CONTENTS
CEO STATEMENT ....................................................................................................................................... 4
1. STRATEGIC REPORT ..................................................................................................................... 5
BUSINESS OVERVIEW ................................................................................................................................
KEY PERFORMANCE INDICATORS ....................................................................................................
FUTURE STRATEGY .....................................................................................................................................
PRINCIPAL RISKS AND UNCERTAINTIES .......................................................................................
8
15
26
28
2. REMUNERATION REPORT ...................................................................................................... 32
ANNUAL STATEMENT BY THE COMPENSATION COMMITTEE CHAIRMAN ..............
REMUNERATION IMPLEMENTATION REPORT
REMUNERATION POLICY
32
35
46
3. DIRECTORS' REPORT ................................................................................................................... 60
4. INDEPENDENT AUDITORS' REPORT ........................................................................ 67
5. FINANCIAL STATEMENTS ........................................................................................................ 71
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ..........................................................
INDEX TO PARENT FINANCIAL STATEMENTS ............................................................................
71
148
Annual Reports and Accounts 2018 Page | 3
CEO STATEMENT
Dear Recipient,
Reflecting back on 2018, I am pleased to report that it
was a year of continued strength in global lottery,
resilience in Italy, and stabilization in the North America
Gaming business. Despite a decline in International
revenue, our performance in the other segments,
combined with our recurring revenue base and the
diversity of our products, allowed us to achieve our
financial objectives for the year.
Global Strength in Lottery
IGT’s global lottery results were impressive throughout
the year. Innovation was a key factor in driving those
results, and supported growth in instant ticket and
draw-based sales. In fact, IGT won the International
Gaming Awards’ Lottery Product of the Year for the
second year in a row. Momentum in lottery was
accentuated by large jackpots in North America and
Europe.
North America Lottery performance was robust. Instant
tickets and draw-based games performed well, and the
large Mega Millions jackpot helped increase same-store
revenue by five percent. IGT also secured a 10-year
contract with the South Carolina Lottery and multiple
contract extensions with several prominent lotteries.
International lottery growth was largely led by a
recovery in U.K. wagers due to new scratch tickets and
instant win games. Increased EuroMillions jackpots
were also important contributors to growth.
Our lottery results in Italy were a true testament to
innovation driving growth, and the new MillionDAY
game was launched in early February. 10eLotto wagers
did exceptionally well throughout the year and were up
11 percent primarily due the additional game option,
Doppio Numero Oro. The successful re-launch of the
Miliardario and Multiplier games led to Scratch & Win
wagers being up for the second consecutive year.
Stabilizing the Global Gaming Business
Our gaming business saw encouraging progress in
North America driven by new cabinet introductions,
such as the CrystalDual® 27 and CrystalCurve™. Both
were cornerstones of IGT’s ICE and G2E portfolios. The
strength of the Wheel of Fortune® franchise was
accentuated by new products such as the Megatower™
cabinet and the Wheel of Fortune® Triple Red Hot 7s™
Gold Spin™ game.
Replacement unit shipments benefited from the new
hardware. We also saw the power of our compelling
core video content. Our games Scarab™, Solar Disc™,
and Mistress of Egypt™ are recognized as some of the
best performing games in North America, upgrading our
standing in the core video market.
Gaming made headway in strategic International
markets, including Australia, where the Crystal cabinets
are driving growth with successful new games such as
Star Stax™ and Fortune Gong™.
It was a strong year for systems and software sales for
our Gaming customers. IGT’s Advantage® was the
casino management system of choice for several of the
largest casinos that opened in 2018. We continue to
focus on mobile systems innovations such as Cardless
Connect®, Resort Wallet, and Mobile Intelligent Offer
that our customers can leverage to drive the player
experience forward.
Despite new regulations and the impact of higher taxes,
our Italian Gaming operations remained resilient. Even
with fewer AWP machines in the market, overall gaming
machine wagers grew due to improved productivity of
remaining AWPs and VLTs.
