not previously utilized by distribution or capitalization) less accumulated realized losses (so far as not previously written off in a reduction or reorganization of capital duly made), and not out of share capital, which includes the share premium account. The Special Voting Shares and Sterling Non-Voting Shares do not entitle their holders to dividends. If 12twelve (12) years have passed from the date on which a dividend or other sum from the Parent became due for payment and the distribution recipient has not claimed it, the distribution recipient is no longer entitled to that dividend or other sum and it ceases to remain owing by the Parent.
The Articles also permit a scrip dividend scheme under which the directors may, with the prior authority of an ordinary resolution of the Parent, allot to those holders of a particular class of shares who have elected to receive them further shares of that class or ordinary shares in either case credited as fully paid instead of cash in respect of all or part of a dividend or dividends specified by the resolution.
Voting rights Subject to any rights or restrictions as to voting attached to any class of shares and subject to disenfranchisement in the event of non-payment of any call or other sum due and payable in respect of any shares not fully paid, the voting rights of shareholders of the Parent in a general meeting are as follows: 1.On a show of hands, a.the shareholder of the Parent who (being an individual) is present in person or (being a corporation) is present by a duly authorized corporate representative at a general meeting of the Parent will have one vote; and b.every person present who has been appointed by a shareholder as a proxy will have one vote, except where: i.that proxy has been appointed by more than one shareholder entitled to vote on the resolution; and ii.the proxy has been instructed: A.by one or more of those shareholders to vote for the resolution and by one or more of those shareholders to vote against the resolution; or B.by one or more of those shareholders to vote in the same way on the resolution (whether for or against) and one or more of those shareholders has permitted the proxy discretion as to how to vote,
in which case, the proxy has one vote for and one vote against the resolution. 2.On a poll taken at a meeting, every shareholder present and entitled to vote on the resolution has one vote for every ordinary share of the Parent of which he, she, or it iswhere they are the holder, and 0.9995 votes for every Special Voting Share for which he, she, or it iswhere they are entitled under the terms of the Parent’s loyalty voting structure to direct the exercise of the vote. Under the Articles, a poll on a resolution may be demanded by the chairperson, the directors, five (5) or more people having the right to vote on the resolution, or a shareholder or shareholders (or their duly appointed proxies) having not less than 10% of
either the total voting rights or the total paid up share capital. Once a resolution is declared, such persons may demand the poll both in advance of, and during, a general meeting, either before or immediately after a show of hands on such resolution. In the case of joint holders, only the vote of the senior holder who votes (or any proxy duly appointed by him) may be counted by the Parent.
The necessary quorum for a general shareholder meeting is the shareholders who together represent at least a majority of the voting rights of all the shareholders entitled to vote at the meeting, present in person or by proxy, save that if the Parent only has one (1) shareholder entitled to attend and vote at the general meeting, one (1) shareholder present in person or by proxy at the meeting and entitled to vote is a quorum.
In case of a meeting requisitioned by the shareholders, where the quorum is not met the meeting is dissolved. In case of other meetings, where the quorum is not met, the meeting is adjourned. If a meeting is adjourned for lack of quorum, the quorum of the adjourned meeting will be one shareholder present in person or by proxy. The Sterling Non-Voting Shares carry no voting rights (save where required by law).
Winding up
On a return of capital of the Parent on a winding up or otherwise, the holders of the Parent’s ordinary shares (and any other shares outstanding at the relevant time which rank equally with such shares) will share equally, on a share for share basis, in the Parent’s assets available for distribution, after paying:
•the holders of the Special Voting Shares who will be entitled to receive out of the assets of the Parent available for distribution to its shareholders the sum of, in aggregate, U.S. $1.00 but shall not be entitled to any further participation in the assets of the Parent; and
•the holders of the Sterling Non-Voting Shares who will be entitled to receive out of the assets of the Parent available for distribution to its shareholders the sum of, in aggregate, £1.00 but shall not be entitled to any further participation in the assets of the Parent. Redemption provisions The Parent’s ordinary shares are not redeemable. The Special Voting Shares may be redeemed by the Parent for nil consideration in certain circumstances (as set out in the Articles). The Sterling Non-Voting Shares may be redeemed by the Parent for nil consideration at any time. Sinking fund provisions None of the Parent’s shares are subject to any sinking fund provision under the Articles or as a matter of English law. Liability to further calls No holder of any share in the Parent is liable to make additional contributions of capital in respect of its shares. Discriminating provisions There are no provisions discriminating against a shareholder because of his or hertheir ownership of a particular number of shares. Variation of class rights The Articles treat the Parent’s ordinary shares and the Special Voting Shares as a single class for the purposes of voting. Any special rights attached to any shares in the Parent’s capital may (unless otherwise provided by the terms of issue of the shares of that class) be varied or abrogated, either while the Parent is a going concern or during or in contemplation of a winding up, with the consent in writing of those entitled to attend and vote at general meetings of the Parent representing 75% of the voting rights attaching to the Parent’s ordinary shares and the Special Voting Shares, in aggregate, which may be exercised at such meetings, or with the sanction of 75% of those votes attaching to the Parent’s ordinary shares and the Special Voting Shares, in aggregate,
cast on a special resolution proposed at a separate general meeting of all those entitled to attend and vote at the Parent’s general meetings, but not otherwise. The CA 2006 allows an English company to vary class rights of shares by a resolution of 75% of the shareholders of the class in question. A resolution to vary any class rights relating to the giving, variation, revocation, or renewal of any authority of the directors to allot shares or relating to a reduction of the Parent’s capital may only be varied or abrogated in accordance with the CA 2006 but not otherwise. The rights attached to a class of shares are not, unless otherwise expressly provided for in the rights attaching to those shares, deemed to be varied by the creation, allotment, or issue of further shares ranking pari passu with or subsequent to them or by the purchase or redemption by the Parent of its own shares in accordance with the CA 2006.
General meetings and notices The Board has the power to call a general meeting of shareholders at any time. The Board shall determine whether a general meeting (including an annual general meeting) is to be held as a physical general meeting or an electronic general meeting (or a combination thereof). In addition, the Board must convene such a meeting if it has received requests to do so from shareholders representing at least 5% of the paid-up share capital of the Parent as carries voting rights at general meetings in accordance with Section 303 of the CA 2006. An annual general meeting must be called by not less than 21 clear days’ notice (i.e., excluding the date of receipt or deemed receipt of the notice and the date of the meeting itself). All other general meetings will be called by not less than 14 clear days’
notice. A general meeting may be called by shorter notice if it is agreed to by a majority in number of the shareholders having the right to attend and vote at the meeting, being a majority who together hold not less than 95% in nominal value of the shares giving that right. At least seven (7) clear days’ notice is required for any meeting adjourned for 28 days or more or for an indefinite period. The notice of a general meeting will be given to the shareholders (other than any who, under the provisions of the Articles or the terms of allotment or issue of shares, are not entitled to receive notice), to the Board, to the beneficial owners nominated to enjoy information rights under the CA 2006, and to the auditors. The shareholders entitled to receive notice of and attend a general meeting are those on the share register at the close of business on a day determined by the directors. Under English law, the Parent is required to hold an annual general meeting within six months from the day following the end of its fiscal year and, subject to the foregoing, the meeting may be held at a time and place (whether physical or electronic or a combination thereof) determined by the Board whether within or outside of the U.K. The notice of general meeting must specify a time (which must not be more than 48 hours, excluding any part of a day that is not a working day, before the time fixed for the meeting) by which a person must be entered on the share register in order to have the right to attend or vote at the meeting. Only such persons or their duly appointed proxies have the right to attend and vote at the meeting of shareholders. Limitations on rights to own shares There are no limitations imposed by the Articles or the applicable laws of England & Wales on the rights to own shares, including the right of non-residents or foreign persons to hold or vote the Parent’s shares, other than limitations that would generally apply to all shareholders. Change of control There is no specific provision in the Articles that directly would have an effect of delaying, deferring, or preventing a change in control of the Parent and that would operate only with respect to a merger, acquisition, or corporate restructuring involving the Parent or any of its subsidiaries. However, the loyalty voting structure may make it more difficult for a third party to acquire, or attempt to acquire, control of the Parent. As a result of the loyalty voting structure, it is possible that a relatively large portion of the voting rights of the Parent could be concentrated in a relatively small number of holders who would have significant influence over the Parent. Such shareholders participating in the loyalty voting structure could reduce the likelihood of change of control transactions that may otherwise benefit holders of the Parent’s ordinary shares. For a discussion of this risk, see “Item 3. Key Information - D. Risk Factors.Factors.”
Disclosure of ownership interests in shares Under the Articles, shareholders must comply with the notification obligations to the Parent contained in Chapter 5 (Vote Holder and Issuer Notification Rules) of the Disclosure Guidance and Transparency Rules (“DTR”) (including, without limitation, the provisions of DTR 5.1.2) as if the Parent were an issuer whose home member state is inDTR applies to the United Kingdom,Parent, save that the obligation arises if the percentage of voting rights reaches, exceeds, or falls below 1% and each one (1) percent threshold thereafter (up or down) up to 100%. In effect, this means that a shareholder must notify the Parent if the percentage of voting rights in the Parent it holds reaches 1% and crosses any one (1) percent threshold thereafter (up or down). Section 793 of the CA 2006 gives the Parent the power to require persons whom it knows have, or whom it has reasonable cause to believe have, or within the previous three (3) years have had, any ownership interest in any shares of the Parent to disclose specified information regarding those shares. Failure to provide the information requested within the prescribed period (or knowingly or recklessly providing false information) after the date the notice is sent can result in criminal or civil sanctions being imposed against the person in default.
Under the Articles, if any shareholder, or any other person appearing to be interested in the Parent’s shares held by such shareholder, fails to give the Parent the information required by a Section 793 notice, then the Board may withdraw voting rights and place restrictions on the rights to receive dividends, and transfer of such shares (including any shares allotted or issued after the date of the Section 793 notice in respect of those shares).
Changes in share capital
The Articles authorize the Company to allot (with or without conferring rights of renunciation), issue, grant options over or otherwise deal with or dispose of shares in the capital of the Company and to grant rights to subscribe for, or to convert any security into, shares in the capital of the Company to such persons, at such times and upon such terms as the directors may decide, provided that no share may be issued at a discount. Pursuant to a shareholder resolution passed on June 25, 2020,May 9, 2023, for a period expiring (unless previously revoked, varied or renewed) at the end of the next annual general meeting of the Company or, if sooner, on September 24, 2021,August 8, 2024, directors are authorized to:
(i) allot ordinary shares in the Parent, or to grant rights to subscribe for or to convert or exchange any security into shares in the Parent, up to an aggregate nominal amount (i.e., par value) of U.S. $6,824,827.70$6,656,131.20 and up to a further aggregate nominal amount of $6,824,827.70U.S. $6,656,131.20 where the allotment is in connection with an offer by way of a rights issue;
(ii) allot Special Voting Shares and to grant rights to subscribe for, or to convert any security into, Special Voting Shares, up to a maximum aggregate nominal amount of $136.50;$133.20; and
(iii) exclude pre-emption rights: first, in relation to offers of equity securities by way of rights issue; second, in relation to the allotment of equity securities for cash up to an aggregate nominal amount (i.e., par value) of U.S. $1,023,724.20;$1,996,839.40; and third, in relation to an acquisition or other capital investment up to an aggregate nominal amount (i.e., par value) of U.S. $1,023,724.20.$1,996,839.40. These provisions are more restrictive than required under English law which does not prescribe a limit for the maximum amounts for allotment of shares or exclusion of pre-emption rights.
Pursuant to a shareholder resolution passed on June 25, 2020,May 9, 2023, for a period expiring (unless previously revoked, varied or renewed) at the end of the next annual general meeting of the Company or, if sooner, on December 24, 2021,November 8, 2024, the Parent is authorized to purchase its own ordinary shares on the terms of the share repurchase contracts approved by the shareholders, provided that:
(i)the maximum aggregate number of the Parent’s ordinary shares authorized to be purchased equals 20,474,483,19,968,394, representing 10% of the total then issued ordinary shares;
(ii) the minimum price (exclusive of expenses) which may be paid by the Company for each ordinary share shall be U.S. $0.10; and (iii)the maximum price (exclusive of expenses) which may be paid to purchase an ordinary share of the Parent is 105% of the average market value of an ordinary share for the five business days prior to the day the purchase is made (subject to any further price restrictions contained in any share repurchase contract).
These provisions are more restrictive than required under English law which does not prescribe a limit for the maximum aggregate number or price paid for an "off market" repurchase of shares.
Loyalty Plan Scope The Parent has implemented a Loyalty Plan, the purpose of which is to reward long-term ownership of the Parent’s ordinary shares and promote stability of the Parent’s shareholder base by granting long-term shareholders, subject to certain terms and conditions, with the equivalent of 1.9995 votes for each ordinary share that they hold. The Loyalty Plan is governed by the provisions of the Articles and the Loyalty Plan Terms and Conditions from time to time adopted by the Board, a copy of which is available on the Company’s website, together with some Frequently Asked Questions. Characteristics of Special Voting Shares Each Special Voting Share carries 0.9995 votes. The Special Voting Shares and ordinary shares will be treated as if they are a single class of shares and not divided into separate classes for voting purposes (save upon a resolution in respect of any proposed termination of the Loyalty Plan). The Special Voting Shares have only minimal economic entitlements. Such economic entitlements are designed to comply with English law but are immaterial for investors.
Issue The number of Special Voting Shares on issue equals the number of ordinary shares on issue. A nominee appointed by the Parent (the “Nominee”), which is currently Computershare Company Nominees Limited, holds the Special Voting Shares on behalf of the shareholders of the Parent as a whole, and will exercise the voting rights attached to those shares in accordance with the Articles. Participation in the Loyalty Plan In order to become entitled to elect to participate in the Loyalty Plan, a person must maintain ownership in accordance with the Loyalty Plan for a continuous period of three (3) years or more (an “Eligible Person”). An Eligible Person within the Loyalty Plan Terms and Conditions may elect to participate in the Loyalty Plan by submitting a validly completed and signed election form (the “Election Form”) and, if applicable, the requisite custodial documentation, to the Parent’s designated agent (the “Agent”). The Election Form is available on the Company’s website. Upon receipt of a valid Election Form and, if applicable, custodial documentation, the Agent will register the relevant ordinary shares on a separate register (the “Loyalty Register”). In order for an Eligible Person’s ordinary shares to remain on the Loyalty Register, they may not be sold, disposed of, transferred, pledged or subjected to any lien, fixed or floating charge or other encumbrance, except in very limited circumstances. Voting arrangements The Nominee will exercise the votes attaching to the Special Voting Shares held by it from time to time at a general meeting or a class meeting: (a) in respect of any Special Voting Shares associated with ordinary shares held by an Eligible Person, in the same manner as the Eligible Person exercises the votes attaching to those IGT PLC ordinary shares; and (b) in respect of all other Special Voting Shares, in the same percentage as the outcome of the vote of any general meeting (taking into account any votes exercised pursuant to (a) above). The proxy or voting instruction form in respect of an Eligible Person’s ordinary shares will contain an instruction and authorization in favor of the Nominee to exercise the votes attaching to the Special Voting Shares associated with those ordinary shares in the same manner as that Eligible Person exercises the votes attaching to those ordinary shares. Transfer or withdrawal If, at any time and for any reason, one (1) or more ordinary shares are de-registered from the Loyalty Register, or any ordinary shares held by an Eligible Person on the Loyalty Register are sold, disposed of, transferred (other than with the benefit of a waiver in respect of certain permitted transfers), pledged or subjected to any lien, fixed or floating charge or other encumbrance, the Special Voting Shares associated with those ordinary shares will cease to confer on the Eligible Person any voting rights (or any other rights) in connection with those Special Voting Shares and such person will cease to be an Eligible Person in respect of those Special Voting Shares.
A shareholder may request the de-registration of their ordinary shares from the Loyalty Register at any time by submitting a validly completed Withdrawal Form to the Agent. The Agent will release the ordinary shares from the Loyalty Register within three (3) business days thereafter. Upon de-registration from the Loyalty Register, such ordinary shares will be freely transferable. From the date on which the Withdrawal Form is processed by the Agent, the relevant shareholder will be considered to have waived their rights in respect of the relevant Special Voting Shares. Termination of the Plan The Loyalty Plan may be terminated at any time with immediate effect by a resolution passed on a poll taken at a general meeting with the approval of members representing 75% or more of the total voting rights attaching to the ordinary shares of members who, being entitled to vote on that resolution, do so in person or by proxy. For the avoidance of doubt, the votes attaching to the Special Voting Shares will not be exercisable upon such resolution.
Upon termination of the Loyalty Plan, the directors may elect to redeem or repurchase the Special Voting Shares from the Nominee for nil consideration orand cancel them, or convert the Special Voting Share into deferred shares carrying no voting rights and no economic rights (or any other rights), save that on a return of capital or a winding up, the holder of the deferred shares shall be entitled to, in aggregate, $1.00.
Transfer The Special Voting Shares may not be transferred, except in exceptional circumstances, e.g., for transfers between Loyalty Plan nominees. Repurchase or redemption Special Voting Shares may only be purchased or redeemed by the Parent in limited circumstances, including to reduce the number of Special Voting Shares held by the Nominee in order to align the aggregate number of ordinary shares and Special Voting Shares in issue from time to time or upon termination of the Loyalty Plan. Special Voting Shares may be redeemed or repurchased for nil consideration.
C. Material Contracts Definitive Agreements for the Separation & Divestiture
The definitive agreements entered into by the Parent and/or SpinCo in connection with the Separation & Divestiture include: (i) a Separation and Distribution Agreement by and among the Parent, SpinCo, Gaming HoldCo and Everi (the “Separation Agreement”);(ii) the Merger Agreement; (iii) an Employee Matters Agreement by and among the Parent, SpinCo, Gaming HoldCo and Everi (the “Employee Matters Agreement”); (iv) a Real Estate Matters Agreement by and among the Parent, SpinCo, Gaming HoldCo and Everi (the “Real Estate Matters Agreement”); (v) a Tax Matters Agreement by and among the Parent, SpinCo, Gaming HoldCo and Everi (the “Tax Matters Agreement”), and (vi) a Commitment Letter by and among Everi, SpinCo, Deutsche Bank AG New York Branch (together with its affiliates, “DB”) and Macquarie Capital (USA) Inc. (together with its affiliates, “Macquarie”) (the “Commitment Letter”) and (vii) a Voting and Support Agreement by and among the Parent, SpinCo, Everi and De Agostini (the “Voting Agreement”), each dated as of February 28, 2024. In addition, on February 28, 2024, Everi and De Agostini entered into an Investor Rights Agreement (the “Investor Rights Agreement”).
Separation Agreement
The Separation Agreement sets forth the terms and conditions regarding, among other things, the Separation, the SpinCo Contribution and the Distribution. The terms and conditions include, among other things, the restructuring and the transfer of assets and assumption of liabilities by the Parent and SpinCo and their respective subsidiaries in accordance with the separation plan as provided in the Separation Agreement to result in SpinCo owning substantially all of the assets and assuming substantially all of the liabilities of the SpinCo Business, and the Parent owning substantially all of the assets and assuming substantially all of the liabilities of the Parent’s business other than the SpinCo Business. In connection with such Separation, the Parent will effect the SpinCo Contribution in exchange for SpinCo issuing additional SpinCo Units such that the total number of SpinCo Units held by the Parent shall be equal to the number of the Parent’s ordinary shares outstanding as of the record date. The parties will procure satisfaction of SpinCo and the Parent’s existing credit support instrument release conditions at the Distribution, as applicable, and may be required to provide further cash or collateral to existing credit support beneficiaries.
The Separation Agreement also governs the rights and obligations of the parties regarding the Distribution. Consummation of the Distribution is subject to various conditions under the Separation Agreement, including the completion of the Separation and satisfaction or waiver of certain conditions to the Closing under the Merger Agreement. Prior to the Distribution, Gaming HoldCo will issue to the Parent the Intercompany Note in an amount equal to the Cash Payment, and immediately following the effective time of the Second Step Merger, to the extent not paid with proceeds of the Financing, Everi will cause Gaming HoldCo to make the Cash Payment to the Parent in satisfaction of the Intercompany Note. The “Cash Payment” will be an amount equal to $2.6 billion, as adjusted by the pre-Distribution estimates of SpinCo’s and Everi’s respective cash, debt, working capital, and expenses, as more fully set forth in the Separation Agreement. SpinCo will incur $3.7 billion of indebtedness in connection with the Financing, the proceeds of which will be used to make the Cash Payment. At least one day prior to the Merger Effective Time, Everi may declare a dividend, payable as a cash dividend and/or a right to receive a cash dividend, with a payment date as specified in the Separation Agreement, payable to holders of outstanding Everi common stock as of such declaration in accordance with the terms specified in the Separation Agreement.
The Separation Agreement also governs certain aspects of the relationship between the Parent, SpinCo, and Everi after the Distribution, including, among other things, provisions with respect to the release of claims, indemnification, restrictive covenants, guarantees, insurance, access to information and record retention. Both the Parent and Everi will be subject to two years of mutual non-solicitation obligations. The parties will have ongoing indemnification obligations under the Separation Agreement from and after the Distribution with respect to the liabilities related to SpinCo assumed by Everi through SpinCo, and the liabilities related to the Parent agreed to be retained by the Parent, as applicable. The Separation Agreement provides that, following the effectiveness of the Distribution, Everi will guarantee to the Parent the obligations of SpinCo under the transaction documents which pursuant to their terms arise at or after the Closing with respect to obligations to be performed after the effectiveness of the Distribution.
This description is qualified in its entirety by reference to the Separation Agreement, which is filed as Exhibit 4.11 to this annual report on Form 20-F.
Merger Agreement
The Merger Agreement provides for, among other things, the merger of Merger Sub with and into SpinCo, with SpinCo as the surviving company, and the merger of SpinCo with and into Gaming HoldCo, with Gaming HoldCo as the surviving corporation. As a result of the Second Step Merger, Gaming HoldCo would become a direct wholly owned subsidiary of Everi. In addition, prior to the Closing, it is contemplated that the Parent will effect the Separation, SpinCo Contribution, and the Distribution pursuant to the Separation Agreement as further described below.
In the Merger, holders of SpinCo Units will be entitled to receive for each SpinCo Unit a number of shares of newly issued Everi common stock equal to the exchange ratio specified in the Merger Agreement. Prior to the adjustments provided in the Merger Agreement, the Merger Agreement provides that the exchange ratio is equal to the quotient of (A) 103,379,870 shares of Everi common stock by (B) the number of SpinCo Units issued and outstanding immediately prior to the effective time of the Merger (the “Merger Effective Time”). Prior to giving effect to any customary adjustments of the exchange ratio in the event of stock or interest splits, divisions or subdivisions of shares, stock dividends, reverse stock splits, combinations of shares, reclassifications, recapitalizations or other similar transactions with respect to Everi common stock, the exchange ratio is designed to result in the outstanding Everi common stock, immediately following the Merger, being owned approximately 54% by former holders of SpinCo Units and approximately 46% by the stockholders of Everi immediately prior to the Merger.
The Merger Agreement also provides that, effective as of immediately following the Merger Effective Time, Everi shall cause its board of directors (the “Everi Board”) to be comprised of 11 members, with (a) six nominated by the Parent (the “IGT Nominated Directors”), three of whom will be nominated by De Agostini pursuant to the Investor Rights Agreement and (b) five nominated by Everi (the “Everi Nominated Directors”). The directors will be appointed to the classes of the Everi Board as specified in the Investor Rights Agreement and the Merger Agreement, and at least three of each of the IGT Nominated Directors and the Everi Nominated Directors will be subject to independence and other qualifications.
Consummation of the Merger is subject to various and customary conditions, including, among other things: the accuracy of representations and warranties and compliance with covenants, subject to certain customary exceptions; the effectiveness of registration statements to be filed by SpinCo and Everi with the SEC in connection with the Separation & Divestiture; approval by the stockholders of Everi and the shareholders of the Parent; the consummation of the Separation, the SpinCo Contribution and the Distribution; the receipt of the Intercompany Note by the Parent and the receipt of the Cash Payment by the Parent concurrently with the receipt by Everi of proceeds of the Financing (as defined in the Merger Agreement); the receipt of regulatory approvals; and the approval of the NYSE of the listing on the NYSE of the newly issued shares of Everi common
stock in the Merger. The Merger Agreement provides that the parties will use their reasonable best efforts and take other actions to obtain the specified regulatory approvals for the proposed transaction, subject to certain exceptions as set forth in the Merger Agreement.
The Parent, SpinCo, Everi, and Merger Sub each make certain customary representations, warranties and covenants, as applicable, in the Merger Agreement, including covenants with respect to the conduct of the SpinCo Business and the business of Everi and its subsidiaries, as applicable, during the period between signing and the earlier of the termination of the Merger Agreement and the Merger Effective Time. Each of the Parent and Everi also covenants, among other things, that neither party nor any of its subsidiaries will (i) solicit certain alternative transactions or (ii) enter into discussions concerning, or provide information or data in connection with, such alternative transactions (except under limited circumstances described in the Merger Agreement, including where such party’s board of directors has received an unsolicited proposal that could reasonably be expected to lead to a superior proposal and failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law, subject to certain notice conditions); provided that the Parent may solicit or enter into discussions concerning, or provide information or data in connection with, transactions with respect to the business of the Parent excluding the SpinCo Business. The Merger Agreement also provides for each of the Parent’s and Everi’s board of directors to recommend that its shareholders and stockholders, respectively, vote in favor of the Separation & Divestiture, subject to certain exceptions described in the Merger Agreement.
The Merger Agreement contains specified termination rights for the Parent and Everi, including, among other things, that either party may terminate the Merger Agreement if either the Parent’s or Everi’s board adopts, approves, endorses, declares advisable or recommends to its stockholders an acquisition proposal other than the contemplated transaction, and under other circumstances as set forth in the Merger Agreement. The Merger Agreement further provides that in connection with a termination of the Merger Agreement under specified circumstances, each of the Parent and Everi may be obligated to pay a termination fee of $80 million and/or reimburse the other party for Commitment Fees (as defined in the Merger Agreement) and expenses in connection with any securities offering in connection with the Financing paid by the other party.
This description is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 4.10 to this annual report on Form 20-F.
Employee Matters Agreement
The Employee Matters Agreement, among other things, allocates among the parties the pre- and post-Closing liabilities in respect of the current and former employees of the SpinCo Business (including liabilities in respect of employee compensation and benefit plans covering such employees). Subject to various exceptions, SpinCo will generally assume liabilities in respect of the current and former employees of the SpinCo Business and any assets dedicated thereto, and the Parent will generally retain employee liabilities and assets related to the Parent.
This description is qualified in its entirety by reference to the Employee Matters Agreement, which is filed as Exhibit 4.12 to this annual report on Form 20-F.
Real Estate Matters Agreement
The Real Estate Matters Agreement governs the allocation and transfer of real estate between the Parent and SpinCo. Pursuant to the Real Estate Matters Agreement, the Parent may transfer to, or share with, SpinCo certain leased property associated with the SpinCo Business. The Real Estate Matters Agreement describes the manner in which the Parent will conduct an internal feasibility review to determine the suitability of certain leased property for a sublease or license to SpinCo. Following such review, the Parent and SpinCo may agree to (i) enter into a sublease or license of a portion of a leased property, or (ii) secure an alternative location and/or remote work arrangement for employees and operations which would otherwise have continued at such leased property.
This description is qualified in its entirety by reference to the Real Estate Matters Agreement, which is filed as Exhibit 4.13 to this annual report on Form 20-F.
Tax Matters Agreement
The Tax Matters Agreement sets forth, among other things, the parties’ respective rights, responsibilities and obligations with respect to taxes of SpinCo, the Parent, Everi and their respective subsidiaries (including taxes arising in the ordinary course of business and taxes imposed in connection with the Separation & Divestiture), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and assistance and cooperation in respect of tax matters. Generally, the
Parent will be responsible for taxes incurred by the SpinCo Business prior to the date of the Distribution, and SpinCo (and Everi through its ownership of SpinCo) will be responsible for taxes incurred by SpinCo following the date of the Distribution. The Parent will also be responsible for any taxes imposed on SpinCo in connection with the Separation & Divestiture.
This description is qualified in its entirety by reference to the Tax Matters Agreement, which is filed as Exhibit 4.14 to this annual report on Form 20-F.
Financing Arrangements
In connection with the Merger Agreement, on February 28, 2024, SpinCo entered into the Commitment Letter and related fee letters and engagement letter with DB, Macquarie, and Everi, pursuant to which, and subject to the terms and conditions set forth therein, DB and Macquarie committed to provide up to $4.22 billion in senior secured credit facilities consisting of (i) a $500 million revolving credit facility (the “Revolving Credit Facility”), (ii) a term loan facility (the “Term Loan Facility” and together with the Revolving Credit Facility, the “Credit Facilities”) and (iii) a bridge facility (the “Bridge Facility” and, collectively with the Credit Facilities, the “Facilities”). Pursuant to the engagement letter related to the Commitment Letter, SpinCo and Everi have engaged DB and Macquarie with respect to an issuance of “Rule 144A-for-life” senior secured notes that may be issued in lieu of all or a portion of the Bridge Facility. The proceeds of the loans under the Facilities may be used by Everi to (i) consummate the refinancing of certain existing third party debt for borrowed money of Everi and its subsidiaries, pursuant to which such debt will be repaid, redeemed, defeased, discharged, refinanced or terminated and all commitments to extend credit under such debt agreements will be terminated and any security interests and guarantees in connection therewith shall be terminated and/or released, (ii) repay the Intercompany Note and (iii) to pay fees and expenses in connection with the Separation & Divestiture and otherwise consummate the Separation & Divestiture. If the Separation & Divestiture is consummated, the indebtedness contemplated by the Commitment Letter will become indebtedness of Everi and/or a wholly-owned subsidiary of Everi.
This description is qualified in its entirety by reference to the Commitment Letter, which is filed as Exhibit 2.19 to this annual report on Form 20-F.
The Voting Agreement
The Voting Agreement contains, among other things, an agreement by De Agostini to vote or cause to be voted all shares of capital stock of the Parent owned or subsequently acquired by De Agostini (the “Covered Shares”) (i) for the approval of the Distribution, the transaction documents and the Separation & Divestiture, and (ii) against any alternative proposal to acquire SpinCo or actions that are intended to, or would reasonably be expected to, impede, interfere with or materially and adversely affect the consummation of the Separation & Divestiture. The Voting Agreement also contains certain restrictions on the transfer of the Covered Shares and a requirement to make and not withdraw certain regulatory filings and to provide information in support of the Financing and filings with the SEC necessary in connection with the consummation of the Separation & Divestiture. The Voting Agreement automatically terminates upon the earliest of the Closing, the valid termination of the Merger Agreement, a change in recommendation of the Separation & Divestiture by the Parent and any amendment to the Merger Agreement that decreases the exchange ratio without the prior written consent of De Agostini.
This description is qualified in its entirety by reference to the Voting Agreement, which is filed as Exhibit 3.1 to this annual report on Form 20-F.
Exclusive License Agreement with Sony
On June 1, 2023, the Company entered into a ten-year licensing agreement with Sony, which grants the Company the exclusive rights to the Wheel of Fortune brand across gaming, lottery, iGaming and iLottery and includes the rights to distribute Wheel of Fortune content for free-to-play social casinos. The contract will run from January 1, 2025 to December 31, 2034, with minimum license fees of $312.5 million over the term, and extends the Company’s partnership with Sony dating back to 1996. This description is qualified in its entirety by reference to the licensing agreement, which is filed as Exhibit 4.9 to this annual report on Form 20-F.
Share Sale and Purchase Agreement with Gamenet GroupPostePay S.p.A. – Patrimonio Destinato IMEL
On December 7, 2020,September 14, 2022, the Parent’s wholly-owned subsidiary, Lottomatica, entered into a shareCompany completed the sale and purchase agreement with Gamenet Group S.p.A. Pursuant to the share sale and purchase agreement, and subject to the terms and conditions therein, Lottomatica has agreed to sell of 100% of the share capital of Lottomatica Videolot ReteLis Holding S.p.A. and Lottomatica Scommesse S.r.l., the members of the IGT group which conduct its Italian B2C gaming machine, sports betting, and digital gaming businesses, to Gamenet Group S.p.A, a wholly owned subsidiary of funds managed by an affiliate of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”)IGT Lottery S.p.A. that conducted the Company’s Italian commercial services business, to PostePay S.p.A. – Patrimonio Destinato IMEL, for a salepurchase price of €950€700 million with €725. The consideration received, net of €198 million to be paid at closing cash and deferred payments
restricted cash transferred and €23 million of selling costs, was €479 million and €100resulted in a pre-tax gain on sale of $278 million payable on December 31, 2021 and September 30, 2022, respectively. The sale price is subject to certain adjustments specified in the agreement. The deferred payments are not subject to any conditions other than closing and are secured by an equity commitment letter from Apollo-managed funds. The transaction is expected to close in the first half, ($276 million net of 2021, and is subject to customary closing conditions, including regulatory approvals.tax).
Observer Agreement with De Agostini
On May 16, 2018, the Parent’s directors approved the observer agreement (the “Observer Agreement”) between De Agostini and the Company permitting De Agostini to appoint an observer to attend meetings of the Parent’s directors. On November 12, 2019,8, 2023, the Observer Agreement was renewed for a two-yearnew two (2) year term and Paolo Ceretti, a former directorAlessandro Vergottini, the Chief Financial Officer of the Parent,De Agostini, acknowledged and agreed to his renewed appointment by De Agostini as an observer pursuant to the terms of the Observer Agreement. Unless renewed, theThe Observer Agreement is set towill expire following the meeting of the Parent’s directorsBoard at which the financial results for the third quarter of 20212025 are reviewed. Agreements Related to the Italian Lotto License
In March 2016, the Parent, through its subsidiary Lottomatica, Italian Gaming Holding a.s., Arianna 2001, and Novomatic Italia (the “Consortium”) entered into a consortium agreement (the “Consortium Agreement”) to bid on the Italian Gioco del Lotto license (the “Lotto License”). On May 16, 2016, the Consortium was awarded management of the Lotto License for a nine-year term. Under the terms of the Consortium Agreement, Lottomatica is the principal operating partner to fulfill the requirements of the Lotto License. According to the bid procedure and Consortium Agreement, a joint venture company called Lottoitalia s.r.l (“Lottoitalia”) has been established with Lottomatica having 61.5% equity ownership interest, and the remainder of the equity ownership shared among the other three Consortium members. For a further discussion of the Consortium Agreement's terms, please see “Notes to the Consolidated Financial Statements—20. Variable Interest Entities.”
Italian Scratch & Win License
In December 2017, the Parent, through its subsidiary Lotterie Nazionali S.r.l. (“LN”) accepted a contract extension of nine years for the Italian Scratch & Win license. The Italian Scratch & Win license is managed exclusively by LN, a joint venture owned 64% by Lottomatica, with Scientific Games Corporation (20%), Arianna 2001 (15%), and Servizi in Rete S.p.A. (1%) as minority shareholders.
Related Party Agreements For a discussion of the Company’s related party transactions, including additional transactions with De Agostini, please see “Notes to the Consolidated Financial Statements—24. 25. Related Party Transactions.Transactions”included in “Item 18. Financial Statements”.
Compensation Arrangements For a description of compensation arrangements with the Parent’s directors and executive officers, please see “Item 6. Directors, Senior Management, and Employees — B. Compensation.Compensation.” Financing For a description of the Company’s outstanding financing agreements, please see section “Item 5.B. Liquidity and Capital Resources.Resources.”
D. Exchange Controls Other than applicable taxation, anti-money laundering, and counter-terrorist financing law and regulations and certain economic sanctions which may be in force from time to time, there are currently no English laws or regulations, or any provision of the Articles, which would prevent the transfer of capital or remittance of dividends, interest, and other payments to holders of the Parent’s securities who are not residents of the U.K. on a general basis.
E. Taxation Material United States Federal Income Tax Considerations This section summarizes certain material U.S. federal income tax considerations regarding the ownership and disposition of the Parent’s ordinary shares by a U.S. holder (as defined below)., and certain material U.S. federal income tax consequences of the Distribution and Merger. This summary is based on U.S. federal income tax law, including the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations promulgated thereunder, administrative guidance and court decisions in effect on the date hereof, all of which are subject to change, possibly with retroactive effect, and to differing interpretations. No ruling from the Internal Revenue Service (the “IRS”) has been sought with respect to any U.S. federal income tax considerations described below, and there can be no assurance that the IRS or a court will not take a contrary position. The discussion assumes that the Parent’s shareholders hold their ordinary shares, as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion further assumes that all items or transactions identified as debt will be respected as such for U.S. federal income tax purposes.
This summary does not constitute tax advice and does not address all aspects of U.S. federal income taxation that may be relevant to the Parent’s shareholders in light of their personal circumstances, including any tax consequences arising under the tax on certain investment income pursuant to the Health Care and Education Reconciliation Act of 2010 or arising under the U.S. Foreign Account Tax Compliance Act (or any Treasury regulations or administrative guidance promulgated thereunder, any intergovernmental agreement entered into in connection therewith or any non-U.S. laws, rules or directives implementing or relating to any of the foregoing), or to shareholders subject to special treatment under the Code, including (but not limited to): •banks, thrifts, mutual funds, and other financial institutions;
•regulated investment companies; •real estate investment trusts; •traders in securities that elect to apply a mark-to-market method of accounting; •broker-dealers; •tax-exempt organizations and pension funds; •U.S. holders that own (directly, indirectly, or constructively) 10% or more of the Company’s stock (by vote or value); •insurance companies; •dealers or brokers in securities or foreign currency; •individual retirement and other deferred accounts; •U.S. holders whose functional currency is not the U.S. dollar; •U.S. expatriates; •“passive foreign investment companies” or “controlled foreign corporations”; •persons subject to the alternative minimum tax; •U.S. holders that hold their shares as part of a straddle, hedging, conversion, constructive sale or other risk reduction transaction; •partnerships or other entities or other arrangements treated as partnerships for U.S. federal income tax purposes and their partners and investors; and
•U.S. holders that received their shares through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan.
This discussion does not address any non-income tax considerations or any state, local or non-U.Snon-U.S. tax consequences. For purposes of this discussion, a “U.S. holder” means a beneficial owner of the Parent’s ordinary shares that is, for U.S. federal income tax purposes: •an individual who is a citizen or resident of the United States; •a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia; •an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or •a trust ifif: (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust,trust; or (2) the trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes. This discussion does not purport to be a comprehensive analysis or description of all potential U.S. federal income tax considerations. Each of the Parent’s shareholders is urged to consult with such shareholder’s tax advisor with respect to the particular tax consequences of the ownership and disposition of the Parent’s ordinary shares to such shareholder. If a partnership, including for this purpose any entity or arrangement that is treated as a partnership for U.S. federal income tax purposes, holds the Parent’s ordinary shares, the tax treatment of a partner therein will generally depend upon the status of such partner, the activities of the partnership and certain determinations made at the partner level. Any such holder that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the ownership and disposition of their ordinary shares. Ownership and Disposition of the Parent’s Ordinary Shares The following discusses certain material U.S. federal income tax consequences of the ownership and disposition of the Parent's ordinary shares by U.S. holders and assumes that the Parent will be a resident exclusively of the U.K. for all tax purposes. Taxation of Distributions Subject to the discussion below under “Passive Foreign Investment Company Considerations,” the gross amount of distributions with respect to the Parent’s ordinary shares (including the amount of any non-U.S. withholding taxes) will be taxable as dividends, to the extent that they are paid out of the Parent’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such dividends will be includable in a U.S. holder’s gross income as ordinary dividend income on the day actually or constructively received by the U.S. holder. Such dividends will not be eligible for the dividends-received deduction allowed to corporations under the Code.
The gross amount of the dividends paid by the Parent to non-corporate U.S. holders may be eligible to be taxed at reduced rates of U.S. federal income tax applicable to “qualified dividend income.” Recipients of dividends from non-U.S. corporations will be taxed at this rate, provided that certain holding period requirements are satisfied and certain other requirements are met, if the dividends are received from “qualified foreign corporations,” which generally include corporations eligible for the benefits of an income tax treaty with the United States that the U.S. Secretary of the Treasury determines is satisfactory and includes an
information exchange program. The U.S. Department of the Treasury and the IRS have determined that the U.K.- U.S. Income Tax Treaty is satisfactory for these purposes and the Parent believes that it is eligible for benefits under such treaty. Dividends paid with respect to stock of a foreign corporation which stock is readily tradable on an established securities market in the United States will also be treated as having been received from a “qualified foreign corporation.” The U.S. Department of the Treasury and the IRS have determined that common stock is considered readily tradable on an established securities market if it is listed on an established securities market in the United States, such as the NYSE.
Non-corporate U.S. holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss, or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code, will not be eligible for the reduced rates of taxation regardless of the Parent’s status as a qualified foreign corporation. In addition, even if the minimum holding period requirement has been met, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. Each U.S. holder should consult its own tax advisors regarding the application of these rules given its particular circumstances. To the extent that the amount of any distribution exceeds the Parent’s current and accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax principles, the excess will first be treated as a tax-free return of capital to the
extent of each U.S. holder’s adjusted tax basis in the Parent’s ordinary shares and will reduce such U.S. holder’s basis accordingly. The balance of the excess, if any, will be taxed as capital gain, which would be long-term capital gain if the holder has held the Parent’s ordinary shares for more than one year at the time the distribution is received. Long-term capital gain of certain non-corporate U.S. holders, including individuals, is generally taxed at reduced rates. The deduction of capital losses is subject to limitations. The amount of any distribution paid in foreign currency will be the U.S. dollar value of the foreign currency distributed by the Parent, calculated by reference to the exchange rate in effect on the date the distribution is includable in the U.S. holder’s income, regardless of whether the payment is in fact converted into U.S. dollars on the date of receipt. Generally, a U.S. holder would not recognize any foreign currency gain or loss if the foreign currency is converted into U.S. dollars on the date the payment is received. However, any gain or loss resulting from currency exchange fluctuations during the period from the date the U.S. holder includes the distribution payment in income to the date such U.S. holder actually converts the payment into U.S. dollars will generally be treated as ordinary income or loss. Sale, Exchange, or Other Taxable Disposition Subject to the discussion below under “Passive Foreign Investment Company Considerations,” a U.S. holder will generally recognize taxable gain or loss on the sale, exchange or other taxable disposition of the Parent’s ordinary shares in an amount equal to the difference, if any, between the amount realized on the sale, exchange, or other taxable disposition and the U.S. holder’s tax basis in such Parent’s ordinary shares. Such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if the ordinary shares have been held for more than one year. Long-term capital gain of certain non-corporate U.S. holders, including individuals, is generally taxed at reduced rates. The deduction of capital losses is subject to limitations. Passive Foreign Investment Company Considerations A Passive Foreign Investment Company (“PFIC”) is any foreign corporation if, after the application of certain “look-through” rules, (a) at least 75% of its gross income is “passive income” as that term is defined in the relevant provisions of the Code, or (b) at least 50% of the average value of its assets produces “passive income” or is held for the production of “passive income.” The determination as to PFIC status is a fact-intensive determination that includes ascertaining the fair market value (or, in certain circumstances, tax basis) of all the Parent’s assets on a quarterly basis and the character of each item of income, and cannot be completed until the close of a taxable year. If a U.S. holder is treated as owning PFIC stock, such U.S. holder will be subject to special rules generally intended to reduce or eliminate the benefit of the deferral of U.S. federal income tax that results from investing in a foreign corporation that does not distribute all of its earnings on a current basis. These rules may adversely affect the tax treatment to a U.S. holder of distributions paid by the Parent and of sales, exchanges, and other dispositions of the Parent’s ordinary shares, and may result in other adverse U.S. federal income tax consequences. The Parent believes that the ordinary shares should not be treated as shares of a PFIC in the current taxable year, and the Parent does not expect that it will become a PFIC in the future. However, there can be no assurance that the IRS will not successfully challenge this position or that the Parent will not become a PFIC at some future time as a result of changes in the Parent’s assets, income, or business operations.
Each U.S. holder is urged to consult its tax advisor concerning the U.S. federal income tax consequences of acquiring, owning or disposing of the Parent’s ordinary shares if the Parent is or becomes classified as a PFIC, including the possibility of making a mark-to-market election. The remainder of the discussion below assumes that the Parent is not a PFIC, has not been a PFIC and will not become a PFIC in the future.
Information Reporting U.S. individuals and certain entities with interests in “specified foreign financial assets” (including, among other assets, the Parent’s ordinary shares, unless such shares were held on such U.S. holder’s behalf through certain financial institutions) with values in excess of certain thresholds are required to file an information report with the IRS. Taxpayers that fail to file the information report when required are subject to penalties. U.S. holders should consult their own tax advisors as to the possible obligation to file such information reports in light of their particular circumstances.
Special Voting Shares NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE RECEIPT, OWNERSHIP, OR LOSS OF ENTITLEMENT TO INSTRUCT THE NOMINEE ON HOW TO VOTE IN RESPECT OF SPECIAL VOTING SHARES SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES AND AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES THEREOF ARE UNCERTAIN. ACCORDINGLY, U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP, AND LOSS OF ENTITLEMENT TO INSTRUCT THE NOMINEE ON HOW TO VOTE IN RESPECT OF SPECIAL VOTING SHARES. While the tax consequences of the receipt, ownership, and loss of entitlement to instruct the nominee on how to vote in respect of Special Voting Shares are unclear, such receipt, ownership, and loss is not expected to constitute a separate transaction from ownership of the ordinary shares for U.S. federal income tax purposes. As such, neither the receipt of the Special Voting Shares nor the loss of entitlement to instruct the nominee on how to vote the Special Voting Shares is expected to give rise to a taxable event for U.S. federal income tax purposes.
U.S. Federal Income Tax Consequences of the Distribution and Merger
The following is a general discussion of certain material U.S. federal income tax consequences to U.S. holders (i) who receive SpinCo Units in the Distribution and (ii) whose SpinCo Units are exchanged for shares of Everi common stock pursuant to the Merger, assuming the Distribution and Merger are completed as set forth in the section above labeled “Separation & Divestiture of the Global Gaming and PlayDigital Businesses”. This discussion is subject to the discussion above under “Ownership and Disposition of the Parent’s Ordinary Shares—Passive Foreign Investment Company Considerations”.
No ruling from the IRS has been or will be sought with respect to any aspect of the Separation & Divestiture, and no opinion of counsel will be rendered in connection with the transactions comprising the Separation & Divestiture. Accordingly, the discussion below neither binds the IRS nor precludes it from adopting a contrary position. The tax treatment of the Separation & Divestiture to Parent’s shareholders will vary depending on their particular situations. This summary is for the general information of U.S. holders only and does not purport to be a complete analysis of all potential tax effects of the Separation & Divestiture. Accordingly, U.S. holders should consult their own tax advisors with respect to the particular tax consequences to them of the Separation & Divestiture.
Parent intends to report the Distribution as a taxable distribution of SpinCo Units for U.S. federal income tax purposes. Assuming such treatment is correct, the tax consequences described above in “Ownership and Disposition of the Parent’s Ordinary Shares—Taxation of Distributions” would generally apply to the Distribution.
Specifically, a U.S. holder will be required to include the fair market value of the SpinCo Units in gross income as a dividend to the extent of Parent’s current or accumulated earnings and profits (as increased to reflect any gain recognized by Parent on a taxable distribution). A dividend paid by Parent to non-corporate U.S. holders may be eligible to be taxed at reduced rates of U.S. federal income tax applicable to “qualified dividend income”. The amount of Parent’s current or accumulated earnings and profits as of the date of the Distribution will not be known until after the Distribution. Accordingly, Parent is not able to determine the portion of the Distribution that will be reported as a dividend as of the date hereof.
To the extent that the fair market value of the Distribution exceeds Parent’s current and accumulated earnings and profits, such excess will first be treated as a tax-free return of capital to the extent of a U.S. holder’s adjusted tax basis in Parent’s ordinary
shares and will reduce such U.S. holder’s basis accordingly. The balance of the excess, if any, will be taxed as capital gain, which would be long-term capital gain if the U.S. holder has held Parent’s ordinary shares for more than one year at the time the SpinCo Units are received. Long-term capital gain of certain non-corporate U.S. holders, including individuals, is generally taxed at reduced rates. A U.S. holder’s basis in the SpinCo Units will be equal to the fair market value of the SpinCo Units received in the Distribution.
Based on the tax treatment of the Distribution described above, a U.S. holder would not recognize further gain or loss as a result of the Merger because even though the Merger is expected to be a taxable transaction, the fair market value of the Everi common stock received by such U.S. holder would equal the adjusted basis of the SpinCo Units exchanged by such U.S. holder in the Merger. A U.S. holder’s holding period for the Everi common stock received in the Merger will begin on the day after the Merger closes.
Notwithstanding Parent’s intended reporting of the Distribution, it is possible that the Distribution could alternatively be viewed as tax-free under Section 355 of the Code, in which case the U.S. federal income tax consequences of the Distribution would generally be the following:
•a U.S. holder would not recognize any gain or loss, and would not include any amount in income, upon receiving the SpinCo Units in the Distribution; •each U.S. holder’s aggregate basis in Parent’s ordinary shares and the SpinCo Units received in the Distribution would equal the aggregate basis the U.S. holder had in Parent’s ordinary shares immediately prior to the Distribution, allocated in proportion to the fair market value of each; and •each U.S. holder’s holding period in the SpinCo Units received in the Distribution would include the U.S. holder’s holding period in its Parent ordinary shares on which the Distribution was made.
In this circumstance, the Merger would still be expected to be a taxable transaction, however, and a U.S. holder would be expected to recognize capital gain or loss equal to the difference between the Everi common stock received in the Merger and such U.S. holder’s adjusted basis in the SpinCo Units received in the Distribution (as described above). Such capital gain or loss would be long-term capital gain or loss if the U.S. holder’s holding period for the SpinCo Units (as described above) is more than one year as of the effective time of the Merger.A U.S. holder’s holding period for the Everi common stock received in the Merger would begin on the day after the Merger closes.
In light of the foregoing, the Distribution and Merger, together, may result in materially different U.S. federal income tax consequences depending on whether only the Merger, or both the Distribution and the Merger are taxable for U.S. federal income tax purposes. U.S. holders should consult their own tax advisors as to the tax consequences to them of the Distribution and Merger.
Material U.K. Tax Considerations The following summary is intended to apply only as a general guide to certain U.K. tax considerations, and is based on current U.K. tax law and current published practice of HerHis Majesty’s Revenue and Customs (“HMRC”), both of which are subject to change at any time, possibly with retrospective effect. They relate only to certain limited aspects of the U.K. taxation treatment of investors who are resident and, in the case of individuals, domiciled or deemed domiciled in (and only in) the U.K. for U.K. tax purposes (except to the extent that the position of non-U.K. resident shareholders is expressly referred to), who will hold the Parent’s ordinary shares as investments (other than under an individual savings account or a self-invested personal pension) and who are the absolute beneficial owners of the Parent’s ordinary shares. The statements may not apply to certain classes of investors such as (but not limited to) persons acquiring their ordinary shares in connection with an office or employment, dealers in securities, insurance companies, and collective investment schemes. Any shareholder or potential investor should obtain advice from his or her own investment or taxation advisor. Dividends The Parent will not be required to withhold U.K. tax at the source from dividend payments it makes. U.K. resident individual shareholders All dividends received by an individual shareholder from the Parent or from other sources will form part of that shareholder’s total income for income tax purposes and will constitute the top slice of that income. For the tax year 2020/ 2021,2023/2024, the extent that
the dividends they receive (whether from the Parent or other companies) exceed the tax free dividend allowance (£2,0001,000 for the tax year 2020/2021,2023/2024, which (under current proposals) will decrease to £500 from April 6, 2024), they are taxed on such dividends at either 7.5%8.75% (to the extent shareholders are liable to tax only at the basic rate), 32.5%33.75% (to the extent shareholders are liable to pay tax at the higher rate) or 38.1%39.35% (to the extent shareholders are liable to pay tax at the additional rate). It is expected that the dividend tax rate will remain at the current rates from April 6, 2024. U.K. resident corporate shareholders A corporate shareholder resident in the U.K. for tax purposes which is a “small company” for the purposes of Chapter 2 of Part 9A of the Corporation Tax Act 2009 will not be subject to U.K. corporation tax on any dividend received from the Parent provided that certain conditions are met (including an anti-avoidance condition). Other corporate shareholders resident in the U.K. for tax purposes will not be subject to U.K. corporation tax on any dividend received from the Parent so long as the dividends fall within an exempt class and certain conditions are met. For example, (1)(i) dividends paid on ordinary shares that are not redeemable and do not carry any present or future preferential rights to dividends or to a company’s assets on its winding up,up; and (2)(ii) dividends paid to a person holding less than a 10% interest in the Parent should generally fall within an exempt class. However, the exemptions mentioned above are not comprehensive and are subject to anti-avoidance rules.
If the conditions for exemption are not met or cease to be satisfied, if anti-avoidance provisions apply, or if such a corporate shareholder elects an otherwise exempt dividend to be taxable, the shareholder will be subject to U.K. corporation tax on dividends received from the Parent, at the rate of corporation tax applicable to that corporate shareholder (currently, 19.00% for the tax year 2020/2021)25%).
Non-U.K. resident shareholders A shareholder resident outside the U.K. for tax purposes and who holds the Parent’s ordinary shares as investments will not generally be liable to tax in the U.K. on any dividend received from the Parent unless he or she carries on (whether solely or in partnership) a trade, profession or vocation in the United KingdomU.K. through a branch or agency (or, in the case of a corporate holder of ordinary shares where the dividend exemption does not apply, through a permanent establishment) to which the ordinary shares are attributable. There are certain exceptions for trading in the United KingdomU.K. through independent agents, such as some brokers and investment managers. A non-U.K. resident shareholder may also be subject to taxation on dividend income under local law. A shareholder who is not solely resident in the U.K. for tax purposes should consult his or her own tax advisors concerning his or her tax liabilities (in the U.K. and any other country) on dividends received from the Parent, whether he or she is entitled to claim any part of the tax credit and, if so, the procedure for doing so, and whether any double taxation relief is due in any country in which he or she is subject to tax. Taxation of Capital Gains Disposal of the Parent’s Ordinary Shares A disposal or deemed disposal of the Parent's ordinary shares by a shareholder who is resident in the U.K. for tax purposes may, depending upon the shareholder’s circumstances and subject to any available exemptions and reliefs (such as the annual exempt amount for individuals), give rise to a chargeable gain or an allowable loss for the purposes of U.K. taxation of capital gains. If an individual shareholder who is subject to income tax at either the higher or the additional rate becomes liable to U.K. capital gains tax on the disposal of the Parent’s ordinary shares, the applicable rate (for the tax year 2020/2021)2023/2024) will be either 10% to the extent shareholders are liable to tax only at the basic rate or 20% (to the extent shareholders are liable to pay tax at the higher rate or the additional rate), respectively (save in some limited circumstances).
If a corporate shareholder becomes liable to U.K. corporation tax on the disposal (or deemed disposal) of ordinary shares, the main rate of U.K. corporation tax (at(currently at a rate of 19% for the tax year 2020/2021)25%) would apply, subject to any exemptions, reliefs and/or allowable losses. A shareholder which is not resident in the U.K. for tax purposes should not normally be liable to U.K. taxation on chargeable gains on a disposal or deemed disposal of the Parent’s ordinary shares unless the person is carrying on (whether solely or in a partnership) a trade, profession or vocation in the U.K. through a branch or agency (or, in the case of a corporate holder of ordinary shares, through a permanent establishment) to which the ordinary shares are attributable. However, an individual shareholder who has ceased to be resident in the U.K. for the purposes of a double taxation treaty for a period of less than five (5) years (and had sole U.K. resident for at least four (4) out of the seven (7) tax years immediately prior to his year of
departure) and who disposes of the Parent’s ordinary shares during that period of temporary non-residence may be liable on his return to the U.K. (or upon ceasing to be regarded as resident outside the U.K. for purposes of double taxation relief) to U.K. taxation on any capital gain realized (subject to any available exemption or relief). Diverted Profits Tax
The U.K. diverted profits tax (“DPT”) is currently separate from U.K. corporation tax and is charged at a higher rate of 31% (subject to certain limited exceptions). It is an anti-avoidance measure aimed at protecting the U.K. tax base against the artificial diversion of profits that are being earned by activities carried out in the U.K. but which are not otherwise being taxed in the U.K., in particular as a result of arrangements amongst companies in the same multinational group. The U.K.’s network of double tax treaties does not currently offer protection from a DPT charge. In the event that the rules apply to certain arrangements, then upfront payment of HMRC’s estimate of the deemed tax liability may be required. If any of our U.K. or non-U.K. companies is liable for DPT as a result of intra-group arrangements, this could have a material adverse effect on the Company’s and/or the Parent’s results. HMRC’s response to the June 19, 2023 consultation to reform U.K. law in relation to transfer pricing, permanent establishment, and DPT, published on January 16, 2024, proposes to remove DPT’s status as a separate tax and bring in an equivalent charge to U.K. corporation tax. Broadly, the reform is intended to clarify the relationship between DPT and transfer pricing and will provide access to treaty benefits for DPT. The U.K. government will hold a technical consultation on draft legislation in 2024.
Inheritance Tax The Parent’s ordinary shares will be assets situated in the U.K. for the purposes of U.K. inheritance tax. A gift or settlement of such assets by, or on the death of, an individual holder of such assets may (subject to certain exemptions and reliefs and depending upon the shareholder’s circumstances) give rise to a liability to U.K. inheritance tax even if the holder is not a resident of or domiciled in the U.K. for tax purposes. For inheritance tax purposes, a transfer of assets at less than market value may be treated as a gift and particular rules apply to gifts where the donor reserves or retains some benefit. A charge to inheritance tax may arise in certain circumstances where the Parent’s ordinary shares are held by close companies and by trustees of settlements. Shareholders should consult an appropriate tax advisor as to any inheritance tax implications if they intend to make a gift or transfer at less than market value or intend to hold the Parent’s ordinary shares through a close company or trust arrangement. Shareholders and/or potential investors who are in any doubt as to their tax position, or who are subject to tax in any jurisdiction other than the U.K., should consult a suitable professional advisor.
UK Tax Consequences of the Distribution
The Distribution by Parent of the SpinCo Units will be treated as a taxable dividend in the hands of UK shareholders, subject to certain exemptions. Liability to tax on dividends will depend upon the individual circumstances of that shareholder. The Distribution received by a UK resident individual shareholder will form part of that shareholder’s total income for income tax purposes and will constitute the top slice of that income. UK resident individual shareholders are subject to tax on dividends in accordance with their personal tax bands (as described above). A U.K. resident corporate shareholder which is a “small company” for the purposes of Chapter 2 of Part 9A of the Corporation Tax Act 2009 will not be subject to U.K. corporation tax on the Distribution provided that certain conditions are met (including an anti-avoidance condition). Other UK resident corporate shareholders will be liable to U.K. corporation tax (currently at a rate of 25%) on the Distribution unless the dividend falls within an exempt class and certain conditions are met. U.K. resident corporate shareholders should seek advice from their own professional advisers in considering whether they are within the scope of an exempt class. A non-UK resident shareholder will not generally be liable to tax in the U.K. on the Distribution unless he or she carries on (whether solely or in partnership) a trade, profession or vocation in the U.K. through a branch or agency (or, in the case of a corporate holder of ordinary shares where the dividend exemption does not apply, through a permanent establishment) to which the ordinary shares are attributable. A non-U.K. resident shareholder may also be subject to taxation on dividend income under local law, and should consult his or her own tax advisors concerning his or her tax liabilities (in the U.K. and any other country) on the Distribution of SpinCo Units from Parent.
Parent is not required to withhold tax when distributing the Spinco Units.
The Distribution should otherwise be tax neutral for Parent.
UK Tax Consequences of the Merger
The Merger should be treated as a disposal of the Units of SpinCo shares by the UK resident shareholders and depending upon the shareholder’s circumstances, and subject to any available exemptions and reliefs (such as the annual exempt amount for individuals), may give rise to a chargeable gain or an allowable loss for the purposes of U.K. taxation of capital gains. The UK resident shareholders are expected to have market value basis in the SpinCo Units following the Distribution such that, provided the Merger occurs shortly after the Distribution, any gain for the UK shareholders on the deemed disposal of Units of SpinCo should be minimal. UK resident individual shareholders are subject to capital gains tax on the disposal of the Units of SpinCo in accordance with their personal tax bands (as described above). ). A U.K. resident corporate shareholder will be liable to U.K. corporation tax on the disposal at the main rate of U.K. corporation tax (currently at a rate of 25%), subject to any exemptions, reliefs and/or allowable losses. A non-U.K. resident shareholder should not normally be liable to U.K. taxation on chargeable gains on the disposal of SpinCo Units unless the person is carrying on (whether solely or in a partnership) a trade, profession or vocation in the U.K. through a branch or agency (or, in the case of a corporate holder of ordinary shares, through a permanent establishment) to which the ordinary shares are attributable. Special rules may apply to individual non-UK resident shareholders who have ceased to be resident in the UK for tax purposes and who make a disposition of their Units of SpinCo whilst UK non-resident before becoming once again resident in the UK for tax purposes within five years from departure. UK resident and non-UK resident shareholders should consult their own tax advisors concerning their tax liabilities (in the U.K. and any other country) on the disposal of the Units of SpinCo.
F. Dividends and Paying Agents Not applicable.
G. Statement ofby Experts Not applicable.
H. Documents on Display The Parent files reports, including annual reports on Form 20-F, furnishes current reports on Form 6-K, and discloses other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. These may be accessed by visiting the SEC’s website at www.sec.gov.
I. Subsidiary Information Not applicable
J. Annual Report to Security Holders
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
The Company’s activities expose it to a variety of market risks including interest rate risk and foreign currency exchange rate risk. The Company’s overall risk management strategy focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on its performance through ongoing operational and finance activities. The Company monitors and manages its exposure to such risks both centrally and at the local level, as appropriate, as part of its overall risk management program with the objective of seeking to reduce the potential adverse effects of such risks on its results of operations and financial position.
Depending upon the risk assessment, the Company uses selected derivative hedging instruments, including principally interest rate swaps and foreign currency forward contracts, for the purposes of managing interest rate risk and currency risks arising from its operations and sources of financing. The Company’s policy is not to enter into such contracts for speculative purposes.
The following section provides qualitative and quantitative disclosures on the effects that these risks may have. The quantitative data reported below does not have any predictive value and does not reflect the complexity of the markets or reactions which may result from any changes that are assumed to have taken place.
Interest Rate Risk
Indebtedness
The Company’s exposure to changes in market interest rates relates primarily to its cash and financial liabilities which bear floating interest rates. The Company’s policy is to manage interest cost using a mix of fixed and variable rate debt. The Company has historically used various techniques to mitigate the risks associated with future changes in interest rates, including entering into interest rate swap and treasury rate lock agreements.
At December 31, 20202023 and 2019,2022, approximately 23%28% and 24%20% of the Company’s netNet debt portfolio was exposed to interest rate fluctuations, respectively. The Company’s exposure to floating rates of interest primarily relates to the Revolving Credit Facilities and Euro Term Loan FacilityFacilities due January 2023 and Revolving Credit Facilities due July 2024.2027. At December 31, 2019,2023 and December 31, 2022, the Company no longer held $625.0 million (notional amount) inany interest rate swaps that effectively convert $625.0 million of the 6.250% Senior Secured U.S. Dollar Notes due February 2022 from fixed interest rate debt to variable rate debt. At December 31, 2020, the Company held $425.0 million (notional amount) in interest rate swaps that were no longer designated as hedging relationships and the fair value of the swaps is recognized in interest expense with no corresponding offset to debt.swaps.
A hypothetical 10100 basis points increase in interest rates for 20202023 and 2019,2022, with all other variables held constant, would have resulted in lower income from continuing operations before provision for income taxes of approximately $1.9$16 million and $2.0$11 million, respectively.
Costs to Fund Jackpot Liabilities
Fluctuations in prime, treasury, and agency rates due to changes in market and other economic conditions directly impact the Company’s cost to fund jackpots and corresponding gaming operating income. If interest rates decline, jackpot cost increases and operating income decreases. The Company estimates a hypothetical decline of one percentage point in applicable interest rates would have reduced operating income by approximately $7.3 million and $5.6$4 million in 20202023 and 2019, respectively.$7 million in 2022. The Company does not manage this exposure with derivative financial instruments.
Foreign Currency Exchange Rate Risk
The Company operates on an international basis across a number of geographical locations. The Company is exposed to (i) transactional foreign exchange risk when an entity enters into transactions in a currency other than its functional currency, and (ii) translation foreign exchange risk which arises when the Company translates the financial statements of its foreign entities into U.S. dollars for the preparation of the consolidated financial statements.Consolidated Financial Statements.
Transactional Risk
The Company’s subsidiaries generally execute their operating activities in their respective functional currencies. In circumstances where the Company enters into transactions in a currency other than the functional currency of the relevant entity, the Company seeks to minimize its exposure by (i) sharing risk with its customers (for example, in limited circumstances, but whenever possible, the Company negotiates clauses into its contracts that allows for price adjustments should a material change in foreign exchange rates occur), (ii) creating a natural hedge by netting receipts and payments, (iii) utilizing foreign currency borrowings, and (iv) where applicable, by entering into foreign currency forward and option contracts.
The principal foreign currency to which the Company is exposed is the euro. A hypothetical 10% decrease in the year end U.S. dollar to euro exchange rate, with all other variables held constant, would have resulted in lower income from continuing operations before provision for income taxes of approximately $363.3$110 million and $331.2$120 million for 2020December 31, 2023 and 2019,2022, respectively. Our euro exposure primarily arises from euro denominated long-term debt. Based on our long-term forecast, the Company undertakes to match and maintain the mix of euro denominated debt to the mix of euro sourced EBITDA.
From time to time, the Company enters into foreign currency forward and option contracts to reduce the exposure associated with certain firm commitments, variable service revenues, and certain assets and liabilities denominated in foreign currencies. These contracts generally have average maturities of 12 months or less, and are regularly renewed to provide continuing coverage throughout the year. It is the Company’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximize hedge effectiveness.
At December 31, 2020,2023, the Company had forward contracts for the sale of approximately $169.6$238 million of foreign currency (primarily South African rand, Canadian dollars,dollar, Peruvian sol, Australian dollars,dollar, and British pounds)Mexican peso) and the purchase of approximately $187.3$234 million of foreign currency (primarily U.S. dollar, British pounds, Canadian dollar, euro, and Polish zlotys)Mexican peso).
At December 31, 2019,2022, the Company had forward contracts for the sale of approximately $187.6$103 million of foreign currency (primarily British pounds, Australian dollar, and Colombian peso, Canadian dollars, South African rand, and Australian dollars)peso) and the purchase of approximately $419.2$204 million of foreign currency (primarily euroU.S. dollar, British pounds, Chilean peso, and Canadian dollars)euro).
Translation Risk
Certain of the Company’s subsidiaries are located in countries that are outside of the United States, in particular the Eurozone. As the Company’s reporting currency is the U.S. dollar, the income statements of those entities are converted into U.S. dollars using the average exchange rate for the period, and while revenues and costs are unchanged in local currency, changes in exchange rates may lead to effects on the converted balances of revenues, costs, and the result in U.S. dollars. The monetary assets and liabilities of consolidated entities that have a reporting currency other than the U.S. dollar are translated into U.S. dollars at the period-end foreign exchange rate. The effects of these changes in foreign exchange rates are recognized directly in the consolidated statementsConsolidated Statements of shareholders’ equityShareholders’ Equity within accumulated other comprehensive income.
The Company’s foreign currency exposure primarily arises from changes between the U.S. dollar and the euro. A hypothetical 10% decrease in the U.S. dollar to euro exchange rate, with all other variables held constant, would have reducedincreased equity by $118.3$30 million and $120.4$29 million for 20202023 and 2019,2022, respectively.
Item 12.Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13.Defaults, Dividends,Dividend Arrearages, and Delinquencies None. Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds See the description of the Loyalty Plan in “Item 10. Additional Information—B. Memorandum and Articles of Association—Association—Loyalty Plan.” Item 15.Controls and Procedures Disclosure Controls and Procedures The Company’sIGT management maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports that it files or submitsfurnishes under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within time periods specified in the Commission’sSEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive OfficerCEO and Chief Financial Officer,CFO, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating its disclosure controls and procedures, the CompanyIGT recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as the Company’s are designed to do.
As required by Rule 13a-15(b) under the Exchange Act, an evaluation of the effectiveness of the Company’sIGT’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 20202023 was conducted under the supervision and with the participation of its management including its Chief Executive OfficerCEO and Chief Financial Officer.CFO. Based on this evaluation, its Chief Executive OfficerCEO and Chief Financial OfficerCFO concluded that its disclosure controls and procedures were effective as of December 31, 20202023 at a reasonable assurance level. Management’s Report on Internal Control over Financial Reporting The Company’sIGT’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined by Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’sIGT’s internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; •provide reasonable assurance that transactions are recorded, as necessary, to permit preparation of financial statements in accordance with generally accepted accounting principles;principles and that receipts and expenditures of the Company are made only in accordance with authorizations of the Company’s management and directors; and •provide reasonable assurance that unauthorized acquisition, use or disposition of the Company’s assets, that could have a material effect on the financial statements, would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in business conditions or that the degree of compliancedue to non-compliance with theapplicable policies or procedures may deteriorate.and procedures. The Company’sIGT’s management assessed the effectiveness of internal control over financial reporting as of December 31, 20202023 based upon the framework presented in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020.2023.
The Company’sIGT’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 20202023 as stated in their report appearing in “Report of Independent Registered Public Accounting Firm” included in “Item 18. Financial Statements.”
Changes in Internal Control over Financial Reporting There have been no changes in internal control over financial reporting during the year ended December 31, 20202023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 16A. Audit Committee Financial Expert The Parent’s Board of Directors has determined that Vincent L. Sadusky,Maria Pinelli, chairperson of the Audit Committee, isand Alberto Dessy and Heather McGregor, both members of the Audit Committee, are each an audit committee financial expert. HeEach of Ms. Pinelli, Mr. Dessy and Ms. McGregor is an independent director under the NYSE standards. Item 16B. Code of Ethics The CompanyIGT has adopted a Code of Ethics for Principal Executive Officer and Senior Financial Officers (the “Code of Ethics” or “Code”), which is applicable to its principal executive officer, principal financial officer, the principal accounting officer and controller, and any persons performing similar functions.functions (each, a “Covered Officer”). The Code of Ethics was most recently amended in November 2020reviewed and approved by the Board on October 26, 2023, with updates incorporated to: (i) impose a duty on each Covered Officer to expressly permit persons reportingescalate both actual or potential Code violations of the code to bring instances of retaliation, harassment or retribution to the attentionAudit Committee; and (ii) to expand “Confidentiality” and “Fair Dealing” provisions to include suppliers and other stakeholders, except when legally authorized or required to disclose. This Code of Ethics is available on the Audit Committee, in addition to the Board of Directors. This code of ethics is posted on itsCompany’s website, www.igt.com, and may be found as follows: from the main page, first click on “Explore IGT” and then on “Investor Relations” and then on “Management and Governance”“ESG” and then on “Documents.“Governance Documents.” The information contained on the Company’s website is not included in, or incorporated by reference into, this annual reportAnnual Report on Form 20-F. To the extent that the Company amends any provision of the Code, or grants any waiver from a provision of the Code, to any Covered Officer, the Company intends to disclose such amendment or waiver on the “Governance Documents” page within the “ESG” section of the Company’s website at www.IGT.com.
Item 16C.16C. Principal Accountant Fees and Services PricewaterhouseCoopers LLP (“PwC US”) has been serving as the Company’s independent auditor since 2015.
Aggregate fees for professional services and other services rendered by PwC US and its foreign entities belonging to the PwC network in 20202023 and 20192022, all of which were approved by the Audit Committee pursuant to its policies and procedures, were as follows: | | | | | For the year ended December 31, | | | For the year ended December 31, | | ($ thousands) | | 2020 | | 2019 | | ($ in thousands) | | ($ in thousands) | | 2023 | | 2022 | | Audit fees | Audit fees | | 10,929 | | | 11,090 | | | | Audit-related fees | Audit-related fees | | 357 | | | 660 | | | Tax fees | Tax fees | | 335 | | | 1,294 | | | | All other fees | All other fees | | 112 | | | 147 | | | 11,733 | | | 13,191 | | | All other fees | | | All other fees | | | | 15 | |
•Audit fees consist of professional services performed in connection with the annual financial statements. •Tax fees consist of professional services for tax planning and compliance. The 2023 tax fees include professional services incurred for our Separation & Divestiture activities, as defined in “Notes to the Consolidated Financial Statements—3. Business Acquisitions and Divestitures” included in “Item 18. Financial Statements.” •Audit-related fees consist of assurance and related services that are reasonably related to the performance of the audit or review of the financial statements and agreed upon procedures for certain financial statement areas. The 2023 audit-related fees include amounts incurred for our Separation & Divestiture activities. •All other fees, other than those reported above, mainly consist of services in relation to intellectual property royalty audits, compliance-related services and access to online accounting research software applications.
Audit Committee’s Pre-Approval Policies and Procedures The Audit Committee pre-approves engagements of the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements.Consolidated Financial Statements. The Audit Committee has a policy requiring management to obtain the Audit Committee’s approval before engaging the Company’s independent registered public accounting firm to provide any other audit or permitted non-audit services to the Company or its subsidiaries. Pursuant to this policy, which is designed to ensure that such engagements do not impair the independence of the Company’s independent registered public accounting firm, the Audit Committee reviews and pre-approves, if appropriate, specific audit and non-audit services in the categories audit services, tax services, audit-related services, and any other services that may be performed by the Company’s independent registered public accounting firm.
Item 16D. Exemptions from the Listing Standards for Audit Committees None.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers TheOn November 15, 2021, the Parent’s Board of Directors authorized a share repurchase program pursuant to which the Company currently has neither purchased any common sharesmay repurchase up to $300 million of the Company norParent’s outstanding ordinary shares during a period of four years commencing on November 18, 2021. The share repurchase program was publicly announced any share buyback plans. The Company hason November 16, 2021. At the Parent’s 2023 annual general meeting, the Parent’s shareholders granted authority to repurchase, subject to a maximum repurchase price, a maximum of 20,474,483 ordinary sharesup to 19,968,394 of the Company.Parent’s ordinary shares. This authority will expireremains valid until November 8, 2024, unless previously revoked, varied, or renewed at the end of next year’sParent’s 2024 annual general meeting, or, if sooner, onmeeting.
The Company did not execute any share repurchase transactions during the year ended December 24, 2021.31, 2023.
Item 16F.Change in Registrant’s Certifying Accountant None.
Item 16G.Corporate Governance The Parent is a public limited company incorporated under the laws of England and Wales and qualifies as a foreign private issuer under the rules and regulations of the SEC and the listing standards of the NYSE. In accordance with the NYSE listing rules related to corporate governance, listed companies that are foreign private issuers are permitted to follow home-country practice in some circumstances in lieu of the provisions of the corporate governance rules contained in Section 303A of the NYSE Listed Company Manual that are otherwise applicable to listed companies. However, for as long as the Parent’s ordinary shares are listed on the NYSE, the Company willintends to comply with all NYSE corporate governance standards set forth in Section 3 of the NYSE Listed Company Manual applicable to non-controlled domestic U.S. issuers, regardless of whether the Company is a foreign private issuer. The Board has adopted Corporate Governance Guidelines, a copy of which is available on the “Investor Relations” page of www.IGT.com.
Item 16H. Mine Safety Disclosure Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 16J. Insider Trading Policies
Not applicable.
Item 16K. Cybersecurity
Cybersecurity Risk Management Processes
As discussed in Part I, Item 3D – Risk Factors, the Company faces an evolving cybersecurity and information security risk landscape that could impact the achievement of strategic, financial and operational objectives. While it is not possible to identify or anticipate every cybersecurity and information security risk, the Company has developed, implemented, and maintained cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data. These include processes for assessing, identifying, and managing material risks from cyber and information security threats, which are incorporated into the Company’s enterprise risk management program, and we test, evaluate, and evolve our processes, security measures, and incident response, as appropriate.
To operate the business and provide products and services to our customers, the Company owns and maintains or works with third parties to employ various information systems, or electronic information resources. These information systems include physical or virtual infrastructure controlled by such information resources (or components thereof), organized and overseen by the Global Information Security (“GIS”) team in collaboration with the business to collect, process, maintain, use, share, disseminate or dispose of the Company’s information to maintain and support operations. The Chief Information Officer (the “CIO”) leads the GIS function of the Company.
GIS maintains information and cyber security risk management practices and processes designed to identify, analyze, evaluate and address various cybersecurity threats faced by the Company. Any potential cybersecurity incident could adversely affect the confidentiality, integrity or availability of our information systems or any information residing therein, and these threats include external attempts to breach and compromise systems, social engineering, insider threats, mishandling of or failure to comply with security policies and not adhering to published guidance on how to operate in accordance with cybersecurity practices. To mitigate our cybersecurity risk, GIS has designed various cybersecurity processes to prevent, detect, report, mitigate and remediate threats and vulnerabilities and protect the confidentiality, integrity and availability of information. As the functional lead of GIS, the Chief Information Security Officer (the “CISO”) oversees the Company’s information security programs maintained throughout the organization and ensures the integration of policies, procedures and controls into business processes.
GIS, including the Global Security Operations Center and Cyber Threat Intelligence Center (“CTIC”), performs certain operational aspects of the information and cyber security program by partnering with business units and senior management to conduct ongoing impact and risk assessment. The Global Security Operations Center serves as the Company’s first level of information and cyber security defense monitoring, with responsibility for identifying and escalating cybersecurity incidents pursuant to established internal procedures. When a cybersecurity incident occurs, the CTIC coordinates and provides timely, organized, and informed responses to mitigate the damage or loss to the Company’s IT systems, network and data and to minimize economic, reputational and other harms to the Company and its customers, employees and partners.
Cybersecurity Governance and Oversight Responsibilities
To support the effectiveness of the information and cyber security risk management practices, the Company has implemented a program and governance model that describes the roles, responsibilities and expectations for relevant segments and functions across the Company:
•Board and Audit Committee: The Board reviews the adequacy and effectiveness of the Company’s cyber and information security program, including the various policies, practices, and internal controls. The Audit Committee holds dedicated sessions to receive and discuss updates on data protection and cybersecurity and engages with management on the Company’s incident prevention plans and policies, threat-detection measures and prompt response to malicious activity and attacks. Through the Audit Committee, the Board receives periodic updates on cyber security risk oversight and related matters, including the receipt of annual reports on cyber and information security from the CIO, CISO, and Audit Committee. •Information and Cyber Security Program Owners: The Senior Vice President, Chief Information Officer, and Vice President, CISO own the GIS Information and Cyber Security Program. The Company’s CISO has over 30 years of technical skills and experience designing, implementing, and maintaining global information security frameworks and communications networks for companies. The Company’s CIO has over 35 years of technical skills and experience developing global systems and processes. The CISO operates the Company’s cyber and information security program under the direct supervision of the CIO, and the CIO reports directly into the Company’s Chief Financial Officer. •Information and Security Governance Committee (or the “ISGC”): The ISGC, comprised of senior management and led by the CISO, reviews GIS policies, standards and other governance documents at least annually, or upon need of a significant change. Decisions and recommendations from the committee are communicated to the Executive Management Team and Board, as appropriate, by the CISO.
•Cybersecurity Incident Response Committee (or the “CIRC”): The Company has established a cross-functional CIRC charged with reviewing significant cybersecurity incidents escalated by the CISO to complete a materiality analysis to support the identification of appropriate steps, which may include disclosure in accordance with applicable SEC rules and regulation and other law. •Senior Management: Senior management within Lottery, Gaming, PlayDigital and corporate services are responsible for collaborating with GIS to implement information and cyber security processes into their business segments or functional areas.
Cybersecurity and Our Gaming Products and Services
Customers entrust the Company to safeguard their data, and GIS ensures that trust with teams dedicated to maintaining that confidentiality, integrity, and availability of customer data. GIS identifies cybersecurity risks and tracks mitigation activities, testing and monitoring of the operational effectiveness of controls to ensure business commitments are achieved. In addition to internal management of data security controls, GIS undergoes third-party assessments each year to validate that controls are suitably designed and operating effectively. These independent assessments include: (i) internal risk assessments; (ii) System and Organizational Controls (“SOC”) 1, SOC 2, and SOC 3 audits; (iii) Payment Card Industry assessments; (iv) World Lottery Association assessments; and (v) ISO 27001 certification audits.
GIS has incorporated secure practices into the software development lifecycle, which includes risk assessments of projects, rigorous testing of application and network changes, issue tracking to resolution prior to deployment of changes, governance over our environment and providing a structured, measurable process to ensure solutions are managed and sustainable with a security focus.
IGT’s Global Information Security Management System (“ISMS”) addresses security concerns related to safeguarding customer data by guiding the management of the overall information security management framework and developing information security documentation, including security policies, security standards and protocols or procedures. The goals pursued by ISMS include:
•Complying with business, legal, and regulatory requirements to maintain the confidentiality, integrity and availability of IGT information assets and services; •Implementing industry best practices at the program, process and system levels; •Maintaining IGT’s ability to continue services in the face of events and major disruptions; •Implementing controls to protect IGT information against theft, abuse and other forms of harm or loss; and •Designing and implementing a system of internal controls designed to protect IGT and its stakeholders.
IGT’s CTIC focuses on early detection of risks, including cybersecurity threats, through a variety of testing methods that are selected and implemented to align with industry best practices, which include penetration and vulnerability scanning of systems and environments. Findings from these tests are tracked to remediation and reported to executive management (including the Chief Financial Officer, General Counsel, Chief Accounting Officer and Head of Internal Audit) and the Audit Committee.
In addition to CTIC’s monitoring capabilities, internal and external parties can also escalate a suspected information or cyber security threat to the CTIC through an automated reporting system. As needed, the CTIC coordinates a response with other departments (including the Legal department and executive team) by way of the CISO. If management deems a cybersecurity incident material, the Company will report the cybersecurity incident consistent with applicable rules and regulations, including those of the SEC. GIS also introduced the Third-Party Risk Assessments program to evaluate the potential impact of IGT vendors on the business from various security threat vectors and monitors the overall cyber security health of IGT’s critical vendors. Information security monitoring of vendors is managed through GIS, in collaboration with the Company’s procurement team.
PART III Item 17.Financial Statements Not applicable. Item 18.Financial Statements The audited Consolidated Financial Statements as required under Item 18 are attached hereto starting on page F-1 of this annual report on Form 20-F. Item 19.Exhibits A list of exhibits included as part of this annual report on Form 20-F is set forth in the Index to Exhibits immediately following this Item 19.
INDEX TO EXHIBITS | | | | | | | | | | Exhibit | | Description | | | | | | 1.1 | | | | | | | | | | There have not been filed as exhibits to this Form 20-F certain long-term debt instruments, none of which relates to indebtedness that exceeds 10% of the consolidated assets of International Game Technology PLC. International Game Technology PLC agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument defining the rights of holders of long-term debt of International Game Technology PLC and its consolidated subsidiaries. | | | | | | 2.1 | | | | | | | | 2.2 | | Senior Facilities Agreement dated November 4, 2014, as amended April 2, 2015, October 28, 2015, June 26, 2016, July 31, 2017, December 17, 2018,, July 24, 2019 and May 7, 2020 for the US$1,050,000,0001,050,000,000 and €625,000,000€625,000,000 multicurrency revolving credit facilities among International Game Technology PLC (as successor to GTECH S.p.A.), as the Parent and a Borrower; GTECH Corporation, as a Borrower; J.P. Morgan Limited and Mediobanca — Banca di Credito Finanziario S.p.A., as the Global Coordinators, Bookrunners, and Mandated Lead Arrangers; the entities listed in Part III of Schedule I thereto, as the Bookrunners and Mandated Lead Arrangers, the entities listed in Part IV of Schedule I thereto, as the Mandated Lead Arrangers; the entities listed in Part V of Schedule I thereto, as the Arrangers, the financial institutions listed in Part IIA of Schedule I thereto, as the Original Lenders; The Royal Bank of Scotland plc, as the Agent; The Royal Bank of Scotland plc, as the Issuing Agent; KeyBank National Association, as the Swingline Agent; and the financial institutions listed in Part IIB of Schedule I thereto, as the Original US Dollar Swingline Lenders (incorporated herein by reference to Exhibit 99.3 of the Company’s Form 6-K furnished to the SEC on May 13, 2020)2020). | | | | | | 2.3 | | Amendment and Restatement Agreement, dated July 21, 2021, relating to the Senior Facility Agreement dated July 25, 2017, as amended December 18, 2018,, July 18, 2019 and May 8, 2020 for the €1,500,000,000 term loan facility among International Game Technology PLC, as the Borrower; Bank of America Merrill Lynch International Limited and Mediobanca - Banca di Credito Finanziario S.p.A. as Global Coordinators, Bookrunners, and Mandated Lead Arrangers; BNP Paribas, Italian Branch, Banca IMI S.p.A., and UniCredit Bank AG, Milan Branch, as Bookrunners and Mandated Lead Arrangers; Barclays Bank PLC, Credit Agricole Corporate & Investment Bank, Milan Branch, ING Bank N.V. - Milan Branch, National Westminster Bank PLC, Socgen Inversiones Financiers S.A.U., The Bank of Nova Scotia, and Credit Suisse AG, Milan Branch as Mandated Lead Arrangers; Mediobanca - Banca di Credito Finanziario S.p.A., as the Agent; and others (incorporated herein by reference to Exhibit 99.599.2 of the Company’s Form 6-K furnished to the SEC on May 13, 2020)July 26, 2021). | | | | | 2.4 | | Indenture dated as of April 7, 2015 among International Game Technology PLC, as the Issuer; certain subsidiaries of International Game Technology PLC, as the Initial Guarantors; BNY Mellon Corporate Trustee Services Limited, as Trustee; The Royal Bank of Scotland plc, as Security Agent; The Bank of New York Mellon, London Branch, as Euro Paying Agent and Transfer Agent; The Bank of New York Mellon, as Dollar Paying Agent and Dollar Registrar; and The Bank of New York Mellon (Luxembourg) S.A., as Euro Registrar, with respect to $600,000,000 5.625% Senior Secured Notes due February 15, 2020, $1,500,000,000 6.250% Senior Secured Notes due February 15, 2022, $1,100,000,000 6.500% Senior Secured Notes due February 15, 2025, €700,000,000 4.125% Senior Secured Notes due February 15, 2020 and €850,000,000 4.750% Senior Secured Notes due February 15, 2023 (incorporated herein by reference to Exhibit 4.8 to the Current Report on Form 8-K filed by International Game Technology on April 10, 2015). | | | | | 2.5 | | | | | | | | 2.6 | | | | | |
| | | | | | | | | | Exhibit | | Description | | | | | 2.7 | | Amendment No. 1 dated as of April 7, 2015 among International Game Technology, as the Company; Wells Fargo Bank, National Association, as the Trustee; and The Royal Bank of Scotland plc, as the Security Agent, to the Indenture dated as of June 15, 2009, as supplemented by the Third Supplemental Indenture dated as of September 19, 2013 (incorporated herein by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by International Game Technology on April 10, 2015). | | | | | | 2.8 | | Amendment No. 2 dated as of April 22, 2015 among International Game Technology, as the Company; International Game Technology PLC and certain subsidiaries of International Game Technology PLC, as the Guarantors; and Wells Fargo Bank, National Association, as the Trustee, to the Indenture dated as of June 15, 2009, as supplemented by the Third Supplemental Indenture dated as of September 19, 2013 (incorporated herein by reference to Exhibit 4.27 of the Company’s Annual Report on Form 20-F filed by International Game Technology PLC on May 15, 2015). | | | | | | 2.9 | | | | | | | 2.10 | | | | | | | | 2.11 | | Indenture dated as of June 27, 2018 among International Game Technology PLC, as Issuer; certain subsidiaries of International Game Technology PLC, as Guarantors; BNY Mellon Corporate Trustee Services Limited, as Trustee; The Bank of New York Mellon, London Branch, as Paying Agent and Transfer Agent; the Bank of New York Mellon SA/NV, Luxembourg Branch, as Registrar; and NatWest Markets Plc, as Security Agent with respect to €500,000,000 3.500% Senior Secured Notes due 2024 (incorporated herein by reference to Exhibit 2.16 of the Company's Annual Report on Form 20-F filed by International Game Technology PLC on March 3, 2020). | | | | 2.12 | | First Supplemental Indenture dated as of February 20, 2019, among International Game Technology PLC, as Issuer, BNY Mellon Corporate Trustee Services Limited, as Trustee, and NatWest Markets Plc, as Security Agent, to the Indenture dated as of June 27, 2018 (incorporated herein by reference to Exhibit 2.17 of the Company's Annual Report on Form 20-F filed by International Game Technology PLC on March 3, 2020). | | | | 2.132.12 | | Indenture dated as of September 26, 2018 among International Game Technology PLC, as Issuer; certain subsidiaries of International Game Technology PLC, as Guarantors; BNY Mellon Corporate Trustee Services Limited, as Trustee; The Bank of New York Mellon, London Branch, as Paying Agent and Transfer Agent; the Bank of New York Mellon SA/NV, Luxembourg Branch, as Registrar; and NatWest Markets Plc, as Security Agent with respect to $750,000,000 6.250% Senior Secured Notes due 2027 (incorporated herein by reference to Exhibit 2.18of the Company’sCompany’s Annual Report on Form 20-F filed by International Game Technology PLC on March 3, 2020). | | | | 2.142.13 | | | | | | 2.152.14 | | | | | | 2.162.15 | | | | | |
| | | | | | | | | Exhibit2.16 | | Description | 2.17 | | Indenture dated as of June 19, 2020 among International Game Technology PLC, as the Issuer, the Guarantors named therein, BNY Mellon Corporate Trustee Services Limited, as Trustee,, The Bank ofNew York Mellon, London Branch as paying agent, The Bank of New York Mellon SA/NV, LuxembourgBranch, as registrar and transfer agent and NatWest Markets Plc as security agent. | | | | 4.1 | | | | | | | 2.17 | | Indenture dated as of March 25, 2021 among International Game Technology PLC, as the Issuer, the Guarantors named therein BNY Mellon Corporate Trustee Services Limited, as Trustee, The Bank of New York Mellon, London Branch as paying agent, The Bank of New York Mellon SA/NV, Dublin Branch, as registrar and transfer agent and NatWest Markets Plc as security agent (incorporated herein by reference to Exhibit 2.18 to the Company's Annual Report on Form 20-F filed by International Game Technology PLC on March 3, 2022). | | | |
| | | | | | | | | | Exhibit | | Description | 4.22.18 | | | | | | | 2.19 | | | | | | | 4.33.1 | | | | | | | 4.1 | | | | | | | 4.44.2 | | | | | | | 4.54.3 | | | | | | | 4.64.4 | | | | | | | 4.5 | | | | | | 4.74.6 | | | | | | 4.84.7 | | | | | | | 4.8 | | | | | | | 4.9* | | | | | | | 4.10 | | | | | | | 4.11 | | |
| | | | | | | | | | Exhibit | | Description | | | | | 4.12 | | | | | | | 4.13 | | | | | | | 4.14 | | | | | | | 8.1 | | | | | | | | 12.1 | | | | | | | 12.2 | | | | | | | 12.212.3 | | | | | | | | 13.1 | | | | | | | | 13.2 | | | | | | | | 15.1 | | | | | | | | 97 | | | | | | | 101.INS | | Inline XBRL Instance Document | | | | |
| | | | | | | | | Exhibit | | Description | | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | 101.LAB | | Inline XBRL Taxonomy Extension Labels Linkbase Document | | | | | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) | | | | | * Portions of this exhibit have been omitted. |
SIGNATURE The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf. | | | | | | | | INTERNATIONAL GAME TECHNOLOGY PLC | | | | | | | | | /s/ MASSIMILIANO CHIARA | | | Name: Massimiliano Chiara | | | Title: Chief Financial Officer |
Dated: March 2, 202112, 2024
ITEM 18. FINANCIAL STATEMENTS INTERNATIONAL GAME TECHNOLOGY PLC INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Shareholders of International Game Technology PLC
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of International Game Technology PLC and its subsidiaries (the “Company”) as of December 31, 20202023 and 2019,2022, and the related consolidated statements of operations, of comprehensive (loss) income, of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2020,2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20202023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control - Integrated Framework (2013)issued by the COSO.
Changes in Accounting Principles
As discussed in Notes 2 and 11 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers in 2018 and the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit mattersmatter communicated beloware matters is a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that (i) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessments - Global Gaming and Former NAGI and International Reporting Units
As described in Notes 2 and 13 to the consolidated financial statements, the Company’s consolidated goodwill balance was $4,713 million as of December 31, 2020. Goodwill is tested for impairment annually, in the fourth quarter, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount and an impairment loss is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. In performing the goodwill impairment test, management estimates the fair value of the reporting units using an income approach based on projected discounted cash flows. During the first quarter of 2020, management determined there was an interim goodwill impairment triggering event caused by COVID-19. Management recorded a $296 million impairment loss, of which $193 million and $103 million was recorded within the former International and North America Gaming and Interactive (“NAGI”) reporting units, respectively, to reduce the carrying amount of the reporting units to fair value. On July 1, the Company adopted a new organizational structure focused on two business segments: Global Lottery and Global Gaming. This resulted in a change of the Company’s reporting units. As a result of the change in reporting units, at July 1, 2020, management allocated goodwill to the new reporting units using a relative fair value approach. The goodwill allocated to the Global Gaming reporting unit was $2,209 million. As disclosed by management, estimating the fair value of reporting units requires management to use judgment in making estimates and making forecasts that are based on a number of factors including forecasted revenue, forecasted operating profits, terminal growth rates, and weighted-average costs of capital.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments for Global Gaming and the former NAGI and International reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement of the reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to forecasted revenue, forecasted operating profits, terminal growth rates and weighted-average costs of capital; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Global Gaming and former NAGI and International reporting units. These procedures also included, among others, (i) testing management’s process for developing the fair value estimates; (ii) evaluating the appropriateness of the income approach; (iii) testing the completeness and accuracy of underlying data used in the income approach; and (iv) evaluating the significant assumptions used by management related to forecasted revenue, forecasted operating profits, terminal growth rates and weighted-average costs of capital. Evaluating management’s assumptions related to forecasted revenue, forecasted operating profits, and terminal growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s income approach and the weighted-average costs of capital assumption.it relates.
Revenue Recognition – Identifying and Evaluating Contractual Terms and Conditions
As described in Notes 2 and 4 to the consolidated financial statements, the Company generated service and product revenues of $2,640$3,347 million and $476$963 million, respectively, for the year ended December 31, 2020.2023. The Company often enters into contracts with customers that consist of a combination of services and products that are accounted for as one or more distinct performance obligations. As disclosed by management, judgment is applied in identifying and evaluating the contractual terms and conditions that impact the identification of performance obligations and the pattern of revenue recognition.
The principal considerations for our determination that performing procedures relating to revenue recognition, specifically identifying and evaluating contractual terms and conditions, is a critical audit matter are the significant judgment by management in identifying and evaluating contractual terms and conditions that impact the identification of performance obligations and the pattern of revenue recognition, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate whether terms and conditions in contracts were appropriately identified and evaluated by management.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to revenue recognition, including controls related to the identification and evaluation of contractual terms and conditions impacting the identification of performance obligations and the pattern of revenue recognition. These procedures also included, among others, (i) evaluating and testing management’s process for identifying performance obligations and assessing the pattern of revenue recognition, and (ii) evaluating, on a test basis, the completeness and accuracy of the contractual terms and conditions identified in contracts with customers.
Assets Held for Sale - Goodwill Allocation to Discontinued Operations
As described in Notes 2 and 3 to the consolidated financial statements, during the fourth quarter of fiscal 2020, the Company announced that its wholly-owned subsidiary, Lottomatica, had entered into a definitive agreement to sell one hundred percent of the share capital of Lottomatica Videolot Rete S.p.A. and Lottomatica Scommesse S.r.l., the members of the IGT group which conduct its Italian business-to-consumer (“B2C”) gaming machine, sports betting, and digital gaming businesses, to Gamenet Group S.p.A. Management determined that the sale met the criteria to be reported as a discontinued operation and, as a result, the Italian Gaming B2C historical financial results are reflected in the Company's consolidated financial statements as a discontinued operation, and assets and liabilities were retrospectively reclassified as assets and liabilities held for sale for all periods presented. The Company’s assets held for sale as part of discontinued operations were $833 million as of December 31, 2020. Management allocated $520 million of goodwill to discontinued operations using a relative fair value approach. Prior to the allocation to discontinued operations, the goodwill was included within the Global Gaming reporting unit. As disclosed by management, estimating the fair value of reporting units requires the Company's management to use its judgment in making estimates and making forecasts that are based on a number of factors including forecasted revenue, forecasted operating profits, terminal growth rates, and weighted-average costs of capital.
The principal considerations for our determination that performing procedures relating to the allocation of goodwill to assets held for sale within discontinued operations is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement of the Global Gaming reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to forecasted revenue, forecasted operating profits, terminal growth rates and weighted-average costs of capital; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill allocation to discontinued operations, including controls over the valuation of the Company’s Global Gaming reporting unit. These procedures also included, among others, (i) testing management’s process for developing the fair value estimate; (ii) evaluating the appropriateness of the income approach; (iii) testing the completeness and accuracy of underlying data used in the income approach; and (iv) evaluating the significant assumptions used by management related to forecasted revenue, forecasted operating profits, terminal growth rates and weighted-average costs of capital. Evaluating management’s assumptions related to forecasted revenue, forecasted operating profits, and terminal growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Global Gaming reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s income approach and the weighted-average costs of capital assumption.
/s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 2, 202112, 2024
We have served as the Company’s auditor since 2015.