Sports Betting in North America
It was an important year of progress for sports betting in
North America. In May, the U.S. Supreme Court
overturned the Professional and Amateur Sports
Protection Act of 1992 (PASPA), legalizing sports
betting at the federal level. To date, IGT’s PlayShot™
sports betting platform is live in six states. IGT also
formed strategic sports betting partnerships with
William Hill and FanDuel. Significant strides were made
Annual Reports and Accounts 2018 Page | 4
in sports betting in 2018, and we are well-positioned to
continue this momentum.
Our Commitment to Corporate Social
Responsibility
Our goal is to provide value for all our stakeholders,
including creating solutions that help our customers
protect their players. In 2018, we committed to the
United Nations Global Compact, which calls on
companies to align strategies and operations around
human
labor, environment, and anti-
corruption. Of the UN’s 17 Sustainable Development
Goals, IGT has identified nine that the Company can
influence as part of its long-term plan.
rights,
for
(WLA)
IGT strengthened its commitment to responsible
gaming in 2018 with recertification by the World Lottery
its Corporate Social
Association
Responsibility Standards and Certification Framework.
In addition, we successfully achieved an intermediate
assessment by the Global Gaming Guidance Group
(G4) for its Responsible Gaming accreditation and
Internet Responsible Gambling
received
Compliance Assessment Program
re-
certification.
(iCAP)
the
In 2018, IGT established the Office of Diversity and
Inclusion which is responsible for implementing the
Company’s Global Strategic Plan for Diversity and
Inclusion, including programs that address increasing
workplace diversity and inclusion. We became a
founding member of the All-in Diversity Project to
champion diversity and inclusion across the gaming
industry. We also broadened our diversity and inclusion
efforts by establishing a variety of Employee Business
Resource Groups (EBRGs) to build business networks
around groups of people that are historically under-
represented in the workplace. There are currently
EBRGs throughout our company that support women,
veterans, people with disabilities, and the LGBTQ
community.
Looking Ahead
long-term
Over the last four years, we have established a solid
lottery contracts,
foundation, securing
stabilizing North America Gaming, and investing in new
growth opportunities with sports betting. Looking ahead
to 2019, we are confident there are plenty of underlying
for all
growth opportunities
shareholders.
to create value
We strive to enrich to and strengthen the communities
in which we operate. We launched our first-ever Global
Giving week and participation
in our employee
charitable programs more than doubled.
Diversity & Inclusion
Marco Sala
Chief Executive Officer
1. STRATEGIC REPORT
The board of directors (the Directors) present their Strategic Report on International Game Technology PLC (the Parent)
and its subsidiaries (together the Company or IGT) for the financial year ended December 31, 2018.
The consolidated balance sheet on page 74 presents the Company's financial position at December 31, 2018 and
December 31, 2017. Movements in cash balances are presented in the consolidated statement of cash flows. Material
assets and liabilities have been disclosed within the respective notes to the consolidated financial statements. Net
assets were $2.4 billion at December 31, 2018 and 2017. Cash and cash equivalents were $0.3 billion and $1.1 billion at
December 31, 2018 and 2017, respectively.
Annual Reports and Accounts 2018 Page | 5
OPERATIONAL HIGHLIGHTS
● Deployed legalized sports betting facility at the
first casino outside of Nevada when the U.S.