International Game Technology PLC Consolidated Balance Sheets ($ thousands,and shares in millions, except par value and number of shares)per share amounts) | | | | | December 31, | | | | | December 31, | | | | | Notes | | 2020 | | 2019 | | | Notes | | 2023 | | 2022 | | Assets | Assets | | | | | Assets | | | | | | | | Current assets: | Current assets: | | | | | Current assets: | | | | | | | | Cash and cash equivalents | Cash and cash equivalents | | 907,015 | | | 654,628 | | | Restricted cash and cash equivalents | Restricted cash and cash equivalents | | 199,246 | | | 220,962 | | | Trade and other receivables, net | Trade and other receivables, net | | 5 | | 846,128 | | | 875,263 | | | Inventories | | 6 | | 169,207 | | | 161,790 | | | Inventories, net | | | Other current assets | Other current assets | | 7 | | 479,649 | | | 513,015 | | | Assets held for sale | | 3 | | 838,840 | | | 208,379 | | | | Total current assets | | | Total current assets | | | Total current assets | Total current assets | | 3,440,085 | | | 2,634,037 | | | Systems, equipment and other assets related to contracts, net | Systems, equipment and other assets related to contracts, net | | 10 | | 1,068,121 | | | 1,205,592 | | | Property, plant and equipment, net | Property, plant and equipment, net | | 10 | | 131,602 | | | 146,055 | | | Operating lease right-of-use assets | Operating lease right-of-use assets | | 11 | | 288,196 | | | 296,751 | | | Goodwill | Goodwill | | 13 | | 4,713,489 | | | 4,931,235 | | | Intangible assets, net | Intangible assets, net | | 14 | | 1,577,354 | | | 1,749,614 | | | Other non-current assets | Other non-current assets | | 7 | | 1,773,641 | | | 1,917,751 | | | Assets held for sale | | 3 | | 0 | | | 763,555 | | | | Total non-current assets | | | Total non-current assets | | | Total non-current assets | Total non-current assets | | 9,552,403 | | | 11,010,553 | | | Total assets | Total assets | | 12,992,488 | | | 13,644,590 | | | | Liabilities and shareholders’ equity | | | Liabilities and shareholders’ equity | | | Liabilities and shareholders’ equity | Liabilities and shareholders’ equity | | | | | | | | | | | | Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | | | | | Accounts payable | Accounts payable | | 1,126,043 | | | 1,059,033 | | | Current portion of long-term debt | Current portion of long-term debt | | 16 | | 392,672 | | | 462,155 | | | Short-term borrowings | Short-term borrowings | | 16 | | 480 | | | 3,193 | | | DDI / Benson Matter provision | | | Other current liabilities | Other current liabilities | | 15 | | 846,273 | | | 758,818 | | | Liabilities held for sale | | 3 | | 249,573 | | | 185,152 | | | | Total current liabilities | | | Total current liabilities | | | Total current liabilities | Total current liabilities | | 2,615,041 | | | 2,468,351 | | | Long-term debt, less current portion | Long-term debt, less current portion | | 16 | | 7,857,086 | | | 7,600,169 | | | Deferred income taxes | Deferred income taxes | | 17 | | 333,010 | | | 393,040 | | | Operating lease liabilities | Operating lease liabilities | | 11 | | 266,227 | | | 272,350 | | | Other non-current liabilities | Other non-current liabilities | | 15 | | 359,961 | | | 395,866 | | | Liabilities held for sale | | 3 | | 0 | | | 29,836 | | | | Total non-current liabilities | | | Total non-current liabilities | | | Total non-current liabilities | Total non-current liabilities | | 8,816,284 | | | 8,691,261 | | | Total liabilities | Total liabilities | | 11,431,325 | | | 11,159,612 | | | Commitments and contingencies | Commitments and contingencies | | 18 | | 0 | | 0 | Commitments and contingencies | | 19 | | | | Shareholders’ equity | Shareholders’ equity | | | | | Shareholders’ equity | | | | | | | | Common stock, par value $0.10 per share; 204,856,564 and 204,435,333 shares issued and outstanding at December 31, 2020 and 2019, respectively | | 20,485 | | | 20,443 | | | Common stock, par value $0.10 per share; 207 shares issued and 200 shares outstanding at December 31, 2023; 206 shares issued and 199 shares outstanding at December 31, 2022 | | | Additional paid-in capital | Additional paid-in capital | | 2,346,921 | | | 2,395,532 | | | Retained deficit | Retained deficit | | (1,920,484) | | | (1,020,238) | | | Treasury stock, at cost; 7 shares at December 31, 2023 and December 31, 2022 | | | Accumulated other comprehensive income | Accumulated other comprehensive income | | 19 | | 329,815 | | | 262,525 | | | Total IGT PLC’s shareholders’ equity | Total IGT PLC’s shareholders’ equity | | 776,737 | | | 1,658,262 | | | Non-controlling interests | Non-controlling interests | | 784,426 | | | 826,716 | | | Total shareholders’ equity | Total shareholders’ equity | | 1,561,163 | | | 2,484,978 | | | Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | | 12,992,488 | | | 13,644,590 | |
The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
International Game Technology PLC Consolidated Statements of Operations ($ and shares in thousands,millions, except per share amounts) | | | | | For the year ended December 31, | | | | | For the year ended December 31, | | | | | Notes | | 2020 | | 2019 | | 2018 | | | Notes | | 2023 | | 2022 | | 2021 | | Service revenue | Service revenue | | 4, 21 | | 2,639,558 | | | 3,100,868 | | | 3,195,930 | | | Product sales | Product sales | | 4, 21 | | 475,898 | | | 930,889 | | | 784,942 | | | Total revenue | Total revenue | | 4, 21 | | 3,115,456 | | | 4,031,757 | | | 3,980,872 | | | | Cost of services | Cost of services | | 1,633,899 | | | 1,777,225 | | | 1,772,224 | | | Cost of product sales | Cost of product sales | | 345,800 | | | 558,011 | | | 491,030 | | | Selling, general and administrative | Selling, general and administrative | | 706,895 | | | 849,620 | | | 845,503 | | | Research and development | Research and development | | 190,948 | | | 266,241 | | | 263,279 | | | Separation and divestiture costs | | | Restructuring | Restructuring | | 12 | | 45,045 | | | 24,855 | | | 14,781 | | | Goodwill impairment | | 13 | | 296,000 | | | 99,000 | | | 118,000 | | | Other operating expense (income), net | | 4,334 | | | (21,111) | | | 2,458 | | | | Other operating expense, net | | | Other operating expense, net | | | Other operating expense, net | | | Total operating expenses | Total operating expenses | | 3,222,921 | | | 3,553,841 | | | 3,507,275 | | | Operating income | | | Interest expense, net | | | Foreign exchange loss (gain), net | | | Other non-operating expense, net | | | Total non-operating expenses | | | Income from continuing operations before provision for income taxes | | | Provision for income taxes | | | Income from continuing operations | | | Income from discontinued operations, net of tax | | | Gain on sale of discontinued operations, net of tax | | | Income from discontinued operations | | | Net income | | | Less: Net income attributable to non-controlling interests from continuing operations | | | | Operating (loss) income | | 21 | | (107,465) | | | 477,916 | | | 473,597 | | | Less: Net loss attributable to non-controlling interests from discontinued operations | | | Less: Net loss attributable to non-controlling interests from discontinued operations | | | Less: Net loss attributable to non-controlling interests from discontinued operations | | | Net income attributable to IGT PLC | | | | Interest expense, net | | 16 | | (397,916) | | | (410,875) | | | (417,383) | | | Foreign exchange (loss) gain, net | | (308,898) | | | 39,874 | | | 129,086 | | | Other (expense) income, net | | (33,428) | | | 21,092 | | | (51,432) | | | Total non-operating expenses | | (740,242) | | | (349,909) | | | (339,729) | | | Net income from continuing operations attributable to IGT PLC per common share - basic | | | Net income from continuing operations attributable to IGT PLC per common share - basic | | | Net income from continuing operations attributable to IGT PLC per common share - basic | | | Net income from continuing operations attributable to IGT PLC per common share - diluted | | | | (Loss) income from continuing operations before provision for income taxes | | 17 | | (847,707) | | | 128,007 | | | 133,868 | | | Provision for income taxes | | 17 | | 27,698 | | | 130,757 | | | 144,164 | | | Loss from continuing operations | | (875,405) | | | (2,750) | | | (10,296) | | | Income from discontinued operations, net of tax | | 3 | | 36,681 | | | 114,408 | | | 124,943 | | | Net (loss) income | | (838,724) | | | 111,658 | | | 114,647 | | | Less: Net income attributable to non-controlling interests from continuing operations | | 63,926 | | | 126,144 | | | 108,758 | | | Less: Redeemable non-controlling interests in income from continuing operations | | 0 | | | 0 | | | 20,326 | | | Less: Net (loss) income attributable to non-controlling interests from discontinued operations | | 3 | | (4,760) | | | 4,539 | | | 6,913 | | | Net loss attributable to IGT PLC | | (897,890) | | | (19,025) | | | (21,350) | | | Net income attributable to IGT PLC per common share - basic | | | Net income attributable to IGT PLC per common share - basic | | | Net income attributable to IGT PLC per common share - basic | | | Net income attributable to IGT PLC per common share - diluted | | | | Net loss from continuing operations attributable to IGT PLC per common share - basic and diluted | | 23 | | (4.59) | | | (0.63) | | | (0.68) | | | Net loss attributable to IGT PLC per common share - basic and diluted | | 23 | | (4.39) | | | (0.09) | | | (0.10) | | | Weighted-average shares - basic and diluted | | 23 | | 204,725 | | | 204,373 | | | 204,083 | | | Weighted-average shares - basic | | | Weighted-average shares - basic | | | Weighted-average shares - basic | | | Weighted-average shares - diluted | | |
The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
International Game Technology PLC Consolidated Statements of Comprehensive (Loss) Income ($ thousands)in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | | | Notes | | 2020 | | 2019 | | 2018 | | Net (loss) income | | | | (838,724) | | | 111,658 | | | 114,647 | | | Foreign currency translation adjustments, net of tax | | 19 | | 127,551 | | | (16,527) | | | (90,784) | | | Unrealized loss on hedges, net of tax | | 19 | | (537) | | | (1,451) | | | (1,531) | | | Unrealized (loss) gain on other, net of tax | | 19 | | (269) | | | 3,060 | | | (5,008) | | | Other comprehensive income (loss), net of tax | | 19 | | 126,745 | | | (14,918) | | | (97,323) | | | Comprehensive (loss) income | | | | (711,979) | | | 96,740 | | | 17,324 | | | Less: Comprehensive income attributable to non-controlling interests | | | | 118,621 | | | 114,777 | | | 96,980 | | | Less: Comprehensive income attributable to redeemable non-controlling interests | | | | 0 | | | 0 | | | 20,326 | | | Comprehensive loss attributable to IGT PLC | | | | (830,600) | | | (18,037) | | | (99,982) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | | | Notes | | 2023 | | 2022 | | 2021 | | Net income | | | | 307 | | | 414 | | | 670 | | | Foreign currency translation adjustments, net of tax | | 20 | | 4 | | | 90 | | | 28 | | | Unrealized gain (loss) on hedges, net of tax | | 20 | | 1 | | | (1) | | | 3 | | | Unrealized (loss) gain on other, net of tax | | 20 | | — | | | 1 | | | (1) | | | Other comprehensive income, net of tax | | 20 | | 4 | | | 91 | | | 30 | | | Comprehensive income | | | | 312 | | | 505 | | | 700 | | | Less: Comprehensive income attributable to non-controlling interests | | | | 164 | | | 112 | | | 136 | | | Comprehensive income attributable to IGT PLC | | | | 148 | | | 392 | | | 564 | |
The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements
International Game Technology PLC Consolidated Statements of Cash Flows
($ thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | | | Notes | | 2020 | | 2019 | | 2018 | | Cash flows from operating activities | | | | | | | | | | Net (loss) income | | | | (838,724) | | | 111,658 | | | 114,647 | | | Less: Income from discontinued operations, net of tax | | | | 36,681 | | | 114,408 | | | 124,943 | | | Adjustments to reconcile net (loss) income from continuing operations to net cash provided by (used in) operating activities from continuing operations: | | | | | | | | | | Depreciation | | | | 354,854 | | | 385,987 | | | 383,591 | | | Foreign exchange loss (gain), net | | | | 308,898 | | | (39,874) | | | (129,086) | | | Goodwill impairment | | 13 | | 296,000 | | | 99,000 | | | 118,000 | | | Amortization | | | | 211,340 | | | 227,956 | | | 223,902 | | | Amortization of upfront license fees | | | | 210,432 | | | 205,739 | | | 217,341 | | | Loss on extinguishment of debt | | | | 28,265 | | | 11,964 | | | 54,423 | | | Debt issuance cost amortization | | | | 21,327 | | | 22,436 | | | 22,042 | | | Gain on sale of assets | | | | (27) | | | (64,714) | | | (318) | | | Stock-based compensation | | 22 | | (6,877) | | | 26,514 | | | 33,086 | | | Deferred income taxes | | | | (78,207) | | | (68,293) | | | (34,494) | | | Other non-cash items, net | | | | (1,675) | | | 18,942 | | | 29,027 | | | Changes in operating assets and liabilities, excluding the effects of dispositions and acquisitions: | | | | | | | | | | Trade and other receivables | | | | 73,578 | | | (49,267) | | | (72,133) | | | Inventories | | | | 16,628 | | | 84,472 | | | 12,556 | | | Accounts payable | | | | 4,595 | | | 28,247 | | | (56,256) | | | Upfront license fees | | | | 0 | | | 0 | | | (878,055) | | | Other assets and liabilities | | | | 31,076 | | | 20,981 | | | (136,939) | | | Net cash provided by (used in) operating activities from continuing operations | | | | 594,802 | | | 907,340 | | | (223,609) | | | Net cash provided by operating activities from discontinued operations | | | | 270,829 | | | 185,795 | | | 253,235 | | | Net cash provided by operating activities | | | | 865,631 | | | 1,093,135 | | | 29,626 | | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | Capital expenditures | | | | (254,689) | | | (377,248) | | | (472,278) | | | Proceeds from sale of assets | | | | 9,251 | | | 123,855 | | | 19,118 | | | Other | | | | 12,151 | | | 5,851 | | | 2,272 | | | Net cash used in investing activities from continuing operations | | | | (233,287) | | | (247,542) | | | (450,888) | | | Net cash used in investing activities from discontinued operations | | | | (35,284) | | | (64,648) | | | (60,649) | | | Net cash used in investing activities | | | | (268,571) | | | (312,190) | | | (511,537) | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | Principal payments on long-term debt | | | | (988,379) | | | (1,264,647) | | | (1,899,888) | | | Payments in connection with the extinguishment of debt | | | | (25,000) | | | (8,689) | | | (49,976) | | | Payments of debt issuance costs | | | | (21,584) | | | (25,930) | | | (17,033) | | | Net (payments of) proceeds from short-term borrowings | | | | (7,135) | | | (32,067) | | | 34,822 | | | Net receipts from (payments of) financial liabilities | | | | 67,138 | | | (34,324) | | | 7,123 | | | Proceeds from long-term debt | | | | 750,000 | | | 1,397,025 | | | 1,687,761 | | | Dividends paid | | | | (40,887) | | | (163,503) | | | (163,236) | | | Dividends paid - non-controlling interests | | | | (136,389) | | | (136,655) | | | (126,926) | | | Return of capital - non-controlling interests | | | | (32,309) | | | (98,788) | | | (85,121) | | | Capital increase - non-controlling interests | | | | 8,112 | | | 1,499 | | | 321,584 | | | Other | | | | (11,426) | | | (10,195) | | | (20,655) | | | Net cash used in financing activities | | | | (437,859) | | | (376,274) | | | (311,545) | | | | | | | | | | | | Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | | | | 159,201 | | | 404,671 | | | (793,456) | | | Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents | | | | 75,770 | | | (22,197) | | | (197) | | | Cash and cash equivalents and restricted cash and cash equivalents at the beginning of the period | | | | 894,251 | | | 511,777 | | | 1,305,430 | | | Cash and cash equivalents and restricted cash and cash equivalents at the end of the period | | | | 1,129,222 | | | 894,251 | | | 511,777 | | | Less: Cash and cash equivalents and restricted cash and cash equivalents of discontinued operations | | | | 22,961 | | | 18,661 | | | 23,749 | | | Cash and cash equivalents and restricted cash and cash equivalents at the end of the period of continuing operations | | | | 1,106,261 | | 875,590 | | 488,028 |
International Game Technology PLC
Consolidated Statements of Cash Flows ($ thousands)in millions) | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | | | 2020 | | 2019 | | 2018 | | Supplemental disclosures of cash flow information | | | | | | | | Cash paid during the period for: | | | | | | | | Interest | | (409,560) | | | (400,022) | | | (445,694) | | | Income taxes | | (89,006) | | | (196,831) | | | (178,547) | | | | | | | | | | Non-cash investing and financing activities: | | | | | | | | Capital expenditures | | (24,152) | | | (34,878) | | | (40,915) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | | | Notes | | 2023 | | 2022 | | 2021 | | Cash flows from operating activities | | | | | | | | | | Net income | | | | 307 | | | 414 | | | 670 | | | Less: Income from discontinued operations, net of tax | | 3 | | — | | | — | | | 415 | | | Adjustments to reconcile net income from continuing operations to net cash provided by operating activities from continuing operations: | | | | | | | | | | Depreciation | | | | 301 | | | 301 | | | 325 | | | Amortization | | | | 222 | | | 191 | | | 201 | | | Amortization of upfront license fees | | | | 200 | | | 193 | | | 216 | | | Foreign exchange loss (gain), net | | | | 75 | | | 36 | | | (66) | | | Stock-based compensation | | 21 | | 41 | | | 41 | | | 35 | | | Deferred income taxes | | | | 21 | | | (77) | | | 38 | | | | | | | | | | | | Loss on extinguishment of debt | | 15 | | 5 | | | 13 | | | 92 | | | DDI / Benson Matter provision | | 17 | | — | | | 270 | | | — | | | Gain on sale of business | | 17 | | — | | | (278) | | | — | | | | | | | | | | | | | | | | | | | | | Other non-cash items, net | | | | 15 | | | 1 | | | 17 | | | Changes in operating assets and liabilities, excluding the effects of acquisitions and divestitures: | | | | | | | | | | Trade and other receivables | | | | (5) | | | 45 | | | (95) | | | Inventories | | | | (59) | | | (65) | | | (13) | | | Accounts payable | | | | 48 | | | (22) | | | (36) | | | DDI / Benson Matter provision | | 19 | | (220) | | | (50) | | | — | | | Accrued interest payable | | | | 4 | | | (11) | | | (33) | | | Accrued income taxes | | | | 96 | | | (83) | | | 47 | | | Other assets and liabilities | | | | (12) | | | (20) | | | 27 | | | Net cash provided by operating activities from continuing operations | | | | 1,040 | | | 899 | | | 1,010 | | | Net cash used in operating activities from discontinued operations | | | | — | | | — | | | (31) | | | Net cash provided by operating activities | | | | 1,040 | | | 899 | | | 978 | | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | Capital expenditures | | | | (399) | | | (317) | | | (238) | | | Business acquisitions, net of cash acquired | | 3 | | — | | | (142) | | | — | | | Proceeds from sale of business, net of cash and restricted cash transferred | | 3 | | — | | | 476 | | | — | | | Proceeds from sale of assets | | | | 16 | | | 22 | | | 21 | | | Other | | | | (9) | | | 3 | | | 1 | | | Net cash (used in) provided by investing activities from continuing operations | | | | (393) | | | 42 | | | (216) | | | Net cash provided by investing activities from discontinued operations | | | | — | | | 126 | | | 852 | | | Net cash (used in) provided by investing activities | | | | (393) | | | 168 | | | 636 | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | Principal payments on long-term debt | | 15 | | (801) | | | (597) | | | (2,846) | | | Payments on license obligations | | 14 | | (22) | | | — | | | — | | | Payments in connection with the extinguishment of debt | | | | (3) | | | (9) | | | (85) | | | | | | | | | | | | Proceeds from long-term debt | | | | — | | | — | | | 1,339 | | | Net receipts from (payments on) financial liabilities | | | | 1 | | | 75 | | | (50) | | | Net proceeds from (payments of) short-term borrowings | | | | 13 | | | (51) | | | 51 | | | Net proceeds from Revolving Credit Facilities | | | | 609 | | | 72 | | | 17 | | | Repurchases of common stock | | | | — | | | (115) | | | (41) | | | Dividends paid | | | | (160) | | | (161) | | | (41) | | | Dividends paid - non-controlling interests | | | | (158) | | | (178) | | | (91) | | | Return of capital - non-controlling interests | | | | (74) | | | (75) | | | (127) | | | | | | | | | | | | Other | | | | (42) | | | (27) | | | (24) | | | Net cash used in financing activities | | | | (638) | | | (1,065) | | | (1,898) | | | | | | | | | | | | Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | | | | 10 | | | 2 | | | (284) | | | Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents | | | | (11) | | | (70) | | | (37) | | | Cash and cash equivalents and restricted cash and cash equivalents at the beginning of the period | | | | 740 | | | 808 | | | 1,129 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents and restricted cash and cash equivalents at the end of the period | | | | 739 | | | 740 | | | 808 | |
International Game Technology PLC Consolidated Statements of Cash Flows ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | | | Notes | | 2023 | | 2022 | | 2021 | | Supplemental disclosures of cash flow information | | | | | | | | | | Cash paid during the period for: | | | | | | | | | | Interest | | | | 294 | | | 298 | | | 369 | | | Income taxes | | | | 205 | | | 335 | | | 188 | | | | | | | | | | | | Non-cash investing and financing activities: | | | | | | | | | | Capital expenditures | | | | 23 | | | 24 | | | 26 | | | Licensing obligation payable | | 14 | | 317 | | | 75 | | | — | |
The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
International Game Technology PLC Consolidated StatementStatements of Shareholders’ Equity ($ thousands)in millions) | | Common
Stock | | | Common
Stock | | Additional
Paid-In
Capital | | Retained
(Deficit) Earnings | | Treasury
Stock | | Accumulated
Other
Comprehensive
Income (Loss) | | Total
IGT PLC
Equity | | Non
Controlling
Interests | | Total
Equity | | Balance at December 31, 2020 | | | | Common
Stock | | Additional
Paid-In
Capital | | Retained Deficit | | Accumulated
Other
Comprehensive
Income | | Total
IGT PLC
Equity | | Non-
Controlling
Interests | | Total
Equity | | Balance at December 31, 2017 | 20,344 | | | 2,676,854 | | | (1,032,372) | | | 340,169 | | | 2,004,995 | | | 349,936 | | | 2,354,931 | | | Net income | | | Net income | | | Net income | | | Other comprehensive income (loss), net of tax | | | Total comprehensive income | | | | Net (loss) income | — | | | — | | | (21,350) | | | — | | | (21,350) | | | 115,671 | | | 94,321 | | | Other comprehensive loss, net of tax | — | | | — | | | — | | | (78,632) | | | (78,632) | | | (18,691) | | | (97,323) | | | Total comprehensive (loss) income | — | | | — | | | (21,350) | | | (78,632) | | | (99,982) | | | 96,980 | | | (3,002) | | | | Reclassification of redeemable non-controlling interests | — | | | — | | | — | | | — | | | — | | | 377,243 | | | 377,243 | | | Capital increase | — | | | — | | | — | | | — | | | — | | | 319,254 | | | 319,254 | | | Adoption of new accounting standards | — | | | — | | | 45,527 | | | — | | | 45,527 | | | — | | | 45,527 | | | Stock-based compensation | Stock-based compensation | — | | | 33,086 | | | — | | | — | | | 33,086 | | | — | | | 33,086 | | | Shares issued upon exercise of stock options | 15 | | | (1,566) | | | — | | | — | | | (1,551) | | | — | | | (1,551) | | | Shares issued under stock award plans | 62 | | | (11,153) | | | — | | | — | | | (11,091) | | | — | | | (11,091) | | | Return of capital | — | | | — | | | — | | | — | | | — | | | (85,046) | | | (85,046) | | | Dividends paid | — | | | (163,236) | | | — | | | — | | | (163,236) | | | (114,337) | | | (277,573) | | | Other | — | | | 149 | | | 2 | | | — | | | 151 | | | — | | | 151 | | | Balance at December 31, 2018 | 20,421 | | | 2,534,134 | | | (1,008,193) | | | 261,537 | | | 1,807,899 | | | 944,030 | | | 2,751,929 | | | | Net (loss) income | — | | | — | | | (19,025) | | | — | | | (19,025) | | | 130,683 | | | 111,658 | | | Other comprehensive income (loss), net of tax | — | | | — | | | — | | | 988 | | | 988 | | | (15,906) | | | (14,918) | | | Total comprehensive (loss) income | — | | | — | | | (19,025) | | | 988 | | | (18,037) | | | 114,777 | | | 96,740 | | | | Stock-based compensation | | | Stock-based compensation | Stock-based compensation | — | | | 26,514 | | | — | | | — | | | 26,514 | | | — | | | 26,514 | | | Capital increase | Capital increase | — | | | — | | | — | | | — | | | — | | | 1,499 | | | 1,499 | | | Shares issued under stock award plans | Shares issued under stock award plans | 22 | | | (1,613) | | | — | | | — | | | (1,591) | | | — | | | (1,591) | | | Divestiture of non-controlling interest | | | Repurchases of common stock | | | Return of capital | Return of capital | — | | | — | | | — | | | — | | | — | | | (98,872) | | | (98,872) | | | Dividends paid | — | | | (163,503) | | | — | | | — | | | (163,503) | | | (136,836) | | | (300,339) | | | Dividends paid/declared | | | Other | Other | — | | | — | | | 6,980 | | | — | | | 6,980 | | | 2,118 | | | 9,098 | | | Balance at December 31, 2019 | 20,443 | | | 2,395,532 | | | (1,020,238) | | | 262,525 | | | 1,658,262 | | | 826,716 | | | 2,484,978 | | | Balance at December 31, 2021 | | | | Net (loss) income | — | | | — | | | (897,890) | | | — | | | (897,890) | | | 59,166 | | | (838,724) | | | Other comprehensive income, net of tax | — | | | — | | | — | | | 67,290 | | | 67,290 | | | 59,455 | | | 126,745 | | | Total comprehensive (loss) income | — | | | — | | | (897,890) | | | 67,290 | | | (830,600) | | | 118,621 | | | (711,979) | | | Net income | | | Net income | | | Net income | | | Other comprehensive income (loss), net of tax | | | Total comprehensive income | | | | Stock-based compensation | | | Stock-based compensation | | | Stock-based compensation | | | Capital increase | Capital increase | — | | | 390 | | | — | | | — | | | 390 | | | 8,931 | | | 9,321 | | | Shares issued under stock award plans | Shares issued under stock award plans | 42 | | | (1,237) | | | — | | | — | | | (1,195) | | | — | | | (1,195) | | | Shares issued upon exercise of stock options | | | | Repurchases of common stock | | | Repurchases of common stock | | | Repurchases of common stock | | | Return of capital | | | Dividends paid/declared | | | | Balance at December 31, 2022 | | | Balance at December 31, 2022 | | | Balance at December 31, 2022 | | | | Net income | | | Net income | | | Net income | | | Other comprehensive (loss) income, net of tax | | | Total comprehensive income (loss) | | | | Stock-based compensation | Stock-based compensation | — | | | (6,877) | | | — | | | — | | | (6,877) | | | — | | | (6,877) | | | Stock-based compensation | | | Stock-based compensation | | | Capital increase | | | Shares issued under stock award plans | | | | Return of capital | Return of capital | — | | | — | | | — | | | — | | | — | | | (32,238) | | | (32,238) | | | Dividends paid | — | | | (40,887) | | | — | | | — | | | (40,887) | | | (137,611) | | | (178,498) | | | Other | — | | | — | | | (2,356) | | | — | | | (2,356) | | | 7 | | | (2,349) | | | Balance at December 31, 2020 | 20,485 | | | 2,346,921 | | | (1,920,484) | | | 329,815 | | | 776,737 | | | 784,426 | | | 1,561,163 | | | | Return of capital | | | | Return of capital | | | Dividends paid/declared | | | | Balance at December 31, 2023 | | | Balance at December 31, 2023 | | | Balance at December 31, 2023 | |
The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
International Game Technology PLC Notes to the Consolidated Financial Statements
1. Description of Business International Game Technology PLC (the “Parent”), together with its consolidated subsidiaries (collectively referred to as “IGT PLC,” the “Company,” “we,” “our,” or “us”), is a global leader in gaming that delivers entertaining and responsible gaming experiences for players across all channels and regulated segments, from gaming machinesLotteries and lotteriesGaming Machines to sports bettingDigital Gaming and digital. Sports Betting.
We report our financial performance based on three business segments: Global Lottery, Global Gaming, and PlayDigital. Through our three business segments, we operate and provide an integrated portfolio of innovative gaming technology products and services including: lottery management services,including online and instant lottery systems, gaming systems,iLottery, instant ticket printing, lottery management services, gaming systems, electronic gaming machines, iGaming, and sports betting, digital gaming, and commercial services. We have a local presence and relationships with governments and regulators in more than 100 countries around the world.betting.
2. Summary of Significant Accounting Policies
Basis of Preparation The
Our Consolidated Financial Statements and accompanying consolidated financial statements and notes of the Company have beenare prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statementsConsolidated Financial Statements are stated in thousandsmillions of United States (“U.S.”) dollars, (except share andexcept per share data)data or unless otherwise indicated. We have reclassified certain prior period amounts to align with the current period presentationindicated, and recast certain prior period amounts, as discussed below. All references to “U.S. dollars,” “U.S. dollar,” “U.S. $,” “USD,” and “$” refer to the currency of the United States of America. All references to “euro,” “EUR,” and “€” refer to the currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treatyare computed based on the Functioning ofamounts in thousands. Certain amounts in columns and rows within tables may not foot due to rounding. Percentages and earnings per share amounts presented are calculated from the European Union, as amended.underlying unrounded amounts.
During the fourth quarter of fiscal 2020,On May 10, 2021, the Company announced that its wholly-owned subsidiary, Lottomatica, had entered into a definitive agreement to sell 100 percentcompleted the sale of the share capital of Lottomatica Videolot Rete S.p.A. and Lottomatica Scommesse S.r.l., the members of the IGT group which conduct its Italian B2C gaming machine, sports betting, and digital gaming businesses to Gamenet Group S.p.A The Company’s (“Italian Gaming B2C businessbusinesses”), which met the criteria to be reported as a discontinued operation and, asduring the fourth quarter of 2020. As a result, the historical results of the Italian Gaming B2C historical financialbusinesses have been excluded from both continuing operations and segment results are reflected in the Company's consolidated financial statements as a discontinued operation, and assets and liabilities were retrospectively reclassified as assets and liabilities held for sale for all periods presented. Unless otherwise indicated, amounts and activity throughout these Consolidated Financial Statements are presented on a continuing operations basis. Refer to Note 3 - Discontinued OperationsBusiness Acquisitions and Assets Held for SaleDivestitures for further information.details.
Principles of Consolidation The consolidated financial statementsConsolidated Financial Statements include the accounts of the Parent, our majority-owned or controlled subsidiaries, and any variable interest entities in which we are the primary beneficiary. Intercompany accounts and transactions have been eliminated in consolidation. Earnings or losses attributable to non-controlling interests in a subsidiary are included in net (loss) income in the consolidated statementsConsolidated Statements of operations.Operations.
Investments in which we have the ability to exercise significant influence, but do not control, and with respect to which we are not the primary beneficiary, are accounted for using the equity method of accounting. Equity investments in which we have no ability to exercise significant influence that do not have a readily determinable fair value and do not have a Net Asset Value per share are measured at cost, less impairment, plus or minus changes resulting from observable price changes. Equity method investments and equity investments in which we have no ability to exercise significant influence are included within other non-current assets onin the consolidated balance sheets.Consolidated Balance Sheets.
Recasting of Certain Prior Period Information
On July 1, 2020, we adopted a new organizational structure focused on 2 business segments: Global Lottery and Global Gaming, along with a streamlined corporate support function. During the third quarter of 2020, our chief operating decision maker, who is also our Chief Executive Officer, requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. As a result, we report our financial performance based on our new business segments described in Note 21 – Segment Information. We have recast our historically presented comparative segment information to conform to the way we internally manage and monitor segment performance as of the third quarter of 2020. This realignment of our operating segments has a pervasive impact on the presentation of our comparative period data. This change primarily impacted Note 4 - Revenue Recognition, Note 5 - Trade and Other Receivables, net, Note 7 - Other Assets, Note 12 - Restructuring ,Note13 - Goodwill,and Note 21 – Segment Information,with no impact on consolidated revenue, net income, or cash flows.
Assets and Liabilities Held for Sale
The Company classifies assets and liabilities (disposal groups) to be sold as held for sale in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the disposal group; the disposal group is available for immediate sale in its present condition subject to terms customary for sales of such disposal groups; an active program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale within one year; the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the carrying value of the disposal group at the time it was initially classified as held for sale.
Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group, if material, in the line items assets held for sale and liabilities held for sale in the consolidated statements of financial position in each period presented. Refer to Note 3 -Discontinued Operations and Assets Held for Sale, for further information.
Use of Estimates
The preparation of our consolidated financial statementsConsolidated Financial Statements requires us to make estimates, judgments, and assumptions which affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis weWe evaluate our estimates, judgments, and methodologies.methodologies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenues and expenses. The full extent to which the outbreak of a new strain of coronavirus, COVID-19 (“COVID-19”), will directly or indirectly impact our business,Accordingly, actual results of operations, and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs, and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, as well as the economic impact on local, regional, national, and international customers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results mayoutcomes could differ from thesethose estimates.
New Accounting Standards - Recently Adopted Given
In March 2022, the anticipated continued impactFinancial Accounting Standards Board (“FASB”) issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). The amendments eliminate the
troubled debt restructuring (“TDR”) recognition and measurement accounting model, and instead entities will evaluate the resulting extended economic slowdown, we have revised our forecast, evaluated our liquidity position,terms of a restructured financing agreement to determine whether it represents a new loan or a continuation of an existing loan. Although the TDR accounting model was eliminated, the financial difficulty criteria was retained to determine whether a restructuring should be disclosed under an expanded set of requirements about a creditor’s loan modification programs. In addition, the amendments will require entities to disclose current period gross write-offs by year of origination, also known as “vintage”. The TDR changes and evaluated our abilityvintage disclosure requirement apply to comply with the amended financial covenants in our debt agreementsCompany’s customer financing receivables. We adopted ASU 2022-02 as of January 1, 2023 and applied the date of issuance of theseamendments prospectively. The adoption did not have a material impact on our consolidated financial statements. Basedstatements or notes therein.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The amendments create an exception to the general recognition and measurement principal in ASC 805, Business Combinations to measure assets and liabilities acquired in a business combination at fair value. Instead, an acquirer in a business combination will be required to apply ASC 606 to recognize and measure contract assets and contract liabilities that result from contracts accounted for under ASC 606 on the revised forecast, management believes thatacquisition date and will generally result in the acquirer recognizing amounts consistent with those recorded by the acquiree immediately before the acquisition date. We adopted ASU 2021-08 as of January 1, 2023. The adoption did not have a material impact on our consolidated financial position, forecasted net cash providedstatements.
New Accounting Standards - Not Yet Adopted
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The amendments create additional disclosure requirements with respect to segment financial information. In addition to disclosing the specific segment expenses already required by operations, available cash and cash equivalents at December 31, 2020, and borrowing capacity under our amended Revolving Credit Facilities due July 2024 as described in Note 16 - Debt,ASC 280, reporting entities will be sufficientrequired to fund our current obligations, capital spending, debt servicedisclose significant segment expense categories and amounts that are regularly provided to the chief operating decision maker (“CODM”). The name of the individual or group serving as the CODM must be disclosed in addition to how the CODM uses each reported segment measure of profit or loss to assess performance and allocate resources. Nearly all numerical information must be reported during interim periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024, with early adoption permitted. We expect to adopt ASU 2023-07 upon the effective date and will apply the amendment retrospectively, unless it is impracticable to do so.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures. The amendments create additional disclosure requirements with respect to income tax information. Entities must disclose certain categories in the income tax rate reconciliation of the effective and working capitalstatutory tax rates along with explanations for reconciling items that are not otherwise evident. The disclosures also require disaggregation of income taxes paid by federal (national), state, or foreign as well as by individual jurisdiction. Additionally, the amendments codify certain disclosures related to income (loss) before provision for income taxes and provision for income taxes that had been required by under the SEC’s Regulation S-X. The amendments remove disclosure requirements over at leastrelated to potential unrecognized tax benefit changes in the next twelve months. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. We expect to adopt ASU 2023-09 upon the effective date and expect to apply the amendments prospectively.
There are no additional new accounting standards not yet adopted for the year ended December 31, 2023 with a significant effect on the Consolidated Financial Statements.
Revenue Recognition
We account for a contract with a customer when: i.we have written approval;
ii.the contract is committed;
iii.parties are committed to perform their respective obligations; the rights of the parties, including payment terms, are identified;
iv.the contract has commercial substance; and
v.collectability collection of consideration is probable.
A performance obligation is a promise in a contract with a customer to transfer products or servicesWe report revenue net of any revenue-based taxes assessed by governmental authorities that are distinct. If we enter into two or more contracts at or near the same time, the contracts may be combinedimposed on and accounted for as one contract, in which case we determine whether the services or products in the combined contract are distinct. A service or product that is promised to a customer is distinct if both of the following criteria are met:
concurrent with specific revenue-producing transactions.
•TheWe generally expense incremental costs of obtaining a contract (e.g., sales commissions) when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses in our Consolidated Statements of Operations. For certain of our long-term contracts, recoverable costs are capitalized and amortized on a straight-line basis over the expected customer can benefit from the service or product either on its own or together with other resources that are readily available to the customer; and
•Our promise to transfer the service or product to the customer is separately identifiable from other promises in the contract.relationship period.
Revenue is recognized when (or as) control of a promised service or product transfers to a customer, in an amount that reflects the consideration (which represents the transaction price) to which we expect to be entitled in exchange for transferring that service or product. If the consideration promised in a contract includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely amount method. Our contracts may include terms that could cause variability in the consideration, including, for example, rebates, volume discounts, service-level penalties, and performance bonuses or other forms of contingent revenue.
Our standard payment terms dictate that payment is due upon receipt of invoice, payable within 30 days. Invoices are generally issued as control transfers and/or as services are rendered. Additionally, inIn determining the transaction price, we adjust the promised amount of consideration for the effects of the time value of money if the payment terms are not standard and the timing of payments agreed to by the parties to the contract provide the customer
or the Company with a significant benefit of financing, in which case the contract contains a significant financing component. Most arrangements that contain aWe do not account for significant financing component include explicit financing terms.components if the period between when we transfer the promised service or product to the customer and when the customer pays for that service or product will be one year or less.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) performance obligations for which we recognize variable revenue at the amount that we have the right to invoice for services performed, (iii) contracts for which variable consideration is accounted for in accordance with sales-based or usage-based royalty guidance, and (iv) wholly unperformed contracts.
Additional information on revenue recognition is included in Note 4.- Revenue Recognition.
Significant Judgments and Estimates
Revenue recognition is impacted by our ability to determine when a contract is probable of collection and to estimate variable consideration, including, for example, rebates, volume discounts, service-level penalties, and performance bonuses. We consider various factors when making these judgments, including a review of specific transactions, historical experience and market and economic conditions. Evaluations are conducted each quarter to assess the adequacy of the estimates.
Our contracts with customers often include promises to transfer multiple products and services to a customer. Specifically, complex arrangements with nonstandard terms and conditions may includerequire significant contract interpretation to determine the appropriate accounting, including whether the promised products and services specified in the arrangement are distinct performance obligations. Contracts may consist of a combination of products and services delivered at or over different time periods. We apply judgment in identifying and evaluating the contractual terms and conditions that impact the identification of performance obligations and the pattern of revenue recognition.
Judgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. The SSP is the price at which we would sell a promised product or service separately to a customer. In some instances, we are able to establish SSP based on the observable prices of services or products sold separately in comparable circumstances to a similar customer. We typically establish an SSP range for our products and services that are reassessed on a periodic basis or when facts and circumstances change. In other instances, we may not be able to establish an SSP range based on observable prices, and we estimate the SSP by considering multiple factors including, but not limited to, overall market conditions, including geographic or regional specific factors, competitive positioning, competitor actions, internal costs, profit objectives, and pricing practices.
Determining whether we are acting as a principal or an agent for subcontractor services or third-party vendor services or products inrequires judgment. In certain arrangements. In these arrangements, revenue from sales of third-party vendor servicesproducts or productsservices are recorded net of costs when we are acting as an agent between the customer and the vendor, and gross when we are the principal for the transaction. To determine whether we are an agent or principal, we consider whether we obtain control of the services or products before they are transferred to the customer. In making this evaluation, several factors are considered, most notably whether we have primary responsibility for fulfillment to the customer, as well as inventory risk and pricing discretion.
Contract Costs
Certain eligible, non-recurring costs incurred in the initial phases of service contracts are capitalized and amortized ratably over the expected period of benefit, which includes anticipated contract renewals or extensions. Recurring operating costs in these contracts are recognized as incurred.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $28 million, $28 million, and $33 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Research and Development Costs
Research and development costs (“R&D”), which principally include employee compensation costs, are expensed as incurred, except certain costs incurred related to capitalized software development as described below in the Capitalized Software Development Costs policy.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments purchased with an original maturity of three months or less at the date of acquisition, such as bank deposits, money market funds, and interest bearing bank accounts with insignificant interest rate risk. The fair value of cash and cash equivalents approximates the carrying amount.
Restricted Cash and Cash Equivalents
Under our Italian Lotto and Italian Scratch & Win contracts, we deposit wagers, net of prizes paid and retailer commissions retained by the retailer at point of sale, into bank accounts, the use of which is restricted based on the contract with our customer. Restricted cash is also maintained for interactive digital player deposits and in certain jurisdictions where we are required by gaming regulations to maintain sufficient reserves in restricted cash accounts to be used for the purpose of funding payments to WAP jackpot winners. These amounts are restricted based on the contracts with our customers or local regulations.
Allowance for Expected Credit Losses
We maintain an allowance for expected credit losses on receivables resulting from the expected failure or inability of our customers to make required payments. The allowance is regularly reviewed by considering factors such as the creditworthiness of our customers, historical experience, aging of receivables, current market and economic conditions, as well as management’s expectations of future conditions. The allowance is deducted from the amortized cost basis of the receivable to present the net amount expected to be collected.
We estimate expected credit losses on receivables on a collective (pool) basis when similar risk characteristics exist. Trade and other receivables and customer financing receivables represent the initial pools which are segregated further by business segment, geography, internal risk rating, and aging. The risk of loss is assessed over the contractual life of the receivables and we adjust historical loss rates for current and future conditions based on qualitative considerations. The expected loss rate for each receivable pool is applied to the aggregate receivable balance to determine the allowance requirement. Receivables are written off against the allowance in the period they are determined to be uncollectible.
We determine delinquency based on the contractual payment terms. An account may be considered delinquent if there are unpaid balances remaining on the account the day after the contractual due date.
For amounts due from certain government customers in the Global Lottery business segment, we have not established an allowance as we have no expectation of loss based on a long history of no credit losses and the explicit guarantee of a sovereign entity.
Inventories
Inventories are stated at the lower of cost (applying the first in, first out method) and net realizable value. Allowances are made for defective, obsolete, or excess inventory.
Upfront License Fees We periodically make long-term investments in contracts with customers and obtain licenses to supply products and services to our customers. As consideration, we pay license fees, which are classified as other non-current assets in the Consolidated Balance Sheets. We recognize the amortization of the license fees as a reduction of service revenue over the estimated economic life of the license term. This method reflects the pattern in which economic benefits are expected to be realized. The recoverability of each payment is subject to significant estimates about future revenues related to the contracts’ future cash flows. We evaluate these assets for impairment and update amortization rates on an agreement by agreement basis. The assets are reviewed for impairment whenever events or changes in circumstances indicate their carrying amount may not be recoverable. In periods in which payments are made to the customer, we classify the payment as a cash outflow from operating activities in the Consolidated Statements of Cash Flows.
Fair Value Measurements
We account for certain financial assets and liabilities at fair value. Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the use of observable inputs and the lowest priority to the use of unobservable inputs. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest
level input that is significant to the fair value measurement. These levels are as follows: •Level 1 - inputs are based upon unadjusted quoted prices for identical instruments in active markets •Level 2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the instruments •Level 3 - inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability
Derivative Financial Instruments
We use derivative financial instruments for the management of foreign currency risks. We do not enter into derivatives for speculative purposes. Derivatives are recognized as either assets or liabilities in the Consolidated Balance Sheets at fair value. All derivatives are recorded gross, except netting of foreign exchange contracts and counterparty netting of interest receivable and payable related to interest rate swaps, as applicable. The accounting for changes in the fair value of a derivative depends on the nature of the hedge and the hedge effectiveness. Derivative gains and losses are reported in the Consolidated Statements of Cash Flows consistent with the classification of the cash flows from the underlying hedged items.
For derivative instruments designated as cash flow hedges, gains and losses are recorded in other comprehensive income (loss) and are subsequently reclassified when the hedged item affects earnings. At that time, the amount is reclassified from other comprehensive income (loss) to the same income statement line as the earnings effect of the hedged item.
Derivative instruments not designated as hedges are recognized in the Consolidated Balance Sheets at fair value with the changes in fair value recorded in foreign exchange loss (gain), net in the Consolidated Statements of Operations.
Systems, Equipment and Other Assets Related to Contracts, Net and Property, Plant and Equipment, Net
We have two categories of fixed assets: systems, equipment and other assets related to contracts (“Systems & Equipment”) and property, plant and equipment (“PPE”).
Systems & Equipment are assets that primarily support our operating contracts, FMCs, and WAP systems (collectively, the “Contracts”) and are principally composed of lottery and gaming assets, including those that are accounted for as operating leases with our customers. PPE are assets we use internally, not associated with Contracts, primarily related to production and assembly, selling, general and administration, and R&D.
Systems & Equipment and PPE are stated at cost, net of accumulated depreciation and accumulated impairment loss, if any. Costs incurred for Systems & Equipment and PPE not yet placed into service are classified as construction in progress and are not depreciated until placed in service. Depreciation is recognized on a straight-line basis over the estimated useful lives of the assets. Repair and maintenance costs are expensed as incurred, whereas major improvements that increase asset values and extend useful lives are capitalized.
Systems & Equipment and PPE are tested for impairment whenever events or changes in circumstances indicate the carrying amount of those assets may not be recoverable. An impairment loss is recognized only if the carrying amount is not recoverable and exceeds its fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted forecasted cash flows resulting from the use and eventual disposition of such asset. An impairment loss is measured as the amount by which the carrying amount exceeds its fair value.
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 long term lottery and commercial gaming service arrangements include leases for equipment installed at customer locations. 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 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.
Goodwill
The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses, and is stated at cost less accumulated impairment losses.
Goodwill is tested for impairment annually, in the fourth quarter, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount and an impairment loss is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.
Goodwill has been allocated to and is tested for impairment at the reporting unit level, which is the same level as our operating segments. We evaluate our reporting units annually and if necessary, reassign goodwill using a relative fair value approach. We have three reporting units: Global Lottery, Global Gaming, and PlayDigital.
Capitalized Software Development Costs
Costs incurred in the development of our externally-sold software products are expensed as incurred, except certain costs incurred subsequent to establishing technological feasibility and through the general release of the software products which are capitalized. Capitalized costs are amortized over the products’ estimated useful life to cost of product sales in the Consolidated Statements of Operations.
Costs incurred during the application development phase of software for services provided to customers are capitalized as internal-use software and amortized over the useful life to cost of services in the Consolidated Statements of Operations.
Costs incurred during the application development of software for internal use, and not for use in services provided to customers, are capitalized and amortized over the useful life to selling, general and administrative expenses in the Consolidated Statements of Operations.
Intangible Assets
Intangible assets, which include indefinite-lived and definite-lived intangible assets, are stated at cost, less accumulated amortization and accumulated impairment losses.
Indefinite-lived intangible assets are composed of trademarks for which there is no foreseeable limit of the period over which they are expected to generate net cash inflows. Definite-lived intangible assets, which are primarily composed of customer relationships, licenses, and computer software and game library, are capitalized and amortized on a straight-line basis over their estimated useful lives. Estimated useful lives are determined considering the period the assets are expected to contribute to future cash flows. Amortization of intangibles is included in cost of services, cost of product sales, or selling, general and administrative expenses in the Consolidated Statements of Operations depending on the use and nature of the asset.
Indefinite-lived intangible assets, other than goodwill, are tested for impairment annually, in the fourth quarter, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. We first perform a qualitative assessment to determine whether it is more likely than not that the fair value of indefinite-lived intangible assets are less than their carrying amount and whether the quantitative analysis is necessary. The quantitative analysis compares the fair value of indefinite-lived intangible assets to their carrying amount and an impairment loss is recognized when the carrying amount exceeds the fair value.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their reported amounts using the enacted tax rates in effect for the year in which the differences are expected to reverse. Tax credits are generally recognized as reductions of income tax provisions in the year in which the credits arise. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enacted or substantively enacted date.
Accounting for uncertainty in income taxes recognized in the Consolidated Financial Statements is in accordance with accounting authoritative guidance, which prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more likely than not” to be sustained, the tax position is then assessed to determine the amount of the benefit to recognize in the Consolidated Financial Statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.
We recognize interest and penalties related to unrecognized tax benefits in provision for income taxes in the consolidated statement of operations. Accrued interest and penalties are included within other non-current liabilities in the Consolidated Balance Sheets.
We use the period cost method for global intangible low-taxed income (“GILTI”) provisions and therefore have not recorded deferred taxes for basis differences expected to reverse in future periods.
A provision for foreign withholding taxes has not been recorded on undistributed profits of the company’s subsidiaries that are determined to be indefinitely reinvested. If management intentions change in the future, there may be a significant impact on the provision for income taxes in the period the change occurs.
WAP Jackpot Accounting
We incur costs to fund jackpots and accrue jackpot liabilities with every wager on devices connected to a WAP system. Jackpot liabilities are estimated based on the size of the jackpot, the number of WAP units in service, variations and volume of play, and interest rate movements. Jackpots are generally payable to winners immediately, in the case of instant wins, or in equal annual installments over 19 to 25 years. Winners may elect to receive a lump sum payment for the present value of the jackpot discounted at applicable interest rates in lieu of periodic annual installments.
Jackpot liabilities are composed of payments due to previous winners, and amounts due to future winners of jackpots not yet won. Liabilities due to previous winners for periodic payments are carried at the accreted cost of a qualifying U.S. government or agency annuity investment for those in which purchases were made at the time of the jackpot win. All other periodic liabilities are discounted and accreted using the risk-free rate at the time of the jackpot win.
Liabilities due to future winners are recorded at the present value of the estimated amount of jackpots not yet won. We estimate the present value of these liabilities using current market rates, weighted with historical lump sum payout election ratios. Based on the most recent historical patterns, approximately 80% of winners will elect the lump sum payment option. The current portion of these liabilities are estimated based on historical experience with winner payment elections, in conjunction with the theoretical projected number of jackpots.
Process for Disclosure and Recording of Liabilities Related to Legal Proceedings
Many lawsuits and claims involve highly complex legal and related issues, including issues relating to causation, evidence, and alleged actual damages, all of which are otherwise subject to substantial uncertainties. Assessments of lawsuits and claims can
involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. When making determinations about recording liabilities related to legal proceedings, the Company complies with the requirements of ASC 450, Contingencies, and related guidance, and records liabilities in those instances where it can reasonably estimate the amount of the loss and when the loss is probable. Where the reasonable estimate of the probable loss is a range, the Company records as an accrual in its financial statements the most likely estimate of the loss, or the low end of the range if there is no one best estimate. The Company either discloses the amount of a possible loss or range of loss in excess of established accruals if estimable, or states that such an estimate cannot be made. The Company discloses significant legal proceedings even where liability is not probable or the amount of the liability is not estimable, or both, if the Company believes there is at least a reasonable possibility that a loss may be incurred. All legal costs are expensed as incurred.
Because legal proceedings are subject to inherent uncertainties, and unfavorable rulings or developments could occur, there can be no certainty that the Company may not ultimately incur charges in excess of presently recorded liabilities. Many of the matters described are at preliminary stages or seek an indeterminate amount of damages. It is not uncommon for claims to be resolved over many years. A future adverse ruling, settlement, unfavorable development, or increase in accruals for one or more of these matters could result in future charges that could have a material adverse effect on the Company’s results of operations or cash flows in the period in which they are recorded. Based on experience and developments, the Company reexamines its estimates of probable liabilities and associated expenses and receivables each quarterly period, and whether it is able to estimate a liability previously determined to be not estimable and/or not probable. Where appropriate, the Company makes additions to or adjustments of its estimated liabilities. As a result, the current estimates of the potential impact on the Company’s consolidated financial position, results of operations, and cash flows for the legal proceedings and claims pending against the Company could change in the future.
Treasury Stock
We account for treasury stock acquisitions using the cost method. We account for the retirement of treasury stock by deducting its par value from common stock and reflecting any excess of cost over par value as a deduction from additional paid-in capital in the Consolidated Balance Sheets.
Foreign Currency Translation and Foreign Currency Transactions
The financial statements of subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars, with the resulting translation adjustments recorded as a component of accumulated other comprehensive income (“AOCI”) within shareholders’ equity. Assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date, while income and expense items are translated using the average exchange rates during the period.
Subsidiaries with monetary assets and liabilities denominated in a currency other than the functional currency of the subsidiary are subject to remeasurement, the impact of which is recorded in foreign exchange loss (gain), net in the Consolidated Statements of Operations.
Stock-Based Compensation
Stock-based compensation expense represents the cost related to stock-based awards granted to directors and employees. Stock-based compensation cost is measured at the grant date or modification date, based on the estimated fair value of the award and recognized as expense, net of estimated forfeitures, over the vesting periods. For awards subject to cliff vesting, compensation cost is recognized by way of a straight-line method over the award’s expected vesting period. For awards subject to graded vesting, compensation cost is recognized by way of an accelerated attribution method over the entire awards’ expected vesting periods.
3.Business Acquisitions and Divestitures
Business Acquisitions
On July 1, 2022, the Company completed the acquisition of iSoftBet by purchasing 100% of the equity interests in certain entities of the iSoftBet group for cash consideration of €162 million (inclusive of €20 million deposited into an escrow account) and contingent consideration of up to €4 million. The Company funded the acquisition through a combination of cash on hand and utilization of its revolving credit facility. The acquisition of iSoftBet provides market-tested proprietary digital content, advanced game aggregation capabilities, scalable promotional tools, analytics, and creative talent to the PlayDigital segment. The financial results of iSoftBet have been included within our PlayDigital segment in our Consolidated Financial Statements since the date of purchase.
The major classes of assets and liabilities to which the Company has allocated the purchase price based on information as of the acquisition date and available at December 31, 2022 were as follows: | | | | | | | | | | | | | | | | (€ millions) | | Notes | | July 1, 2022 | | Current assets | | | | 18 | | | Intangible assets | | 14 | | 59 | | | Non-current assets | | | | 3 | | | Total identifiable assets acquired | | | | 80 | | | Current liabilities | | | | (10) | | | Non-current liabilities | | | | (22) | | | Total liabilities assumed | | | | (31) | | | Net identifiable assets acquired | | | | 49 | | | Goodwill | | 13 | | 117 | | | Total purchase price | | | | 166 | |
Divestitures
There were no divestitures that closed during the year ended December 31, 2023.
On September 14, 2022, the Company completed the sale of 100% of the share capital of Lis Holding S.p.A., a wholly owned subsidiary of IGT Lottery S.p.A. that conducted the Company’s Italian commercial services business, to PostePay S.p.A. – Patrimonio Destinato IMEL, for a purchase price of €700 million. The consideration received, net of €198 million cash and restricted cash transferred and €23 million of selling costs, was €479 million and resulted in a pre-tax gain on sale of $278 million, ($276 million net of tax) which is classified within Other non-operating (income) expense, net. The disposal group was a component of continuing operations within our Global Lottery segment through the closing date.
The funds received at closing were used to pay transaction expenses and fund the partial tenders of the 3.500% Senior Secured Euro Notes due July 2024 (which were subsequently redeemed in full on October 27, 2023) and 6.500% Senior Secured U.S. Dollar Notes due February 2025. Refer to Note 15 - Debt for further information.
The Company has continuing involvement with the business sold via a transition services agreement (“TSA”). As part of the TSA, the Company provides various telecommunications, information technology, and back-office services for which the Company receives compensation. These services generally expire after no more than four (4) years.
Announced Divestitures
On February 29, 2024, the Company announced that IGT PLC entered into definitive agreements with Everi for the Separation & Divestiture of the Global Gaming and PlayDigital segments. Refer to Note 26. - Subsequent Events for further information.
Separation and Divestiture Costs
Separation and divestiture costs, are a type of transaction cost, that consist primarily of financial advisory, legal, accounting, tax, consulting, and other professional advisory fees associated with the activities required to perform the review of strategic alternatives for the Company’s Global Gaming and PlayDigital segments announced on June 8, 2023 and preparing the Global Gaming and PlayDigital segments for spin-off. Total Separation and divestiture costs for the year ended December 31, 2023 were $24 million.
Discontinued Operations
On May 10, 2021, the Company completed the sale of its Italian B2C businesses, which were previously reported under the Global Gaming segment and met the criteria to be reported as a discontinued operation during the fourth quarter of 2020, for a cash purchase price of €950 million (of which the final €125 million payment was received on July 13, 2022). The sale resulted in a pre-tax gain on sale of $396 million ($391 million net of tax) in the year ended December 31, 2021.
Summarized financial information for discontinued operations is shown below (there are no discontinued operations during 2023 and 2022): | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | ($ in millions) | | | | | | 2021 | | Total revenue | | | | | | 74 | | | | | | | | | Operating income (1) | | | | | | 24 | | | | | | | | | | Income from discontinued operations before benefit from income taxes | | | | | | 23 | | | Benefit from income taxes on discontinued operations | | | | | | (1) | | | | | | | | | | Gain on sale of discontinued operations before provision for income taxes | | | | | | 396 | | | Provision for income taxes on sale of discontinued operations | | | | | | 5 | | | Gain on sale of discontinued operations, net of tax | | | | | | 391 | | | Income from discontinued operations | | | | | | 415 | | | Less: Net loss attributable to non-controlling interests from discontinued operations | | | | | | (2) | | | Income from discontinued operations attributable to IGT PLC | | | | | | 417 | |
(1) There was no depreciation and amortization in 2021.
The Company has continuing involvement with the businesses via a TSA. As part of the TSA, the Company provides various telecommunications and information technology for which the Company receives compensation. These services generally expired after one year.
4. Revenue Recognition
Disaggregation of Revenue
The following tables summarize revenue disaggregated by business segment and the source of the revenue for the years ended December 31, 2023, 2022, and 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2023 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Total | | Operating and facilities management contracts | | 2,306 | | | — | | | — | | | 2,306 | | | Gaming terminal services | | — | | | 520 | | | — | | | 520 | | | PlayDigital services | | — | | | — | | | 227 | | | 227 | | | Systems, software, and other | | 53 | | | 242 | | | — | | | 295 | | | Service revenue | | 2,359 | | | 762 | | | 227 | | | 3,347 | | | | | | | | | | | | Lottery products | | 171 | | | — | | | — | | | 171 | | | Gaming terminals | | — | | | 571 | | | — | | | 571 | | | Other | | — | | | 220 | | | 1 | | | 221 | | | Product sales | | 171 | | | 791 | | | 1 | | | 963 | | | Total revenue | | 2,530 | | | 1,552 | | | 228 | | | 4,310 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2022 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Total | | Operating and facilities management contracts | | 2,181 | | | — | | | — | | | 2,181 | | | Gaming terminal services | | — | | | 483 | | | — | | | 483 | | | PlayDigital services | | — | | | — | | | 209 | | | 209 | | | Systems, software, and other | | 255 | | | 232 | | | — | | | 487 | | | Service revenue | | 2,436 | | | 714 | | | 209 | | | 3,359 | | | | | | | | | | | | Lottery products | | 157 | | | — | | | — | | | 157 | | | Gaming terminals | | — | | | 501 | | | — | | | 501 | | | Other | | — | | | 208 | | | 1 | | | 209 | | | Product sales | | 157 | | | 709 | | | 1 | | | 866 | | | Total revenue | | 2,593 | | | 1,423 | | | 209 | | | 4,225 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2021 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Total | | Operating and facilities management contracts | | 2,363 | | | — | | | — | | | 2,363 | | | Gaming terminal services | | — | | | 424 | | | — | | | 424 | | | PlayDigital services | | — | | | — | | | 163 | | | 163 | | | Systems, software, and other | | 327 | | | 206 | | | — | | | 534 | | | Service revenue | | 2,690 | | | 630 | | | 163 | | | 3,483 | | | | | | | | | | | | Lottery products | | 123 | | | — | | | — | | | 123 | | | Gaming terminals | | — | | | 339 | | | — | | | 339 | | | Other | | — | | | 143 | | | 1 | | | 144 | | | Product sales | | 123 | | | 482 | | | 1 | | | 606 | | | Total revenue | | 2,812 | | | 1,112 | | | 165 | | | 4,089 | |
Sources of Revenue
Service Revenue
Service revenue is derived from the following sources:
•Operating and Facilities Management Contracts;facilities management contracts; •Gaming terminal services; •PlayDigital services; and •System,Systems, software, and other
Operating and Facilities Management Contractsfacilities management contracts – Global Lottery
Our revenue from operating contracts is derived primarily from long-term exclusive operating licenses in Italy. Under operating contracts, we manage all the activities along the lottery value chain including collecting wagers, paying out prizes, managing all accounting and other back-office functions, running advertising and promotions, operating data transmission networks and processing centers, training staff, providing retailers with assistance, and supplying materials for the game. In most cases, the arrangement is accounted for as a single performance obligation composed of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e., distinct days of service).
Under operating contracts, we typically satisfy the performance obligation and recognize revenue over time because the customer simultaneously receives and consumes the benefits provided as we perform the services. The amount of consideration to which we are typically entitled is variable based on a percentage of sales. Revenue is typically recognized in the amount that we have the right to invoice the customer as this corresponds directly with the value to the customer of our performance completed to date. In arrangements where we are performing services on behalf of the government and the government is
considered our customer, revenue is recognized net of prize payments, taxes, retailer commissions, and remittances to state authorities. Under operating contracts, we are generally required to pay an upfront license fee. Refer to the Upfront License FeeFees policy belowabove for further details.
Our revenue from facilities management contracts (“FMC”)FMCs is generated by assembling, installing, and operating the online lottery system and related point-of-sale equipment. Under a typical FMC, we maintain ownership of the technology and are responsible for capital investments throughout the duration of the contract. FMCs typically include a wide range of support services that are provided throughout the contract and are part of the integrated solution that the customer has contracted to obtain. In most cases, the arrangement is accounted for as a single performance obligation composed of a series of distinct
services that are substantially the same and that have the same pattern of transfer. Under FMCs, we typically satisfy the performance obligation and recognize revenue over time because the customer simultaneously receives and consumes the benefits provided as we perform the services. The amount of transaction price to which we are entitled is typically variable based on a percentage of sales, although under certain of its agreements, the Company receives fees based on a fixed fee arrangement. Revenue is typically recognized in the amount that we have the right to invoice the customer, as this corresponds directly with the value to the customer of our completed performance.
Gaming terminal services – Global Gaming
Our revenue from gaming terminal services is generated by providing customers with proprietary land-based gaming systems and equipment under a variety of recurring revenue or lease arrangements, including a percentage of amounts wagered, a percentage of net win, or a fixed daily/monthly fee.
Included in gaming terminal services are wide area progressive (“WAP”)WAP systems. WAP systems consist of linked slot machines located in multiple casino properties, connected to a central computer system. WAP systems include a Company-sponsored progressive jackpot that increases with every wager until a player wins the top award combination. Casinos with WAP machines pay a percentage of amounts wagered for services related to the design, assembly, installation, operation, maintenance, and marketing of the WAP systems, as well as funding and administration of Company-sponsored progressive jackpots. A portion of the total fee collected is allocated to the WAP jackpot. Since the jackpot is a payment to the customer, the portion allocated to the jackpot is classified as a reduction of revenue.
In some arrangements, there is a single performance obligation composed of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The amount of transaction price to which we are entitled typically is variable based on a percentage of wagers. This results in revenue recognition that corresponds with the value to the customer for the services transferred in the amount that we have the right to invoice. In other arrangements where the end customer is the player, we record revenue net of prize payouts once the wagering outcome has been determined.
PlayDigital services – PlayDigital
We generate revenue from our iGaming solutions by providing gaming operators a license to offer IGT remote game server games on the operator websites and mobile applications. We typically offer customers a usage-based license under which we receive a fee based on the net gaming revenue derived by the operator attributable to the IGT remote game server games. Revenue is typically recognized when the usage occurs.
We provide sports betting technology and services to commercial and tribal operators and lotteries in regulated markets, primarily in the U.S. In the service contracts to our U.S. licensed sportsbook operators, we host a sports betting platform and a variety of services including installation, configuration and integration services where we generally recognize a percentage of net sports revenue over the contractual term. For customers who want to have an outsourcing model, we also offer trading services with the inclusion of odds setting and risk management. Under these contracts, we generally recognize a percentage of net sports revenue as the services are provided.
Systems, software, and other – Global Lottery
Our lottery contracts generally include other services, including telephone support, software maintenance, hardware maintenance, and the right to receive unspecified upgrades or enhancements on a when-and-if-available basis, and other professional services including software development. Fees earned for other services are generally recognized as service revenue in the period the service is performed (i.e., over the support period).
We also develop technology to enable lotteries to offer commercial services over their existing lottery infrastructure or over standalone networks separate from the lottery. Leveraging our distribution network and secure transaction processing, we offer high-volume processing of commercial transactions including:including prepaid cellular telephone recharges, bill payments, e-vouchers and retail-based programs, electronic tax payments, stamp duty services, prepaid card recharges, and money transfers. These services are primarily offered outside of North America. In most cases, these arrangements are considered to be short in duration. The amount of transaction price that we are typically entitled to is variable based on the number of transactions processed. Revenue is typically recognized in the amount that we have the right to invoice the customer as this corresponds directly with the value to the customer of our completed performance.
Systems, software, and other – Global Gaming
We also generate revenue from other services, including video central system monitoring, system support, licensing of IP, and sports betting.
Our gaming contracts generally include other services, including telephone support, software maintenance, content licensing, royalty fees, hardware maintenance, and the right to receive unspecified updates or enhancements on a when-and-if-available basis, and other professional services. We also generate revenue from other services, including video central system monitoring, system support, and sales or usage-based licensing of intellectual property. Fees earned for other services are generally recognized as service revenue in the period the service is performed (i.e., over the support period).
We provide sports betting technology and services to commercial and tribal operators and lotteries in regulated markets, primarily in the U.S.
In the service contracts to our U.S. licensed sports book operators, we provide the sports betting platform and a variety of services including installation, configuration and integration services. For customers who want to have an outsourcing model, we also offer trading services with the inclusion of odds setting and risk management. Under these contracts, we generally record a percentage of net sports revenue over the contractual term.
Product SalesStock-Based Compensation
Product sales
Stock-based compensation expense represents the cost related to stock-based awards granted to directors and employees. Stock-based compensation cost is measured at the grant date or modification date, based on the estimated fair value of the award and recognized as expense, net of estimated forfeitures, over the vesting periods. For awards subject to cliff vesting, compensation cost is recognized by way of a straight-line method over the award’s expected vesting period. For awards subject to graded vesting, compensation cost is recognized by way of an accelerated attribution method over the entire awards’ expected vesting periods.
3.Business Acquisitions and Divestitures
Business Acquisitions
On July 1, 2022, the Company completed the acquisition of iSoftBet by purchasing 100% of the equity interests in certain entities of the iSoftBet group for cash consideration of €162 million (inclusive of €20 million deposited into an escrow account) and contingent consideration of up to €4 million. The Company funded the acquisition through a combination of cash on hand and utilization of its revolving credit facility. The acquisition of iSoftBet provides market-tested proprietary digital content, advanced game aggregation capabilities, scalable promotional tools, analytics, and creative talent to the PlayDigital segment. The financial results of iSoftBet have been included within our PlayDigital segment in our Consolidated Financial Statements since the date of purchase.
The major classes of assets and liabilities to which the Company has allocated the purchase price based on information as of the acquisition date and available at December 31, 2022 were as follows: | | | | | | | | | | | | | | | | (€ millions) | | Notes | | July 1, 2022 | | Current assets | | | | 18 | | | Intangible assets | | 14 | | 59 | | | Non-current assets | | | | 3 | | | Total identifiable assets acquired | | | | 80 | | | Current liabilities | | | | (10) | | | Non-current liabilities | | | | (22) | | | Total liabilities assumed | | | | (31) | | | Net identifiable assets acquired | | | | 49 | | | Goodwill | | 13 | | 117 | | | Total purchase price | | | | 166 | |
Divestitures
There were no divestitures that closed during the year ended December 31, 2023.
On September 14, 2022, the Company completed the sale of 100% of the share capital of Lis Holding S.p.A., a wholly owned subsidiary of IGT Lottery S.p.A. that conducted the Company’s Italian commercial services business, to PostePay S.p.A. – Patrimonio Destinato IMEL, for a purchase price of €700 million. The consideration received, net of €198 million cash and restricted cash transferred and €23 million of selling costs, was €479 million and resulted in a pre-tax gain on sale of $278 million, ($276 million net of tax) which is classified within Other non-operating (income) expense, net. The disposal group was a component of continuing operations within our Global Lottery segment through the closing date.
The funds received at closing were used to pay transaction expenses and fund the partial tenders of the 3.500% Senior Secured Euro Notes due July 2024 (which were subsequently redeemed in full on October 27, 2023) and 6.500% Senior Secured U.S. Dollar Notes due February 2025. Refer to Note 15 - Debt for further information.
The Company has continuing involvement with the business sold via a transition services agreement (“TSA”). As part of the TSA, the Company provides various telecommunications, information technology, and back-office services for which the Company receives compensation. These services generally expire after no more than four (4) years.
Announced Divestitures
On February 29, 2024, the Company announced that IGT PLC entered into definitive agreements with Everi for the Separation & Divestiture of the Global Gaming and PlayDigital segments. Refer to Note 26. - Subsequent Events for further information.
Separation and Divestiture Costs
Separation and divestiture costs, are a type of transaction cost, that consist primarily of financial advisory, legal, accounting, tax, consulting, and other professional advisory fees associated with the activities required to perform the review of strategic alternatives for the Company’s Global Gaming and PlayDigital segments announced on June 8, 2023 and preparing the Global Gaming and PlayDigital segments for spin-off. Total Separation and divestiture costs for the year ended December 31, 2023 were $24 million.
Discontinued Operations
On May 10, 2021, the Company completed the sale of its Italian B2C businesses, which were previously reported under the Global Gaming segment and met the criteria to be reported as a discontinued operation during the fourth quarter of 2020, for a cash purchase price of €950 million (of which the final €125 million payment was received on July 13, 2022). The sale resulted in a pre-tax gain on sale of $396 million ($391 million net of tax) in the year ended December 31, 2021.
Summarized financial information for discontinued operations is shown below (there are no discontinued operations during 2023 and 2022): | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | ($ in millions) | | | | | | 2021 | | Total revenue | | | | | | 74 | | | | | | | | | Operating income (1) | | | | | | 24 | | | | | | | | | | Income from discontinued operations before benefit from income taxes | | | | | | 23 | | | Benefit from income taxes on discontinued operations | | | | | | (1) | | | | | | | | | | Gain on sale of discontinued operations before provision for income taxes | | | | | | 396 | | | Provision for income taxes on sale of discontinued operations | | | | | | 5 | | | Gain on sale of discontinued operations, net of tax | | | | | | 391 | | | Income from discontinued operations | | | | | | 415 | | | Less: Net loss attributable to non-controlling interests from discontinued operations | | | | | | (2) | | | Income from discontinued operations attributable to IGT PLC | | | | | | 417 | |
(1) There was no depreciation and amortization in 2021.
The Company has continuing involvement with the businesses via a TSA. As part of the TSA, the Company provides various telecommunications and information technology for which the Company receives compensation. These services generally expired after one year.
4. Revenue Recognition
Disaggregation of Revenue
The following tables summarize revenue disaggregated by business segment and the source of the revenue for the years ended December 31, 2023, 2022, and 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2023 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Total | | Operating and facilities management contracts | | 2,306 | | | — | | | — | | | 2,306 | | | Gaming terminal services | | — | | | 520 | | | — | | | 520 | | | PlayDigital services | | — | | | — | | | 227 | | | 227 | | | Systems, software, and other | | 53 | | | 242 | | | — | | | 295 | | | Service revenue | | 2,359 | | | 762 | | | 227 | | | 3,347 | | | | | | | | | | | | Lottery products | | 171 | | | — | | | — | | | 171 | | | Gaming terminals | | — | | | 571 | | | — | | | 571 | | | Other | | — | | | 220 | | | 1 | | | 221 | | | Product sales | | 171 | | | 791 | | | 1 | | | 963 | | | Total revenue | | 2,530 | | | 1,552 | | | 228 | | | 4,310 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2022 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Total | | Operating and facilities management contracts | | 2,181 | | | — | | | — | | | 2,181 | | | Gaming terminal services | | — | | | 483 | | | — | | | 483 | | | PlayDigital services | | — | | | — | | | 209 | | | 209 | | | Systems, software, and other | | 255 | | | 232 | | | — | | | 487 | | | Service revenue | | 2,436 | | | 714 | | | 209 | | | 3,359 | | | | | | | | | | | | Lottery products | | 157 | | | — | | | — | | | 157 | | | Gaming terminals | | — | | | 501 | | | — | | | 501 | | | Other | | — | | | 208 | | | 1 | | | 209 | | | Product sales | | 157 | | | 709 | | | 1 | | | 866 | | | Total revenue | | 2,593 | | | 1,423 | | | 209 | | | 4,225 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2021 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Total | | Operating and facilities management contracts | | 2,363 | | | — | | | — | | | 2,363 | | | Gaming terminal services | | — | | | 424 | | | — | | | 424 | | | PlayDigital services | | — | | | — | | | 163 | | | 163 | | | Systems, software, and other | | 327 | | | 206 | | | — | | | 534 | | | Service revenue | | 2,690 | | | 630 | | | 163 | | | 3,483 | | | | | | | | | | | | Lottery products | | 123 | | | — | | | — | | | 123 | | | Gaming terminals | | — | | | 339 | | | — | | | 339 | | | Other | | — | | | 143 | | | 1 | | | 144 | | | Product sales | | 123 | | | 482 | | | 1 | | | 606 | | | Total revenue | | 2,812 | | | 1,112 | | | 165 | | | 4,089 | |
Sources of Revenue
Service Revenue
Service revenue is derived from the following sources:
•Lottery productsOperating and facilities management contracts; •Gaming terminalsterminal services; •GamingPlayDigital services; and •Systems, software, and other
Lottery products
Lottery product revenue primarily includes the sale of lottery equipment, lottery systemsOperating and printed products.facilities management contracts – Global Lottery
Our revenue from operating contracts is derived primarily from long-term exclusive operating licenses in Italy. Under operating contracts, we manage all the saleactivities along the lottery value chain including collecting wagers, paying out prizes, managing all accounting and other back-office functions, running advertising and promotions, operating data transmission networks and processing centers, training staff, providing retailers with assistance, and supplying materials for the game. In most cases, the arrangement is accounted for as a single performance obligation composed of lottery systemsa series of distinct services that are substantially the same and equipmenthave the same pattern of transfer (i.e., distinct days of service).
Under operating contracts, we typically includes multiple performance obligations, where we assemble, sell, deliver, and install a turnkey system (inclusive of point-of-sale terminals, if applicable) or deliver equipment and license the computer software for a fixed price, and the customer subsequently operates the system or equipment. Our credit terms are predominantly short-term in nature. We also grant extended payment terms under contracts where the sale is typically secured by the related equipment sold. Revenue from the sale of lottery systems and equipment is recognized based upon the contractual terms of each arrangement. These arrangements generally include customer acceptance provisions and general rights to terminate the contract if we are in breach of the contract or at the convenience of the customer. In these arrangements,satisfy the performance obligation is satisfiedand recognize revenue over time ifbecause the customer controlssimultaneously receives and consumes the assetbenefits provided as it is created (i.e., whenwe perform the asset is built at the customer site) or if our performance does not create an asset with an alternative use and we have an enforceable right to payment plus a reasonable profit for performance completed to date. If revenue is not recognized over time, it is generally recognized upon transfer of physical possession of the goods or the satisfaction of customer acceptance provisions. If the transaction includes multiple performance obligations, it is accounted for under arrangements with multiple performance obligations, discussed below.
Our other lottery product sales are primarily derived from the production and sales of instant ticket games under multi-year contracts. In these arrangements, the performance obligation is generally satisfied at a point in time (i.e., upon transfer of control of the game tickets to the customer) based on the contractual terms of each arrangement.
Gaming terminals
Our revenue from the sale or sales-type lease of gaming terminals includes embedded game content, machine related equipment, licensing and royalty fees, and component parts. Our credit terms are predominantly short-term in nature. We also grant extended payment terms under contracts where the sale is typically secured by the related equipment sold. Revenue from the sale of gaming machines is recognized based upon the contractual terms of each arrangement, but predominantly upon transfer of physical possession of the goods or the lapse of customer acceptance provisions. If the sale of gaming machines includes multiple performance obligations, these arrangements are accounted for under arrangements with multiple performance obligations, discussed below.
Gaming other
Other gaming product revenue is primarily comprised of gaming system sales, content licensing, software sales, non-machine related equipment and component parts (including game themes and electronic conversion kits). Our revenue from the sale of gaming systems typically includes multiple performance obligations, where we sell, deliver, and install a turnkey system or deliver equipment and license the computer software for a fixed price, and the customer subsequently operates the system. These arrangements generally include customer acceptance provisions and general rights to terminate the contract if we are in breach of the contract. Such arrangements include hardware, software, and professional services. In these arrangements, the performance obligation is generally satisfied upon transfer of physical possession of the goods or the satisfaction of customer acceptance provisions.
Arrangements with Multiple Performance Obligations
We often enter into contracts that consist of a combination of services and products based on the needs of our customers, which may include post-contract support for the software and a contract for post-warranty maintenance service for the hardware. These contracts consist of multiple services and products, whereby the hardware and software may be delivered in one period and the software support and hardware maintenance services are delivered over time.
To the extent that a service or product in an arrangement with multiple performance obligations is subject to other specific accounting guidance, that service or product is accounted for in accordance with such specific guidance.
For all other distinct services and products in these arrangements, the arrangement transaction price is allocated to each performance obligation on a relative standalone selling price basis or another method that depicts theThe amount of consideration to which we expect to beare typically entitled in exchange for transferring the promised services or products. If the services and products are not distinct, we determine an appropriate measure of progressis variable based on the naturea percentage of our overall promise for the single performance obligation.
To the extent we grant the customer the option to acquire additional services or productssales. Revenue is typically recognized in one of these arrangements, we account for the option as a distinct performance obligation in the contract only if the option provides a material right to the customer that it would not receive without entering into the contract (i.e., a significant discount incremental to the range of discounts typically given for the service or product), in which case the customer in effect pays in advance for the option to purchase future services or products. We allocate a portion of the transaction price to the material right and recognize revenue when those future services or products are transferred or when the option expires.
Standalone Selling Price
We allocate the transaction price to each performance obligation on a relative standalone selling price (“SSP”) basis. The SSP is the price at which we would sell a promised service or product separately to a customer. In some instances, we are able to establish SSP based on the observable prices of services or products sold separately in comparable circumstances to a similar customer. We typically establish an SSP range for our services and products that are reassessed on a periodic basis or when facts and circumstances change.
In other instances, we may not be able to establish an SSP range based on observable prices, and we estimate the SSP by considering multiple factors including, but not limited to, overall market conditions, including geographic or regional specific factors, competitive positioning, competitor actions, internal costs, profit objectives, and pricing practices. Estimating SSP is a formal process that includes review and approval by management.
Contract Costs
Certain eligible, non-recurring costs incurred in the initial phases of service contracts are deferred and amortized ratably over the expected period of benefit, which includes anticipated contract renewals or extensions. Recurring operating costs in these contracts are recognized as incurred.
Practical Expedients and Exemptions
We report revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions.
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses in our consolidated statements of operations. For certain of our long-term contracts, we capitalize and amortize incremental costs of obtaining a contract (e.g., sales commissions) on a straight-line basis over the expected customer relationship period if we expect to recover those costs.
We do not account for significant financing components if the period between when we transfer the promised service or product to the customer and when the customer pays for that service or product will be one year or less.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) performance obligations for which we recognize revenue at the amount that we have the right to invoice forthe customer as this corresponds directly with the value to the customer of our performance completed to date. In arrangements where we are performing services performed, (iii) contracts for which variable considerationon behalf of the government and the government is accounted for in accordance with sales-based or usage-based royalty guidance, and (iv) wholly unperformed contracts.
considered our customer, revenue is recognized net of prize payments, taxes, retailer commissions, and remittances to state authorities. Under operating contracts, we are generally required to pay an upfront license fee. Refer to the Upfront License Fees policy above for further details.
Contract AssetsOur revenue from FMCs is generated by assembling, installing, and Liabilities
Contract assets arise from contracts whenoperating the online lottery system and related point-of-sale equipment. Under a typical FMC, we maintain ownership of the technology and are responsible for capital investments throughout the duration of the contract. FMCs typically include a wide range of support services that are provided throughout the contract and are part of the integrated solution that the customer has contracted to obtain. In most cases, the arrangement is accounted for as a single performance obligation composed of a series of distinct services that are substantially the same and that have the same pattern of transfer. Under FMCs, we typically satisfy the performance obligation and recognize revenue is recognized over time because the customer simultaneously receives and consumes the benefits provided as we perform the services. The amount of transaction price to which we are entitled is typically variable based on a percentage of sales, although under certain of its agreements, the Company receives fees based on a fixed fee arrangement. Revenue is typically recognized in the amount of revenue recognized exceeds the amount billed to the customer. These amounts are included in contract assets untilthat we have the right to payment is no longer conditional on events other thaninvoice the passagecustomer, as this corresponds directly with the value to the customer of time. Contract liabilities include deferred revenue, advance payments, and billings in excess of revenue recognized.our completed performance.
Gaming terminal services – Global Gaming
Our revenue from gaming terminal services is generated by providing customers with proprietary land-based gaming systems and equipment under a variety of recurring revenue or lease arrangements, including a percentage of amounts wagered, a percentage of net win, or a fixed daily/monthly fee.
Included in gaming terminal services are WAP systems. WAP systems consist of linked slot machines located in multiple casino properties, connected to a central computer system. WAP systems include a Company-sponsored progressive jackpot that increases with every wager until a player wins the top award combination. Casinos with WAP machines pay a percentage of amounts wagered for services related to the design, assembly, installation, operation, maintenance, and marketing of the WAP systems, as well as funding and administration of Company-sponsored progressive jackpots. A portion of the total fee collected is allocated to the WAP jackpot. Since the jackpot is a payment to the customer, the portion allocated to the jackpot is classified as a reduction of revenue.
In some arrangements, there is a single performance obligation composed of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The amount of transaction price to which we are entitled typically is variable based on a percentage of wagers. This results in revenue recognition that corresponds with the value to the customer for the services transferred in the amount that we have the right to invoice. In other arrangements where the end customer is the player, we record revenue net of prize payouts once the wagering outcome has been determined.
PlayDigital services – PlayDigital
We generate revenue from our iGaming solutions by providing gaming operators a license to offer IGT remote game server games on the operator websites and mobile applications. We typically offer customers a usage-based license under which we receive a fee based on the net gaming revenue derived by the operator attributable to the IGT remote game server games. Revenue is typically recognized when the usage occurs.
We provide sports betting technology and services to commercial and tribal operators and lotteries in regulated markets, primarily in the U.S. In the service contracts to our U.S. licensed sportsbook operators, we host a sports betting platform and a variety of services including installation, configuration and integration services where we generally recognize a percentage of net sports revenue over the contractual term. For customers who want to have an outsourcing model, we also offer trading services with the inclusion of odds setting and risk management. Under these contracts, we generally recognize a percentage of net sports revenue as the services are provided.
Systems, software, and other – Global Lottery
Our lottery contracts generally include other services, including telephone support, software maintenance, hardware maintenance, and the right to receive unspecified upgrades or enhancements on a when-and-if-available basis, and other professional services including software development. Fees earned for other services are generally recognized as service revenue in the period the service is performed (i.e., over the support period).
We also develop technology to enable lotteries to offer commercial services over their existing lottery infrastructure or over standalone networks separate from the lottery. Leveraging our distribution network and secure transaction processing, we offer high-volume processing of commercial transactions including prepaid cellular telephone recharges, bill payments, e-vouchers and retail-based programs, electronic tax payments, stamp duty services, prepaid card recharges, and money transfers. These services are primarily offered outside of North America. In most cases, these arrangements are considered to be short in duration. The amount of transaction price that we are typically entitled to is variable based on the number of transactions processed. Revenue is typically recognized in the amount that we have the right to invoice the customer as this corresponds directly with the value to the customer of our completed performance.
Systems, software, and other – Global Gaming
Our gaming contracts generally include other services, including telephone support, software maintenance, content licensing, royalty fees, hardware maintenance, and the right to receive unspecified updates or enhancements on a when-and-if-available basis, and other professional services. We also generate revenue from other services, including video central system monitoring, system support, and sales or usage-based licensing of intellectual property. Fees earned for other services are generally recognized as service revenue in the period the service is performed (i.e., over the support period).
Stock-Based Compensation
Stock-based compensation represents the cost related to stock-based awards granted to directors and employees. Stock-based compensation cost is measured at the grant date or modification date, based on the estimated fair value of the award and recognized as expense, net of estimated forfeitures, over the vesting period(s). For awards subject to cliff vesting, compensation cost is recognized by way of a straight-line method over the award’s expected vesting period. For awards subject to graded vesting, compensation cost is recognized by way of an accelerated attribution method over the entire awards’ expected vesting periods.Capitalized Software Development Costs
Advertising
Advertising costs are expensed as incurred. Advertising expense was $25.0 million, $34.2 million, and $51.9 million forCosts incurred in the years ended December 31, 2020, 2019, and 2018, respectively.
Research and Development Costs
Research and development costs (“R&D”), which include salaries and benefits, stock-based compensation, consultants’ fees, facilities-related costs, material costs, depreciation, and travel, are expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments purchased with an original maturity of three months or less at the date of acquisition, such as bank deposits, money market funds, and interest bearing bank accounts with insignificant interest rate risk. The fair value of cash and cash equivalents approximates the carrying amount.
Restricted Cash and Cash Equivalents
We are required by gaming regulation to maintain sufficient reserves in restricted cash accounts to be used for the purpose of funding payments to WAP jackpot winners. These restricted cash balances are based primarily on the jackpot meters displayed to slot players, or for previously won jackpots, and vary by jurisdiction. Under our Italian Lotto contract, we deposit wagers, net of prizes paid and retailer commissions retained by the retailer at point of sale, into bank accounts, the use of which is restricted based on the contract with our customer. Restricted cash is also maintained for interactive digital player deposits, collections on factored and serviced receivables not yet paid through to the third-party owner, and for customer funds received in relation to the provision of our commercial services. These amounts are restricted based on the contracts with our customers or local regulations.
Allowance for Credit Losses
We maintain an allowance for credit losses on receivables resulting from the expected failure or inability of our customers to make required payments. The allowance is regularly reviewed by considering factors such as the creditworthiness of our customers, historical experience, aging of receivables, and current market and economic conditions, as well as management’s expectations of future conditions when appropriate. The allowance is deducted from the amortized cost basis of the receivable to present the net amount expected to be collected.
We estimate expected credit losses on receivables on a collective (pool) basis when similar risk characteristics exist. Trade and other receivables and customer financing receivables represent the initial pools which are segregated further by business segment, geography, internal risk rating, and aging. The risk of loss is assessed over the contractual life of the receivables and we adjust historical loss rates for current and future conditions based on qualitative considerations. The expected loss rate for each receivable pool is applied to the aggregate receivable balance to determine the allowance requirement. Receivables are written off against the allowance in the period they are determined to be uncollectible.
We determine delinquency based on the contractual payment terms. An account may be considered delinquent if there are unpaid balances remaining on the account the day after the contractual due date.
For amounts due from certain government customers in the Global Lottery business segment, we have not established an allowance as we have no expectation of loss based on a long history of no credit losses and the explicit guarantee of a sovereign entity.
Inventories
Inventories are stated at the lower of cost (applying the first in, first out method) and net realizable value. Allowances are made for defective, obsolete, or excess inventory.
Systems, Equipment and Other Assets Related to Contracts, Net and Property, Plant and Equipment, Net
We have 2 categories of fixed assets: systems, equipment and other assets related to contracts (“Systems & Equipment”); and property, plant and equipment (“PPE”).
Systems & Equipment are assets that primarily support our operating contracts, FMCs, and WAP systems (collectively, the “Contracts”) and are principally composed of lottery and gaming assets. PPE are assets we use internally, not associated with Contracts, primarily related to production and assembly, selling, general and administration, and R&D.
Systems & Equipment and PPE are stated at cost, net of accumulated depreciation and accumulated impairment loss, if any. Depreciation commences when the asset is placed in service and is recognized on a straight-line basis over the estimated useful lives of the assets. Repair and maintenance costsexternally-sold software products are expensed as incurred, whereas major improvements that increase asset valuesexcept certain costs incurred subsequent to establishing technological feasibility and extend useful livesthrough the general release of the software products which are capitalized.
The estimated useful lives for Systems & Equipment depends on the type of asset. Lottery assets (such as terminals, mainframe computers, communications equipment, and software development costs) have estimated useful lives that generally do not exceed 10 years and commercial gaming machines have estimated useful lives of three to five years.
The estimated useful lives for PPE are 40 years for buildings and five to 10 years for furniture and equipment. Leasehold improvementsCapitalized costs are amortized over the shorter of the lease term orproducts’ estimated useful life. life to cost of product sales in the Consolidated Statements of Operations.
Systems & EquipmentCosts incurred during the application development phase of software for services provided to customers are capitalized as internal-use software and PPE are tested for impairment whenever events or changesamortized over the useful life to cost of services in circumstances indicate the carrying amountConsolidated Statements of those assets may not be recoverable. An impairment loss is recognized only if the carrying amount is not recoverable and exceeds its fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted forecasted cash flows resulting from the use and eventual disposition of such asset. An impairment loss is measured as the amount by which the carrying amount exceeds its fair value.Operations.
Goodwill
The assetsCosts incurred during the application development of software for internal use, and liabilitiesnot for use in services provided to customers, are capitalized and amortized over the useful life to selling, general and administrative expenses in the Consolidated Statements of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses, and is stated at cost less accumulated impairment losses.Operations.
Effective July 1, 2020, the Company adopted a new organizational structure focused on 2 business segments, Global Lottery and Global Gaming, along with a streamlined corporate support function. This resulted in a change in our operating segments and reporting units. Prior to this change, we had 4 reporting units: North America Gaming and Interactive, North America Lottery, International, and Italy.
Intangible Assets
Goodwill has been allocated to and is tested for impairment at the reporting unit level, which is the same level as our operating segments. We evaluate our reporting units annually and if necessary, reassign goodwill using a relative fair value approach. As of December 31, 2020 we have identified 2 reporting units - Global Lottery and Global Gaming.
Goodwill is tested for impairment annually, in the fourth quarter, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. We either first perform a qualitative assessment to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount and whether the quantitative analysis is necessary, or elect to perform a quantitative one-step process. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount and an impairment loss is recognized for the amount by which the carrying amount exceeds the reporting
unit’s fair value. In performing the goodwill impairment test, we estimate the fair value of the reporting units using an income approach based on projected discounted cash flows.
Other Intangible Assets
Other intangible assets, which include indefinite-lived and definite-lived intangible assets, are stated at cost, less accumulated amortization and accumulated impairment losses.
Indefinite-lived intangible assets are composed of trademarks for which there is no foreseeable limit of the period over which they are expected to generate net cash inflows. Definite-lived intangible assets, which are primarily composed of customer relationships, licenses, and computer software and game library, are capitalized and amortized on a straight-line basis over their estimated economicuseful lives. Amortization of software-related intangibles is included in cost of services and cost of product sales and amortization of other intangible assets is included in selling, general and administrative expenses in the consolidated statement of operations.
Estimated useful lives are determined considering the period the assets are expected to contribute to future cash flows. The estimated economic livesAmortization of our definite-lived intangible assets are as follows:intangibles is included in cost of services, cost of product sales, or selling, general and administrative expenses in the Consolidated Statements of Operations depending on the use and nature of the asset. | | | | | | | | | Category | | Estimated
economic life | Trademarks | | 1 - 20 years | Developed technologies | | 2 - 15 years | Customer relationships | | 2 - 20 years | Computer software and game library | | 3 - 14 years | Licenses | | 3 - 23 years | Other | | 4 - 17 years |
Indefinite-lived intangible assets, other than goodwill, are tested for impairment annually, in the fourth quarter, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. We first perform a qualitative assessment to determine whether it is more likely than not that the fair value of indefinite-lived intangible assets are less than their carrying amount and whether the quantitative analysis is necessary. The quantitative analysis compares the fair value of indefinite-lived intangible assets to their carrying amount and an impairment loss is recognized when the carrying amount exceeds the fair value. More detail surrounding intangible
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their reported amounts using the enacted tax rates in effect for the year in which the differences are expected to reverse. Tax credits are generally recognized as reductions of income tax provisions in the year in which the credits arise. The measurement of deferred tax assets is discussedreduced by a valuation allowance if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The effect of a change in Note 14 -income tax rates is recognized as income or expense in the period that includes the enacted or substantively enacted date.
Accounting for uncertainty in income taxes recognized in the Consolidated Financial Statements is in accordance with accounting authoritative guidance, which prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more likely than not” to be sustained, the tax position is then assessed to determine the amount of the benefit to recognize in the Consolidated Financial Statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.
We recognize interest and penalties related to unrecognized tax benefits in provision for income taxes in the consolidated statement of operations. Accrued interest and penalties are included within other non-current liabilities in the Consolidated Balance Sheets.
We use the period cost method for global intangible low-taxed income (“GILTI”) provisions and therefore have not recorded deferred taxes for basis differences expected to reverse in future periods.
A provision for foreign withholding taxes has not been recorded on undistributed profits of the company’s subsidiaries that are determined to be indefinitely reinvested. If management intentions change in the future, there may be a significant impact on the provision for income taxes in the period the change occurs.
WAP Jackpot Accounting
We incur costs to fund jackpots and accrue jackpot liabilities with every wager on devices connected to a WAP system. Jackpot liabilities are estimated based on the size of the jackpot, the number of WAP units in service, variations and volume of play, and interest rate movements. Jackpots are generally payable to winners immediately, in the case of instant wins, or in equal annual installments over 19 to 25 years. Winners may elect to receive a lump sum payment for the present value of the jackpot discounted at applicable interest rates in lieu of periodic annual installments.
Jackpot liabilities are composed of payments due to previous winners, and amounts due to future winners of jackpots not yet won. Liabilities due to previous winners for periodic payments are carried at the accreted cost of a qualifying U.S. government or agency annuity investment for those in which purchases were made at the time of the jackpot win. All other periodic liabilities are discounted and accreted using the risk-free rate at the time of the jackpot win.
Liabilities due to future winners are recorded at the present value of the estimated amount of jackpots not yet won. We estimate the present value of these liabilities using current market rates, weighted with historical lump sum payout election ratios. Based on the most recent historical patterns, approximately 80% of winners will elect the lump sum payment option. The current portion of these liabilities are estimated based on historical experience with winner payment elections, in conjunction with the theoretical projected number of jackpots.
Process for Disclosure and Recording of Liabilities Related to Legal Proceedings
Many lawsuits and claims involve highly complex legal and related issues, including issues relating to causation, evidence, and alleged actual damages, all of which are otherwise subject to substantial uncertainties. Assessments of lawsuits and claims can
involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. When making determinations about recording liabilities related to legal proceedings, the Company complies with the requirements of ASC 450, Intangible Assets, net.Contingencies, and related guidance, and records liabilities in those instances where it can reasonably estimate the amount of the loss and when the loss is probable. Where the reasonable estimate of the probable loss is a range, the Company records as an accrual in its financial statements the most likely estimate of the loss, or the low end of the range if there is no one best estimate. The Company either discloses the amount of a possible loss or range of loss in excess of established accruals if estimable, or states that such an estimate cannot be made. The Company discloses significant legal proceedings even where liability is not probable or the amount of the liability is not estimable, or both, if the Company believes there is at least a reasonable possibility that a loss may be incurred. All legal costs are expensed as incurred.
Because legal proceedings are subject to inherent uncertainties, and unfavorable rulings or developments could occur, there can be no certainty that the Company may not ultimately incur charges in excess of presently recorded liabilities. Many of the matters described are at preliminary stages or seek an indeterminate amount of damages. It is not uncommon for claims to be resolved over many years. A future adverse ruling, settlement, unfavorable development, or increase in accruals for one or more of these matters could result in future charges that could have a material adverse effect on the Company’s results of operations or cash flows in the period in which they are recorded. Based on experience and developments, the Company reexamines its estimates of probable liabilities and associated expenses and receivables each quarterly period, and whether it is able to estimate a liability previously determined to be not estimable and/or not probable. Where appropriate, the Company makes additions to or adjustments of its estimated liabilities. As a result, the current estimates of the potential impact on the Company’s consolidated financial position, results of operations, and cash flows for the legal proceedings and claims pending against the Company could change in the future.
Treasury Stock
We account for treasury stock acquisitions using the cost method. We account for the retirement of treasury stock by deducting its par value from common stock and reflecting any excess of cost over par value as a deduction from additional paid-in capital in the Consolidated Balance Sheets.
Foreign Currency Translation and Foreign Currency Transactions
The financial statements of subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars, with the resulting translation adjustments recorded as a component of accumulated other comprehensive income (“AOCI”) within shareholders’ equity. Assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date, while income and expense items are translated using the average exchange rates during the period.