Supreme Court overturned PASPA in May
● Achieved nine percent same-store sales revenue
growth in North America Lottery
● Debuted new products
the
GameTouch™ 20 self-service lottery terminal;
and CrystalDual® 27 cabinet
such as
● Established strategic partnerships with William
Hill U.S. and FanDuel for U.S. sports betting
● Launched a new Lotto game, MillionDAY, in Italy
CORPORATE HIGHLIGHTS
● Recertified by WLA and G4 for responsible gaming
solutions for its Global Gaming Operations
● Lorenzo Pellicioli named chairperson and James
McCann named lead independent director
● North America Gaming and Interactive and North
America Lottery under the leadership of Renato
Ascoli
● Became founding member of the All-in Diversity
Project
● Won Lottery Product of the Year at the 11th Annual
International Gaming Awards
● Employees honored by industry bodies:
Knute Knudson received National Indian Gaming
Association (NIGA) Lifetime Associate Member
Achievement Award
Matthew Whalen was inducted into the Lottery
Hall of Fame
Angela Houslay won the B2B Excellence Award
at the 2018 Women in Gaming Diversity Awards
Annual Reports and Accounts 2018 Page | 6
FINANCIAL HIGHLIGHTS
$ millions (except per share amounts)
Company Revenue by Segment (%)
Annual Reports and Accounts 2018 Page | 7
BUSINESS OVERVIEW
The Company operates and provides an integrated portfolio of innovative gaming technology products and services,
including: lottery management services, online and instant lottery systems, instant ticket printing, electronic gaming
machines, sports betting, digital gaming, and commercial services. The Company is headquartered in London, England
with principal operating facilities located in Providence, Rhode Island; Las Vegas, Nevada; and Rome, Italy. The
Company is organized into four business segments, which are supported by corporate shared services: NAGI,
NALO, International, and Italy. Research and Development (R&D) and manufacturing are mostly centralized in North
America. The Company had 12,100 employees at December 31, 2018.
The Company is committed to responsible gaming, giving back to its communities and doing its part to protect the
environment, and is recognized in the following ways:
• The Company’s lottery operations have been certified for compliance with the World Lottery Association (WLA)
Associate Member CSR Standards and Certification Framework;
• The Company has received responsible gaming accreditation for its land-based casino and lottery segments
from the Global Gambling Guidance Group (G4);
• The Company’s B2C website interactive.IGTGames.com is certified through the Internet Compliance
Assessment Program (iCAP), developed by the National Council on Problem Gambling; and
• The Company has received an environmental, social and governance (ESG) rating of "A" from MSCI, Inc. and a
"prime" designation in corporate responsibility from ISS-oekom.
The Company has five broad categories of products and services: (1) Lottery, (2) Machine Gaming, (3) Sports Betting,
(4) Digital, and (5) Commercial Services.
LOTTERY
The Company supplies a unique set of lottery solutions to more than 100 customers worldwide, including to 37 of the 45
U.S. lotteries through its NALO segment. Lottery customers frequently designate their revenues for particular purposes,
such as education, economic development, conservation, transportation, programs for senior citizens and veterans,
health care, sports facilities, capital construction projects, cultural activities, tax relief, and others. Many governments
have become increasingly dependent on their lotteries as revenues from lottery ticket sales are often a significant source
Annual Reports and Accounts 2018 Page | 8
of funding for these programs. Lottery products and services are provided through the NALO, International, and Italy
business segments.
Lottery services are provided through licenses, facilities management contracts, lottery management agreements, and
product sales contracts. In the majority of jurisdictions, lottery authorities award contracts through a competitive bidding
process. Typical service contracts are 5 to 10 years in duration, often with multi-year extension options. After the
expiration of the initial or extended contract term, a lottery authority generally may either seek to negotiate further
extensions or commence a new competitive bidding process. In instances where day to day operations are outsourced,
lottery authorities often require providers to pay an upfront fee for the right to manage their lotteries.
The Company designs, sells, and operates a complete suite of point-of-sale machines that are electronically linked with
a centralized transaction processing system that reconciles lottery funds between the retailer and the lottery authority.
The Company provides and operates highly secure, online lottery transaction processing systems that are capable of
processing over 500,000 transactions per minute. The Company provides more than 450,000 point-of-sale devices to
lottery customers and lotteries that it supports worldwide. The Company also produces high-quality instant ticket games
and provides printing services such as instant ticket marketing plans and graphic design, programming, packaging,
shipping, and delivery services.