Subsidiaries with monetary assets and liabilities denominated in a currency other than the functional currency of the subsidiary are subject to remeasurement, the impact of which is recorded in foreign exchange loss (gain), net in the Consolidated Statements of Operations.
Capitalized Software Development Costs
Costs incurred in the development of our externally-sold software products are expensed as incurred, except certain software development costs eligible for capitalization. Software development costs incurred subsequent to establishing technological feasibility and through the general release of the software products which are capitalized. Capitalized costs are amortized over the products’ estimated economicuseful life to cost of product sales in the consolidated statementsConsolidated Statements of operations.Operations.
Costs incurred during the application development phase of software for services provided to customers are capitalized as internal-use software and amortized over the useful life to cost of services. services in the Consolidated Statements of Operations.
Costs incurred during the application development of software for internal use, and not for use in services provided to customers, are capitalized and amortized over the useful life to selling, general and administrative expenses in the consolidated statementsConsolidated Statements of operations.Operations.
Upfront License Fees
We periodically make long-term investments in contracts with customersIntangible Assets
Intangible assets, which include indefinite-lived and obtain licenses to supply productsdefinite-lived intangible assets, are stated at cost, less accumulated amortization and services to the customers. As consideration, we pay license fees,accumulated impairment losses.
Indefinite-lived intangible assets are composed of trademarks for which are classified as other non-current assets in the consolidated balance sheets. We recognize the amortizationthere is no foreseeable limit of the license fees as a reduction of service revenueperiod over the estimated economic life of the license term. This method reflects the pattern in which economic benefitsthey are expected to be realized. The recoverabilitygenerate net cash inflows. Definite-lived intangible assets, which are primarily composed of each payment is subjectcustomer relationships, licenses, and computer software and game library, are capitalized and amortized on a straight-line basis over their estimated useful lives. Estimated useful lives are determined considering the period the assets are expected to significant estimates about future revenues relatedcontribute to the contracts’ future cash flows. We evaluate theseAmortization of intangibles is included in cost of services, cost of product sales, or selling, general and administrative expenses in the Consolidated Statements of Operations depending on the use and nature of the asset.
Indefinite-lived intangible assets, other than goodwill, are tested for impairment and update amortization rates on an agreement by agreement basis. The assets are reviewed for impairmentannually, in the fourth quarter, or whenever events or changes in circumstances indicate theirthe carrying amount may not be recoverable. In periods in which payments are madeWe first perform a qualitative assessment to the customer, we classify the payment as a cash outflow from operating activities in the consolidated statements of cash flows.
Jackpot Accounting
We incur costs to fund jackpots and accrue jackpot liabilities with every wager on devices connected to a WAP system. Jackpot liabilities are estimated based on the size of the jackpot, the number of WAP units in service, variations and volume of play, and interest rate movements. Jackpots are generally payable to winners immediately, in the case of instant wins, or in equal annual installments over 20 to 26 years. Winners may elect to receive a lump sum payment for the present value of the jackpot discounted at applicable interest rates in lieu of periodic annual installments.
Jackpot liabilities are composed of payments due to previous winners, and amounts due to future winners of jackpots not yet won. Liabilities due to previous winners for periodic payments are carried at the accreted cost of a qualifying U.S. government or agency annuity investment that may be purchased at the time of the jackpot win. If the periodic liability is not initially funded with an annuity investment,determine whether it is discounted and accreted using the risk-free rate at the time of the jackpot win.
Liabilities due to future winners are recorded at the present value of the estimated amount of jackpotsmore likely than not yet won. We estimate the present value of these liabilities using current market rates, weighted with historical lump sum payout election ratios. Based on the most recent historical patterns, approximately 85% of winners will elect the lump sum payment option. The current portion of these liabilities are estimated based on historical experience with winner payment elections, in conjunction with the theoretical projected number of jackpots.
Legal and Other Contingencies
Loss contingency provisions arising from a legal proceeding or claim are recorded for probable and estimable losses at the best estimate of a loss, or when a best estimate cannot be made, at the minimum estimated loss, the determination of which requires significant judgment. If it is reasonably possible but not probable that a liability has been incurred, or if the amount of a probable loss cannot be reasonably estimated, the amount or range of estimated loss is disclosed, if material. We evaluate our provisions for legal contingencies at least quarterly and, as appropriate, establish new provisions or adjust existing provisions to reflect the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings, and other relevant events and developments, the advice of counsel, and the assumptions and judgment of management. Legal costs are expensed as incurred.
Fair Value Measurements
We account for certain financial assets and liabilities at fair value. Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the use of observable inputs and the lowest priority to the use of unobservable inputs. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. These levels are as follows:
•Level 1 - inputs are based upon unadjusted quoted prices for identical instruments in active markets.
•Level 2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the instruments.
•Level 3 - inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
Derivative Financial Instruments
We use derivative financial instruments for the management of foreign currency risks and interest rate risks. We do not enter into derivatives for speculative purposes. Derivatives are recognized as either assets or liabilities in the consolidated balance sheet at fair value. All derivatives are recorded gross, except netting of foreign exchange contracts and counterparty netting of interest receivable and payable related to interest rate swaps, as applicable. The accounting for changes in the fair value of a derivative depends onindefinite-lived intangible assets are less than their carrying amount and whether the nature of the hedge and the hedge effectiveness. Derivative gains and losses are reported in the consolidated statements of cash flows consistent with the classification of the cash flows from the underlying hedged items.
For derivative instruments designated as cash flow hedges, gains and losses are recorded in other comprehensive income (loss) and are subsequently reclassified when the hedged item affects earnings. At that time, the amountquantitative analysis is reclassified from other comprehensive income (loss) to the same income statement line as the earnings effect of the hedged item.
For derivative instruments designated as fair value hedges, changes in fair value are recorded in interest income (expense) and are offset by changes innecessary. The quantitative analysis compares the fair value of the underlying debt instrument dueindefinite-lived intangible assets to changes in the benchmark interest rate. In the event the derivative instruments are subsequently de-designated as hedges, the change in fair valuetheir carrying amount and an impairment loss is recognized in interest expense, net inwhen the consolidated statements of operations with no corresponding offset to debt.carrying amount exceeds the fair value.
For derivative instruments designated as net investment hedges, the spot portion of the derivative gain or loss is reported in foreign currency translation within other comprehensive income (loss) to offset any gains or losses on translation of the net investment in the subsidiary. All other components of the derivative fair value will be reported in income, as either interest income or interest expense, on an amortized basis.
Derivative instruments not designated as hedges are recognized in the consolidated balance sheet at fair value with the changes in fair value recorded in foreign exchange (loss) gain, net in the consolidated statements of operations.
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 long term lottery and commercial gaming service arrangements include leases for equipment installed at customer locations. 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 ASC 842, Leases, or 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.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their reported amounts using the enacted tax rates in effect for the year in which the differences are expected to reverse. Tax credits are generally recognized as reductions of income tax provisions in the year in which the credits arise. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enacted or substantively enacted date.
Accounting for uncertainty in income taxes recognized in the consolidated financial statementsConsolidated Financial Statements is in accordance with accounting authoritative guidance, which prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more likely than not” to be sustained, the tax position is then assessed to determine the amount of the benefit to recognize in the consolidated financial statements.Consolidated Financial Statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.
We recognize interest and penalties related to unrecognized tax benefits on thein provision for income taxes line ofin the consolidated statement of operations. Accrued interest and penalties are included on the related tax liability linewithin other non-current liabilities in the consolidated balance sheets.Consolidated Balance Sheets.
We use the period cost method for global intangible low-taxed income (“GILTI”) provisions and therefore have not recorded deferred taxes for basis differences expected to reverse in future periods.
A provision for foreign withholding taxes has not been recorded on undistributed profits of the company’s subsidiaries that are determined to be indefinitely reinvested. If management intentions change in the future, there may be a significant impact on the provision for income taxes in the period the change occurs.
WAP Jackpot Accounting
We incur costs to fund jackpots and accrue jackpot liabilities with every wager on devices connected to a WAP system. Jackpot liabilities are estimated based on the size of the jackpot, the number of WAP units in service, variations and volume of play, and interest rate movements. Jackpots are generally payable to winners immediately, in the case of instant wins, or in equal annual installments over 19 to 25 years. Winners may elect to receive a lump sum payment for the present value of the jackpot discounted at applicable interest rates in lieu of periodic annual installments.
Jackpot liabilities are composed of payments due to previous winners, and amounts due to future winners of jackpots not yet won. Liabilities due to previous winners for periodic payments are carried at the accreted cost of a qualifying U.S. government or agency annuity investment for those in which purchases were made at the time of the jackpot win. All other periodic liabilities are discounted and accreted using the risk-free rate at the time of the jackpot win.
Liabilities due to future winners are recorded at the present value of the estimated amount of jackpots not yet won. We estimate the present value of these liabilities using current market rates, weighted with historical lump sum payout election ratios. Based on the most recent historical patterns, approximately 80% of winners will elect the lump sum payment option. The current portion of these liabilities are estimated based on historical experience with winner payment elections, in conjunction with the theoretical projected number of jackpots.
Process for Disclosure and Recording of Liabilities Related to Legal Proceedings
Many lawsuits and claims involve highly complex legal and related issues, including issues relating to causation, evidence, and alleged actual damages, all of which are otherwise subject to substantial uncertainties. Assessments of lawsuits and claims can
involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. When making determinations about recording liabilities related to legal proceedings, the Company complies with the requirements of ASC 450, Contingencies, and related guidance, and records liabilities in those instances where it can reasonably estimate the amount of the loss and when the loss is probable. Where the reasonable estimate of the probable loss is a range, the Company records as an accrual in its financial statements the most likely estimate of the loss, or the low end of the range if there is no one best estimate. The Company either discloses the amount of a possible loss or range of loss in excess of established accruals if estimable, or states that such an estimate cannot be made. The Company discloses significant legal proceedings even where liability is not probable or the amount of the liability is not estimable, or both, if the Company believes there is at least a reasonable possibility that a loss may be incurred. All legal costs are expensed as incurred.
Because legal proceedings are subject to inherent uncertainties, and unfavorable rulings or developments could occur, there can be no certainty that the Company may not ultimately incur charges in excess of presently recorded liabilities. Many of the matters described are at preliminary stages or seek an indeterminate amount of damages. It is not uncommon for claims to be resolved over many years. A future adverse ruling, settlement, unfavorable development, or increase in accruals for one or more of these matters could result in future charges that could have a material adverse effect on the Company’s results of operations or cash flows in the period in which they are recorded. Based on experience and developments, the Company reexamines its estimates of probable liabilities and associated expenses and receivables each quarterly period, and whether it is able to estimate a liability previously determined to be not estimable and/or not probable. Where appropriate, the Company makes additions to or adjustments of its estimated liabilities. As a result, the current estimates of the potential impact on the Company’s consolidated financial position, results of operations, and cash flows for the legal proceedings and claims pending against the Company could change in the future.
Treasury Stock
We account for treasury stock acquisitions using the cost method. We account for the retirement of treasury stock by deducting its par value from common stock and reflecting any excess of cost over par value as a deduction from additional paid-in capital in the Consolidated Balance Sheets.
Foreign Currency Translation and Foreign Currency Transactions
The financial statements of subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars, with the resulting translation adjustments recorded as a component of accumulated other comprehensive income (“AOCI”) within shareholders’ equity. Assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date, while income and expense items are translated using the average exchange rates during the period.
New Accounting Standards - Recently Adopted
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”). In 2018, 2019,Subsidiaries with monetary assets and 2020, the FASB amended ASU 2016-13. ASU 2016-13 and subsequent amendments (collectively “ASC 326”) replace the incurred loss impairment methodologyliabilities denominated in prior 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 andcurrency other receivables, loans, and other financial instruments, we are required to use a forward-looking expected loss model rather than the incurredfunctional currency of the subsidiary are subject to remeasurement, the impact of which is recorded in foreign exchange loss model for recognizing credit losses which reflects losses that are probable.(gain), net in the Consolidated Statements of Operations.
We adopted ASC 326 as of January 1, 2020 using the modified retrospective approach, which resulted in a cumulative effect adjustment to retained deficit upon adoption with no restatement of prior periods. The adoption did not have a material impact on our consolidated financial statements.
Stock-Based Compensation
In April 2019,Stock-based compensation expense represents the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-04, Codification improvementscost related to Topic 326, Financial instruments - Credit Losses, Topic 815, Derivativesstock-based awards granted to directors 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). We adopted ASU 2019-04 inemployees. Stock-based compensation cost is measured at the first quarter of 2020 and applied it prospectively. The adoption did not have a material impactgrant date or modification date, based on our consolidated financial statements.
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 forestimated fair value measurement of investments. We adopted ASU 2018-03 in the first quarter of 2020 and applied its provisions prospectively and retrospectively in accordance with the guidance. The adoption did not have a material impact on our consolidated financial statements.
On January 1, 2018 the Company adopted ASC 606, Revenue from Contracts with Customers, using a modified retrospective application approach which was applied to customer contracts, in their modified state, that were not completed as of January 1, 2018.
New Accounting Standards - Not Yet Adopted
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) (“ASU 2020-06”). This update simplifies the convertible debt accounting framework by reducing the number of accounting models used to account for convertible debt and preferred stock instruments. It also amends the accounting for certain contracts in an entity's own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies the diluted earnings per share calculations for convertible debt instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the timing and impact of adopting this guidance.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effectsaward and recognized as expense, net of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying GAAPestimated forfeitures, over the vesting periods. For awards subject to contracts, hedging relationships, and other transactions affectedcliff vesting, compensation cost is recognized by reference rate reform if certain criteria are met. The
amendments in this update are effective asa straight-line method over the award’s expected vesting period. For awards subject to graded vesting, compensation cost is recognized by way of March 12, 2020 through December 31, 2022. We are currently evaluating these optional elections andan accelerated attribution method over the timing and impact of adopting this guidance.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This update provides, among other things, simplifications for accounting for income taxes by removing certain exceptions. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. We will adopt ASU 2019-12 upon the effective date and do not expect it to have a material impact upon adoption.
We do not currently expect that any other recently issued accounting guidance will have a significant effect on the consolidated financial statements.entire awards’ expected vesting periods.
3. Discontinued OperationsBusiness Acquisitions and Assets Held for SaleDivestitures
Business Acquisitions
On July 1, 2022, the Company completed the acquisition of iSoftBet by purchasing 100% of the equity interests in certain entities of the iSoftBet group for cash consideration of €162 million (inclusive of €20 million deposited into an escrow account) and contingent consideration of up to €4 million. The Company funded the acquisition through a combination of cash on hand and utilization of its revolving credit facility. The acquisition of iSoftBet provides market-tested proprietary digital content, advanced game aggregation capabilities, scalable promotional tools, analytics, and creative talent to the PlayDigital segment. The financial results of iSoftBet have been included within our PlayDigital segment in our Consolidated Financial Statements since the date of purchase.
The major classes of assets and liabilities to which the Company has allocated the purchase price based on information as of the acquisition date and available at December 7, 2020,31, 2022 were as follows: | | | | | | | | | | | | | | | | (€ millions) | | Notes | | July 1, 2022 | | Current assets | | | | 18 | | | Intangible assets | | 14 | | 59 | | | Non-current assets | | | | 3 | | | Total identifiable assets acquired | | | | 80 | | | Current liabilities | | | | (10) | | | Non-current liabilities | | | | (22) | | | Total liabilities assumed | | | | (31) | | | Net identifiable assets acquired | | | | 49 | | | Goodwill | | 13 | | 117 | | | Total purchase price | | | | 166 | |
Divestitures
There were no divestitures that closed during the Parent announced that its wholly-owned subsidiary, Lottomatica, had entered into a definitive agreement to sell 100 percentyear ended December 31, 2023.
On September 14, 2022, the Company completed the sale of 100% of the share capital of Lottomatica Videolot ReteLis Holding S.p.A. and Lottomatica Scommesse S.r.l., a wholly owned subsidiary of IGT Lottery S.p.A. that conducted the members of the IGT group which conduct itsCompany’s Italian B2C gaming machine, sports betting, and digital gaming businesses,commercial services business, to Gamenet GroupPostePay S.p.A. – Patrimonio Destinato IMEL, for a salepurchase price of €950€700 million. The businesses to be sold areconsideration received, net of €198 million cash and restricted cash transferred and €23 million of selling costs, was €479 million and resulted in a pre-tax gain on sale of $278 million, ($276 million net of tax) which is classified within Other non-operating (income) expense, net. The disposal group was a component of continuing operations within our Global Lottery segment through the Company’s Global Gaming segment. The Company will receive €725 million at closing €100 million on December 31, 2021, and €125 million on September 30, 2022. The sale price is subject to certain adjustments specified in the agreement. Closing of the transaction is subject to Italian regulatory approvals and specified representations, warranties, covenants and conditions customary in agreements of this kind and scope. The Company expects the transaction to close in the first half of 2021.date.
Aligning with our segment reorganization,The funds received at closing were used to pay transaction expenses and fund the sale represents a strategic shiftpartial tenders of the 3.500% Senior Secured Euro Notes due July 2024 (which were subsequently redeemed in full on October 27, 2023) and 6.500% Senior Secured U.S. Dollar Notes due February 2025. Refer to reframe and simplify the priorities of our Global Gaming segment to focus on its core competencies as a B2B product and service provider. The Company determined that the sale met the criteria to be classified as a discontinued operation and, as a result, its historical financial results are reflected in the Company's consolidated financial statements as a discontinued operation, and assets and liabilities were classified as assets and liabilities heldNote 15 - Debt for sale. The Company did not allocate any general corporate overhead to discontinued operations.
Summarized financial information for discontinued operations is shown below:
| | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | Total revenue | | 428,920 | | | 778,143 | | | 872,506 | | | | | | | | | Operating income (1) | | 51,029 | | | 159,211 | | | 173,393 | | | | | | | | | | Income from discontinued operations before provision for income taxes | | 43,407 | | | 156,760 | | | 170,180 | | | Provision for income taxes | | 6,726 | | | 42,352 | | | 45,237 | | | Income from discontinued operations, net of tax | | 36,681 | | | 114,408 | | | 124,943 | | | Less: Net (loss) income attributable to non-controlling interests from discontinued operations | | (4,760) | | | 4,539 | | | 6,913 | | | Income from discontinued operations attributable to IGT PLC | | 41,441 | | | 109,869 | | | 118,030 | |
(1) Includes depreciation and amortization of $94.7 million, $99.7 million, and $98.0 million for the years ended 2020, 2019, and 2018, respectivelyfurther information.
The Company expects to havehas continuing involvement with the businessesbusiness sold via a transition services agreement (“TSA”). As part of the expected TSA, the Company will provideprovides various telecommunications, information technology, and back-office services for which the Company will receivereceives compensation. These services generally expire after no more than four (4) years. three
years.
Announced Divestitures
On February 29, 2024, the Company announced that IGT PLC entered into definitive agreements with Everi for the Separation & Divestiture of the Global Gaming and PlayDigital segments. Refer to Note 26. - Subsequent Events for further information.
Separation and Divestiture Costs
Separation and divestiture costs, are a type of transaction cost, that consist primarily of financial advisory, legal, accounting, tax, consulting, and other professional advisory fees associated with the activities required to perform the review of strategic alternatives for the Company’s Global Gaming and PlayDigital segments announced on June 8, 2023 and preparing the Global Gaming and PlayDigital segments for spin-off. Total Separation and divestiture costs for the year ended December 31, 2023 were $24 million.
Discontinued Operations
On May 10, 2021, the Company completed the sale of its Italian B2C businesses, which were previously reported under the Global Gaming segment and met the criteria to be reported as a discontinued operation during the fourth quarter of 2020, for a cash purchase price of €950 million (of which the final €125 million payment was received on July 13, 2022). The sale resulted in a pre-tax gain on sale of $396 million ($391 million net of tax) in the year ended December 31, 2021.
Summarized financial information for discontinued operations is shown below (there are no discontinued operations during 2023 and 2022): | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | ($ in millions) | | | | | | 2021 | | Total revenue | | | | | | 74 | | | | | | | | | Operating income (1) | | | | | | 24 | | | | | | | | | | Income from discontinued operations before benefit from income taxes | | | | | | 23 | | | Benefit from income taxes on discontinued operations | | | | | | (1) | | | | | | | | | | Gain on sale of discontinued operations before provision for income taxes | | | | | | 396 | | | Provision for income taxes on sale of discontinued operations | | | | | | 5 | | | Gain on sale of discontinued operations, net of tax | | | | | | 391 | | | Income from discontinued operations | | | | | | 415 | | | Less: Net loss attributable to non-controlling interests from discontinued operations | | | | | | (2) | | | Income from discontinued operations attributable to IGT PLC | | | | | | 417 | |
(1) There was no depreciation and amortization in 2021.
The following representsCompany has continuing involvement with the major classes of assets and liabilities held for sale asbusinesses via a TSA. As part of our discontinued operations:the TSA, the Company provides various telecommunications and information technology for which the Company receives compensation. These services generally expired after one year. | | | | | | | | | | | | | | | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | Assets: | | | | | | Trade and other receivables, net | | 62,110 | | | 130,864 | | | Other current assets | | 58,072 | | | 77,515 | | | | | | | | Systems, equipment and other assets related to contracts, net | | 86,230 | | | 102,347 | | | Goodwill | | 520,259 | | | 520,259 | | | Intangible assets, net | | 54,711 | | | 86,388 | | | Other non-current assets | | 52,042 | | | 54,561 | | | | | | | | Assets held for sale | | 833,424 | | | 971,934 | | | Liabilities: | | | | | | Accounts payable | | 62,693 | | | 61,889 | | | Other current liabilities | | 164,084 | | | 123,263 | | | | | | | | Other non-current liabilities | | 22,796 | | | 29,836 | | | | | | | | Liabilities held for sale | | 249,573 | | | 214,988 | |
The Company allocated $520.3 million of goodwill to discontinued operations using a relative fair value approach. Prior to the allocation to discontinued operations, the goodwill was included within our Global Gaming segment.
In addition to the sale of certain entities in our Global Gaming segment classified as discontinued operations as described above, we have other disposal groups that meet the requirements to be classified as held for sale in our consolidated balance sheet at December 31, 2020.
The following represents total assets and liabilities held for sale classified between the current and non-current categories:
| | | | | | | | | | | | | | | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | Assets: | | | | | | Current assets held for sale - discontinued operations | | 833,424 | | | 208,379 | | | Current assets held for sale - other | | 5,416 | | | 0 | | | Total current assets held for sale | | 838,840 | | | 208,379 | | | Total non-current assets held for sale | | 0 | | | 763,555 | | | Assets held for sale | | 838,840 | | | 971,934 | | | | | | | | Liabilities: | | | | | | Total current liabilities held for sale | | 249,573 | | | 185,152 | | | Total non-current liabilities held for sale | | 0 | | | 29,836 | | | Liabilities held for sale | | 249,573 | | | 214,988 | |
4. Revenue Recognition
Disaggregation of Revenue
The following tables summarize revenue disaggregated by business segment and the source of the revenue for the years ended December 31, 2020, 2019,2023, 2022, and 2018:2021: | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2020 | | ($ thousands) | | Global Lottery | | Global Gaming | | Total | | Operating and facilities management contracts | | 1,743,916 | | | 0 | | | 1,743,916 | | | Gaming terminal services | | 0 | | | 297,418 | | | 297,418 | | | Systems, software, and other | | 298,736 | | | 299,488 | | | 598,224 | | | Service revenue | | 2,042,652 | | | 596,906 | | | 2,639,558 | | | | | | | | | | Lottery products | | 121,346 | | | 0 | | | 121,346 | | | Gaming terminals | | 0 | | | 205,289 | | | 205,289 | | | Gaming other | | 0 | | | 149,263 | | | 149,263 | | | Product sales | | 121,346 | | | 354,552 | | | 475,898 | | | Total revenue | | 2,163,998 | | | 951,458 | | | 3,115,456 | |
| | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2019 | | ($ thousands) | | Global Lottery | | Global Gaming | | Total | | Operating and facilities management contracts | | 1,930,761 | | | 0 | | | 1,930,761 | | | Gaming terminal services | | 0 | | | 567,849 | | | 567,849 | | | Systems, software, and other | | 252,200 | | | 350,058 | | | 602,258 | | | Service revenue | | 2,182,961 | | | 917,907 | | | 3,100,868 | | | | | | | | | | Lottery products | | 109,884 | | | 0 | | | 109,884 | | | Gaming terminals | | 0 | | | 581,017 | | | 581,017 | | | Gaming other | | 0 | | | 239,988 | | | 239,988 | | | Product sales | | 109,884 | | | 821,005 | | | 930,889 | | | Total revenue | | 2,292,845 | | | 1,738,912 | | | 4,031,757 | |
| | For the year ended December 31, 2018 | | ($ thousands) | | Global Lottery | | Global Gaming | | Total | | | For the year ended December 31, 2023 | | | | For the year ended December 31, 2023 | | ($ in millions) | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Total | | Operating and facilities management contracts | Operating and facilities management contracts | | 2,007,261 | | | 0 | | | 2,007,261 | | | Gaming terminal services | Gaming terminal services | | 0 | | | 601,536 | | | 601,536 | | | PlayDigital services | | | Systems, software, and other | Systems, software, and other | | 227,540 | | | 359,593 | | | 587,133 | | | Service revenue | Service revenue | | 2,234,801 | | | 961,129 | | | 3,195,930 | | | | Lottery products | Lottery products | | 126,889 | | | 0 | | | 126,889 | | | Lottery products | | | Lottery products | | | Gaming terminals | Gaming terminals | | 0 | | | 454,884 | | | 454,884 | | | Gaming other | | 0 | | | 203,169 | | | 203,169 | | | Other | | | Product sales | Product sales | | 126,889 | | | 658,053 | | | 784,942 | | | Total revenue | Total revenue | | 2,361,690 | | | 1,619,182 | | | 3,980,872 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2022 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Total | | Operating and facilities management contracts | | 2,181 | | | — | | | — | | | 2,181 | | | Gaming terminal services | | — | | | 483 | | | — | | | 483 | | | PlayDigital services | | — | | | — | | | 209 | | | 209 | | | Systems, software, and other | | 255 | | | 232 | | | — | | | 487 | | | Service revenue | | 2,436 | | | 714 | | | 209 | | | 3,359 | | | | | | | | | | | | Lottery products | | 157 | | | — | | | — | | | 157 | | | Gaming terminals | | — | | | 501 | | | — | | | 501 | | | Other | | — | | | 208 | | | 1 | | | 209 | | | Product sales | | 157 | | | 709 | | | 1 | | | 866 | | | Total revenue | | 2,593 | | | 1,423 | | | 209 | | | 4,225 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2021 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Total | | Operating and facilities management contracts | | 2,363 | | | — | | | — | | | 2,363 | | | Gaming terminal services | | — | | | 424 | | | — | | | 424 | | | PlayDigital services | | — | | | — | | | 163 | | | 163 | | | Systems, software, and other | | 327 | | | 206 | | | — | | | 534 | | | Service revenue | | 2,690 | | | 630 | | | 163 | | | 3,483 | | | | | | | | | | | | Lottery products | | 123 | | | — | | | — | | | 123 | | | Gaming terminals | | — | | | 339 | | | — | | | 339 | | | Other | | — | | | 143 | | | 1 | | | 144 | | | Product sales | | 123 | | | 482 | | | 1 | | | 606 | | | Total revenue | | 2,812 | | | 1,112 | | | 165 | | | 4,089 | |
Sources of Revenue
Service Revenue
Service revenue is derived from the following sources:
•Operating and facilities management contracts; •Gaming terminal services; •PlayDigital services; and •Systems, software, and other
Operating and facilities management contracts – Global Lottery
Our revenue from operating contracts is derived primarily from long-term exclusive operating licenses in Italy. Under operating contracts, we manage all the activities along the lottery value chain including collecting wagers, paying out prizes, managing all accounting and other back-office functions, running advertising and promotions, operating data transmission networks and processing centers, training staff, providing retailers with assistance, and supplying materials for the game. In most cases, the arrangement is accounted for as a single performance obligation composed of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e., distinct days of service).
Under operating contracts, we typically satisfy the performance obligation and recognize revenue over time because the customer simultaneously receives and consumes the benefits provided as we perform the services. The amount of consideration to which we are typically entitled is variable based on a percentage of sales. Revenue is typically recognized in the amount that we have the right to invoice the customer as this corresponds directly with the value to the customer of our performance completed to date. In arrangements where we are performing services on behalf of the government and the government is
considered our customer, revenue is recognized net of prize payments, taxes, retailer commissions, and remittances to state authorities. Under operating contracts, we are generally required to pay an upfront license fee. Refer to the Upfront License Fees policy above for further details.
Our revenue from FMCs is generated by assembling, installing, and operating the online lottery system and related point-of-sale equipment. Under a typical FMC, we maintain ownership of the technology and are responsible for capital investments throughout the duration of the contract. FMCs typically include a wide range of support services that are provided throughout the contract and are part of the integrated solution that the customer has contracted to obtain. In most cases, the arrangement is accounted for as a single performance obligation composed of a series of distinct services that are substantially the same and that have the same pattern of transfer. Under FMCs, we typically satisfy the performance obligation and recognize revenue over time because the customer simultaneously receives and consumes the benefits provided as we perform the services. The amount of transaction price to which we are entitled is typically variable based on a percentage of sales, although under certain of its agreements, the Company receives fees based on a fixed fee arrangement. Revenue is typically recognized in the amount that we have the right to invoice the customer, as this corresponds directly with the value to the customer of our completed performance.
Gaming terminal services – Global Gaming
Our revenue from gaming terminal services is generated by providing customers with proprietary land-based gaming systems and equipment under a variety of recurring revenue or lease arrangements, including a percentage of amounts wagered, a percentage of net win, or a fixed daily/monthly fee.
Included in gaming terminal services are WAP systems. WAP systems consist of linked slot machines located in multiple casino properties, connected to a central computer system. WAP systems include a Company-sponsored progressive jackpot that increases with every wager until a player wins the top award combination. Casinos with WAP machines pay a percentage of amounts wagered for services related to the design, assembly, installation, operation, maintenance, and marketing of the WAP systems, as well as funding and administration of Company-sponsored progressive jackpots. A portion of the total fee collected is allocated to the WAP jackpot. Since the jackpot is a payment to the customer, the portion allocated to the jackpot is classified as a reduction of revenue.
In some arrangements, there is a single performance obligation composed of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The amount of transaction price to which we are entitled typically is variable based on a percentage of wagers. This results in revenue recognition that corresponds with the value to the customer for the services transferred in the amount that we have the right to invoice. In other arrangements where the end customer is the player, we record revenue net of prize payouts once the wagering outcome has been determined.
PlayDigital services – PlayDigital
We generate revenue from our iGaming solutions by providing gaming operators a license to offer IGT remote game server games on the operator websites and mobile applications. We typically offer customers a usage-based license under which we receive a fee based on the net gaming revenue derived by the operator attributable to the IGT remote game server games. Revenue is typically recognized when the usage occurs.
We provide sports betting technology and services to commercial and tribal operators and lotteries in regulated markets, primarily in the U.S. In the service contracts to our U.S. licensed sportsbook operators, we host a sports betting platform and a variety of services including installation, configuration and integration services where we generally recognize a percentage of net sports revenue over the contractual term. For customers who want to have an outsourcing model, we also offer trading services with the inclusion of odds setting and risk management. Under these contracts, we generally recognize a percentage of net sports revenue as the services are provided.
Systems, software, and other – Global Lottery
Our lottery contracts generally include other services, including telephone support, software maintenance, hardware maintenance, and the right to receive unspecified upgrades or enhancements on a when-and-if-available basis, and other professional services including software development. Fees earned for other services are generally recognized as service revenue in the period the service is performed (i.e., over the support period).
We also develop technology to enable lotteries to offer commercial services over their existing lottery infrastructure or over standalone networks separate from the lottery. Leveraging our distribution network and secure transaction processing, we offer high-volume processing of commercial transactions including prepaid cellular telephone recharges, bill payments, e-vouchers and retail-based programs, electronic tax payments, stamp duty services, prepaid card recharges, and money transfers. These services are primarily offered outside of North America. In most cases, these arrangements are considered to be short in duration. The amount of transaction price that we are typically entitled to is variable based on the number of transactions processed. Revenue is typically recognized in the amount that we have the right to invoice the customer as this corresponds directly with the value to the customer of our completed performance.
Systems, software, and other – Global Gaming
Our gaming contracts generally include other services, including telephone support, software maintenance, content licensing, royalty fees, hardware maintenance, and the right to receive unspecified updates or enhancements on a when-and-if-available basis, and other professional services. We also generate revenue from other services, including video central system monitoring, system support, and sales or usage-based licensing of intellectual property. Fees earned for other services are generally recognized as service revenue in the period the service is performed (i.e., over the support period).
Product Sales
Product sales are derived from the following sources:
•Lottery products; •Gaming terminals; and •Other
Lottery products – Global Lottery
Lottery products revenue primarily includes the sale of lottery equipment, lottery systems and printed products.
Our revenue from the sale or sales-type lease of lottery systems and equipment typically includes multiple performance obligations, where we assemble, sell, deliver, and install a turnkey system (inclusive of point-of-sale terminals, if applicable) or deliver equipment and license the computer software for a fixed price, and the customer subsequently operates the system or equipment. Our credit terms are predominantly short-term in nature. We also grant extended payment terms under contracts where the sale is typically secured by the related equipment sold. Revenue from the sale of lottery systems and equipment is recognized based upon the contractual terms of each arrangement. These arrangements generally include customer acceptance provisions and general rights to terminate the contract if we are in breach of the contract or at the convenience of the customer. In some arrangements, the performance obligation is satisfied over time if the customer controls the asset as it is created (i.e., when the asset is built at the customer site) or if our performance does not create an asset with an alternative use and we have an enforceable right to payment plus a reasonable profit for performance completed to date. If revenue is not recognized over time, it is generally recognized upon transfer of physical possession of the goods or the satisfaction of customer acceptance provisions. If the transaction includes multiple performance obligations, it is accounted for under arrangements with multiple performance obligations, discussed below.
Our other lottery product sales are primarily derived from the production and sales of instant ticket games under multi-year contracts. In these arrangements, the performance obligation is generally satisfied at a point in time (i.e., upon transfer of control of the game tickets to the customer) based on the contractual terms of each arrangement.
Gaming terminals – Global Gaming
Our revenue from the sale or sales-type lease of gaming terminals includes embedded game content, machine related equipment, licensing and royalty fees, and component parts. Our credit terms are predominantly short-term in nature. We also grant extended payment terms under contracts where the sale is typically secured by the related equipment sold. Revenue from the sale of gaming machines is recognized based upon the contractual terms of each arrangement, but predominantly upon transfer of physical possession of the goods or the lapse of customer acceptance provisions. If the sale of gaming machines includes multiple performance obligations, these arrangements are accounted for under arrangements with multiple performance obligations, discussed below.
Other – Global Gaming
Other gaming product revenue is primarily comprised of gaming system sales, content licensing, perpetual or long-term software licenses, non-machine related equipment and component parts (including game themes and electronic conversion kits). Our revenue from the sale of gaming systems typically includes multiple performance obligations, where we sell, deliver, and install a turnkey system or deliver equipment and license the computer software for a fixed price, and the customer subsequently operates the system. These arrangements generally include customer acceptance provisions and general rights to terminate the contract if we are in breach of the contract. Such arrangements include hardware, software, and professional services. In these arrangements, the performance obligation is generally satisfied upon transfer of physical possession of the goods or the satisfaction of customer acceptance provisions.
Other – PlayDigital
Other PlayDigital product revenue is primarily comprised of perpetual software licenses, the sale of equipment, and component parts.
Contract Balances
Information about receivables,Contract assets reflect revenue recognized in advance of invoicing our customer. The amount of contract assets, which is included within Other current assets and Other non-current assets in the Consolidated Balance Sheets, was $152 million and $150 million at December 31, 2023 and December 31, 2022, respectively.
Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. The amount of contract liabilities, which is as follows: included within Other current liabilities and Other non-current liabilities in the Consolidated Balance Sheets, was $112 million and $139 million at December 31, 2023 and December 31, 2022, respectively. | | | | | | | | | | | | | | | | | | | | | | ($ thousands) | | December 31, 2020 | | December 31, 2019 | | Balance Sheet Classification | | Receivables, net | | 846,128 | | | 875,263 | | | Trade and other receivables, net | | | | | | | | | Contract assets: | | | | | | | | Current | | 53,491 | | | 47,499 | | | Other current assets | | Non-current | | 75,000 | | | 76,188 | | | Other non-current assets | | | 128,491 | | | 123,687 | | | | | | | | | | | | Contract liabilities: | | | | | | | | Current | | (107,542) | | | (66,749) | | | Other current liabilities | | Non-current | | (62,175) | | | (65,855) | | | Other non-current liabilities | | | (169,717) | | | (132,604) | | | |
The amount of revenue recognized during the yearyears ended December 31, 20202023, 2022, and 2021 that was included in the contract liabilities balance at December 31, 2019the beginning of each period was $56.0 million. The amount of revenue recognized during the year ended December 31, 2019 that was included in the contract liabilities balance at December 31, 2018$62 million, was $50.7$98 million, and$107 million, respectively.
Transaction Price Allocated to Remaining Performance Obligations
At December 31, 2020,2023, the transaction price allocated to unsatisfied performance obligations for contracts expected to be greater than one year, or performance obligations 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, variable consideration which is not accounted for in accordance with the sales-based or usage-based royalties guidance, or contracts which are not wholly unperformed, is approximately $956.8 million.$1.1 billion. Of this amount, we expect to recognize as revenue approximately 19%30% within the next 12 months, approximately 29%28% between 13 and 36 months, approximately 26%18% between 37 and 60 months, and the remaining balance through December 31, 2031.July 9, 2036.
5. Trade and Other Receivables, net
Trade and other receivables are recorded at amortized cost, net of allowance for credit losses, and represent a contractual right to receive money on demand or on fixed or determinable dates that are typically short-term with payment due within 90 days or less. | | | | | December 31, | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | Trade and other receivables, gross | Trade and other receivables, gross | | 861,772 | | | 897,329 | | | Allowance for credit losses | Allowance for credit losses | | (15,644) | | | (22,066) | | | Trade and other receivables, net | Trade and other receivables, net | | 846,128 | | | 875,263 | |
The following table presents the activity in the allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | Balance at beginning of year | | (22,066) | | | (29,407) | | | (22,795) | | | (Provisions) recoveries, net | | (6,096) | | | 3,480 | | | (7,768) | | | Amounts written off as uncollectible | | 9,660 | | | 3,405 | | | 87 | | | Foreign currency translation | | (551) | | | 162 | | | 1,461 | | Other (1) | | 3,409 | | | 294 | | | (392) | | | Balance at end of year | | (15,644) | | | (22,066) | | | (29,407) | |
| | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Balance at beginning of year | | (11) | | | (15) | | | (16) | | | Benefits (provisions), net | | 2 | | | — | | | (2) | | | Amounts written off as uncollectible | | 1 | | | 3 | | | 2 | | | | | | | | | | | | | | | | | Balance at end of year | | (7) | | | (11) | | | (15) | |
We enter into various factoring agreements with third-party financial institutions to sell certain of our trade receivables. We factored trade receivables of $1,531.6$373 million and $2,629.4$266 million during the years ended December 31, 20202023 and 2019,2022, respectively, under these factoring arrangements, which reduced trade receivables. The cash received from these arrangements is reflected as net cash provided by operating activities in the consolidated statementsConsolidated Statements of cash flows.Cash Flows. In certain of these factoring arrangements, for ease of administration, we will collect customer payments related to the factored gross receivables, including our trade receivables, which we then remit to the financial institutions. At December 31, 20202023 and 2019,2022, we had $110.1$133 million and $50.2$126 million, respectively, that was collected on behalf of the financial institutions and recorded as other current liabilities in the consolidated balance sheets.Consolidated Balance Sheets. The net cash flows relating to these collections are reported as financing activities in the consolidated statementsConsolidated Statements of cash flows.Cash Flows.
6. Inventories, net | | December 31, | | ($ thousands) | | 2020 | | 2019 | | | December 31, | | | | December 31, | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | Raw materials | Raw materials | | 86,089 | | | 86,877 | | | Work in progress | Work in progress | | 23,211 | | | 11,663 | | | Finished goods | Finished goods | | 102,674 | | | 96,895 | | | Inventories, gross | Inventories, gross | | 211,974 | | | 195,435 | | | Obsolescence reserve | Obsolescence reserve | | (42,767) | | | (33,645) | | | Inventories, net | Inventories, net | | 169,207 | | | 161,790 | |
The following table presents the activity in the obsolescence reserve: | | | | | December 31, | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Balance at beginning of year | Balance at beginning of year | | (33,645) | | | (39,885) | | | (26,911) | | | Provisions, net | Provisions, net | | (33,554) | | | (28,970) | | | (14,199) | | | Amounts written off | Amounts written off | | 23,535 | | | 23,375 | | | 817 | | | Foreign currency translation | | (2,041) | | | (130) | | | 408 | | | Other | Other | | 2,938 | | | 11,965 | | | 0 | | | Balance at end of year | Balance at end of year | | (42,767) | | | (33,645) | | | (39,885) | |
7. Other Assets Other Current Assets | | | | | December 31, | | | | | December 31, | | ($ thousands) | | Notes | | 2020 | | 2019 | | ($ in millions) | | ($ in millions) | | Notes | | 2023 | | 2022 | | Customer financing receivables, net | Customer financing receivables, net | | | | 231,873 | | | 226,979 | | | Contract assets | Contract assets | | 4 | | 53,491 | | | 47,499 | | | Prepaid expenses | | | Income taxes receivable | | | Deferred costs | | | Other tax receivables | | | Value-added tax receivable | Value-added tax receivable | | 46,466 | | | 51,405 | | | Income taxes receivable | | 45,203 | | | 56,857 | | | Prepaid expenses | | 39,439 | | | 41,366 | | | Prepaid royalties | | 8,701 | | | 24,999 | | | Other receivables | | 8,149 | | | 10,673 | | | | Other | | | Other | | | Other | Other | | 46,327 | | | 53,237 | | | | | | 479,649 | | | 513,015 | |
Other Non-Current Assets | | | | December 31, | | ($ thousands) | | Notes | | 2020 | | 2019 | | | | | December 31, | | | | | | December 31, | | ($ in millions) | | ($ in millions) | | Notes | | 2023 | | 2022 | | Upfront license fees, net: | Upfront license fees, net: | | | | | | | | Italian Scratch & Win | | | Italian Scratch & Win | | | Italian Scratch & Win | Italian Scratch & Win | | 845,336 | | | 873,756 | | | Italian Lotto | Italian Lotto | | 516,177 | | | 568,669 | | | New Jersey | New Jersey | | 74,449 | | | 83,209 | | | Rhode Island | | | Indiana | Indiana | | 10,458 | | | 11,853 | | | | | | 729 | | | | Contract assets | | | Contract assets | | | Contract assets | | | Customer financing receivables, net | | | Deferred income taxes | | | | 1,446,420 | | | 1,537,487 | | | | Customer financing receivables, net | | 83,638 | | | 122,124 | | | Contract assets | | 4 | | 75,000 | | | 76,188 | | | Deferred income taxes | | 17 | | 33,117 | | | 27,108 | | | Finance lease right-of-use assets | | 11 | | 32,739 | | | 35,441 | | | Debt issuance costs | | 16 | | 23,937 | | | 20,464 | | | Prepaid royalties | | 13,987 | | | 25,092 | | | Other | Other | | 64,803 | | | 73,847 | | | | | | 1,773,641 | | | 1,917,751 | | | Other | | | | Other | | | | |
Upfront License Fees
The upfront license fees are being amortized on a straight-line basis as follows: | | | | | | | | | | | | | | | | Upfront License Fee | | License Term | | Amortization Start Date | | Rhode Island | | 20 years, 6 months | | January 2023 | | Italian Scratch & Win | | 9 years | | October 2019 | | Italian Lotto | | 9 years | | December 2016 | | New Jersey | | 15 years, 9 months | | October 2013 | | Indiana | | 1516 years, 1 month | | July 2013June 2015 |
Yeonama Holdings Co. Limited (“Yeonama”)
In May 2019, we sold our ownership interest in Yeonama, an investment previously included within other non-current assets on the consolidated balance sheet. The sale resulted in a pre-tax gain of €26.1 million ($29.1 million at the May 31, 2019 exchange rate).
Customer Financing Receivables
Customers' payment terms for customer financing receivables are confirmed with a written financing contract, lease contract, or promissory note and a security agreement is typically signed by the parties granting the Company a security interest in the related products sold or leased. Customer financing interest income is recognized based on market rates prevailing at issuance.
Customer financing receivables are recorded at amortized cost, net of any allowance for credit losses, and are classified in the consolidated balance sheetsConsolidated Balance Sheets as follows: | | | | | December 31, 2020 | | | December 31, 2023 | | ($ thousands) | | Current Assets | | Non-Current Assets | | Total | | ($ in millions) | | ($ in millions) | | Current Assets | | Non-Current Assets | | Total | | Customer financing receivables, gross | Customer financing receivables, gross | | 274,650 | | | 90,780 | | | 365,430 | | | Allowance for credit losses | Allowance for credit losses | | (42,777) | | | (7,142) | | | (49,919) | | | Customer financing receivables, net | Customer financing receivables, net | | 231,873 | | | 83,638 | | | 315,511 | |
| | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | | ($ in millions) | | Current Assets | | Non-Current Assets | | Total | | Customer financing receivables, gross | | 184 | | | 87 | | | 271 | | | Allowance for credit losses | | (42) | | | (11) | | | (52) | | | Customer financing receivables, net | | 143 | | | 76 | | | 219 | |
| | | | | | | | | | | | | | | | | | | | | | | | December 31, 2019 | | ($ thousands) | | Current Assets | | Non-Current Assets | | Total | | Customer financing receivables, gross | | 255,221 | | | 125,542 | | | 380,763 | | | Allowance for credit losses | | (28,242) | | | (3,418) | | | (31,660) | | | Customer financing receivables, net | | 226,979 | | | 122,124 | | | 349,103 | |
The following table presents the activity in the allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | Balance at beginning of year | | (31,660) | | | (29,209) | | | (19,574) | | | Provisions, net | | (37,191) | | | (2,477) | | | (10,131) | | | Amounts written off as uncollectible | | 23,525 | | | 11 | | | 317 | | | Foreign currency translation | | 1,820 | | | 15 | | | 179 | | Other (1) | | (6,413) | | | 0 | | | 0 | | | Balance at end of year | | (49,919) | | | (31,660) | | | (29,209) | |
(1) Includes the adoption of ASC 326 as of January 1, 2020 | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Balance at beginning of year | | (52) | | | (71) | | | (50) | | | Benefits (provisions), net | | 4 | | | 8 | | | (29) | | | Amounts written off as uncollectible | | 11 | | | 10 | | | 8 | | | | | | | | | | Balance at end of year | | (37) | | | (52) | | | (71) | |
The Company’s customer financing receivable portfolio is composed of customers primarily within the Global Gaming business segment. We internally assess the credit quality of customer financing receivables using a number of factors, including, but not limited to, credit scores obtained from external providers, trade references, bank references, and historical experience. Risk profiles differ based on customer location and are pooled asas: (i) North America,America; (ii) Latin America and the Caribbean (“LAC”),; and (iii) Europe, Middle East and Africa (“EMEA”), and Asia Pacific (“EMEA & APAC”).
During 2020, $23.5 million of customer financing receivables, primarily within LAC, were written off as uncollectible due to the impacts of COVID-19. Additionally, due to the duration of the COVID-19 induced shutdowns in LAC and potential future impacts on our customers caused by COVID-19, we increased our allowance for credit losses during the year ended December 31, 2020. At December 31, 2020 the Company had $43.3 million of credit loss allowances associated with the LAC customer financing receivables.