The Company has developed and continues to develop new lottery games, licenses new game brands from third
parties, and installs a range of new lottery distribution devices, all of which are designed to drive responsible same-store
sales growth for its customers. In connection with its delivery of lottery services, the Company actively advises its
customers on growth strategies. Depending on the type of contract and the jurisdiction, the Company also provides
marketing services, including retail optimization and lottery brand awareness campaigns. The Company works closely
with its lottery customers and retailers to help retailers sell lottery games more effectively. These programs include
product merchandising and display recommendations, a selection of appropriate lottery product mix for each location,
and account reviews to plan lottery sales growth strategies. The Company leverages years of experience accumulated
from being the exclusive licensee for the Italian Lotto, one of the world’s largest lotteries. This B2C expertise in Italy,
which includes management of all the activities along the lottery value chain, allows the Company to better serve B2B
customers in its NALO and International segments. The Company's primary competitors in the Lottery business include
Camelot, Intralot, Pollard, SAZKA, Sisal, Scientific Games, and Tattersalls.
The primary types of lottery agreements are outlined below:
Licenses and Facilities Management Contracts (FMC)
The majority of the Company's revenue in the Lottery business comes from licenses, a form of operating contracts, and
FMC. Since 1998, the Company has been the exclusive licensee for the Italian Lotto game (management of operations
commenced in 1994). Beginning in November of 2016, the Company's exclusive license for the Italian Lotto includes
partners as part of a joint venture. Lottoitalia s.r.l. (Lottoitalia), the exclusive manager of the Italian Lotto game, is 61.5%
owned by the Parent's subsidiary Lottomatica and the remainder is owned by Italian Gaming Holding a.s. (a subsidiary
of Czech lottery operator SAZKA), Arianna 2001, and Novomatic Italia. The Company, through Lottoitalia, manages the
activities along the lottery value chain, such as creating games, determining payouts, collecting wagers through its
network, 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 including play slips, tickets and receipts, and marketing and point-of-sale materials for the game.
Since 2004, and for a term expiring in 2028, the Company also has been the exclusive licensee for the instant ticket
lottery (Gratta e Vinci) through Lotterie Nazionali S.r.l., a joint venture 64.0% owned by the Parent's subsidiary
Lottomatica Holding, with the remainder directly and indirectly owned by Scientific Games Corporation and Arianna
2001.
The Company’s FMC typically require the Company to design, install, and operate the lottery system and retail terminal
network for an initial term, which is typically five to 10 years. The Company’s FMC usually contain extension options
under the same or similar terms and conditions, generally ranging from one to five years. Under a typical FMC, the
Company maintains ownership of the technology and facilities, and is responsible for capital investments throughout the
duration of the contract, although the investments are generally concentrated during the early years. Under a number of
the Company’s FMC, the Company additionally provides a wide range of support services and equipment for the
lottery’s instant ticket games, such as marketing, distribution and automation of validation, inventory and accounting
systems. In return, the Company receives either fixed fees or fees based upon a percentage of the sales of the instant
Annual Reports and Accounts 2018 Page | 9
ticket games. In limited instances, the Company provides instant tickets and online lottery systems and services under
the same facilities management contract. The Company also offers lottery vending machines that sell instant tickets as
well as draw-based games. As of February 28, 2019, the Company had FMC with 23 U.S. states. As of December 31,
2018, the Company's largest FMC in the U.S. by annual revenue were California, Michigan, New York and Texas, and
the revenue weighted average remaining term of the Company's existing U.S. FMC was 7.1 years (8.2 years including
available extensions). Also as at December 31, 2018, the Company operated under licenses or FMC in 17 international
jurisdictions, excluding Italy.
Licenses and FMC often require the Company to pay substantial monetary liquidated damages in the event of non-
performance by the Company. The Company's revenues from licenses and FMC are generally service fees paid to the
Company directly from the lottery authority based on a percentage of such lottery’s wagers or ticket sales. The Company
categorizes revenue from licenses and FMC as service revenue from Operating and FMC as described in Note 3,
Revenue Recognition to the consolidated financial statements.