The customer financing receivables at amortized cost by year of origination and the geography credit quality indicator at December 31, 20202023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year of Origination | | ($ thousands) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 and prior | | Total | | North America | | 54,304 | | | 16,771 | | | 580 | | | 3,095 | | | 0 | | | 74,750 | | | LAC | | 30,556 | | | 113,437 | | | 39,024 | | | 13,670 | | | 8,520 | | | 205,207 | | | EMEA | | 23,620 | | | 28,021 | | | 16,010 | | | 2,343 | | | 1,637 | | | 71,631 | | | APAC | | 8,493 | | | 4,024 | | | 1,174 | | | 123 | | | 28 | | | 13,842 | | | | 116,973 | | | 162,253 | | | 56,788 | | | 19,231 | | | 10,185 | | | 365,430 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year of Origination | | ($ in millions) | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total | | North America | | 51 | | | 15 | | | 1 | | | 6 | | | 3 | | | 77 | | | LAC | | 47 | | | 10 | | | 6 | | | 2 | | | 49 | | | 114 | | | EMEA & APAC | | 28 | | | 18 | | | 10 | | | 3 | | | 4 | | | 64 | | | | 125 | | | 44 | | | 18 | | | 11 | | | 57 | | | 254 | |
The past due balance, which represents installments that are one day or more past their contractual due date, of customer financing receivables at amortized cost and the geography credit quality indicator at December 31, 20202023 is as follows:
| | ($ thousands) | | North America | | LAC | | EMEA | | APAC | | Total | | ($ in millions) | | ($ in millions) | | North America | | LAC | | EMEA & APAC | | Total | | Past due | Past due | | 6,062 | | | 106,011 | | | 12,585 | | | 3,839 | | | 128,497 | | | Short-term portion not yet due | Short-term portion not yet due | | 37,728 | | | 67,634 | | | 32,488 | | | 8,303 | | | 146,153 | | | Long-term portion not yet due | Long-term portion not yet due | | 30,960 | | | 31,562 | | | 26,558 | | | 1,700 | | | 90,780 | | | 74,750 | | | 205,207 | | | 71,631 | | | 13,842 | | | 365,430 | | | | 77 | |
8. Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our significantAs of December 31, 2023, the carrying amounts of financial assets and liabilities measured at fair value on a recurring basis asincluded derivative assets, equity investments, and derivative liabilities of $2 million, $6 million, and $5 million, respectively. As of December 31, 20202022, there were derivative assets, equity investments, derivative liabilities, and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2020 | | ($ thousands) | | Balance Sheet Location | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Assets: | | | | | | | | | | | | Derivative assets | | Other current and other non-current assets | | 0 | | | 10,738 | | | 0 | | | 10,738 | | | Equity investments | | Other non-current assets | | 6,026 | | | 0 | | | 0 | | | 6,026 | | | Liabilities: | | | | | | | | | | | | Derivative liabilities | | Other current and other non-current liabilities | | 0 | | | 10,113 | | | 0 | | | 10,113 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2019 | | ($ thousands) | | Balance Sheet Location | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Assets: | | | | | | | | | | | | Derivative assets | | Other current and other non-current assets | | 0 | | | 8,317 | | | 0 | | | 8,317 | | | Equity investments | | Other non-current assets | | 7,769 | | | 0 | | | 0 | | | 7,769 | | | Liabilities: | | | | | | | | | | | | Derivative liabilities | | Other current and other non-current liabilities | | 0 | | | 6,425 | | | 0 | | | 6,425 | |
Valuation Techniques
Derivative assetscontingent consideration of $1 million, $6 million, $3 million, and liabilities classified as Level 2 were derived from quoted market prices for similar instruments or by discounting the future cash flows with adjustments for credit risk as appropriate. All significant inputs were derived from or corroborated by observable market data including current forward exchange rates and LIBOR rates, among others.$4 million, respectively.
At December 31, 2020 and 2019, the carrying amounts for cash and cash equivalents, restricted cash, trade and other receivables, other current assets, accounts payable, and other current liabilities approximated their estimated fair values because of their short-term nature.
Financial Assets Measured at Fair Value on a Nonrecurring Basis
Our assessment of goodwill for impairment includes various inputs, including forecasted revenue, forecasted operating profits, terminal growth rates, and weighted-average costs of capital. The projected cash flows used in calculating the fair value of our reporting units, using the income approach, considered historical and estimated future results and general economic and market conditions, as well as the impact of planned business and operational strategies. As a result, as of December 31, 2019, the Company classified the former International reporting unit measured at fair value on a nonrecurring basis within Level 3 of the fair value hierarchy.
Financial Assets and Liabilities Not Carried at Fair Value
The carrying amounts and fair value hierarchy classification of our significant financial assets and liabilities not carried at fair value as of December 31, 20202023 and 20192022 are as follows: | | December 31, 2020 | | ($ thousands) | | Carrying
Amount | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | | December 31, 2023 | | | | December 31, 2023 | | ($ in millions) | | ($ in millions) | | Carrying
Amount | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Assets: | Assets: | | | | | | | | | | | | Customer financing receivables, net | | | Customer financing receivables, net | | | Customer financing receivables, net | Customer financing receivables, net | | 315,511 | | | 0 | | | 0 | | | 312,690 | | | 312,690 | | | Equity investments | Equity investments | | 12,375 | | | 0 | | | 0 | | | 12,375 | | | 12,375 | | | Liabilities: | Liabilities: | | | Jackpot liabilities | Jackpot liabilities | | 218,943 | | | 0 | | | 0 | | | 210,516 | | | 210,516 | | | Jackpot liabilities | | | Jackpot liabilities | | Debt (1) | Debt (1) | | 8,242,898 | | | 0 | | | 8,701,509 | | | 0 | | | 8,701,509 | |
| | December 31, 2019 | | ($ thousands) | | Carrying
Amount | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | | December 31, 2022 | | | | December 31, 2022 | | ($ in millions) | | ($ in millions) | | Carrying
Amount | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Assets: | Assets: | | | | | | | | | | | | Customer financing receivables, net | | | Customer financing receivables, net | | | Customer financing receivables, net | Customer financing receivables, net | | 349,103 | | | 0 | | | 0 | | | 349,686 | | | 349,686 | | | Equity investments | Equity investments | | 11,482 | | | 0 | | | 0 | | | 11,482 | | | 11,482 | | | Liabilities: | Liabilities: | | | Jackpot liabilities | Jackpot liabilities | | 234,771 | | | 0 | | | 0 | | | 230,307 | | | 230,307 | | | Jackpot liabilities | | | Jackpot liabilities | | Debt (1) | Debt (1) | | 8,062,816 | | | 0 | | | 8,589,939 | | | 0 | | | 8,589,939 | |
(1) Debt excludesExcludes short-term borrowings and swap adjustmentsborrowings.
Level 3 equity investments are measured at cost, less impairment, plus or minus changes resulting from observable price changes, which approximates fair value.
9. Derivative Financial Instruments
We use selected derivative hedging instruments, principally foreign currency forward contracts and interest rate swaps, for the purpose of managing currency risks and interest rate risk arising from our operations and sources of financing.
Cash Flow Hedges The notional amount of foreign currency forward contracts, designated as cash flow hedges, outstanding at December 31, 20202023 and 20192022 were $61.5$78 million and $56.8$94 million, respectively. The amount recorded within other comprehensive income (loss) at December 31, 20202023 is expected to impact the consolidated statement of operations in 2021.2024.
Fair Value Hedges
In September 2015, we executed $625.0 million notional amount of interest rate swaps that effectively convert $625.0 million of the 6.25% Senior Secured U.S. Dollar Notes from fixed interest rate debt to variable rate debt. The terms of the swap require periodic net settlement payments and expire in February 2022. In August 2020, $200.0 million notional amount of the interest rate swaps were terminated early. At December 31, 2020, the remaining notional amount of $425.0 million in interest rate swaps were no longer designated as hedging relationships and the fair value of the swaps is recognized in interest expense on the consolidated statements of operations with no corresponding offset to debt.
Net Investment Hedges
In October 2018, we executed $200.0 million notional amount of cross-currency swaps that are a hedge of foreign exchange risk associated with a net investment in foreign operations. The terms of the swap require periodic net settlement payments and a final notional exchange will occur on settlement. The swaps expire in August 2021. In March 2020, $100.0 million notional amount in cross-currency swaps were early terminated and the remaining notional amount at December 31, 2020 was $100.0 million.
Derivatives Not Designated as Hedging Instruments
The notional amount of foreign currency forward contracts, not designated as hedging instruments, outstanding at December 31, 20202023 and 20192022 was $295.4$394 million and $550.0$212 million, respectively.
Refer to Note 19,20 - Shareholders’ Equity - Accumulated Other Comprehensive Income for further information.
10. Systems, Equipment and Other Assets Related to Contracts, net and Property, Plant and Equipment, net
Systems & Equipment and PPE, net consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Systems & Equipment, net | | PPE, net | | | | December 31, | | December 31, | | ($ thousands) | | 2020 | | 2019 | | 2020 | | 2019 | | Land | | 0 | | | 297 | | | 964 | | | 2,317 | | | Buildings | | 2,257 | | | 748 | | | 68,847 | | | 70,473 | | | Terminals and systems | | 2,614,869 | | | 2,610,417 | | | 0 | | | 0 | | | Furniture and equipment | | 150,419 | | | 138,591 | | | 258,767 | | | 240,375 | | | Construction in progress | | 76,582 | | | 49,340 | | | 14,985 | | | 15,624 | | | | | 2,844,127 | | | 2,799,393 | | | 343,563 | | | 328,789 | | | Accumulated depreciation | | (1,776,006) | | | (1,593,801) | | | (211,961) | | | (182,734) | | | | | 1,068,121 | | | 1,205,592 | | | 131,602 | | | 146,055 | |
Gain on Sale of Assets to Distributor
During 2019, we entered into a long-term strategic agreement with a distributor in Oklahoma that included the sale of used, non-premium equipment, which was previously included within Systems & Equipment, net within the consolidated balance sheet. This sale resulted in a gain of $27.7 million which is classified in other operating expense (income), net on the consolidated statements of operations for the year ended December 31, 2019. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Systems & Equipment, net | | PPE, net | | | | December 31, | | December 31, | | ($ in millions) | | 2023 | | 2022 | | 2023 | | 2022 | | Land | | — | | | — | | | 1 | | | 1 | | | Buildings | | — | | | — | | | 67 | | | 60 | | | Terminals and systems | | 2,843 | | | 2,720 | | | — | | | — | | | Furniture and equipment | | 131 | | | 127 | | | 306 | | | 315 | | | Construction in progress | | 86 | | | 97 | | | 28 | | | 21 | | | | | 3,059 | | | 2,944 | | | 401 | | | 398 | | | Accumulated depreciation | | (2,131) | | | (2,045) | | | (282) | | | (281) | | | | | 928 | | | 899 | | | 119 | | | 118 | |
The estimated useful lives of Systems & Equipment and PPE are as follows: | | | | | | | | | | Asset | | Estimated life in years | | Systems & Equipment | | | | | | | Terminals and systems - lottery | | Generally do not exceed 10 years | | Terminals and systems - gaming | | 3-5 | | Furniture and equipment | | Generally do not exceed 10 years | | PPE | | | | Buildings | | 40 | | Furniture and equipment | | 5-10 |
Leasehold improvements are amortized over the shorter of the corresponding lease term or estimated useful life.
11. Leases
Lessee
We have operating and finance leases for real estate (warehouses, office space, data centers), vehicles, communication equipment, and other equipment. Many of our real estate leases include one or more options to renew, while some include termination options. Certain vehicle and equipment leases include residual value guarantees and options to purchase the leased asset. 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.
The classification of our operating and finance leases in the consolidated balance sheetsConsolidated Balance Sheets is as follows: | | December 31, | | ($ thousands) | | Balance Sheet Classification | | 2020 | | 2019 | | | | | December 31, | | | | | | December 31, | | ($ in millions) | | ($ in millions) | | Balance Sheet Classification | | 2023 | | 2022 | | Assets: | Assets: | | | | | | | | Operating ROU asset | | | Operating ROU asset | | | Operating ROU asset | Operating ROU asset | | Operating lease right-of-use assets | | 288,196 | | | 296,751 | | Finance ROU asset, net (1) | Finance ROU asset, net (1) | | Other non-current assets | | 32,739 | | | 35,441 | | | Total lease assets | Total lease assets | | 320,935 | | | 332,192 | | | | Liabilities: | Liabilities: | | | Liabilities: | | | Liabilities: | | | Operating lease liability, current | | | Operating lease liability, current | | | Operating lease liability, current | Operating lease liability, current | | Other current liabilities | | 44,263 | | | 43,902 | | | Finance lease liability, current | Finance lease liability, current | | Other current liabilities | | 10,944 | | | 8,680 | | | Operating lease liability, non-current | Operating lease liability, non-current | | Operating lease liabilities | | 266,227 | | | 272,350 | | | Finance lease liability, non-current | Finance lease liability, non-current | | Other non-current liabilities | | 30,854 | | | 36,240 | | | Total lease liabilities | Total lease liabilities | | 352,288 | | | 361,172 | |
(1) Finance ROU assets are recorded net of accumulated amortization of $15.7$16 million and $6.8$15 million at December 31, 20202023 and December 31, 2019, respectively2022, respectively.
Weighted-average lease terms and discount rates are as follows: | | | | | | | | | | | | | | | | | December 31, | | | 2020 | | 2019 | | Weighted-Average Remaining Lease Term (in years) | | | | | | Operating leases | | 8.32 | | 8.80 | | Finance leases | | 5.13 | | 6.01 | | Weighted-Average Discount Rate | | | | | | Operating leases | | 7.01 | % | | 7.74 | % | | Finance leases | | 5.16 | % | | 5.45 | % |
| | | | | | | | | | | | | | | | | | | | | | | December 31, | | | 2023 | | 2022 | | 2021 | | Weighted-Average Remaining Lease Term (in years) | | | | | | | | Operating leases | | 7.09 | | 7.72 | | 8.47 | | Finance leases | | 3.60 | | 4.31 | | 4.73 | | Weighted-Average Discount Rate | | | | | | | | Operating leases | | 6.98 | % | | 6.88 | % | | 6.71 | % | | Finance leases | | 5.34 | % | | 5.12 | % | | 4.98 | % |
Components of lease expense are as follows: | | For the year ended December 31, | | ($ thousands) | | 2020 | | 2019 | | | For the year ended December 31, | | | | For the year ended December 31, | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Operating lease costs | Operating lease costs | | 72,025 | | | 75,586 | | Finance lease costs (1) | Finance lease costs (1) | | 11,451 | | | 10,341 | | | Short-term lease costs | | Variable lease costs (2) | Variable lease costs (2) | | 22,587 | | | 22,163 | |
(1) Finance lease costs includeIncludes amortization of ROU assets of $9.3$8 million, and $7.8$10 million, and $11 million for the years ended December 31, 20202023, 2022, and 2019, respectively and interest on lease liabilities of $2.1 million and $2.5 million for the years ended December 31, 2020 and 2019, respectively2021, respectively. (2) Variable lease costs includeIncludes immaterial amounts related to short-term leases and sublease incomeincome.
Maturities of operating and finance lease liabilities at December 31, 20202023 are as follows ($ thousands)in millions): | | Year | Year | | Operating Leases | | Finance Leases | | Total (1) | Year | | Operating Leases | | Finance Leases | | Total (1) | | 2021 | | 63,964 | | | 12,729 | | | 76,693 | | | 2022 | | 55,090 | | | 9,678 | | | 64,768 | | | 2023 | | 49,383 | | | 6,983 | | | 56,366 | | | 2024 | 2024 | | 44,515 | | | 5,309 | | | 49,824 | | | 2025 | 2025 | | 38,697 | | | 4,985 | | | 43,682 | | | 2026 | | | 2027 | | | 2028 | | | Thereafter | Thereafter | | 171,168 | | | 8,150 | | | 179,318 | | | Total lease payments | Total lease payments | | 422,817 | | | 47,834 | | | 470,651 | | | Less: Imputed interest | Less: Imputed interest | | (112,327) | | | (6,036) | | | (118,363) | | | Present value of lease liabilities | Present value of lease liabilities | | 310,490 | | | 41,798 | | | 352,288 | |
(1)The maturities above exclude leases that have not yet commenced and such leases are not materialcommenced. We have committed rental payments of $4 million for a lease that will commence in the aggregate2024 with a lease term of 10 years.
Cash flow information and non-cash activity related to leases is as follows: | | For the year ended December 31, | | ($ thousands) | | 2020 | | 2019 | | | For the year ended December 31, | | | | For the year ended December 31, | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | Operating cash flows from operating and finance leases | | | Operating cash flows from operating and finance leases | | | Operating cash flows from operating and finance leases | Operating cash flows from operating and finance leases | | 67,731 | | | 74,175 | | | Finance cash flows from finance leases | Finance cash flows from finance leases | | 9,761 | | | 7,632 | | | | Non-cash activity: | Non-cash activity: | | | Non-cash activity: | | | Non-cash activity: | | | ROU assets obtained in exchange for lease obligations (net of early terminations) | | | ROU assets obtained in exchange for lease obligations (net of early terminations) | | | ROU assets obtained in exchange for lease obligations (net of early terminations) | ROU assets obtained in exchange for lease obligations (net of early terminations) | | | Operating leases | Operating leases | | 34,385 | | | 12,914 | | | Operating leases | | | Operating leases | | | Finance leases | Finance leases | | 6,359 | | | 9,441 | |
We adopted ASC 842 as of January 1, 2019 which is an update to ASC 840, the lease accounting standard in place through December 31, 2018. Rent and lease expense under ASC 840 was $81.5 million for the year ended December 31, 2018 and included contingent rent payments of $0.8 million for the year ended December 31, 2018.
Lessor
We have various arrangements for lottery and commercial gaming equipment under which we are the lessor.
Our lease arrangements typically have lease terms ranging from one month to 4 years. These leases generally meet the criteria for operating lease classification, as the lease payments are typically variable based on a percentage of sales, a percentage of amounts wagered, net win, or a daily fee per active gaming terminal. Our leases generally do not contain variable payments that are dependent on an index or rate (such as the Consumer Price Index or a market interest rate). We provide lessees with the option to extend the lease, which is considered when evaluating lease classification. Lease income forfrom operating leases is included within service revenue while lease income for sales type leases is included predominately within product sales, in the consolidated statementsConsolidated Statements of operations. TotalOperations. Operating lease income was approximately 7% and 8% of total revenue for the year ended December 31, 2023. Operating lease income was approximately 6% of total revenue for each of the years ended December 31, 20202022 and 2019, respectively.2021.
Our sales-type lease arrangements typically have lease terms ranging from one year to 10 years. We provide lessees with the option to extend the lease, which is considered when evaluating lease classification. Lease income from sales-type leases is included within product sales in the Consolidated Statements of Operations. Total sales-type lease income was approximately 1% of total revenue for each of the years ended December 31, 2023, 2022, and 2021. Sales-type lease receivables are included within customer financing receivables, net, which are a component of other current assets and other non-current assets within
the Consolidated Balance Sheets. Additional information on customer financing receivables is included in Note 7 – Other Assets.
12. Restructuring
During 2020,2021, we initiated 3a multi-year plan to eliminate certain redundancies in our Italian workforce. No restructuring plans as described below and during 2019, we expanded existing restructuring plans initiated in the prior year. As of December 31, 2019 these plans were substantially completed. During 2018, we incurred $14.8 million in restructuring expenses from plans that were initiated in 2018 and substantially completed by the end of 2018. Restructuring expense incurred under these plans was previously included in corporate support expenses, which were not allocated to the business segments. In conjunction with the Company’s segment reorganization as disclosed in Note 21 – Segment Information, restructuring expenses are now included in the business segments carrying out the restructuring activity.during 2023 or 2022.
2020 Segment Reorganization2021 Italian Workforce Redundancies
During
In connection with the firstsale of our Italian B2C businesses, management agreed to provide to the buyer information technology and back-office services for a period of one to three years via a TSA. As certain of these services were concluding, during the fourth quarter of 2020,2021 management performed a detailed review of redundant roles and created a plan to eliminate certain redundancies as TSA services lapse, by commencing voluntary early retirement programs. Since the plan’s inception, we initiated a restructuring plan associated with our global initiative to simplify our organizational structure and increase efficiency and effectiveness. We expect to incurincurred approximately $17$31 million in severance and related employee costs under this plan, which isassociated with these early retirement programs through December 31, 2023, primarily within our Global Lottery and Corporate and Other segments, as management and the identified employees reached a mutual understanding of the separation benefits. Cash payments associated with these programs are expected to be substantially completed bymade through 2030. During the endyears ended December 31, 2023, 2022 and 2021 we incurred $13 million, $7 million, and $11 million, respectively, of the first quarter of 2021. We incurred $16.3 million in severance and related employee costs forunder the year ended December 31, 2020, which impacted our 2 segments and corporate support function.plan.
Rollforward of Restructuring Liability
The following table presents the activity in the restructuring liability under thisliabilities for the above plan for the yearyears ended December 31, 2020:
| | | | | | | | | ($ thousands) | | Severance2023 and Related Employee Costs | Balance at beginning of period | | 0 | | Restructuring expense, net | | 16,310 | | Cash payments | | (9,132) | | Other adjustments, net | | 544 | | Balance at end of period | | 7,722 | |
2020 Global Supply Chain Optimization
During the first quarter of 2020, we initiated a restructuring plan to optimize our global supply chain and footprint resulting in a significant reduction to our primary manufacturing operations. We will utilize contract manufacturers that are worldwide experts in manufacturing and excel at sourcing and assembly activities. We intend to utilize these third-party contract manufacturers to reduce costs and achieve efficiencies in fulfilling future demand for our products.
We expect to incur up to $9 million in total costs under this plan, comprised of approximately $5 million in severance and related employee costs and approximately $4 million in other costs. The plan is expected to be substantially completed by the end of the first quarter of 2021. The following table summarizes restructuring expense for the year ended December 31, 2020 under this plan by type of cost, primarily in the Global Gaming segment:2022:
| | | | | | | | | ($ thousands) | | For the year ended December 31, 2020 | Severance and related employee costs | | 5,123 | | Other (1)
| | 3,576 | | Total | | 8,699 | |
(1) This expense includes approximately $460 thousand of asset impairments. The offset for these charges is Property, plant and equipment, net in the consolidated balance sheet at December 31, 2020
Rollforward of Restructuring Liability
The following table presents the activity in the restructuring liability under this plan for the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | ($ thousands) | | Severance and Related Employee Costs | | Other Costs | | Total | | Balance at beginning of period | | 0 | | | 0 | | | 0 | | | Restructuring expense, net | | 5,123 | | | 3,116 | | | 8,239 | | | Cash payments | | (3,630) | | | (1,916) | | | (5,546) | | | Balance at end of period | | 1,493 | | | 1,200 | | | 2,693 | |
2020 Technology Organization Consolidation
During the second quarter of 2020, we initiated a restructuring plan to realign and consolidate operations, reduce costs, and improve operational efficiencies within our Technology group. We expect to incur approximately $18 million primarily in severance and related employee costs under this plan, which is expected to be substantially completed by the end of the fourth quarter of 2021. We incurred $17.5 million in severance and related employee costs for the year ended December 31, 2020, primarily in the Global Gaming segment.
Rollforward of Restructuring Liability
The following table presents the activity in the restructuring liability under this plan for the year ended December 31, 2020:
| | | | | | | | | ($ thousands) | | Severance and Related Employee Costs | Balance at beginning of period | | 0 | | Restructuring expense, net | | 17,499 | | Cash payments | | (3,506) | | Balance at end of period | | 13,993 | |
| | | | | | | | | | | | | | | | | | | | | | ($ in millions) | | Severance and Related Employee Costs | | Other | | Total | | Balance at December 31, 2021 | | 12 | | | 1 | | | 13 | | | 2021 Italian workforce redundancies plan expense, net | | 7 | | | — | | | 7 | | | Payments | | (4) | | | (1) | | | (4) | | | Reversals of expense and other | | (2) | | | — | | | (2) | | | Balance at December 31, 2022 | | 14 | | | — | | | 14 | | | 2021 Italian workforce redundancies plan expense, net | | 13 | | | — | | | 13 | | | Payments | | (5) | | | — | | | (5) | | | Reversals of expense and other | | 1 | | | — | | | 1 | | | Balance at December 31, 2023 | | 22 | | | — | | | 22 | |
Restructuring Expense
The following table summarizes consolidated restructuring expense by segment and type of cost: | | For the year ended December 31, 2020 | | ($ thousands) | | Severance and Related Employee Costs | | Asset Impairment Costs | | Other | | Total | | | For the year ended December 31, 2023 | | | | For the year ended December 31, 2023 | | ($ in millions) | | ($ in millions) | | Severance and Related Employee Costs | | Other | | Total | | Global Lottery | Global Lottery | | 5,399 | | | 0 | | | 0 | | | 5,399 | | | Global Gaming | Global Gaming | | 29,936 | | | 460 | | | 3,216 | | | 33,612 | | | PlayDigital | | | Corporate and Other | Corporate and Other | | 6,068 | | | 0 | | | (34) | | | 6,034 | | | Total | Total | | 41,403 | | | 460 | | | 3,182 | | | 45,045 | | | | For the year ended December 31, 2019 | | ($ thousands) | | Severance and Related Employee Costs | | Asset Impairment Costs | | Other | | Total | | Global Lottery | | 2,164 | | | 0 | | | 6 | | | 2,170 | | | Global Gaming | | 3,173 | | | 15,500 | | | (311) | | | 18,362 | | | Corporate and Other | | 1,737 | | | 0 | | | 2,586 | | | 4,323 | | | Total | | 7,074 | | | 15,500 | | | 2,281 | | | 24,855 | |
| | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2022 | | ($ in millions) | | Severance and Related Employee Costs | | Other | | Total | | Global Lottery | | 6 | | | — | | | 6 | | | Global Gaming | | (1) | | | — | | | (1) | | | PlayDigital | | — | | | — | | | — | | | Corporate and Other | | 1 | | | — | | | 1 | | | Total | | 6 | | | — | | | 6 | |
| | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2021 | | ($ in millions) | | Severance and Related Employee Costs | | Other | | Total | | Global Lottery | | 8 | | | — | | | 8 | | | Global Gaming | | (3) | | | (1) | | | (4) | | | PlayDigital | | (1) | | | — | | | (1) | | | Corporate and Other | | 2 | | | — | | | 2 | | | Total | | 6 | | | (1) | | | 6 | |
13. Goodwill
AsIn connection with the acquisition of iSoftBet, previously discussed in Note 21 – Segment Information, on July 1, 2020, we adopted a new organizational structure focused on 2 business segments: Global Lottery3 - Business Acquisitions and Global Gaming. This resulted in a changeDivestitures, the Company recognized $121 million (€117 million) of goodwill in our operating segmentsPlayDigital reporting unit. The goodwill was primarily related to expected synergies from combining operations and reporting units. Prior to this change, we had 4 reporting units: North America Gaming and Interactive, North America Lottery, International, and Italy.
Asthe value of the existing workforce. The goodwill generated as a result of the changeacquisition of iSoftBet is nondeductible for income tax purposes.
In connection with the divestiture of our Italian commercial services business previously discussed in reporting units, at July 1, 2020, we allocated Note 3 - Business Acquisitions and Divestitures, goodwill toin our new reporting units using a relative fair value approach. The goodwill allocated to the new Global Lottery and Global Gaming reporting unitsunit was $2,942.2 million and $2,208.7 million, respectively, and the estimated fair values were determined to exceed the carrying values, which indicated no impairment existed. In addition, we completed an assessment for any potential goodwill impairment for all the former reporting units immediately prior to the reallocation and determined that no impairment existed.reduced by $250 million.
Changes in the carrying amount of goodwill consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reporting Units Prior to July 1, 2020 | | | | Reporting Units After July 1, 2020 | | | | | | | | | | | | | | | | | | | | | | | ($ thousands) | | North America Gaming and Interactive | | North America Lottery | | International | | Italy | | Global Lottery | | Global Gaming | | Discontinued Operations | | Total | | Balance at December 31, 2018 | | 1,439,867 | | | 1,221,589 | | | 1,422,847 | | | 1,495,924 | | | — | | | — | | | (520,259) | | | 5,059,968 | | | Impairment | | 0 | | | 0 | | | (99,000) | | | 0 | | | — | | | — | | | — | | | (99,000) | | | Disposal | | 0 | | | 0 | | | (13,201) | | | 0 | | | — | | | — | | | — | | | (13,201) | | | Foreign currency translation | | 0 | | | 0 | | | (2,677) | | | (13,855) | | | — | | | — | | | — | | | (16,532) | | | Balance at December 31, 2019 | | 1,439,867 | | | 1,221,589 | | | 1,307,969 | | | 1,482,069 | | | 0 | | | 0 | | | (520,259) | | | 4,931,235 | | | Impairment | | (103,000) | | | 0 | | | (193,000) | | | 0 | | | — | | | — | | | — | | | (296,000) | | | Foreign currency translation | | 0 | | | 0 | | | (2,136) | | | (2,427) | | | — | | | — | | | — | | | (4,563) | | | Segment realignment | | (1,336,867) | | | (1,221,589) | | | (1,112,833) | | | (1,479,642) | | | 2,942,221 | | | 2,208,710 | | | — | | | 0 | | | Foreign currency translation | | — | | | — | | | — | | | — | | | 55,118 | | | 27,699 | | | — | | | 82,817 | | | Discontinued operations | | — | | | — | | | — | | | — | | | — | | | (520,259) | | | 520,259 | | | 0 | | | Balance at December 31, 2020 | | 0 | | | 0 | | | 0 | | | 0 | | | 2,997,339 | | | 1,716,150 | | | 0 | | | 4,713,489 | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2019 | | | | | | | | | | | | | | | | | | Cost | | 2,153,867 | | | 1,225,682 | | | 1,641,187 | | | 1,483,754 | | | 0 | | | 0 | | | (520,259) | | | 5,984,231 | | | Accumulated impairment | | (714,000) | | | (4,093) | | | (333,218) | | | (1,685) | | | 0 | | | 0 | | | — | | | (1,052,996) | | | | | 1,439,867 | | | 1,221,589 | | | 1,307,969 | | | 1,482,069 | | | 0 | | | 0 | | | (520,259) | | | 4,931,235 | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2020 | | | | | | | | | | | | | | | | | | Cost | | 0 | | | 0 | | | 0 | | | 0 | | | 2,997,339 | | | 1,716,150 | | | 0 | | | 4,713,489 | | | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,997,339 | | | 1,716,150 | | | 0 | | | 4,713,489 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Total | | Balance at December 31, 2021 | | 2,948 | | | 1,446 | | | 261 | | | 4,656 | | | Acquisitions | | — | | | — | | | 121 | | | 121 | | | Divestitures | | (250) | | | — | | | — | | | (250) | | | Foreign currency translation | | (36) | | | (2) | | | (6) | | | (44) | | | Balance at December 31, 2022 | | 2,662 | | | 1,444 | | | 376 | | | 4,482 | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | 16 | | | 1 | | | 8 | | | 25 | | | Balance at December 31, 2023 | | 2,678 | | | 1,446 | | | 384 | | | 4,507 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill Impairment
Our assessment$1.3 billion of goodwill foraccumulated impairment includes various inputs, including forecasted revenue, forecasted operating profits, terminal growth rates, and weighted-average costs of capital. The projected cash flows used in calculating the fair value of our reporting units, using the income approach, considered historical and estimated future results and general economic and market conditions, as well as the impact of planned business and operational strategies.
During the first quarter of 2020, we determined there was an interim goodwill impairment triggering event caused by COVID-19. As a result of the identified triggering event, we estimated the fair value of each of our former reporting units using an income approach based on projected discounted cash flows. Based principally on lower forecasted revenue and operating profits caused by lower demand for our commercial gaming products, we recorded a $296.0 million non-cash impairment loss with no income tax benefit, of which $193.0 million and $103.0 million million was recorded within our former International and North America Gaming reporting units, respectively, to reduce the carrying amount of the reporting units to fair value.
During the fourth quarters of 2019 and 2018, we recorded $99.0 million and $118.0 million, respectively, in non-cash impairment losses with no income tax benefits and reduced the carrying amount of our former International reporting unit to fair value. We determined there was an impairment in the former International reporting unit’s goodwill due to lower forecasted cash flows along with a higher weighted-average cost of capital.losses.
14. Intangible Assets, net Intangible assets at December 31, 20202023 and 20192022 are summarized as follows: | | | | | December 31, 2020 | | December 31, 2019 | | | | | | | December 31, 2023 | | December 31, 2022 | | ($ thousands) | | Weighted- Average
Amortization Period
(Years) | | Gross Carrying Amount | | Accumulated
Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated
Amortization | | Net Carrying Amount | | ($ in millions) | | ($ in millions) | | Estimated Life (Years) | | Weighted- Average
Amortization Period
(Years) | | Gross Carrying Amount | | Accumulated
Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated
Amortization | | Net Carrying Amount | | Amortized: | Amortized: | | | | | | | | | | | | | | | | Customer relationships | | | Customer relationships | | | Customer relationships | Customer relationships | | 15.5 | | 2,300,034 | | | 1,229,939 | | | 1,070,095 | | | 2,302,118 | | | 1,107,363 | | | 1,194,755 | | | Computer software and game library | Computer software and game library | | 5.6 | | 917,950 | | | 783,671 | | | 134,279 | | | 882,049 | | | 723,768 | | | 158,281 | | | Trademarks | Trademarks | | 14.1 | | 186,218 | | | 91,807 | | | 94,411 | | | 185,285 | | | 76,196 | | | 109,089 | | | Developed technologies | Developed technologies | | 5.6 | | 225,108 | | | 212,562 | | | 12,546 | | | 219,448 | | | 203,121 | | | 16,327 | | | Licenses | | 3.5 | | 69,148 | | | 58,550 | | | 10,598 | | | 60,763 | | | 48,188 | | | 12,575 | | | Capitalized software development | | | Licenses - IP | | | Licenses - Other | | | Other | Other | | 8.9 | | 37,382 | | | 26,957 | | | 10,425 | | | 34,600 | | | 21,013 | | | 13,587 | | | | | | 3,735,840 | | | 2,403,486 | | | 1,332,354 | | | 3,684,263 | | | 2,179,649 | | | 1,504,614 | | | Unamortized: | Unamortized: | | | | | | | | | | | | | Unamortized: | | | | | | | | | | Trademarks | Trademarks | | 245,000 | | | — | | | 245,000 | | | 245,000 | | | — | | | 245,000 | | | Total intangible assets, excluding goodwill | | 3,980,840 | | | 2,403,486 | | | 1,577,354 | | | 3,929,263 | | | 2,179,649 | | | 1,749,614 | | | | | | | | 4,473 | |
Intangible asset amortization expense of $202.7$214 million, $220.1$182 million, and $224.0$190 million (which includes computer software amortization expense of $25.7$23 million, $29.4$22 million, and $29.6$23 million) was recorded in 2020, 2019,2023, 2022, and 2018,2021, respectively.
In connection with the July 2022 acquisition of iSoftBet, previously discussed in Note 3 - Business Acquisitions and Divestitures, the Company allocated $58 million (€59 million) of the purchase price to the intangible assets acquired (primarily acquired developed technologies of €51 million and customer relationships of €8 million). The estimated useful life of the assets are 6 to 15 years with a weighted average amortization period of 9.2 years. In connection with the September 2022 sale of Lis Holding S.p.A., the Company recorded a €12 million reduction in net book value of intangible assets (principally patents and trademarks) related to the divestiture.
In December 2022, the Company entered into a $75 million multi-year license agreement of intellectual property with payments due under the agreement commencing in 2023.
In June 2023, the Company entered into a ten-year licensing agreement with Sony that grants the Company exclusive rights to the Wheel of Fortune® brand across gaming, lottery, iGaming, and iLottery and non-exclusive rights to distribute Wheel of Fortune® content for free-to-play social casinos. Minimum guaranteed payments of $313 million under the agreement are included as a licensed IP asset within intangible assets, net with a corresponding licensing obligation payable within other non-current liabilities. Payments due under the agreement commence in 2025.
Payments made after the first 90 days following execution of these agreements are classified as payments on license obligations within the financing section of the Consolidated Statements of Cash Flows.
Amortization expense on intangible assets for the next five years is expected to be as follows ($ thousands)in millions): | | | | | | | | | | Year | | Amount | | 2021 | | 187,867 | | | 2022 | | 178,594 | | | 2023 | | 155,379 | | | 2024 | | 140,009 | | | 2025 | | 118,637 | | | Total | | 780,486 | |
15.Other Liabilities
Other Current Liabilities
| | | | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ thousands) | | Notes | | 2020 | | 2019 | | Accrued interest payable | | | | 138,184 | | | 141,485 | | | Current financial liabilities | | | | 128,330 | | | 62,806 | | | Accrued expenses | | | | 118,037 | | | 99,700 | | | Contract liabilities | | 4 | | 107,542 | | | 66,749 | | | Taxes other than income taxes | | | | 96,346 | | | 67,309 | | | Employee compensation | | | | 89,832 | | | 155,962 | | | Jackpot liabilities | | 18 | | 71,290 | | | 74,670 | | | Operating lease liabilities | | 11 | | 44,263 | | | 43,902 | | | Income taxes payable | | | | 26,116 | | | 17,198 | | | Other | | | | 26,333 | | | 29,037 | | | | | | | 846,273 | | | 758,818 | |
| | | | | | | | | | Year | | Amount | | 2024 | | 210 | | | 2025 | | 200 | | | 2026 | | 156 | | | 2027 | | 145 | | | 2028 | | 143 | | | | 855 | |
Other Non-Current Liabilities
| | | | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ thousands) | | Notes | | 2020 | | 2019 | | Jackpot liabilities | | 18 | | 147,654 | | | 160,101 | | | Contract liabilities | | 4 | | 62,175 | | | 65,855 | | | Reserves for uncertain tax positions | | | | 47,625 | | | 47,523 | | | Finance lease liabilities | | 11 | | 30,854 | | | 36,240 | | | Income taxes payable | | | | 15,594 | | | 26,493 | | | Royalties payable | | | | 14,091 | | | 18,918 | | | Other | | | | 41,968 | | | 40,736 | | | | | | | 359,961 | | | 395,866 | |
16.15. Debt
The Company’s long-term debt obligations consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2020 | | ($ thousands) | | Principal | | Debt issuance
cost, net | | Premium | | Swap | | Total | | 6.250% Senior Secured U.S. Dollar Notes due February 2022 | | 1,000,001 | | | (3,039) | | | 0 | | | 6,860 | | | 1,003,822 | | | 4.750% Senior Secured Euro Notes due February 2023 | | 1,043,035 | | | (4,983) | | | 0 | | | 0 | | | 1,038,052 | | | 5.350% Senior Secured U.S. Dollar Notes due October 2023 | | 60,567 | | | 0 | | | 224 | | | 0 | | | 60,791 | | | 3.500% Senior Secured Euro Notes due July 2024 | | 613,550 | | | (3,808) | | | 0 | | | 0 | | | 609,742 | | | 6.500% Senior Secured U.S. Dollar Notes due February 2025 | | 1,100,000 | | | (8,359) | | | 0 | | | 0 | | | 1,091,641 | | | 3.500% Senior Secured Euro Notes due June 2026 | | 920,325 | | | (6,995) | | | 0 | | | 0 | | | 913,330 | | | 6.250% Senior Secured U.S. Dollar Notes due January 2027 | | 750,000 | | | (5,845) | | | 0 | | | 0 | | | 744,155 | | | 2.375% Senior Secured Euro Notes due April 2028 | | 613,550 | | | (5,150) | | | 0 | | | 0 | | | 608,400 | | | 5.250% Senior Secured U.S. Dollar Notes due January 2029 | | 750,000 | | | (6,875) | | | 0 | | | 0 | | | 743,125 | | | | | | | | | | | | | | Senior Secured Notes | | 6,851,028 | | | (45,054) | | | 224 | | | 6,860 | | | 6,813,058 | | | | | | | | | | | | | | Euro Term Loan Facility due January 2023 | | 1,055,306 | | | (11,278) | | | 0 | | | 0 | | | 1,044,028 | | Euro Revolving Credit Facility B due July 2024 (1) | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | U.S. Dollar Revolving Credit Facility A due July 2024 (1) | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | Long-term debt, less current portion | | 7,906,334 | | | (56,332) | | | 224 | | | 6,860 | | | 7,857,086 | | | | | | | | | | | | | | | | | | | | | | | | | Euro Term Loan Facility due January 2023 | | 392,672 | | | 0 | | | 0 | | | 0 | | | 392,672 | | | | | | | | | | | | | | Current portion of long-term debt | | 392,672 | | | 0 | | | 0 | | | 0 | | | 392,672 | | | | | | | | | | | | | | Short-term borrowings | | 480 | | | — | | | — | | | — | | | 480 | | | | | | | | | | | | | | Total debt | | 8,299,486 | | | (56,332) | | | 224 | | | 6,860 | | | 8,250,238 | |
| | | | | | | | | | | | | | | | | | | | | | | December 31, 2023 | | ($ in millions) | | Principal | | Debt issuance cost, net | | Total | | | | | | | | | | | | | | | | 6.500% Senior Secured U.S. Dollar Notes due February 2025 | | 500 | | | (1) | | | 499 | | | 4.125% Senior Secured U.S. Dollar Notes due April 2026 | | 750 | | | (3) | | | 747 | | | 3.500% Senior Secured Euro Notes due June 2026 | | 829 | | | (3) | | | 826 | | | 6.250% Senior Secured U.S. Dollar Notes due January 2027 | | 750 | | | (3) | | | 747 | | | 2.375% Senior Secured Euro Notes due April 2028 | | 553 | | | (3) | | | 550 | | | 5.250% Senior Secured U.S. Dollar Notes due January 2029 | | 750 | | | (5) | | | 745 | | | Senior Secured Notes | | 4,131 | | | (18) | | | 4,113 | | | | | | | | | | Euro Term Loan Facilities due January 2027 | | 884 | | | (8) | | | 876 | | | Euro Revolving Credit Facility B due July 2027 | | 467 | | | (9) | | | 458 | | | U.S. Dollar Revolving Credit Facility A due July 2027 | | 216 | | | (9) | | | 207 | | | Long-term debt, less current portion | | 5,699 | | | (44) | | | 5,655 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term borrowings | | 16 | | | — | | | 16 | | | | | | | | | | Total debt | | 5,714 | | | (44) | | | 5,671 | |
(1)
| | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | ($ in millions) | | Principal | | Debt issuance
cost, net | | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3.500% Senior Secured Euro Notes due July 2024 | | 320 | | | (1) | | | | | 319 | | | 6.500% Senior Secured U.S. Dollar Notes due February 2025 | | 700 | | | (3) | | | | | 697 | | | 4.125% Senior Secured U.S. Dollar Notes due April 2026 | | 750 | | | (5) | | | | | 745 | | | 3.500% Senior Secured Euro Notes due June 2026 | | 800 | | | (4) | | | | | 796 | | | 6.250% Senior Secured U.S. Dollar Notes due January 2027 | | 750 | | | (4) | | | | | 746 | | | 2.375% Senior Secured Euro Notes due April 2028 | | 533 | | | (3) | | | | | 530 | | | 5.250% Senior Secured U.S. Dollar Notes due January 2029 | | 750 | | | (5) | | | | | 745 | | | Senior Secured Notes | | 4,603 | | | (26) | | | | | 4,578 | | | | | | | | | | | | Euro Term Loan Facilities due January 2027 | | 1,067 | | | (9) | | | | | 1,058 | | | | | | | | | | | | U.S. Dollar Revolving Credit Facility A due July 2024 | | 65 | | | (10) | | | | | 55 | | | Long-term debt, less current portion | | 5,735 | | | (45) | | | | | 5,690 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5.350% Senior Secured U.S. Dollar Notes due October 2023 | | 61 | | | — | | | | | 61 | | | | | | | | | | | | Current portion of long-term debt | | 61 | | | — | | | | | 61 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total debt | | 5,795 | | | (45) | | | | | 5,750 | |
At December 31, 2020, $23.92023, there were no debt issuance costs, net recorded as other non-current assets in the Consolidated Balance Sheets. At December 31, 2022, $9 million of debt issuance costs, net are presented infor the Revolving Credit Facilities with no outstanding borrowings, were recorded as other non-current assets for debt instruments with no outstanding borrowings
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | ($ thousands) | | Principal | | Debt issuance
cost, net | | Premium | | Swap | | Total | | 6.250% Senior Secured U.S. Dollar Notes due February 2022 | | 1,500,000 | | | (8,199) | | | 0 | | | (473) | | | 1,491,328 | | | 4.750% Senior Secured Euro Notes due February 2023 | | 954,890 | | | (6,508) | | | 0 | | | 0 | | | 948,382 | | | 5.350% Senior Secured U.S. Dollar Notes due October 2023 | | 60,567 | | | 0 | | | 318 | | | 0 | | | 60,885 | | | 3.500% Senior Secured Euro Notes due July 2024 | | 561,700 | | | (4,369) | | | 0 | | | 0 | | | 557,331 | | | 6.500% Senior Secured U.S. Dollar Notes due February 2025 | | 1,100,000 | | | (10,041) | | | 0 | | | 0 | | | 1,089,959 | | | 3.500% Senior Secured Euro Notes due June 2026 | | 842,550 | | | (7,445) | | | — | | | — | | | 835,105 | | | 6.250% Senior Secured U.S. Dollar Notes due January 2027 | | 750,000 | | | (6,613) | | | 0 | | | 0 | | | 743,387 | | | 2.375% Senior Secured Euro Notes due April 2028 | | 561,700 | | | (5,297) | | | — | | | — | | | 556,403 | | | Senior Secured Notes | | 6,331,407 | | | (48,472) | | | 318 | | | (473) | | | 6,282,780 | | | | | | | | | | | | | | Euro Term Loan Facility due January 2023 | | 1,325,612 | | | (8,223) | | | 0 | | | 0 | | | 1,317,389 | | Euro Revolving Credit Facility B due July 2024 (1) | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | U.S. Dollar Revolving Credit Facility A due July 2024 (1) | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | Long-term debt, less current portion | | 7,657,019 | | | (56,695) | | | 318 | | | (473) | | | 7,600,169 | | | | | | | | | | | | | | 4.750% Senior Secured Euro Notes due March 2020 | | 435,767 | | | (978) | | | 0 | | | 0 | | | 434,789 | | | 5.500% Senior Secured U.S. Dollar Notes due June 2020 | | 27,311 | | | 0 | | | 74 | | | (19) | | | 27,366 | | | Current portion of long-term debt | | 463,078 | | | (978) | | | 74 | | | (19) | | | 462,155 | | | | | | | | | | | | | | Short-term borrowings | | 3,193 | | | — | | | — | | | — | | | 3,193 | | | | | | | | | | | | | | Total debt | | 8,123,290 | | | (57,673) | | | 392 | | | (492) | | | 8,065,517 | |
(1) As of December 31, 2019, $20.5 million of debt issuance costs, net are presented in other non-current assets for debt instruments with no outstanding borrowingsthe Consolidated Balance Sheets.
The principal amount of long-term debt maturing over the next five years and thereafter as of December 31, 20202023 is as follows ($ thousands) ($ in millions):
| | Year | Year | | U.S. Dollar Denominated | | Euro Denominated | | Total | Year | | U.S. Dollar Denominated | | Euro Denominated | | Total | | 2021 | | 0 | | | 392,672 | | | 392,672 | | | 2022 | | 1,000,001 | | | 392,672 | | | 1,392,673 | | | 2023 | | 60,567 | | | 1,705,669 | | | 1,766,236 | | | 2024 | 2024 | | 0 | | | 613,550 | | | 613,550 | | | 2025 | 2025 | | 1,100,000 | | | 0 | | | 1,100,000 | | | 2026 and thereafter | | 1,500,000 | | | 1,533,875 | | | 3,033,875 | | | 2026 | | | 2027 | | | 2028 | | | 2029 and thereafter | | | Total principal payments | Total principal payments | | 3,660,568 | | | 4,638,438 | | | 8,299,006 | | |
Senior Secured Notes The key terms of our senior secured notes (the “Notes”), all of which arewere issued by the Parent and were rated Ba3 and BBBBB- by Fitch Ratings, Inc. (“Fitch”), Ba1 by Moody’s Investor Service (“Moody’s”), and BB+ by Standard & Poor’s Ratings Services (“S&P”), respectively,at December 31, 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Description | | Principal
(thousands) | | Effective
Interest Rate | | Issuer | | Guarantors | | Collateral | | Redemption | | Interest payments | | 6.250% Senior Secured U.S. Dollar Notes due February 2022 | | $1,000,001 | | 6.52% | | Parent | | * | | † | | ++ | | Semi-annually in arrears | | 4.750% Senior Secured Euro Notes due February 2023 | | €850,000 | | 4.98% | | Parent | | * | | † | | ++ | | Semi-annually in arrears | | 5.350% Senior Secured U.S. Dollar Notes due October 2023 | | $60,567 | | 5.47% | | IGT | | ** | | †† | | + | | Semi-annually in arrears | | 3.500% Senior Secured Euro Notes due July 2024 | | €500,000 | | 3.68% | | Parent | | * | | † | | ++ | | Semi-annually in arrears | | 6.500% Senior Secured U.S. Dollar Notes due February 2025 | | $1,100,000 | | 6.71% | | Parent | | * | | † | | ++ | | Semi-annually in arrears | | 3.500% Senior Secured Euro Notes due June 2026 | | €750,000 | | 3.65% | | Parent | | * | | † | | +++ | | Semi-annually in arrears | | 6.250% Senior Secured U.S. Dollar Notes due January 2027 | | $750,000 | | 6.41% | | Parent | | * | | † | | ++ | | Semi-annually in arrears | | 2.375% Senior Secured Euro Notes due April 2028 | | €500,000 | | 2.50% | | Parent | | * | | † | | +++ | | Semi-annually in arrears | | 5.250% Senior Secured U.S. Dollar Notes due January 2029 | | $750,000 | | 5.39% | | Parent | | * | | † | | +++ | | Semi-annually in arrears |
* Certain subsidiaries of the Parent. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Description | | Principal
(in millions) | | Effective Interest Rate | | | | | | | | Redemption | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6.500% Senior Secured U.S. Dollar Notes due February 2025 | | $500 | | 6.71% | | | | | | | | + | | | | 4.125% Senior Secured U.S. Dollar Notes due April 2026 | | $750 | | 4.34% | | | | | | | | ++ | | | | 3.500% Senior Secured Euro Notes due June 2026 | | €750 | | 3.65% | | | | | | | | ++ | | | | 6.250% Senior Secured U.S. Dollar Notes due January 2027 | | $750 | | 6.41% | | | | | | | | + | | | | 2.375% Senior Secured Euro Notes due April 2028 | | €500 | | 2.50% | | | | | | | | ++ | | | | 5.250% Senior Secured U.S. Dollar Notes due January 2029 | | $750 | | 5.39% | | | | | | | | ++ | | |
** The Parent and certain subsidiaries of the Parent.
† Ownership interests of the Parent in certain of its direct subsidiaries and certain intercompany loans with principal balances in excess of $10 million.
†† Certain intercompany loans with principal balances in excess of $10 million.
+ International Game Technology (“IGT”) may redeem in whole or in part at any time prior to maturity at 100% of their principal amount together with accrued and unpaid interest and a make-whole premium. IGT may also redeem in whole or in part at 100% of their principal amount together with accrued and unpaid interest in connection with certain gaming regulatory events. Upon the occurrence of certain events, IGT will be required to offer to repurchase all of the notes at a price equal to 101% of their principal amount together with accrued and unpaid interest.
++ The Parent may redeem in whole or in part at any time prior to the date which is six months prior to maturity at 100% of their principal amount together with accrued and unpaid interest and a make-whole premium. After such date, the Parent may redeem in whole or in part at 100% of theirthe principal amount together with accrued and unpaid interest. The Parent may also redeem in whole but not in part at 100% of theirthe 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 notesapplicable Notes at a price equal to 101% of their principal amount together with accrued and unpaid interest.
+++ The Parent may redeem in whole or in part at any time prior to the first date set forth in the redemption price schedule at 100% of their principal amount together with accrued and unpaid interest and a make-whole premium. After such date, the Parent may redeem in whole or in part at a redemption price set forth in the redemption price schedule in the indenture governing the applicable Notes, together with accrued and unpaid interest. The Parent may also redeem in whole but not in part at 100% of theirthe 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 notesapplicable Notes at a price equal to 101% of their principal amount together with accrued and unpaid interest.
Interest on the Notes is payable semi-annually in arrears. The Notes are guaranteed by certain subsidiaries of the Parent and secured by ownership interests in certain subsidiaries of the Parent, certain intercompany loans with principal balances in excess of $10 million, and certain accounts receivable. The Notes contain customary covenants and events of default. At December 31, 2020,2023, the issuers wereParent was in compliance with thesuch covenants.
3.500% Senior Secured Euro Notes due July 2024
On JuneOctober 27, 2018,2023, the Parent issued €500exercised the right to redeem in full the remaining €112 million of the 3.500% Senior Secured Euro Notes due July 2024 (the “3.500% Notes due 2024”) at par.on November 7, 2023 for a redemption price of 100% of the principal amount consistent with the terms of the indenture governing such notes, together with accrued and unpaid interest.
On February 28, 2023, the Parent exercised the right to redeem: (i) €188 million of the 3.500% Senior Secured Euro Notes due July 2024 on March 16, 2023 for a redemption price of 100% of the principal amount and a make-whole call premium consistent with the terms of the indenture governing such notes, together with accrued and unpaid interest, and (ii) $200 million of the 6.500% Senior Secured U.S. Dollar Notes due February 2025 on March 16, 2023 for a redemption price of $1,012.54 per $1,000.00 of principal amount, together with accrued and unpaid interest.
In January 2023, International Game Technology redeemed the 5.350% Senior Secured U.S. Dollar Notes due October 2023 issued by International Game Technology in full pursuant to the exercise of the make-whole call option for $61 million, excluding interest.
In September 2022, the Parent used the proceeds from the sale of Lis Holdings S.p.A. to repurchase €200 million ($197 million) of the 3.500% Senior Secured Euro Notes due July 2024 for total consideration, excluding interest, of €201 million ($198 million) and $400 million of the 6.500% Senior Secured U.S. Dollar Notes due February 2025 for total consideration, excluding interest, of $406 million. The Company recorded a $29.6$2 million loss on extinguishment of debt in connection with the repurchases,redemption of the 3.500% Senior Secured Euro Notes and a $9 million loss on extinguishment of debt in connection with the redemption of the 6.500% Senior Secured U.S. Dollar Notes, which isare classified in other (expense) income,non-operating expense, net onin the consolidated statement of operations for the year ended December 31, 2018.2022.
3.500% Senior Secured Euro Notes due June 2026
On June 20, 2019,In May 2021, the Parent issued €750 million of 3.500% Senior Secured Euro Notes due June 2026 (the “3.500% Notes due 2026”) at par.
The Parent used the net proceeds from the 3.500% Notes due 2026 to repurchase €437.6 million ($497.5 million)sale of the 4.125%Italian B2C businesses and borrowings under the Revolving Credit Facilities to redeem €850 million ($1.0 billion) of the 4.750% Senior Secured Euro Notes due February 2020 (the “4.125% Notes”) and pay down $339.3 million2023 through the exercise of the Revolving Credit Facilities due July 2024,make-whole call option for total consideration,$1.1 billion, excluding interest, of $845.3 million.interest. The Company recorded an €8.5a $67 million ($9.6 million) loss on extinguishment of debt in connection with the repurchase,redemption, which is classified in other (expense) income,non-operating expense, net onin the consolidated statement of operations for the year ended December 31, 2019.2021.
6.250% Senior Secured U.S. Dollar Notes due January 2027
On September 26, 2018,In March 2021, the Parent issued $750 million of 6.250% Senior Secured U.S. Dollar Notes due January 2027 (the “6.250% Notes”) at par.
The Company recorded a $24.8 million loss on extinguishment of debt in connection with the redemptions, which is classified in other (expense) income, net on the consolidated statement of operations for the year ended December 31, 2018.
2.375% Senior Secured Euro Notes due April 2028
On September 16, 2019, the Parent issued €500 million of 2.375% Senior Secured Euro Notes due April 2028 (the “2.375% Notes”) at par.
The Parent used the net proceeds from the 2.375% Notes to pay the €320.0 million ($350.2 million) first installment on the Euro Term Loan Facility due January 25, 2020 on September 27, 2019 and to pay down $192.3 millionsale of the Revolving Credit Facilities due July 2024, for total consideration, excluding interest, of $542.5 million. The Company recorded a €2.1 million ($2.3 million) loss on extinguishment of debt in connection with the Term Loan repayment, which is classified in other (expense) income, net on the consolidated statement of operations for the year ended December 31, 2019.
5.250%4.125% Senior Secured U.S. Dollar Notes due January 2029
On June 19, 2020,April 2026 and borrowings under the Parent issued $750.0 million of 5.250% Senior Secured U.S. Dollar Notes due January 2029 (the “5.250% Notes”) at par.
The Parent used the net proceeds from the 5.250% NotesRevolving Credit Facilities to repurchase $500.0 millionredeem $1.0 billion of the 6.250% Senior Secured U.S. Dollar Notes due February 2022 through the exercise of the make-whole call option for total consideration,$1.0 billion, excluding interest, of $525.0 million.interest. The Company recorded a $23.3an $18 million loss on extinguishment of debt in connection with the repurchase,redemption, of which a $28.3$24 million loss is classified in other non-operating expense, net and an offsetting gain of $5.0$6 million is classified in interest expense, net in the consolidated statement of operations for the year ended December 31, 2020.2021.
Interest on the 5.250% Notes is payable semi-annually in arrears.Euro Term Loan Facilities
The 5.250% Notes are guaranteed by certain subsidiaries of the Parent and are secured by ownership interests of the Parent in certain of its direct subsidiaries are parties to an Amended and certain intercompany loans with principal balances in excess of $10.0 million.
PriorRestated Senior Facilities Agreement dated July 21, 2021, as amended (the “TLF Agreement”), which provides for two €500 million senior secured term loan facilities, one to January 15, 2024, the Parent may redeem the 5.250% Notes in whole or in part at 100% of their principal amount together with accrued and unpaid interest and a make-whole premium. From January 15, 2024 to January 14, 2025, the Parent may redeem the 5.250% Notes in whole or in part at 102.625% of their principal amount together with accrued and unpaid interest. From January 15, 2025 to January 14, 2026, the Parent may redeem the 5.250% Notes in whole or in part at 101.313% of their principal amount together with accrued and unpaid interest. On or after January 15, 2026, the Parent may redeem the
5.250% Notes in whole or in part at 100% of their principal amount together with accruedParent and unpaid interest. The Parent may also redeem the 5.250% 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 requiredone to offer to repurchase all of the 5.250% Notes at a price equal to 101% of their principal amount together with accrued and unpaid interest. In certain events of default, the 5.250% Notes outstanding may become due and payable immediately.
4.750% Senior Secured Euro Notes due March 2020
On March 5, 2020, the Parent redeemed the €387.9 million ($432.0 million) 5.500% Senior Secured Euro Notes due March 2020 when they matured.
5.500% Senior Secured U.S. Dollar Notes due June 2020
On June 15, 2020, the Parent redeemed the $27.3 million 5.500% Senior Secured U.S. Dollar Notes due June 2020 when they matured.
Revolving Credit Facilities andIGT Lottery Holdings B.V., maturing on January 25, 2027 (the “Euro Term Loan Facility
On May 7, 2020, the Company entered into an amendment to the Senior Facilities Agreement for the Revolving Credit Facilities due July 2024 (the “RCF Agreement”Facilities”), and on May 8, 2020, the Company entered into an amendment to the Senior Facility Agreement for. The borrowers must repay the Euro Term Loan Facility due January 2023 (the “TLF Agreement”).
The amendments modified the RCF Agreement and the TLF Agreement by, among other things:
•Providing a waiver of the covenants requiring the Company to maintain a minimum ratio of EBITDA to net interest costs and a maximum ratio of total net debt to EBITDA from the fiscal quarter ending June 30, 2020 through the fiscal quarter ending June 30, 2021 and establishing new thresholds for these financial covenants starting with the fiscal quarter ending September 30, 2021 as describedFacilities in the amendments;
•Providing that for the period commencing on January 30, 2020 and expiring on August 31, 2021 (the “Relief Period Expiration Date”), a material adverse effect arising from the COVID-19 pandemic shall not constitute a material adverse effect under the agreements and any cessation or suspension of business arising from the COVID-19 pandemic shall not constitute an event of default under the agreements;
•Providing that the obligation to grant security over additional collateral be waived provided that the public debt ratings of the Company are not less than BB- or Ba3;
•Obligating the Company to maintain “Liquidity” (as defined in the amendments) of at least $500 million for the period commencing on the date of the amendments and expiring on the Relief Period Expiration Date (the “Relief Period”), with such financial covenant being tested quarterly or, if any monthly trading update or quarterly compliance certificate evidences that Liquidity is less than $750 million, monthly;
•Increasing the margin from 2.75% to 3.25% if the public debt ratings of the Company are B+ or B1 (or lower);
•Prohibiting restricted payments (including dividends and ordinary share repurchases) during the period commencing on April 1, 2020 and expiring on June 30, 2021, and permitting restricted payments during the period commencing on July 1, 2021 and expiring on the maturity date of the respective agreements provided that the ratio of total net debt to EBITDA as adjusted to reflect the restricted payment is less than specified thresholds; and
•Decreasing the maximum annual amount that the Company can spend on acquisitions during the Relief Period to $100 million.
In addition, the amendment to the RCF Agreement provided that the margin applicable to all loans under the RCF Agreement outstanding as of April 11, 2020 was increased to 2.475%, and the amendment to the TLF Agreement provided that the margin applicable to all loans under the TLF Agreement outstanding as of April 11, 2020 was increased to 2.50%.
Term Loan Facility
The Parent is party to a senior facility agreement (the “Term Loan Facility Agreement”) for a €1.5 billion term loan facility maturing in January 2023 (the “Term Loan Facility”), which must be repaid in the following installments, as detailed below:
| | | | | | | | | | Due Date | | Amount
(€ thousands)in millions) | January 25, 20202024 | | 320,000— | | January 25, 20212025 | | 320,000200 | | January 25, 20222026 | | 320,000200 | | January 25, 20232027 | | 540,000400 | |
On September 27, 2019,In December 2023, the Parent repaidprepaid €200 million of the first €320 millionEuro Term Loan Facilities which was applied in full to the repayment installment due January 25, 2020 (resulting in €1.2 billion principal remaining) from the proceeds of the 2.375% Notes issued on September 16, 2019.2024.
Interest on the Euro Term Loan FacilityFacilities is payable between one and six months in arrears at rates equal to the applicable LIBOR or EURIBOR plus a margin based on (i) our long-termpublic debt ratings by Fitch, Moody’s, and S&P.&P and (ii) our ESG rating by Institutional Shareholder Services Inc. (“ISS”). At December 31, 20202023 and 2019,2022, the effective interest rate on the Euro Term Loan FacilityFacilities was 2.50%5.42% and 2.05%2.15%, respectively.
The Euro Term Loan Facility isFacilities are guaranteed by the Parent and certain of its subsidiaries and are secured by ownership interests in certain subsidiaries of the Parent, and is secured by ownership interests of the Parent in certain of its direct subsidiaries and certain intercompany loans with principal balances in excess of $10 million. million and certain accounts receivable. Upon the occurrence of certain events, the Parentborrowers may be required to prepay the Euro Term Loan FacilityFacilities in full. The Term Loan FacilityTLF Agreement limits the aggregate amount that the Parent can pay with respect to dividends and repurchases of ordinary shares in each year to $400 million if any two of our public debt ratings by Fitch, Moody’s, and S&P are lower than Ba1/BB+ and $550 million if any two of our public debt ratings by Fitch, Moody’s, and S&P are equal to or higher than Ba1/BB+, and provides that such limit is eliminated if any two of our public debt ratings by Moody’s, S&P, and Fitch are equal to or higher than Baa3/BBB-. The TLF Agreement also contains customary covenants (including maintaining a minimum ratio of EBITDA to net interest costs and maximum ratio of total net debt to EBITDA) and events of default. At December 31, 2020,2023, the Parent was in compliance with the covenants.
In November 2023, the lenders under the TLF Agreement agreed that each principal prepayment by a borrower be applied to the next repayment installments due from such borrower in order of maturity instead of being applied to all repayment installments due from such borrower pro rata.
In July 2022, the Parent entered into an amendment to the TLF Agreement pursuant to which, among other changes, (i) the annual permitted acquisition limit was increased from 10% to 15% of consolidated total assets and the lifetime permitted acquisition limit was increased from $2.25 billion to $2.5 billion; and (ii) the annual limit on dividends and share repurchases was increased from $300 million to $400 million based on our public debt ratings at the time and to $550 million if any two of our public debt ratings are equal to or higher than Ba1/BB+ and eliminated if any two of our public debt ratings are equal to or higher than Baa3/BBB-.
Revolving Credit Facilities The Parent and certain of its subsidiaries are partyparties to a senior facilities agreementan Amended and Restated Senior Facilities Agreement dated July 27, 2022 (the “RCF Agreement”), which provides for the following senior secured multi-currency revolving credit facilities (the “Revolving Credit Facilities”): maturing on July 31, 2027: | | | | | | | | | Facility (1) | | | | | | | | | | | | | | | Maximum Amount
Available (thousands) | | Facility | | Borrowers(in millions) | $1,050,000 | | Revolving Credit Facility A | | Parent, IGT, and IGT Global Solutions Corporation$820 | €625,000 | | Revolving Credit Facility B | | Parent and Lottomatica Holding S.r.l.€1,000 |
On July 24, 2019, the Company entered into an amendment to(1) The Parent, IGT Global Solutions Corporation, IGT Lottery Holdings B.V., IGT Lottery S.p.A, and International Game Technology are all borrowers under the Revolving Credit Facilities due July 2021. The amendment extendedFacilities.
At December 31, 2023, 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 amended the definition of “Permitted Restricted Payment” to eliminate the leverage ratio threshold condition to the payment of dividends and other restricted payments. The amendment also allowed IGT-Europe B.V.amounts available to be added as a borrowerborrowed under Revolving Credit Facility A and Revolving Credit Facility B were $604 million and modified certain other non-material provisions.€570 million ($630 million), respectively.
Interest on the Revolving Credit Facilities is payable between one and six months in arrears at rates equal to the applicable LIBORSecured Overnight Financing Rate (“SOFR”) or Sterling Overnight Index Average (“SONIA”) rate, in each case subject to a credit adjustment spread, for borrowings in U.S. Dollars and Pounds Sterling, respectively, or the applicable EURIBOR for
Euro borrowings, plus a margin based on the Parent’s long-term(i) our public debt ratings by Fitch, Moody’s, and S&P.&P and (ii) our ESG rating by ISS. At December 31, 20202023, the weighted average effective interest rate on Revolving Credit Facility A and Revolving Credit Facility B was 6.49%. At December 31, 2019, there was 0 balance for2022, the effective interest rate on Revolving Credit Facilities.Facility A was 6.04%, and there were no outstanding borrowings under Revolving Credit Facility B.
The RCF Agreement provides that the following fees, which are recorded in interest expense, net in the consolidated statementsConsolidated Statements of operations,Operations, are payable quarterly in arrears: •Commitment fees - payable on the aggregate undrawn and un-cancelled amount of the Revolving Credit Facilities dependingbased on the Parent’s long-term ratings by Moody’s and S&P. The applicable rate was 0.928% at December 31, 2020.a 0.35% margin. •Utilization fees - payable on the aggregate drawn amount of the Revolving Credit Facilities at a rate ranging from 0.15%0.10% to 0.60% dependent on the percentage of the Revolving Credit Facilities utilized. ThereThe applicable rate was 0 balance as of0.10% at December 31, 2020.2023. The Revolving Credit Facilities are guaranteed by the Parent and certain of its subsidiaries and are secured by ownership interests in certain subsidiaries of the Parent, in certain of its direct subsidiaries and certain intercompany loans with principal balances in excess of $10 million. million and certain accounts receivable. Upon the occurrence of certain events, the borrowers may be required to repay the Revolving Credit Facilities and the lenders may have the right to cancel their commitments. At December 31, 2020 the available liquidity under the Revolving Credit Facilities was $1.817 billion.
The RCF Agreement limits the aggregate amount that the Parent can pay with respect to dividends and repurchases of ordinary shares in each year to $400 million if any two of our public debt ratings by Fitch, Moody’s, and S&P are lower than Ba1/BB+ and $550 million if any two of our public debt ratings by Fitch, Moody’s, and S&P are equal to or higher than Ba1/BB+, and provides that such limit is eliminated if any two of our public debt ratings by Fitch, Moody’s, and S&P are equal to or higher than Baa3/BBB-. The RCF Agreement also contains 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. At December 31, 2020,2023, the borrowers were in compliance with the covenants.
In July 2022, the Parent entered into an Amendment and Restatement Agreement (the “RCF Amendment and Restatement Agreement”) with respect to the RCF Agreement, pursuant to which, among other changes, (i) the aggregate revolving facility A commitments of the lenders were decreased from $1.05 billion to $820 million; (ii) the aggregate revolving facility B commitments of the lenders were increased from €625 million to €1.0 billion; (iii) the final maturity date was extended from July 31, 2024 to July 31, 2027; (iv) LIBOR was replaced as a reference rate with the SOFR or SONIA rate, in each case subject to a credit adjustment spread, for borrowings in U.S. Dollars and Pounds Sterling, respectively; (v) the margins based on public debt ratings were reduced by at least 0.25% (0.40% at current public debt ratings) subject to a maximum of 0.075% increase or decrease based on the group's ESG rating; (vi) the annual permitted acquisition limit was increased from 10% to 15% of consolidated total assets and the lifetime permitted acquisition limit was increased from $2.25 billion to $2.5 billion; and (vii) the annual limit on dividends and share repurchases was increased from $300 million to $400 million based on our public debt ratings at the time and to $550 million if any two of our public debt ratings are equal to or higher than Ba1/BB+, and eliminated if any two of our public debt ratings are equal to or higher than Baa3/BBB-.
TLF Agreement and RCF Agreement Amendments - Announced Separation & Divestiture
In November 2023 and February 2024, the Parent entered into amendments to the TLF Agreement and RCF Agreement to permit the divestiture of the Global Gaming and PlayDigital segments via a sale, spin-off, or spin-off with a merger. Effective immediately upon the divestiture’s closing, the amendments:
•Reduce the Revolving Credit Facility A commitment from $820 million to $650 million; •Reduce the Revolving Credit Facility B commitment from €1 billion to €800 million; •Mandate the first $2 billion of net proceeds be used to pay down debt within six months of the closing date, which shall include the full repayment of the Parent’s Euro Term Loan facility within one month of the closing date (this excludes the Euro Term Loan facility principal held by IGT Lottery Holdings B.V.); •Permit shareholder distributions and/or share buy backs to the extent that the net proceeds exceed $2 billion; and •Make certain adjustments to the debt covenants, such as the subsidiaries guaranteeing the Facilities.
In the event of a spin-off or spin-off with a merger, net proceeds may include, but is not limited to, repaid intercompany debt.
Other Credit Facilities The Parent and certain of its subsidiaries may borrow under senior unsecured uncommitted demand credit facilities made available by several financial institutions. At December 31, 2020 and December 31, 2019,2023, there were nowas $16 million of short-term borrowings under these facilities.facilities with an effective interest rate of 6.77%, and no outstanding borrowings at December 31, 2022.
Letters of Credit The Parent and certain of its subsidiaries may obtain letters of credit under the Revolving Credit Facilities and under senior unsecured uncommitted demand credit facilities. The letters of credit secure various obligations, including obligations arising under customer contracts and real estate leases. The following table summarizes the letters of credit outstanding at December 31, 20202023 and 20192022 and the weighted-average annual cost of such letters of credit: | | | | | | | | | | | | | | | | | | | | ($ in millions) | | Letters of Credit Outstanding (1) | | Weighted-Average
Annual Cost | | | | | | | | | | | December 31, 2023 | | 121 | | | | | | | 1.11 | % | | December 31, 2022 | | 118 | | | | | | | 1.26 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Letters of Credit Outstanding | | | | ($ thousands) | | Not under the
Revolving
Credit
Facilities | | Under the
Revolving
Credit
Facilities | | Total | | Weighted-
Average
Annual Cost | | December 31, 2020 | | 426,740 | | | 0 | | | 426,740 | | | 1.06 | % | | December 31, 2019 | | 402,300 | | | 0 | | | 402,300 | | | 1.02 | % |
Interest Expense, Net | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Senior Secured Notes | | 205 | | | 249 | | | 292 | | | Term Loan Facilities | | 42 | | | 24 | | | 30 | | | Revolving Credit Facilities | | 53 | | | 21 | | | 29 | | | Other | | 11 | | | 8 | | | 4 | | | Interest expense | | 311 | | | 302 | | | 354 | | | Interest income | | (25) | | | (13) | | | (13) | | | Interest expense, net | | 285 | | | 289 | | | 341 | |
| | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | Senior Secured Notes | | (344,286) | | | (351,077) | | | (352,293) | | | Term Loan Facilities | | (36,665) | | | (36,138) | | | (39,462) | | | Revolving Credit Facilities | | (31,301) | | | (28,160) | | | (27,805) | | | Other | | (620) | | | (7,918) | | | (12,052) | | | Interest expense | | (412,872) | | | (423,293) | | | (431,612) | | | Interest income | | 14,956 | | | 12,418 | | | 14,229 | | | Interest expense, net | | (397,916) | | | (410,875) | | | (417,383) | |
16.Other Liabilities Other Current Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ in millions) | | Notes | | 2023 | | 2022 | | Employee compensation | | | | 170 | | | 173 | | | Current financial liabilities | | | | 149 | | | 145 | | | Accrued expenses | | | | 83 | | | 75 | | | Income taxes payable | | | | 83 | | | 32 | | | Accrued interest payable | | | | 82 | | | 85 | | | Contract liabilities | | 4 | | 69 | | | 91 | | | Taxes other than income taxes | | | | 53 | | | 68 | | | Operating lease liabilities | | 11 | | 40 | | | 37 | | | Licensing obligation payable | | | | 39 | | | 38 | | | Jackpot liabilities | | 19 | | 38 | | | 57 | | | Other | | | | 74 | | | 36 | | | | | | | 879 | | | 837 | |
Other Non-Current Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ in millions) | | Notes | | 2023 | | 2022 | | Licensing obligation payable | | 14 | | 350 | | | 61 | | | Jackpot liabilities | | 19 | | 118 | | | 114 | | | Reserves for uncertain tax positions | | | | 45 | | | 52 | | | Contract liabilities | | 4 | | 43 | | | 49 | | | | | | | | | | | | | | | | | Other | | | | 54 | | | 98 | | | | | | | 609 | | | 372 | |
17.Other Non-Operating Expense, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | ($ in millions) | | Notes | | For the year ended December 31, | | | 2023 | | 2022 | | 2021 | | Loss on extinguishment of debt | | 15 | | 5 | | | 13 | | | 92 | | | Loss on blue-chip swap | | | | 5 | | | — | | | — | | | DDI / Benson Matter provision | | 19 | | — | | | 270 | | | — | | | Gain on sale of business | | 3 | | — | | | (278) | | | — | | | Other expense, net | | | | 2 | | | 2 | | | 6 | | | Total other non-operating expense, net | | | | 12 | | | 7 | | | 98 | |
18. Income Taxes The components of (loss) income from continuing operations before provision for income taxes, determined by tax jurisdiction, are as follows: | | | | | For the year ended December 31, | | | For the year ended December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | 2021 | | United Kingdom | United Kingdom | | (354,563) | | | 35,401 | | | 195,629 | | | United States | United States | | (776,396) | | | (301,307) | | | (363,507) | | | Italy | Italy | | 228,744 | | | 350,731 | | | 365,463 | | | Other | Other | | 54,508 | | | 43,182 | | | (63,717) | | | | | | (847,707) | | | 128,007 | | | 133,868 | |
The provision for income taxes consists of: | | | | | For the year ended December 31, | | | For the year ended December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Current: | Current: | | | | | | | Current: | | | | United Kingdom | United Kingdom | | (819) | | | 1,803 | | | 3,579 | | | United States | United States | | 10,045 | | | 46,288 | | | (12,028) | | | Italy | Italy | | 66,073 | | | 104,368 | | | 141,496 | | | Other | Other | | 30,866 | | | 49,329 | | | 45,942 | | | | | | 106,165 | | | 201,788 | | | 178,989 | | | Deferred: | Deferred: | | | | | | | Deferred: | | | | United Kingdom | | (190) | | | (78) | | | (282) | | | | United States | | | United States | | | United States | United States | | (61,791) | | | (68,789) | | | (20,900) | | | Italy | Italy | | (876) | | | 914 | | | (3,517) | | | Other | Other | | (15,610) | | | (3,078) | | | (10,126) | | | | | | (78,467) | | | (71,031) | | | (34,825) | | | | | | 27,698 | | | 130,757 | | | 144,164 | |
Income taxes paid, net of refunds, were $89.0$205 million, $196.8$335 million, and $178.5$188 million in 2020, 2019,2023, 2022, and 2018,2021, respectively.
At December 31, 2023, undistributed profits of subsidiaries of approximately $1.1 billion are considered indefinitely reinvested. Foreign withholding taxes on these undistributed earnings would be approximately $65 million.
The Parent is a tax resident in the United Kingdom (the “U.K.”). A reconciliation of the provision for income taxes, withfrom the amount computed by applying the U.K. statutory main corporation tax rates enacted in each of the Parent’s calendar year reporting periods (2023 tax rate is based on a weighted average rate of the United Kingdom statutory tax rate enacted on April 1, 2023) to (loss) income from continuing operations before provision for income taxes is as follows: | | | | | For the year ended December 31, | | | For the year ended December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | (Loss) income from continuing operations before provision for income taxes | | (847,707) | | | 128,007 | | | 133,868 | | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Income from continuing operations before provision for income taxes | | | United Kingdom statutory tax rate | United Kingdom statutory tax rate | | 19.00 | % | | 19.00 | % | | 19.00 | % | United Kingdom statutory tax rate | | 23.5 | % | | 19.0 | % | | 19.0 | % | | Statutory tax expense (benefit) | Statutory tax expense (benefit) | | (161,064) | | | 24,321 | | | 25,435 | | | | Change in valuation allowances | Change in valuation allowances | | 127,955 | | | 507 | | | (13,723) | | | Non-deductible goodwill impairment | | 56,240 | | | 18,810 | | | 22,420 | | | Change in valuation allowances | | | Change in valuation allowances | | | Italy regional tax (“IRAP”) and state taxes | | | Non-deductible expenses | | | Base erosion and anti-abuse (“BEAT”) tax | Base erosion and anti-abuse (“BEAT”) tax | | 12,926 | | | 31,340 | | | 13,769 | | Foreign tax and statutory rate differential (1) | | | Foreign tax expense, net of U.S. federal benefit | Foreign tax expense, net of U.S. federal benefit | | 9,754 | | | 13,585 | | | 14,930 | | | IRAP and state taxes | | 9,275 | | | 22,946 | | | 30,351 | | | Provision to return adjustment | | | GILTI tax | GILTI tax | | 2,517 | | | 4,575 | | | 11,079 | | | | Non-taxable gain on sale of business | | | Non-taxable gain on sale of business | | | Non-taxable gain on sale of business | | | Non-taxable foreign exchange loss (gain) | | | Italian patent box tax benefit | | | Change in unrecognized tax benefits | Change in unrecognized tax benefits | | 1,295 | | | 6,637 | | | 9,166 | | | Italian allowance for corporate equity | | (3,841) | | | (2,380) | | | (3,328) | | Foreign tax and statutory rate differential (1) | | (13,988) | | | 2,974 | | | 48,040 | | | Tax Law Changes | | (19,627) | | | 0 | | | 0 | | | Tax impact of Tax Act | | 0 | | | 0 | | | (10,852) | | | Italian tax settlement | | 0 | | | 0 | | | 16,664 | | | Non-taxable foreign exchange gain | | 0 | | | (3,744) | | | (12,384) | | | Non-taxable gains on investments | | 0 | | | (6,225) | | | 0 | | | Tax law changes | | | | Other | | | Other | | | Other | Other | | 6,256 | | | 17,411 | | | (7,403) | | | | | | 27,698 | | | 130,757 | | | 144,164 | | | | Effective tax rate | Effective tax rate | | (3.3) | % | | 102.1 | % | | 107.7 | % | | Effective tax rate | | | Effective tax rate | | | 51.2 | % | | 29.7 | % | | 51.8 | % |
(1) Includes the effects of foreign subsidiaries’ earnings taxed at rates other than the U.K. statutory rate
In 2020, our effective tax rate differed from the expected UK statutory rate of 19.00%, primarily due to increases in valuation allowances on deferred tax assets, the impact of the international provisions of the Tax Act (BEAT and GILTI), foreign rate differences, and a goodwill impairment with no associated tax benefit.
In 2019, our effective tax rate differed from the expected U.K. statutory rate of 19.00% primarily due to the impact of the international provisions of the Tax Act (BEAT and GILTI), foreign rate differences, and a goodwill impairment with no associated tax benefit.
In 2018, our effective tax rate differed from the expected U.K. statutory rate of 19.00% primarily due to the impact of the international provisions of the Tax Act (BEAT and GILTI), a goodwill impairment with no associated tax benefit, foreign rate differences, increases in uncertain tax positions, and the settlement of an Italian tax audit.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide certain relief as a result of the COVID-19 outbreak. Some of the key tax-related provisions of the CARES Act benefiting the Company include temporary five-year net operating loss carryback provisions, modifications to the 30% limitation on the deductibility of business interest, and payroll tax deferral.
In the quarter ended September 30, 2020, the U.S. Treasury Department issued final regulations regarding Global Intangible Low-Taxed Income (“GILTI”). The Company will elect the GILTI high tax exception as allowed by the final regulations and will amend its 2018 and 2019 income tax returns. The benefit of the GILTI high tax exception as well as the NOL carryback provisions provided in the CARES Act resulted in a tax benefit of $12.1 million.
The components of deferred tax assets and liabilities are as follows: | | | | | December 31, | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | Deferred tax assets: | Deferred tax assets: | | | | | Deferred tax assets: | | | | Net operating losses | Net operating losses | | 299,885 | | | 175,342 | | | Section 163(j) interest limitation | Section 163(j) interest limitation | | 154,925 | | | 93,522 | | | Italian goodwill tax step-up | | | Provisions not currently deductible for tax purposes | Provisions not currently deductible for tax purposes | | 88,084 | | | 127,132 | | | Lease liabilities | Lease liabilities | | 70,384 | | | 79,328 | | | Jackpot timing differences | Jackpot timing differences | | 38,724 | | | 40,550 | | | Depreciation and amortization | Depreciation and amortization | | 26,325 | | | 30,296 | | | Inventory reserves | Inventory reserves | | 2,438 | | | 3,437 | | | Other | Other | | 47,377 | | | 44,459 | | | Gross deferred tax assets | Gross deferred tax assets | | 728,142 | | | 594,066 | | | Valuation allowance | Valuation allowance | | (284,088) | | | (156,133) | | | Deferred tax assets, net of valuation allowance | Deferred tax assets, net of valuation allowance | | 444,054 | | | 437,933 | | | | Deferred tax liabilities: | Deferred tax liabilities: | | | | | | Deferred tax liabilities: | | | Deferred tax liabilities: | | | | | Acquired intangible assets | Acquired intangible assets | | 506,238 | | | 533,732 | | | Depreciation and amortization | Depreciation and amortization | | 160,898 | | | 174,970 | | | Italian goodwill equity reserve liability | | | Lease right-of-use assets | Lease right-of-use assets | | 65,015 | | | 74,201 | | | Other | Other | | 11,796 | | | 20,962 | | | Total deferred tax liabilities | Total deferred tax liabilities | | 743,947 | | | 803,865 | | | Net deferred income tax liability | Net deferred income tax liability | | (299,893) | | | (365,932) | |
Our net deferred income taxes are recorded in the consolidated balance sheetsConsolidated Balance Sheets as follows: | | | | | December 31, | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | Deferred income taxes - non-current asset | Deferred income taxes - non-current asset | | 33,117 | | | 27,108 | | | Deferred income taxes - non-current liability | Deferred income taxes - non-current liability | | (333,010) | | | (393,040) | | | | | | (299,893) | | | (365,932) | |
Net Operating Loss Carryforwards
We have a $1.3$1.0 billion gross tax loss carryforward, of which $638.4$703 million relates to the U.K., $331.2U.K and $318 million relates to U.S. Federal, and $370.7 million relates to other foreign tax jurisdictions. Carryforwards in certain tax jurisdictions begin to expire in 2031, while others have an unlimited carryforward period. A valuation allowance has been provided on $929.5$960 million of the gross net operating loss carryforwards. Portions of the tax loss carryforwards are subject to annual limitations in most of our significant tax jurisdictions, including Section 382 of the U.S. Internal Revenue Code of 1986, as amended, for U.S. tax purposes, and similar provisions under other countries’ laws.U.K. In addition, as of December 31, 2020,2023, we had U.S. state tax net operating loss carryforwards, resulting in a deferred tax asset (net of U.S. federal tax benefit) of approximately $18.3$7 million. U.S. state tax net operating loss carryforwards generally expire in the years 20212025 through 2040.2041.
Valuation Allowance
A reconciliation of the valuation allowance is as follows: | | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | Balance at beginning of year | | 156,133 | | | 170,831 | | | 184,554 | | | Expiration of tax attributes | | 0 | | | (15,205) | | | 0 | | | Net charges to (income) expense | | 127,955 | | | 507 | | | (13,723) | | | Balance at end of year | | 284,088 | | | 156,133 | | | 170,831 | |
| | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Balance at beginning of year | | 430 | | | 412 | | | 284 | | | Net charges to expense | | 91 | | | 22 | | | 86 | | | Tax rate change | | (3) | | | — | | | 39 | | | Provision to return adjustment | | — | | | (3) | | | 3 | | | | | | | | | | Balance at end of year | | 518 | | | 430 | | | 412 | |
The valuation allowance primarily relates to U.K. and foreign net operating losses and the section 163(j) business interest expense limitation carryforward that are not more likely than not expected to be realized. In addition, we also recorded a partial valuation allowance of $57.9 million relating to our business interest expense limitation carryforward. In assessing the need for a valuation allowance, we considered both positive and negative evidence for each jurisdiction including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. When we change our determination as to the amount of deferred tax assets that can be realized, the valuation allowance is adjusted with a corresponding impact to the provision for (benefit from) income taxes in the period in which such determination is made.
For the years ended December 31, 2020 and December 31, 2019, we recorded a net valuation increase (decrease) of $127.9 million and $(14.7) million, respectively.
Accounting for Uncertainty in Income Taxes
A reconciliation of the unrecognized tax benefits is as follows: | | | | | December 31, | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Balance at beginning of year | Balance at beginning of year | | 29,175 | | | 26,635 | | | 20,975 | | | Additions to tax positions - current year | Additions to tax positions - current year | | 498 | | | 717 | | | 11,947 | | | Additions to tax positions - prior years | Additions to tax positions - prior years | | 335 | | | 2,358 | | | 16,973 | | | Reductions to tax positions - prior years | Reductions to tax positions - prior years | | (2,259) | | | 0 | | | (4,610) | | | Settlements | Settlements | | 0 | | | 0 | | | (17,238) | | | Lapses in statutes of limitations | | (525) | | | (535) | | | (1,412) | | | | Balance at end of year | Balance at end of year | | 27,224 | | | 29,175 | | | 26,635 | | | Balance at end of year | | | Balance at end of year | |
At December 31, 2020, 2019,2023, 2022, and 2018, $27.22021, $15 million, $29.2$27 million, and $26.6$27 million, respectively, of the unrecognized tax benefits, if recognized, would affect our effective tax rates.
We recognize interest expense and penalties related to income tax matters in the provisionincome tax expense. The charges were nominal for income taxes. For 2020, 2019,2023, 2022, and 2018, we recognized $(0.2) million, $4.7 million, and $0.7 million, respectively, in interest expense, penalties, and inflationary adjustments. At December 31, 2020, 2019, and 2018, the2021. The gross balance of accrued interest and penalties was $20.9 million, $21.2$30 million and $16.4$25 million at December 31, 2023 and 2022, respectively.
We file income tax returns in various jurisdictions of which the United Kingdom, United States, and Italy represent the major tax jurisdictions. All years prior to 2017 are closed with the Internal Revenue Service. As of December 31, 2020,2023, we are subject to income tax audits in various tax jurisdictions globally, most significantly in Mexicothe U.S. and Italy.Mexico.
Mexico Tax Audit
Based on a 2006 tax examination, the Company’s Mexican subsidiary, GTECH Mexico S.A. de C.V., was issued an income tax assessment of approximately Mexican peso (“MXN”) 425.0425 million. The assessment relates to the denial of a deduction for cost of goods sold and the taxation of intercompany loan proceeds. The Company has unsuccessfully contested the two issues in the Mexican court system receiving unfavorable decisions by the Mexican Supreme Court in June 2017 and October 2019, respectively. As of December 31, 2020,2023, based on the unfavorable decisions received, the Company has recorded a liability of MXN 478.5555 million (approximately $24.0$33 million), which includesinclusive of additional interest, penalties, and inflationary adjustments.adjustments, which is reported within other non-current liabilities in the Consolidated Balance Sheets.
Italy Tax Audits
TheSince February 2020, the Company’s Italian corporate income tax returns for the calendar years ended December 31, 2015 through December 31, 2019 are currentlywere under examination. OnIn October 19, 2020, the Italian tax authoritiesTax Authorities issued a final tax audit report for calendar year 2015 questioning2015. The Company filed a defense memorandum with the processItalian Tax Authorities in May 2021 rejecting all findings. In December 2021, the Company undertookreceived a tax assessment notice for €15 million relating to establishcalendar year 2015. The Company filed an appeal with the interest rate on an intercompany debt agreement (“Italian Tax Court in May 2022 relating to the 2015 loan”), between Lottomatica S.r.l. (the borrower) and its parent company, IGT PLC (the lender). Similar findings are expectedtax assessment. On March 21, 2023, the Company received a tax assessment notice for €27 million relating to calendar year 2016. On September 7, 2023, the Company signed a Settlement Agreement with the Italian Tax Authorities pursuant to which the Company agreed to settle the 2015 loanand 2016 tax assessments for calendar years 2016 through 2019 as the intercompany debt remains outstanding and€10 million. Additionally, the Company appliedagreed to settle the same interest rate. 2015 and 2016 audit findings that were relevant to tax years 2017-2022 for €13 million. The total impact, net of amounts previously reserved, was $14 million.
Pillar Two Global Minimum Tax Framework - Legislative UpdThe Company expects that Lottomatica S.r.l will receive an assessment of taxes, interest,ates
In December 2021, the Organization for Economic Cooperation and potentially penalties sometime inDevelopment (“OECD”) enacted model rules for a new global minimum tax framework (“Pillar Two”). Many non-U.S. tax jurisdictions, including the first half of calendar year 2021. The Company believes the interest rate applied to the intercompany debt was calculated on an arm’s length basis consistent with established transfer pricing policiesEuropean Union, have
committed to adopting Pillar Two, which establishes a global minimum tax of 15% and procedures.is intended to be effective for tax years beginning in 2024. The Company is currently evaluatingOECD has since issued administrative guidance providing transition and safe harbor rules around the options for responding to the October 19, 2020 tax audit report upon receiptimplementation of the tax assessment.
On December 21, 2017Pillar Two global minimum tax. We continue to evaluate the potential impact of the proposed and on March 29, 2018, the Italian Tax Authority issued a preliminary tax audit reportenacted legislative changes, including eligibility to qualify for the 2014 and 2015 fiscal years, respectively. Both audit reports related to the reorganization of the Italian business and the merger of GTECH S.p.A. with and into the Parent effective from April 7, 2015, addressing (i) the non-deductibility of certain transaction costs, (ii) withholding taxes on bridge facility fees, and (iii) the redetermination of the taxable gains associated with the reorganization of the Italian business. The total income tax assessment for fiscal 2014 and fiscal 2015 was €13.2 million ($16.7 million), which has been settled and fully paid with the Italian Tax Authority as of December 31, 2018.safe harbor rules.
18.19. Commitments and Contingencies
Commitments
Jackpot Commitments
Jackpot liabilities are recorded as current and non-current liabilities as follows: | | | | | | | | | ($ thousands)in millions) | | December 31, 20202023 | | Current liabilities | | 71,29038 | | | Non-current liabilities | | 147,654118 | | | | | 218,944155 | |
Future jackpot liabilities as of December 31, 2023 are due as follows: | | ($ thousands) | | Previous Winners | | Future Winners | | Total | | 2021 | | 35,967 | | | 35,176 | | | 71,143 | | | 2022 | | 22,705 | | | 8,250 | | | 30,955 | | | 2023 | | 20,440 | | | 651 | | | 21,091 | | | ($ in millions) | | ($ in millions) | | Previous Winners | | Future Winners | | Total | | 2024 | 2024 | | 17,863 | | | 651 | | | 18,514 | | | 2025 | 2025 | | 15,028 | | | 651 | | | 15,679 | | | 2026 | | | 2027 | | | 2028 | | | Thereafter | Thereafter | | 84,552 | | | 9,761 | | | 94,313 | | | Future jackpot payments due | Future jackpot payments due | | 196,555 | | | 55,140 | | | 251,695 | | | Unamortized discounts | Unamortized discounts | | | | | | (32,751) | | | Total jackpot liabilities | Total jackpot liabilities | | | | | | 218,944 | |
Performance and other bonds
Certain contracts require us to provide a surety bond as a guarantee of performance for the benefit of customers; bid and litigation bonds for the benefit of potential customers; and WAP bonds that are used to secure our financial liability when a player elects to have their WAP jackpot winnings paid over an extended period of time.
These bonds give beneficiaries the right to obtain payment and/or performance from the issuer of the bond if certain specified events occur. In the case of performance bonds, which generally have a term of one year, such events include our failure to perform our obligations under the applicable contracts. In general, we would only be liable for these guarantees in the event of default in our performance of our obligations under each contract, the probability of which we believe is remote. Accordingly, no liability has been recorded as of December 31, 20202023 and 20192022 related to these bonds.
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 us, and injunctions by third parties arising out of the ordinary course of business.business or its other business activities. Licenses are also subject to legal challenges by competitors 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. At December 31, 2020,2023, provisions for litigation
matters amounted to $7.9all legal proceedings, including what is discussed in detail below, was $14 million. With respect to litigation and other legal proceedings where we have determined that aan incremental loss is reasonably possible but we are unable to determine an estimate the amount or range of that reasonably possible loss in excess of amounts already accrued, no additional amounts have been accrued, given the uncertainties of litigation and the inherent difficulty of predicting the outcome of legal proceedings.
Texas Fun 5’s Instant Ticket Game
NaN lawsuits have been filed against IGT Global Solutions Corporation (f/k/a(formerly GTECH Corporation) is party to four lawsuits 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.$600 million, as alleged via discovery. GTECH Corporation’s plea to the jurisdiction for dismissal based on sovereign immunity was denied. GTECH Corporation appealed. The appellate court ordered that plaintiffs’Plaintiffs’ sole remaining claim should be reconsidered. (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 TLC won pleas to the jurisdiction for dismissal based on sovereign immunity. Plaintiff lost her appeal and petitioned for Texas Supreme Court review. On April 27, 2018, IGT Global Solutions Corporation petitioned forthis and a related matter were appealed to the Texas Supreme Court, review and the Texas Supreme Courtwhich heard arguments on December 3, 2019 in both the Nettles and Steele cases. 2019.On June 12, 2020, the Texas Supreme Court ruled that Plaintiffs in the Nettles and Steele cases could proceed with their fraud allegations in the lower courts;court; all other claims were dismissed. On March 26, 2021, October 29, 2021, and February 3, 2022 (two motions), GTECH Corporation filed motions for summary judgment. One such motion was denied on February 25, 2022, while the other three remain pending. In April 2023, pursuant to court ordered mediation, the Company advanced confidential settlement negotiations regarding this matter, and a tentative settlement has been reached subject to certain conditions to be satisfied by Plaintiff’s counsel. We anticipate settling on a mutually confidential basis with all, or a significant majority of, plaintiffs for an amount which is not material to the Company’s results of operations, financial position, or cash flows and is expected to be paid with cash on hand. The NettlesCourt granted the Motion to Appoint Masters in Chancery on July 13, 2023 to oversee and assist the parties with the potential settlement process. Given the large number of plaintiffs, some plaintiffs may continue to pursue their case was dismissedand perhaps proceed to trial on December 16, 2020 after summary judgment was awarded in favor of IGT Global Solutions Corporation.their claims.
(c)(b)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.Court has ordered a trial to occur no later than autumn of 2024, subject to mediation efforts. A control status conference has been scheduled for March 5, 2024.
(d)(c)Wiggins, Mario & Kimberly v. IGT Global Solutions Corp., filed on September 15,7, 2016 in Travis County (No. D1GN16004344). Plaintiffs claim damages in excess of $1.0$1 million. This matter was consolidated with the Steele case.
(e)(d)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$1 million.
We dispute the claims made in each of these cases and continue to defend against these lawsuits.
The Company will continue to monitor these matters and may adjust its disclosure and accrual in accordance with its Process for Disclosure and Recording of Liabilities Related to Legal Proceedings as described in Note 2 - Summary of Significant Accounting Policies, herein.
Disposition of Previously Disclosed Matters
Illinois State LotteryAdrienne Benson and Mary Simonson, individually and on behalf of all others similarly situated v. Double Down Interactive LLC, et al.
On February 6, 2017,April 9, 2018, a plaintiff, Adrienne Benson, filed a putative class representatives of retailersaction against the Company’s wholly-owned subsidiary, International Game Technology, 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 GroupDouble Down Interactive LLC, a consortiumWashington limited liability company in which the Parent indirectly holds an 80% controlling interest. The claims included tortious interference with contract, violations of Illinois Consumer Fraud and Deceptive Practices Act, and unjust enrichment. The lawsuit was removed to the U.S.United States District Court for the SouthernWestern District of Illinois.Washington (the “Benson Matter”). On May 9,July 23, 2018, plaintiff filed a first amended complaint, adding named plaintiff Mary Simonson, and adding allegations to represent a putative class of all persons in the United States who purchased and allegedly lost virtual “chips” while playing games through an online gaming platform called Double Down Casino. On April 26, 2021, plaintiffs filed a second amended complaint naming IGT Global Solutions Corporation(“IGT U.S. Gaming OpCo”), a wholly-owned subsidiary of International Game Technology, as an additional defendant. Plaintiffs have asserted claims for alleged violations of Washington’s Recovery of Money Lost at Gambling Act, Washington’s Consumer Protection Act, and Scientific Games International, Inc. were addedfor unjust enrichment, and seeks unspecified money damages (including treble damages as defendants. The parties have settledappropriate), the case for an amount that is not material to the Company's consolidated financial statements,award of reasonable attorneys’ fees and the case was dismissed in September 2020.costs, pre- and post-judgment interest, and injunctive and/or declaratory relief.
International Game Technology acquired Double Down Interactive LLC (“DDI”) in 2012 and, effective June 1, 2017, sold DDI to DoubleU Diamond LLC (“DoubleU”) pursuant to a purchase agreement (the “Purchase Agreement”). At all times relevant, DDI was the sole operator of the Double Down Casino, and International Game Technology asserts, among other defenses, that it has no liability for the actions of a bona fide subsidiary.