Lottery Management Agreements (LMA)
A portion of the Company’s revenues are derived from LMA. Under an LMA, the Company manages, within parameters
determined by the lottery authority customer, the core lottery functions, including the lottery systems and the majority of
the day-to-day activities along the lottery value chain. This includes collecting wagers, managing accounting and other
back-office functions, running advertising and promotions, operating data transmission networks and processing centres,
training staff, providing retailers with assistance, and supplying materials for the games. Most LMA also include a
separate supply agreement, pursuant to which the Company provides certain hardware, equipment, software, and
support services. The Company provides lottery management services in New Jersey as part of a joint venture and in
Indiana, indirectly through a wholly-owned subsidiary of the Parent. The Company's revenues from LMA are based on
the extent to which it achieves certain contractual metrics and its revenue from supply contracts are generally calculated
by reference to a percentage of wagers. The Company categorizes revenue from LMA as service revenue from LMA as
described in Note 3, Revenue Recognition to the consolidated financial statements.
Instant Ticket Printing Contracts
As an end-to-end provider of instant tickets and related services, the Company produces high-quality instant ticket
games and provides ancillary printing services such as instant ticket marketing plans and graphic design, programming,
packaging, shipping, and delivery services. Instant tickets are sold at numerous types of retail outlets but most
successfully in grocery and convenience stores.
Instant ticket contracts are priced based on a percentage of ticket sales revenues or on a price per unit basis and
generally range from two to five years with extension opportunities. Government-sponsored lotteries grant printing
contracts on both an exclusive and non-exclusive basis where there is typically one primary vendor and one or more
secondary vendors. A primary contract permits the vendor to supply the majority of the lottery’s ticket printing needs and
includes the complete production process from concept development through production and shipment. It also typically
includes marketing and research support. A primary printing contract can include any or all of the following services:
warehousing, distribution, telemarketing, and sales/field support. A secondary printing contract includes providing
backup printing services and alternate product sources. It may or may not include a guarantee of a minimum or
maximum number of games. The Company invested in a new state-of-the-art printing press, which began production in
February 2018. As of February 28, 2019, the Company had instant ticket printing contracts with 27 U.S. states and
provided instant ticket products and services to 25 customers in international jurisdictions. This data excludes Italy, New
Jersey, and Indiana for whom the Company provides instant tickets as part of a license or LMA. The Company
categorizes revenue from instant ticket printing contracts as product revenue from Systems and other Product sales as
described in Note 3, Revenue Recognition to the consolidated financial statements. The instant ticket production
business is also highly competitive and subject to strong, price-based competition.
Product Sales and Services Contracts
Under product sales and services contracts, the Company constructs, sells, delivers, and installs turnkey lottery systems
or lottery equipment, provides related services and licenses related software. In most instances the lottery authority
maintains responsibility for lottery operations. The Company sells additional machines and central computers to expand
existing systems and/or replace existing equipment and provides ancillary maintenance and support services related to
Annual Reports and Accounts 2018 Page | 10
the systems and equipment sold, and software licensed. The Company categorizes revenue from product sales and
services contracts on a case-by-case basis as either service or product revenue from Other Services or Systems and
other Product Sales, respectively, as described in Note 3, Revenue Recognition to the consolidated financial statements.
MACHINE GAMING
The Company designs, develops, manufactures and provides cabinets, games, systems and software for customers in
regulated gaming markets throughout the world under fixed fee, participation and product sales contracts. The Company
holds more than 450 global gaming licenses and does business with commercial casino operators, tribal casino
operators, and governmental organizations (primarily consisting of Lottery operators). Machine gaming products and
services are provided through the NAGI, NALO, International, and Italy business segments.
The Company’s primary global competitors in machine gaming are Aristocrat, Konami, Novomatic, and Scientific
Games.
Gaming Machines and Game Content
The Company offers a diverse range of gaming machine cabinets from which land-based casino customers can choose
to maximize functionality, flexibility, and player comfort. In addition to cabinets, the Company develops a wide range of
casino games taking into account local jurisdictional requirements, market dynamics, and player preferences. The
Company combines elements of math, play mechanics, sound, art, and technological advancements with a library of
entertainment licenses and a proprietary intellectual property portfolio to develop gaming products designed to provide a
high degree of player appeal and entertainment. The Company offers a wide array of casino-style games in a variety of
multi-line, multi-coin and multi-currency configurations.
The Company's casino games typically fall into two categories: premium games and core games.
Premium games include:
• Wide Area Progressives - games that are linked across several casinos and/or jurisdictions and share a large
common jackpot, including The Wheel of Fortune® franchise.
• Multi-Level Progressives - games that are linked to a number of other games within the casino itself and offer
players the opportunity to win different levels of jackpots, such as Fort Knox® Video Slots.
Core games, which include core video reel, core mechanical reel, and core video poker, are typically sold and in some
situations leased to customers.
The Company produces other types of games including:
• Centrally Determined games, which are games connected to a central server that determines the game
outcome;
• Class II games, which are electronic video bingo machines that can be typically found in North American tribal
casinos and certain other jurisdictions like South Africa; and
• Random-number-generated and live dealer electronic table games, including baccarat and roulette.
Gaming service revenue is primarily generated through providing premium game content and cabinets to customers.
These pricing arrangements are largely variable: the casino customer pays service fees to the Company based on a
percentage of the amounts wagered (also known as coin-in), net win, or a daily fixed fee.
Machine gaming product sales revenues are generated from the sales of land-based gaming machines (equipment and
game content), systems, component parts (including game conversion sales), other equipment and services. The
Company categorizes revenue from gaming machines as product revenue from gaming machines and revenue from
game content as product revenue from Systems and other Product Sales as described Note 3, Revenue Recognition to
the consolidated financial statements.
Video Lottery Terminals (VLT) and Amusement with Prize Machines (AWP)
Annual Reports and Accounts 2018 Page | 11
The Company provides VLT, VLT central systems and VLT games worldwide. VLT are usually connected to a central
system. In addition, the Company provides AWP and games to licensed operators in Italy and the rest of Europe. AWP
are typically low-denomination gaming machines installed in retail outlets.
With respect to the Company's machine gaming licenses in Italy, the Company directly manages stand-alone AWP, as
well as VLT that are installed in various retail outlets and linked to a central system. The Company also provides
systems and machines to other machine gaming licensees, either as a product sale or with long-term, fee-based
contracts where the service revenue earned is generally based on a percentage of wagers, net of applicable gaming
taxes. Due to the nature of the transactions, NALO and International generally categorize revenue from VLT as product
revenue from Lottery machines or as service revenue from Other services and Italy categorizes revenue from VLT as
service revenue from Machine gaming as described in Note 3, Revenue Recognition to the consolidated financial
statements.
Gaming Management Systems
The Company offers a comprehensive range of system modules and applications for all areas of casino management.
Gaming. Management systems products include infrastructure and applications for casino management, customer
relationship management, patron management, and server-based gaming. The Company's main casino management
system offering is the Advantage® System, which offers solutions and modules for a wide-range of activities from
accounting and payment processing to patron management and regulatory compliance.
The Company's systems feature customized player messaging, tournament management and integrated marketing and
business intelligence modules that provide analytical, predictive, and management tools for maximizing casino
operational effectiveness. The server-based solutions enable electronic game delivery and configuration for slot
machines, as well as providing casino operators with opportunities to increase profits by enhancing the players’
experience, connecting with players interactively, and creating operational efficiencies. Service Window enables
operators to market to customers more effectively by leveraging an additional piece of hardware onto existing machines
for delivering in-screen messaging. The Company's systems portfolio also extends to encompass mobile solutions such
as the Cardless Connect™ app, which offers a cardless, cashless loyalty solution for casino players. Mobile solutions
that drive efficiencies and enable floor monitoring for operators while decreasing response time to player needs include
Mobile Host, Mobile Responder, and Mobile Notifier. The Company categorizes revenue from gaming management
systems as product revenue from Systems and other Product sales as described in Note 3, Revenue Recognition to the
consolidated financial statements.