On May 10, 2018, DDI and DoubleU sent a claim notice (the “DDI Claim Notice”) to International Game Technology seeking indemnification and reimbursement of defense costs for all claims against DoubleU and its affiliates (the “DoubleU Entities”) in
the Benson Matter, pursuant to the Purchase Agreement. On June 7, 2018, International Game Technology responded to the DDI Claim Notice, rejecting any obligation to indemnify or pay defense costs of the DoubleU Entities, and sent a claim notice to DoubleU for indemnification and reimbursement of defense costs for all claims against International Game Technology in the Benson Matter pursuant to the terms of certain agreements with DoubleU. 19.
On June 17, 2021, IGT U.S. Gaming OpCo sent a claim notice to DoubleU for indemnification and reimbursement of defense costs for all claims against IGT U.S. Gaming OpCo in the Benson Matter pursuant to the terms of certain agreements with DoubleU.
On August 29, 2022, the Company and DoubleDown Interactive Co., Ltd., parent company of DDI, announced an agreement in principle to settle the lawsuit and associated proceedings. Under the terms of the settlement, which would take effect only after final court approval of the proposed class settlement, a total of $415 million will be paid into a settlement fund, of which the Company’s subsidiaries will contribute $270 million and DDI will contribute $145 million. Subject to final court approval of the settlement in the Benson Matter, International Game Technology, IGT U.S. Gaming OpCo, and the DoubleU Entities have also resolved all indemnification and other claims between themselves and their respective subsidiaries and affiliates relating to the Benson Matter.
On November 14, 2022, the court granted preliminary approval of the settlement. As a result of the settlement agreement, the Company accrued $270 million of other non-operating expense, net for the year ended December 31, 2022, respectively, related to the loss associated with the Benson Matter and related claims between the Company and the DoubleU Entities. In November, 2022, the Company placed $50 million in escrow, resulting in $220 million recorded as DDI / Benson Matter provision as of December 31, 2022 in the Consolidated Balance Sheets. The cash flows relating to this payment are reported in operating activities in the Consolidated Statements of Cash Flows.
On June 1, 2023, the Court granted the Motion for Final Approval of Settlement and dismissed the case. The Company paid the $270 million agreed upon settlement amount (including the $50 million placed in escrow in November 2022) on June 13, 2023. In 2022, the Company realized a deferred tax benefit of $66 million (with no cash benefit). In 2023, the Company recognized a cash tax benefit of $36 million and will recognize the remaining cash tax benefit in future periods.
20. Shareholders’ Equity Shares Authorized and Outstanding The Board of Directors of the Parent (the “Board”) is authorized tomay issue shares of any class in the capital of the Parent. The authorizedordinary shares of the Parent consistupon shareholder approval. At the Parent’s 2023 annual general meeting, the shareholders authorized the issuance of 1.850 billionup to 133 million additional ordinary shares (of which 67 million can be issued in connection with an offer by way of rights issue), with a par value of $0.10 per share, par value.for a period expiring at the end of the 2024 annual general meeting, or, if sooner, on August 8, 2024, unless previously revoked, varied, or renewed.
Ordinary shares outstanding were as follows: | | | | | | | | | | | | | | | | | | | | | | | | December 31, | | | | 2020 | | 2019 | | 2018 | | Balance at beginning of year | | 204,435,333 | | | 204,210,731 | | | 203,446,572 | | | Shares issued under restricted stock plans | | 421,231 | | | 224,602 | | | 619,614 | | | Shares issued upon exercise of stock options | | 0 | | | 0 | | | 144,545 | | | Balance at end of year | | 204,856,564 | | | 204,435,333 | | | 204,210,731 | |
Repurchases of Ordinary Shares | | | | | | | | | | | | | | | | | | | | | | | | December 31, | | | | 2023 | | 2022 | | 2021 | | Balance at beginning of year | | 199,078,909 | | | 203,688,118 | | | 204,856,564 | | | Shares issued under stock awards | | 1,403,340 | | | 702,273 | | | 331,554 | | | Shares issued upon exercise of stock options | | — | | | 61,714 | | | — | | | Repurchases of common stock | | — | | | (5,373,196) | | | (1,500,000) | | | Balance at end of year | | 200,482,249 | | | 199,078,909 | | | 203,688,118 | |
The Parent has
Share Repurchase Program
On November 15, 2021, the Parent’s Board of Directors authorized a share repurchase program (the “Program”) pursuant to which the Company may repurchase up to $300 million of the Parent’s outstanding ordinary shares during a period of four years commencing on November 18, 2021. At the Parent’s 2023 annual general meeting, the Parent’s shareholders granted authority to repurchase, subject to a maximum repurchase price, a maximum of 20,474,483 ordinary sharesup to 19,968,394 of the Company.Parent’s ordinary shares. This authority remains valid until December 24, 2021,November 8, 2024, unless previously revoked, varied, or renewed at the 2021Parent’s 2024 annual general meeting.
The Parent did 0t repurchase any of itsrepurchases ordinary shares under the Program at the market price on the trade date and the Parent cancels repurchased ordinary shares or holds them in treasury. If the Parent holds repurchased ordinary shares in 2020, 2019,treasury, all amounts
paid to repurchase such shares have been recorded as treasury stock in our Consolidated Balance Sheets until they are reissued or 2018.retired. Under the Program, no shares were purchased in 2023. Repurchases of the Parent’s ordinary shares paid out of distributable reserves reduce the amount of distributable reserves available for the Parent to make distributions to its shareholders, including the payment of dividends which, under English law, may only be paid out of distributable reserves.
Dividends We declared a $0.20 cash dividend per share during the first quarter of 2020 andin all four quarters of 20192023, 2022, and 2018. Future dividends are subject to Board approval.the fourth quarter of 2021. The RCFTLF Agreement and TLFthe RCF Agreement limit the aggregate amount ofthat the Parent can pay with respect to dividends and repurchases of the Parent’s ordinary shares in each year to $300 million based on any two of the public debt ratings issued by Moody’sthe rating agencies. The TLF Agreement and S&P. As discussed in Note16 - Debt, in May 2020, the Company entered into amendments to these agreements which include terms that prohibit restricted payments, includingRCF Agreement prohibited dividends and repurchases of ordinary share repurchases, throughshares during the period commencing on April 1, 2020 and expiring on June 30, 2021.
Accumulated Other Comprehensive Income
The following table details the changes in AOCI: | | Unrealized Gain (Loss) on: | | AOCI | | ($ thousands) | | Foreign
Currency
Translation | | Hedges | | Other | | Total | | Attributable
to non-controlling
interests | | Attributable to IGT PLC | | Balance at December 31, 2017 | | 338,146 | | | (5,227) | | | 6,001 | | | 338,920 | | | 1,249 | | | 340,169 | | | Change during period | | (90,309) | | | (163) | | | (4,979) | | | (95,451) | | | 18,691 | | | (76,760) | | Reclassified to operations (1) | | (4,254) | | | 536 | | | 0 | | | (3,718) | | | 0 | | | (3,718) | | | Tax effect | | 3,779 | | | (1,904) | | | (29) | | | 1,846 | | | 0 | | | 1,846 | | | Other comprehensive (loss) income | | (90,784) | | | (1,531) | | | (5,008) | | | (97,323) | | | 18,691 | | | (78,632) | | | Balance at December 31, 2018 | | 247,362 | | | (6,758) | | | 993 | | | 241,597 | | | 19,940 | | | 261,537 | | | Change during period | | (18,172) | | | 237 | | | 2,877 | | | (15,058) | | | 15,906 | | | 848 | | Reclassified to operations (1) | | 1,623 | | | (2,183) | | | 0 | | | (560) | | | 0 | | | (560) | | | Tax effect | | 22 | | | 495 | | | 183 | | | 700 | | | 0 | | | 700 | | | Other comprehensive (loss) income | | (16,527) | | | (1,451) | | | 3,060 | | | (14,918) | | | 15,906 | | | 988 | | | Balance at December 31, 2019 | | 230,835 | | | (8,209) | | | 4,053 | | | 226,679 | | | 35,846 | | | 262,525 | | | | | | Unrealized Gain (Loss) on: | | | | | | Unrealized Gain (Loss) on: | | AOCI | | ($ in millions) | | ($ in millions) | | Foreign
Currency
Translation | | Hedges | | Other | | Total | | Attributable
to non-controlling
interests | | Attributable to IGT PLC | | Balance at December 31, 2020 | | | Change during period | Change during period | | 128,275 | | | (674) | | | (269) | | | 127,332 | | | (59,455) | | | 67,877 | | Reclassified to operations (1) | Reclassified to operations (1) | | (507) | | | (47) | | | 0 | | | (554) | | | 0 | | | (554) | | | Tax effect | Tax effect | | (217) | | | 184 | | | 0 | | | (33) | | | 0 | | | (33) | | | Other comprehensive income (loss) | Other comprehensive income (loss) | | 127,551 | | | (537) | | | (269) | | | 126,745 | | | (59,455) | | | 67,290 | | | Balance at December 31, 2020 | | 358,386 | | | (8,746) | | | 3,784 | | | 353,424 | | | (23,609) | | | 329,815 | | | Balance at December 31, 2021 | | | Change during period | | Reclassified to operations (1) | | | | Other comprehensive income (loss) | | | Other comprehensive income (loss) | | | Other comprehensive income (loss) | | | Balance at December 31, 2022 | | | Change during period | | Reclassified to operations (1) | | | Tax effect | | | Other comprehensive income (loss) | | | Balance at December 31, 2023 | |
(1) Foreign currency translation of approximately $19 million was reclassified into gain on sale of discontinued operations, net of tax on the Consolidated Statements of Operations for the year ended December 31, 2021. Other foreign currency translation adjustments related to liquidated subsidiaries were reclassified into foreign exchange (loss) gain,other non-operating expense, net on the consolidated statementsConsolidated Statements of operationsOperations for subsidiaries sold for the yearsyear ended December 31, 20202022 and 2019.foreign exchange loss (gain), net for subsidiaries liquidated for the year ended December 31, 2022. Unrealized gain (loss) on hedges were reclassified into service revenue inon the consolidated statementsConsolidated Statements of operationsOperations for the years ended December 31, 2020, 2019,2023, 2022, and 2018, respectively2021.
20.Variable Interest Entities
We hold ownership interests in the following variable interest entities (“VIEs”):
| | | | | | | | | Name of subsidiary | | % Ownership held
by the Company | Lottoitalia S.r.l. (“Lottoitalia”) | | 61.50 | % | Lotterie Nazionali S.r.l. (“LN”) | | 64.00 | % | Northstar New Jersey Lottery Group, LLC (“Northstar NJ”) (1)
| | 82.31 | % |
(1) Northstar New Jersey Holding Company LLC, of which we are a 50.15% shareholder, holds the 82.31% ownership in Northstar NJ
Lottoitalia holds a license to operate the Lotto game in Italy through November 2025. LN holds a license to operate the Scratch & Win instant lottery game in Italy through September 2028. Northstar NJ manages a wide range of the lottery’s day-to-day operations in the State of New Jersey, as well as provides marketing and sales services under a license valid through June 2029.
We are the principal operating partner fulfilling the requirements under the licenses held by the VIEs. As such, we have the power to direct the activities that significantly affect the VIEs’ economic performance, along with the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIEs. As a result, we concluded we are the primary beneficiary of the VIEs and they have been consolidated. Accordingly, the balance sheet and operating activity of the VIEs are included in our consolidated financial statements and we adjust the net income (loss) in our consolidated statement of operations to exclude the non-controlling interests’ proportionate share of results. We present the proportionate share of non-controlling interests as equity in the consolidated balance sheets.
The carrying amounts and classification of these VIEs’ assets and liabilities in our consolidated balance sheets at December 31, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | Current assets | | 1,087,002 | | | 842,893 | | | Non-current assets | | 1,556,072 | | | 1,652,641 | | | Total assets | | 2,643,074 | | | 2,495,534 | | | | | | | | Total liabilities | | 707,530 | | | 498,681 | |
21.Segment Information On July 1, 2020, we adopted a new organizational structure focused on 2 business segments: Global Lottery and Global Gaming, along with a streamlined corporate support function. During the third quarter of 2020, our chief operating decision maker requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. This resulted in a change in our operating segments and reporting units. As a result, beginning in the third quarter of 2020, we report our financial performance based on our July 1, 2020 new business segments, and analyze revenue and operating income as measures of segment profitability. We have recast our historically presented comparative segment information to conform to the way we internally manage and monitor segment performance.
The Global Lottery segment has full responsibility for the worldwide traditional lottery and iLottery business, including sales, operations, product development, technology, and support. The Global Gaming segment has full responsibility for the worldwide gaming business, including iGaming, sports betting, sales, product management, studios, global manufacturing, operations, and technology.
Our 2 business segments are supported by central corporate support functions, including a business and strategic initiatives function, finance, people and transformation, legal, marketing and communications, corporate public affairs, and strategy and corporate development. Certain support costs that are identifiable and that benefit our business segments are allocated to them. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Corporate support function expenses that are not allocated to the business segments, which are principally composed of selling, general and administrative expenses, are reported as Corporate and Other expenses, along with goodwill impairment and the depreciation and amortization of acquired tangible and intangible assets in connection with acquired companies.
Through our 2 business segments, we operate and provide an integrated portfolio of innovative gaming technology products and services including online and instant lottery systems, gaming systems, instant ticket printing, electronic gaming machines, iLottery, sports betting, iGaming, commercial services, and lottery management services.
Global Lottery
Our Global Lottery segment provides lottery products and services primarily to governmental organizations through operating contracts, facilities management contracts (“FMCs”), lottery management agreements (“LMAs”), and product sales contracts.
As part of our lottery product and services, we provide instant and draw-based lottery products, point-of-sale machines, central processing systems, software, commercial services, instant ticket printing services, and other related equipment and support services.
We categorize revenue from operating contracts, FMCs, and LMAs as “Operating and facilities management contracts” and revenue from commercial services, software hosting, software maintenance, and other services not included within operating contracts, FMCs, or LMAs as service revenue from “Systems, software, and other”. Revenue included within “Operating and facilities management contracts” include all services required by the contract, including iLottery and instant ticket printing.
We categorize sales or sales-type leases of lottery terminals, lottery systems, software licenses, and instant tickets not part of “Operating and facilities management contracts” as product sales from “Lottery products”.
Global Gaming
Our Global Gaming segment provides gaming products and services including software and game content, casino gaming management systems, video lottery terminals (“VLTs”), amusement with prize machines (“AWPs”), VLT central systems, sports betting, iGaming, and other related equipment and support services to commercial and tribal casino operators.
We categorize revenue from Wide Area Progressive services, and operating leases for VLTs, AWPs, and other gaming machines as service revenue from “Gaming terminal services.” We categorize revenue from iGaming services, sports betting, software intellectual property licenses, and systems as service revenue from “Systems, software, and other”.
Revenue from the sale or sales-type lease of gaming machines, systems, component parts, and other miscellaneous equipment and services are categorized as product sales from “Gaming terminals” and revenue from systems, software, casino gaming management systems, game content, iGaming products, and spare parts as product sales from “Gaming other”.
Segment information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2020 | | ($ thousands) | | Global Lottery | | Global Gaming | | Business Segment Total | | Corporate and Other | | Total IGT PLC | | Service revenue | | 2,042,652 | | | 596,906 | | | 2,639,558 | | | 0 | | | 2,639,558 | | | Product sales | | 121,346 | | | 354,552 | | | 475,898 | | | 0 | | | 475,898 | | | Total revenue | | 2,163,998 | | | 951,458 | | | 3,115,456 | | | 0 | | | 3,115,456 | | | | | | | | | | | | | | Operating income (loss) | | 641,930 | | | (205,657) | | | 436,273 | | | (543,738) | | | (107,465) | | | Depreciation and amortization | | 235,767 | | | 155,758 | | | 391,525 | | | 174,669 | | | 566,194 | | | Expenditures for long-lived assets | | (148,679) | | | (74,877) | | | (223,556) | | | (2,190) | | | (225,746) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2019 | | ($ thousands) | | Global Lottery | | Global Gaming | | Business Segment Total | | Corporate and Other | | Total IGT PLC | | Service revenue | | 2,182,961 | | | 917,907 | | | 3,100,868 | | | 0 | | | 3,100,868 | | | Product sales | | 109,884 | | | 821,005 | | | 930,889 | | | 0 | | | 930,889 | | | Total revenue | | 2,292,845 | | | 1,738,912 | | | 4,031,757 | | | 0 | | | 4,031,757 | | | | | | | | | | | | | | Operating income (loss) | | 697,267 | | | 179,548 | | | 876,815 | | | (398,899) | | | 477,916 | | | Depreciation and amortization | | 228,972 | | | 187,061 | | | 416,033 | | | 197,910 | | | 613,943 | | | Expenditures for long-lived assets | | (167,349) | | | (166,932) | | | (334,281) | | | (8,216) | | | (342,497) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2018 | | ($ thousands) | | Global Lottery | | Global Gaming | | Business Segment Total | | Corporate and Other | | Total IGT PLC | | Service revenue | | 2,234,801 | | | 961,129 | | | 3,195,930 | | | 0 | | | 3,195,930 | | | Product sales | | 126,889 | | | 658,053 | | | 784,942 | | | 0 | | | 784,942 | | | Total revenue | | 2,361,690 | | | 1,619,182 | | | 3,980,872 | | | 0 | | | 3,980,872 | | | | | | | | | | | | | | Operating income (loss) | | 763,799 | | | 143,340 | | | 907,139 | | | (433,542) | | | 473,597 | | | Depreciation and amortization | | 223,126 | | | 171,378 | | | 394,504 | | | 212,989 | | | 607,493 | | | Expenditures for long-lived assets | | (202,412) | | | (229,182) | | | (431,594) | | | (9,450) | | | (441,044) | |
Geographical Information
Revenue from external customers, which is based on the geographical location of our customers, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | United States | | 1,666,241 | | | 2,115,791 | | | 2,063,477 | | | Italy | | 895,942 | | | 989,796 | | | 973,621 | | | United Kingdom | | 63,874 | | | 73,541 | | | 58,681 | | | Rest of Europe | | 209,080 | | | 322,654 | | | 313,779 | | | All other | | 280,319 | | | 529,975 | | | 571,314 | | | Total | | 3,115,456 | | | 4,031,757 | | | 3,980,872 | |
Revenue from one customer in the Global Lottery segment represented approximately 19%, 16%, and 16% of consolidated revenue in 2020, 2019, and 2018, respectively.
Long-lived assets, which are comprised of Systems & Equipment and PPE, are based on the geographical location of the assets as follows:
| | | | | | | | | | | | | | | | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | United States | | 841,439 | | | 928,857 | | | Italy | | 176,341 | | | 187,169 | | | United Kingdom | | 13,871 | | | 17,687 | | | Rest of Europe | | 90,646 | | | 102,874 | | | All other | | 77,426 | | | 115,060 | | | Total | | 1,199,723 | | | 1,351,647 | |
22. Stock-Based Compensation
Incentive Awards Stock-based incentive awards are provided to directors and employees under the terms of our 2015 and 2021 Equity Incentive Plan (the “Plan”Plans (collectively, the “Plans”) as administered by the Board. Awards available under the PlanPlans principally include stock options, performance share units, restricted share units or any combination thereof. The maximum number of new shares that may be granted under the PlanPlans is 11.520 million shares. To the extent any award is forfeited, expires, lapses, or is settled for cash, the award is available for reissue under the Plan.Plans. We utilize authorized and unissued shares to satisfy all shares issued under the Plan.Plans. Stock Options Stock options are awards that allow the employee to purchase shares of our stock at a fixed price. Stock options are granted
under the PlanPlans at an exercise price not less than the fair market value of a share on the date of grant. In 2018,2021, stock options were granted solely to our former Chief Executive Officer, which will vest in 20212024 subject to certain performance and other criteria, and have a contractual term of approximately sixseven years. NaNNo stock options were granted in 20202023 or 2019.2022. Stock Awards Stock awards are principally made in the form of performance share units (“PSUs”) and restricted share units (“RSUs”).
PSUs are stock awards where the number of shares ultimately received by the employee depends on the Company’s performance against specified targets, which may include Adjusted EBITDA, Adjusted Net Debt andFree Cash Flow, Total Shareholder Return (“TSR”) relative to the Russell Mid Cap Market Index.Index, or share price. PSUs typically vest 50% over an approximate three-yearthree-year period and 50% over an approximate four-yearfour-year period (i.e. four years to vest both tranches). In 2021, a second round of PSUs was granted in lieu of there being no 2020 PSUs that vest 50% over an approximate two-year period and 50% over an approximate three-year period. Dividend equivalents are not paid under the Plan.Plans. The fair value of each PSU is determined on the grant date or modification date, based on the Company’s stock price, adjusted for the exclusion of dividend equivalents, and assumes that performance targets will be achieved. Over the performance period, the number of shares of stock that will be issued is adjusted based upon the probability of achievement of performance targets. The ultimate number of shares issued and the related compensation cost recognized as expense is based on a comparison of the final performance metrics to the specified targets. In 2020, 0 PSUs were granted.
RSUs are stock awards granted to directors that entitle the holder to shares of common stock as the award vests, typically over a one-year period, and have a contractual term of 10 years.vests. Dividend equivalents are not paid under the Plan.Plans. In 2020, RSUs were also granted to employees, which will vestvested in approximately one- and two-yeartwo-year vesting periods.
Stock Option Activity A summary of our stock option activity and related information is as follows: | | | | | | | Weighted-Average | | | | | | | Weighted-Average | | | | (Shares in thousands) | | (Shares in thousands) | | Stock
Options | | Exercise Price Per Share ($) | | Remaining Contractual Term (in years) | | Aggregate Intrinsic Value ($ in millions) | | Outstanding at January 1, 2023 | | Outstanding at January 1, 2023 | | 173 | | | 20.37 | | | | | Granted | | | Forfeited | | | Forfeited | | | Forfeited | | | Exercised | | | Exercised | | | Exercised | | | — | | | — | | | | | | Stock
Options | | Exercise Price Per Share ($) | | Remaining Contractual Term (in years) | | Aggregate Intrinsic Value ($ thousands) | | Outstanding at January 1, 2020 | | 1,140,566 | | | 20.73 | | | | | | | Granted | | 0 | | | 0 | | | | Exercised | | 0 | | | 0 | | | | | | | Expired | | (718,066) | | | 20.29 | | | | | | | Outstanding at December 31, 2020 | | 422,500 | | | 21.49 | | | 2.19 | | | | | At December 31, 2020: | | | | | | | | | | Outstanding at December 31, 2023 | | | Outstanding at December 31, 2023 | | | Outstanding at December 31, 2023 | | | 173 | | | 20.37 | | | 4.36 | | | | At December 31, 2023: | | At December 31, 2023: | | | | | | Vested and expected to vest | Vested and expected to vest | | 250,000 | | | 15.53 | | | 1.37 | | 352 | | | Exercisable | Exercisable | | 250,000 | | | 15.53 | | | 1.37 | | 352 | |
NaNNo stock options were exercised in 20202023 and 2019.2021. The total intrinsic value of stock options exercised was $3 million in 2018 was $6.0 million.2022. There were 0no cash proceeds from stock options exercised in 2018.2022 due to net share settlement.
Fair Value of Stock Options Granted We estimate the fair value of stock options at the date of grant using a valuation model that incorporates key inputs and assumptions as detailed in the table below. The weighted-average grant date fair value of stock options granted during 20182021 was $6.84$9.82 per share. | | | | | | | | | | | | 20182021 | | Valuation model | | Monte Carlo | | Exercise price ($) | | 30.1220.37 | | | Expected option term (in years) | | 2.832.00 | | Expected volatility of the Company’s stock (%) | | 35.0060.00 | | | Risk-free interest rate (%) | | 2.730.80 | | | Dividend yield (%) | | 2.66— | |
The expected volatility assumes the historical volatility is indicative of future trends, which may not be the actual outcome. The expected option term is based on historical data and is not necessarily indicative of exercise patterns that may occur. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of our original estimates of fair value.
Stock Award Activity A summary of our stock award activity and related information is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSUs | | Weighted- Average Grant Date Fair Value ($) | | RSUs | | Weighted- Average Grant Date Fair Value ($) | | Nonvested at January 1, 2020 | | 5,060,951 | | | 19.41 | | | 130,009 | | | 14.07 | | | Granted | | 0 | | | 0 | | | 2,375,141 | | | 9.04 | | | Vested | | (474,399) | | | 24.07 | | | (136,161) | | | 13.64 | | | Forfeited | | (1,229,586) | | | 20.16 | | | (2,606) | | | 9.08 | | | Nonvested at December 31, 2020 | | 3,356,966 | | | 18.40 | | | 2,366,383 | | | 9.05 | | | | | | | | | | | | At December 31, 2020: | | | | | | | | | | Unrecognized cost for nonvested awards ($ thousands) | | 1,052 | | | | | 17,827 | | | | | Weighted-average future recognition period (in years) | | 0.27 | | | | 1.93 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | (Shares in thousands) | | PSUs(1) | | Weighted- Average Grant Date Fair Value ($) | | RSUs | | Weighted- Average Grant Date Fair Value ($) | | Nonvested at January 1, 2023 | | 5,281 | | | 25.85 | | | 91 | | | 20.07 | | Granted(2) | | 1,925 | | | 27.94 | | | 68 | | | 26.96 | | | Vested | | (1,229) | | | 26.50 | | | (91) | | | 20.07 | | | Forfeited | | (183) | | | 26.00 | | | — | | | — | | | Nonvested at December 31, 2023 | | 5,794 | | | 26.37 | | | 68 | | | 26.96 | | | | | | | | | | | | At December 31, 2023: | | | | | | | | | | Unrecognized cost for nonvested awards ($ in millions) | | 33 | | | | | — | | | | | Weighted-average future recognition period (in years) | | 1.55 | | | | 0.37 | | |
(1) Unless otherwise noted, the number of PSUs granted are based on the target number of shares. Based on specified targets, actual performance may result in additional shares vesting, up to a maximum 145% payout achievement. (2) Includes 517 thousand PSUs for vestings above the target thresholds. These PSUs were granted in prior years and either vested in 2023 or will vest in 2024 upon achievement of normal service requirements.
The total vest-date fair value of PSUs vested was $2.7 million, $3.7$36 million and $24.6$3 million in 2020, 2019,2023 and 2018, respectively.2021. No PSUs vested in 2022. The total vest-date fair value of RSUs vested was $1.2$2 million, $0.9$23 million, and $3.4$33 million for 2020, 2019,2023, 2022, and 2018,2021, respectively. Fair Value of Stock Awards Granted We estimated the fair value of PSUs at the date of grant using a Monte Carlo simulation valuation model, as the awards include a market condition. The market condition is based on the Company’s TSR relative to the Russell Midcap Market Index. During 2020, 2019,2023, 2022, and 2018,2021, we estimated the fair value of RSUs at the date of grant based on our stock price. Details of the grants are as follows: | | | | | | | | | | | | | | | | | | | | | | | | 2020 | | 2019 | | 2018 | | PSUs granted during the year | | 0 | | | 2,133,512 | | | 1,564,083 | | | Weighted-average grant date fair value ($) | | 0 | | | 11.10 | | | 28.93 | | | | | | | | | | RSUs granted during the year | | 2,375,141 | | | 131,676 | | | 68,142 | | | Weighted-average grant date fair value ($) | | 9.04 | | | 14.10 | | | 30.23 | |
Modifications
2018
During the first quarter of 2018, we modified the measurement of a performance condition for the outstanding PSUs granted in 2015, as the original vesting conditions were not expected to be satisfied. The modification affected 301 employees and resulted in $13.2 million of compensation cost for the year ended December 31, 2018.
During the third quarter of 2018, we modified the measurement of a performance condition for the outstanding PSUs granted in 2016 and 2017, in order to better align the performance conditions with the PSUs granted in 2018. The modification affected 473 employees and resulted in $10.6 million of compensation cost for the year ended December 31, 2018. | | | | | | | | | | | | | | | | | | | | | | (Shares in thousands) | | 2023 | | 2022 | | 2021 | | PSUs granted during the year | | 1,408 | | | 1,715 | | | 3,740 | | | Weighted-average grant date fair value ($) | | 28.39 | | | 25.37 | | | 26.10 | | | | | | | | | | RSUs granted during the year | | 68 | | | 95 | | | 80 | | | Weighted-average grant date fair value ($) | | 26.96 | | | 20.46 | | | 22.29 | |
Stock-Based Compensation Expense Total compensation cost (recovery) for our stock-based compensation plans is recorded based on the employees’ respective functions as detailed below. | | | | | For the year ended December 31, | | | For the year ended December 31, | | ($ thousands) | | 2020 | | 2019 | | 2018 | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | 2021 | | Cost of services | Cost of services | | (1,137) | | | 2,131 | | | 1,923 | | | Cost of product sales | | (282) | | | 430 | | | 445 | | | | Selling, general and administrative | | | Selling, general and administrative | | | Selling, general and administrative | Selling, general and administrative | | (4,162) | | | 21,409 | | | 27,702 | | | Research and development | Research and development | | (1,296) | | | 2,544 | | | 3,016 | | | Stock-based compensation expense before income taxes | Stock-based compensation expense before income taxes | | (6,877) | | | 26,514 | | | 33,086 | | | Income tax (provision) benefit | | (1,856) | | | 6,119 | | | 7,562 | | | Income tax benefit | | | Total stock-based compensation, net of tax | Total stock-based compensation, net of tax | | (5,021) | | | 20,395 | | | 25,524 | |
The current year recovery results from the reversal of prior year expense due to certain PSUs that are no longer forecasted to be achieved.PlayDigital Synthetic Equity Award Program
In 2021, the Company established a synthetic equity award program (the “PlayDigital Equity Award Program”) designed to align the incentives of certain employees of the Company’s PlayDigital segment with the growth in the valuation of such business. The amount of compensation paid to an employee will depend on the valuation of the PlayDigital segment on each applicable vesting date and requires the employee’s continued service through each vesting date. 23.
Awards under the PlayDigital Equity Award Program vest in three tranches, with certain specified percentages (the “Tranche Percentages”) of the award scheduled to vest three, four, and five years after the grant date. The first vesting date is subject to acceleration in the event of a separate public listing of the PlayDigital business, while the remaining two vesting dates shall not be affected.
PlayDigital synthetic equity awards provide that on each applicable vesting date, the employee shall be entitled to an amount (payable in a combination of equity and cash) equal to a certain percentage (the “Synthetic SAR Percentage”) of the appreciation, if any, in the valuation of the PlayDigital business at each vesting date over the contractually agreed initial valuation. Additionally, the employee shall be entitled to an amount (payable in a combination of equity and cash) equal to a certain percentage (the “Synthetic RSU Percentage”) of the valuation of the PlayDigital business as of each vesting date.
At December 31, 2023, $2 million of estimated unrecognized compensation expense attributable to PlayDigital synthetic equity awards will be recognized as compensation expense over a weighted average period of 2.5 years.
22. Earnings Per Share The following table presents the computation of basic and diluted lossincome (loss) per share of common stock:
| | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | ($ and shares in thousands, except per share amounts) | | 2020 | | 2019 | | 2018 | | Numerator: | | | | | | | | Net loss from continuing operations attributable to IGT PLC | | (939,331) | | | (128,894) | | | (139,380) | | | Net income from discontinued operations attributable to IGT PLC | | 41,441 | | | 109,869 | | | 118,030 | | | Net loss attributable to IGT PLC | | (897,890) | | | (19,025) | | | (21,350) | | | | | | | | | | Denominator: | | | | | | | | Weighted-average shares - basic and diluted | | 204,725 | | | 204,373 | | | 204,083 | | | | | | | | | | Net loss from continuing operations attributable to IGT PLC per common share - basic and diluted | | (4.59) | | | (0.63) | | | (0.68) | | | Net income from discontinued operations attributable to IGT PLC per common share - basic and diluted | | 0.20 | | | 0.54 | | | 0.58 | | | | | | | | | | Net loss attributable to IGT PLC per common share - basic and diluted | | (4.39) | | | (0.09) | | | (0.10) | |
| | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | ($ and shares in millions, except per share amounts) | | 2023 | | 2022 | | 2021 | | Numerator: | | | | | | | | Net income from continuing operations attributable to IGT PLC | | 156 | | | 275 | | | 65 | | | Net income from discontinued operations attributable to IGT PLC | | — | | | — | | | 417 | | | Net income attributable to IGT PLC | | 156 | | | 275 | | | 482 | | | | | | | | | | Denominator: | | | | | | | | Weighted-average shares - basic | | 200 | | | 202 | | | 205 | | | Incremental shares under stock based compensation plans | | 3 | | | 2 | | | 2 | | | Weighted-average shares - diluted | | 203 | | | 203 | | | 207 | | | | | | | | | | Net income from continuing operations attributable to IGT PLC per common share - basic | | 0.78 | | | 1.36 | | | 0.32 | | | Net income from continuing operations attributable to IGT PLC per common share - diluted | | 0.77 | | | 1.35 | | | 0.31 | | | Net income from discontinued operations attributable to IGT PLC per common share - basic | | — | | | — | | | 2.03 | | | Net income from discontinued operations attributable to IGT PLC per common share - diluted | | — | | | — | | | 2.02 | | | Net income attributable to IGT PLC per common share - basic | | 0.78 | | | 1.36 | | | 2.35 | | | Net income attributable to IGT PLC per common share - diluted | | 0.77 | | | 1.35 | | | 2.33 | |
Certain stock options to purchase common shares were outstanding, but 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 full year, and therefore, the effect would have been antidilutive.
During years when we are in a net loss position, certain outstanding stock options and unvested restricted stock awards are excluded from the computation of diluted earnings per share because including them would have had an antidilutive effect.
For the years ended December 31, 2020, 2019,2023 and 2018,December 31, 2022, there were nominal stock options and unvested restricted stock awards totaling 0.7 million shares 1.2 million shares, and 1.6 million shares, respectively, were excluded from the computation of diluted earnings per share because including them would have had an antidilutive effect. There were no shares that would have had an antidilutive effect for the year ended December 31, 2021.
23.Variable Interest Entities
We hold ownership interests in and consolidate the following variable interest entities (“VIEs”): | | | | | | | | | | | | | Name of subsidiary | | | % Ownership held by the Company | | Lottoitalia S.r.l. (“Lottoitalia”) | | | 61.50 | % | | Lotterie Nazionali S.r.l. (“LN”) | | | 64.00 | % | Northstar New Jersey Lottery Group, LLC (“Northstar NJ”) (1) | | | 76.64 | % | | Rhode Island VLT Company LLC (“RI VLT”) | | | 60.00 | % |
(1) Northstar New Jersey Holding Company LLC, of which we are a 71.12% shareholder, holds the 76.64% ownership in Northstar NJ.
Lottoitalia holds a license to operate the Lotto game in Italy through November 2025. LN holds a license to operate the Scratch & Win instant lottery game in Italy through September 2028. Northstar NJ manages a wide range of the lottery’s day-to-day operations in the State of New Jersey, as well as provides marketing and sales services under a license valid through June 2029. RI VLT manages VLT operations and holds the exclusive technology provider license in the State of Rhode Island through June 2043.
We are the principal operating partner fulfilling the requirements under the licenses held by the VIEs. As such, we have the power to direct the activities that significantly affect the VIEs’ economic performance, along with the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIEs. As a result, we concluded we are the primary beneficiary of the VIEs and they have been consolidated. Accordingly, the balance sheet and operating activity of the VIEs are
included in our Consolidated Financial Statements and we adjust the net income in our Consolidated Statements of Operations to exclude the non-controlling interests’ proportionate share of results. We present the proportionate share of non-controlling interests as equity in the Consolidated Balance Sheets.
The carrying amounts and classification of these VIEs’ assets and liabilities in our Consolidated Balance Sheets at December 31, 2023 and 2022 are as follows: | | | | | | | | | | | | | | | | | December 31, | | ($ in millions) | | 2023 | | 2022 | | Current assets | | 1,220 | | | 941 | | | Non-current assets | | 800 | | | 936 | | | Total assets | | 2,020 | | | 1,877 | | | | | | | | Total liabilities | | 732 | | | 521 | |
The balances presented above are net of intercompany balances and transactions that are eliminated in our Consolidated Financial Statements. Additionally, IGT holds a 50.00% ownership interest in a consortium, Mineria da Sorte Loteria SPE LTDA (“Brazil Lottery”), formed in June 2023 which holds an exclusive 20-year license to operate instants and passive lottery in the State of Minas Gerais, Brazil. We determined that the consortium is a VIE, but we are not the primary beneficiary of the VIE. Therefore, as of December 31, 2023 the joint venture was unconsolidated and accounted for under the equity method.
24.Segment Information
We report our financial performance based on three business segments: Global Lottery, Global Gaming, and PlayDigital, and analyze revenue by segment as well as operating income as the measure of segment profitability.
Through our three business segments, we operate and provide an integrated portfolio of innovative gaming technology products and services including online and instant lottery systems, iLottery, instant ticket printing, lottery management services, gaming systems, electronic gaming machines, iGaming, and sports betting.
The Global Lottery segment has full responsibility for the worldwide traditional lottery and iLottery business, including sales, operations, product development, technology, and support. The Global Gaming segment has full responsibility for the worldwide land-based gaming business, including sales, product management, studios, global manufacturing, operations, and technology. The PlayDigital segment has full responsibility for the worldwide iGaming and sports betting business, including sales, operations, studios, technology, and support.
Our three business segments are supported by central corporate support functions, including finance, people and transformation, legal, marketing and communications, corporate public affairs, and strategy and corporate development. Certain support costs that are identifiable and that benefit our business segments are allocated to them. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Corporate support function expenses that are not allocated to the business segments, which are principally composed of selling, general and administrative expenses, are reported as Corporate and Other expenses, along with goodwill impairment and the depreciation and amortization of acquired tangible and intangible assets in connection with acquired companies. Segment assets are not reported to, or used by, the chief operating decision maker to allocate resources to, or assess performance of, the segments and therefore, total segment assets have not been disclosed.
Global Lottery
Our Global Lottery segment provides lottery products and services primarily to governmental organizations through operating contracts, FMCs, LMAs, and product sales contracts.
As part of our lottery product and services, we provide instant and draw-based lottery products, point-of-sale machines, central processing systems, software, commercial services, instant ticket printing services, and other related equipment and support services.
We categorize revenue from operating contracts, FMCs, and LMAs as “Operating and facilities management contracts” and revenue from commercial services, software hosting, software maintenance, and other services not included within operating
contracts, FMCs, or LMAs as service revenue from “Systems, software, and other”. Revenue included within “Operating and facilities management contracts” include all services required by the contract, including iLottery and instant ticket printing.
We categorize sales or sales-type leases of lottery terminals, lottery systems, fixed-fee software licenses, and instant tickets not part of “Operating and facilities management contracts” as product sales from “Lottery products”.
Global Gaming
Our Global Gaming segment provides gaming products and services including software and game content, casino gaming management systems, video lottery terminals (“VLTs”), VLT central systems, and other related equipment and support services to commercial and tribal casino operators.
We categorize revenue from WAP services, and operating leases for VLTs and other gaming machines as service revenue from “Gaming terminal services”. We categorize sales or usage-based royalties promised in exchange for software intellectual property licenses, and systems as service revenue from “Systems, software, and other”.
Revenue from the sale or sales-type lease of gaming machines, systems, component parts, and other miscellaneous equipment and services are categorized as product sales from “Gaming terminals” and revenue from systems, fixed-fee software licenses, casino gaming management systems, game content, and spare parts as product sales from “Other”.
PlayDigital
Our PlayDigital segment provides iGaming systems and digital platforms offering customers a remote game server solution, which is a fast gateway to extensive casino content, and digital gaming services that enhance player experiences and create marketing opportunities around either the Company’s games or third-party games via our aggregation capabilities. The segment also provides sports betting technology and services to commercial and tribal operators and lotteries in regulated markets, primarily in the U.S. We categorize revenue from iGaming and sports betting as service revenue from “PlayDigital services”.
Segment information is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2023 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Business Segments Total | | Corporate and Other | | Total IGT PLC | | Service revenue | | 2,359 | | | 762 | | | 227 | | | 3,347 | | | — | | | 3,347 | | | Product sales | | 171 | | | 791 | | | 1 | | | 963 | | | — | | | 963 | | | Total revenue | | 2,530 | | | 1,552 | | | 228 | | | 4,310 | | | — | | | 4,310 | | | | | | | | | | | | | | | | Operating income (loss) | | 913 | | | 313 | | | 65 | | | 1,291 | | | (290) | | | 1,001 | | | Depreciation and amortization | | 192 | | | 163 | | | 12 | | | 367 | | | 156 | | | 523 | | | Expenditures for long-lived assets | | (124) | | | (188) | | | (4) | | | (317) | | | (8) | | | (324) | |
(1) Depreciation and amortization excludes amortization of upfront license fees of $200 million. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2022 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Business Segments Total | | Corporate and Other | | Total IGT PLC | | Service revenue | | 2,436 | | | 714 | | | 209 | | | 3,359 | | | — | | | 3,359 | | | Product sales | | 157 | | | 709 | | | 1 | | | 866 | | | — | | | 866 | | | Total revenue | | 2,593 | | | 1,423 | | | 209 | | | 4,225 | | | — | | | 4,225 | | | | | | | | | | | | | | | | Operating income (loss) | | 909 | | | 242 | | | 50 | | | 1,201 | | | (279) | | | 922 | | | Depreciation and amortization | | 196 | | | 119 | | | 17 | | | 333 | | | 160 | | | 492 | | | Expenditures for long-lived assets | | (141) | | | (140) | | | (6) | | | (287) | | | (6) | | | (293) | |
(1) Depreciation and amortization excludes amortization of upfront license fees of $193 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2021 | | ($ in millions) | | Global Lottery | | Global Gaming | | PlayDigital | | Business Segments Total | | Corporate and Other | | Total IGT PLC | | Service revenue | | 2,690 | | | 630 | | | 163 | | | 3,483 | | | — | | | 3,483 | | | Product sales | | 123 | | | 482 | | | 1 | | | 606 | | | — | | | 606 | | | Total revenue | | 2,812 | | | 1,112 | | | 165 | | | 4,089 | | | — | | | 4,089 | | | | | | | | | | | | | | | | Operating income (loss) | | 1,088 | | | 43 | | | 33 | | | 1,164 | | | (262) | | | 902 | | | Depreciation and amortization | | 225 | | | 126 | | | 15 | | | 366 | | | 160 | | | 526 | | | Expenditures for long-lived assets | | (123) | | | (67) | | | (13) | | | (203) | | | (6) | | | (208) | |
(1) Depreciation and amortization excludes amortization of upfront license fees of $216 million.
Geographical Information Revenue from external customers, which is based on the geographical location of our customers, is as follows: | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, | | ($ in millions) | | 2023 | | 2022 | | 2021 | | United States | | 2,480 | | | 2,355 | | | 2,126 | | | Canada | | 228 | | | 199 | | | 120 | | | Italy | | 952 | | | 1,062 | | | 1,307 | | | United Kingdom | | 68 | | | 67 | | | 72 | | | Rest of Europe | | 273 | | | 254 | | | 217 | | | All other | | 309 | | | 289 | | | 247 | | | Total | | 4,310 | | | 4,225 | | | 4,089 | |
Revenue from one customer in the Global Lottery segment represented approximately 20%, 18%, and 23% of consolidated revenue in 2023, 2022, and 2021, respectively.
Long-lived assets, which are comprised of Systems & Equipment and PPE, are based on the geographical location of the assets as follows: | | | | | | | | | | | | | | | | | | December 31, | | ($ in millions) | | 2023 | | 2022 | | United States | | 793 | | | 775 | | | Canada | | 21 | | | 15 | | | Italy | | 70 | | | 79 | | | United Kingdom | | 2 | | | 6 | | | Rest of Europe | | 96 | | | 92 | | | All other | | 65 | | | 48 | | | Total | | 1,047 | | | 1,016 | |
25. Related Party Transactions
We engage in business transactions with certain related parties which include (i) De Agostini S.p.A. (“De Agostini”) or entities directly or indirectly controlled by De Agostini, (ii) other entities and individuals capable of exercising control, joint control, or significant influence over us, and (iii) our unconsolidated subsidiaries or joint ventures. Members of the Board, executives with authority for planning, directing, and controlling the activities of the Company and such Directors’ and executives’ close family members are also considered related parties. We may make investments in such entities, enter into transactions with such entities, or both.
De Agostini Group
We are majority-owned by De Agostini. Agostini has a controlling interest in IGT. As of December 31, 2023, De Agostini had an economic interest of approximately 42.6% (excluding treasury shares) and, due to its election to exercise the special voting shares associated with its
ordinary shares pursuant to the Loyalty Plan, a voting interest of approximately 59.7% of the total voting rights (excluding treasury shares).
Amounts receivable from De Agostini and subsidiaries of De Agostini (the(collectively, the “De Agostini Group”) are non-interest bearing. Transactions with the De Agostini Group include payments for support services provided and office space rented pursuant to a lease entered into prior to the formation of the Company. In addition, certain of our Italian subsidiaries havehad a corporate income tax unit agreement, and in some cases, a value-added taxGroup VAT agreement, with De Agostini, both of which terminated in 2022, pursuant to which De Agostini consolidatesconsolidated certain Italian subsidiaries of De Agostini for the collection and payment of taxes to the Italian tax authority.
Related party transactions withamounts due to or from the De Agostini Group are as follows: | | | | | December 31, | | | December 31, | | ($ thousands) | | 2020 | | 2019 | | ($ in millions) | | ($ in millions) | | 2023 | | 2022 | | Trade receivables | Trade receivables | | 0 | | | 2 | | | Tax-related receivables | Tax-related receivables | | 0 | | | 2,031 | | | Trade payables | Trade payables | | 5,096 | | | 3,180 | | | Tax-related payables | Tax-related payables | | 18,706 | | | 17,004 | |
PlayDigital Synthetic Equity Award Program
On March 9, 2022, Enrico Drago, Chief Executive Officer, PlayDigital, an immediate family member of Marco Drago, a member of the Parent’s board of directors, was granted a synthetic equity award pursuant to the PlayDigital Equity Award Program with Tranche Percentages of 35%, 25%, and 40%, a Synthetic SAR Percentage of 1.275%, and a Synthetic RSU Percentage of 0.225%. At December 31, 2023, $1 million of estimated unrecognized compensation expense attributable to the synthetic equity award granted to Mr. Drago will be recognized as compensation expense over a weighted average period of 2.6 years.
Unconsolidated Subsidiaries, Partnerships and Joint Ventures
From time to time, we make strategic investments in publicly traded and privately held companies that develop software, hardware, and other technologies or provide services supporting its technologies. We may also purchase from or make sales to these organizations.
Ringmaster S.r.l. (“Ringmaster”)
We have a 50% interest in Ringmaster S.r.l. (“Ringmaster”), an Italian joint venture, that is accounted for using the equity method of accounting. Ringmaster provides software development services for our interactive gaming business pursuant to an agreement dated December 7, 2011. Our investment in Ringmaster was $0.8 million and $0.7$1 million at December 31, 20202023 and 2019, respectively.2022.
We incurred $6.6$14 million, $6.1$9 million, and $10.4$6 million in expenses to Ringmaster for the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively.
Connect Ventures One LP and Connect Ventures Two LP
We have heldhold investments in two venture capital funds, Connect Ventures One LP and Connect Ventures Two LP (the “Connect Ventures”) since 2011 and 2015, respectively,, that are accounted for as equity method investments. De Agostini also holds investments in the Connect Ventures, and Nicola Drago, the sonan immediate family member of director Marco Drago, a member of the Parent’s board of directors, holds a 10% ownership interest in, and is a non-executive member of, Connect Ventures LLP, the fund that manages the Connect Ventures. The Connect Ventures are venture capital funds that target “early stage” investment operations.
Our investment in Connect Ventures One LP was $5.1$2 million and $4.9$3 million at December 31, 20202023 and 2019,2022, respectively. Our investment in Connect Ventures Two LP was $7.3$6 million and $6.2$5 million at December 31, 20202023 and 2019,2022, respectively.
26. Subsequent Events
On February 28, 2024, the Parent entered into definitive agreements with Everi Holdings Inc. (“Everi”), pursuant to which the Parent will separate its Global Gaming and PlayDigital businesses by way of a taxable spin-off to the Parent’s shareholders and then immediately combine such businesses with Everi, (the “Separation & Divestiture”) resulting in the “Combined Company”.
Under the terms of the agreements, the Parent’s shareholders are expected to own at closing approximately 54%, and Everi stockholders are expected to own approximately 46% of the shares in the combined company. In connection with the Separation & Divestiture, the Parent will receive approximately $2.6 billion in cash that will be funded with the proceeds of debt incurred by the Combined Company. The Parent expects to allocate approximately $2 billion to debt repayment. After closing, Everi will change its name to International Game Technology, Inc. and will trade on the NYSE under the ticker IGT. The Parent will change its name and continue to trade on the NYSE under a new ticker symbol. The transaction is expected to close in late 2024 or early 2025, subject to receipt of all regulatory approvals, shareholders approvals, and other customary closing conditions.
Revenue information relative to the Global Gaming and PlayDigital segments is included in Note 4. - Revenue Recognition. Due to factors such as the nature of the transaction and underlying approvals, the business is not considered held for sale as of December 31, 2023.
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