SPORTS BETTING
In Italy, the Company is a licensee for the operation of retail and internet-based sports betting. Specifically, the
Company:
• operates an expansive land-based B2C sports betting network through its “Better” brand on a fixed odds, pari-
mutuel, or virtual betting basis;
• establishes odds and assumes the risks related to fixed-odds sports contracts;
• collects the wagers; and
• makes the payouts.
The Company offers directly-to-customers betting on sports events (including basketball, horse racing, soccer, cycling,
downhill skiing, cross country skiing, tennis, sailing, and volleyball), motor sports (car and motorcycle racing), and non-
sports events connected with the world of entertainment, music, culture, and current affairs of primary national and
international interest.
Annual Reports and Accounts 2018 Page | 12
The Company also provides sports betting technology and management services in Italy, the U.S. (through both the
NAGI and NALO business segments) and internationally, which include:
• Localized sports betting platforms certified for each market composed of either:
(i) Core engine and associated support modules, as well as trading and risk management tools, provided
to customers as a fully managed service, or
(ii) Software only technical solutions to create a complete one-stop solution or to integrate new
functionality to existing operations;
• Secure retail betting solutions;
• Point-of-sale display systems;
• Call center facilities;
•
• Fixed odds or pool betting options
Internet and mobile betting technology; and
Sports betting customers of the Company include: FanDuel, Horse Races S.A. (a subsidiary of OPAP), Lottery National
Belgium (LNB), Pronósticos para la Asistencia Pública (a lottery in Mexico), and the Rhode Island Lottery. Commercial
gaming customers include BetFred, DraftKings, and MGM Resorts International. The Company’s primary competitors in
Sports Betting are Bet365, Paddy Power Betfair, Eurobet, Sisal, SNAITECH, and William Hill. The Company categorizes
revenue from sports betting as service revenue from Other services as described in Note 3, Revenue Recognition to the
consolidated financial statements.
DIGITAL
Digital gaming (or iGaming) enables game play via the internet for real money or for fun (social). The Company designs,
manufactures, and distributes a full suite of configurable products, systems, and services and holds more than 20 digital
gaming licenses worldwide. In Italy, the Company acts as both a complete internet gaming operator and mobile casino
operator. The Company's digital products include poker, bingo, and online casino table and slot games with features
such as single and multiplayer options with branded titles and select third-party content. The Company provides social
casino content as part of a multi-year strategic partnership with DoubleU Games. The Company’s complete suite of
PlayLottery solutions, services, and professional expertise allows lotteries to fully engage their players on any digital
channel in regulated markets. Existing lottery game portfolios are extended to the digital channel to provide a spectrum
of engaging content such as eInstant tickets.
The Company’s iGaming systems and digital platforms offer customers an integrated system that provides player
account management, advanced marketing and analytical capabilities, and a highly reliable and secure
payment system. IGT Connect™ integrates third-party player account management systems, third-party game engines,
and regulatory systems. The Company also offers a remote game server, which is a fast gateway to extensive casino
and eInstant content, virtual reality games, and digital and social gaming services that enhance player experiences and
create marketing opportunities around either the Company's games or third-party games.
The IGT PlaySpot™ mobile solution, an app-based product for casinos and lotteries enabling mobile games, services,
and payments in specific retail environments that are defined by regulator-grade geo-location technologies, is offered by
the Company in both lottery and casino environments. Wagering for money can be offered in the IGT PlaySpot™ Lottery
mobile solution locations and options include eInstants, draw game ticket purchases, and keno. The IGT PlaySpot™
Casino mobile solution offers real money wagering on activities including sports wagering and betting on live roulette
and baccarat tables on premises. The IGT PlaySpot™ Casino mobile solution ties into existing casino loyalty and back-
office systems to fully integrate into customers' marketing and operations programs.
The Company's diverse digital B2B customer base includes Caesar's Entertainment, the Georgia Lottery and William
Hill, among others. Digital and social gaming products and services are provided through the NAGI, NALO, International,
and Italy business segments. The Company faces competition from operators, such as 888 Holdings and bwin.party,
and broad-based traditional B2B providers, such as Playtech plc and Microgaming. The Company also faces
competition in the digital space from other machine gaming suppliers, such as Scientific Games. The Company
categorizes revenue from digital products as product revenue from Systems and other Product sales and categorizes
revenue from digital services as service revenue from Other services as described in Note 3, Revenue Recognition to
the consolidated financial statements.
Annual Reports and Accounts 2018 Page | 13
COMMERCIAL SERVICES
The Company develops innovative technology to enable lotteries to offer commercial services over their existing lottery
infrastructure or over standalone networks separate from the lottery. Leveraging its distribution network and secure
transaction processing experience, the Company offers 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 Italy, the Company's commercial payment and eMoney services network comprise points-of-sale divided
among the primary retailers of lottery products: tobacconists, bars, petrol stations, newspaper stands and motorway
restaurants. The Company categorizes revenue from commercial services as service revenue from Other services as
described in Note 3, Revenue Recognition to the consolidated financial statements.
STRATEGIC APPROACH TO SUSTAINABILITY
As a Company operating on a global scale, IGT embraces the fundamental principles of being a good corporate citizen
by actively engaging on a local level wherever the Company does business. We exceed government-mandated
regulations by pursuing powerful initiatives that generate real change and create value for all stakeholders including
customers, employees, and governing and regulatory bodies.
IGT’s ongoing pledge to sustainably grow our industry has expanded to include the guiding principles set forth by the
2030 United Nations (UN) Agenda for Sustainable Development and its Sustainable Development Goals (SDGs), as well
as the 2015 Paris Agreement on climate change addressing the need to limit the rise of global temperatures. In addition,
IGT has joined the United Nations Global Compact, the largest corporate responsibility initiative in the world for the
development, implementation, and disclosure of responsible corporate policies and practices.
Endorsed by chief executives, the UN Global Compact is a call to companies everywhere to voluntarily align their
operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment, and
anti-corruption. IGT is committed to making the UN Global Compact Principles part of the Company’s strategy, culture,
and day-to-day operations.
IGT is actively contributing to this global effort, refocusing its Corporate Social Responsibility (CSR) initiatives to pursue
the sustainable development goals in the Company’s remit according to advanced sustainability practices, such as:
• Acknowledging all stakeholders’ legitimate interests;
• Communicating transparently through an open dialogue with stakeholders;
• Managing its direct and indirect impact on all stakeholders;
• Acknowledging and minimizing any potential negative impact; and
• Adopting transparent and accountable practices.
IGT’s internal corporate culture is guided by a set of five values: we are passionate, pioneering, responsible, authentic
and collaborative. When conducting business with local governments and organizations, IGT uses a system of checks
and balances to ensure strict adherence to the principles of lawful conduct in every jurisdiction it serves. Integrity, in
terms of behaviour as well as business conduct, is the foremost prerequisite for creating value for all stakeholders.
IGT values workplace diversity and respect for all employees. The Company follows the principles set by the
International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work in the member
countries where the Company operates, and is committed to providing a work environment where everyone is treated
with fairness, dignity, and respect without discrimination.
IGT has a zero-tolerance approach to modern slavery. The Company is committed to implementing and enforcing
initiatives to reduce the risk of modern slavery and human rights violations in IGT businesses and its supply chain. The
Company has a confidential Integrity Line, managed by an independent third party, which can be used anonymously to
report activities that may involve unethical or unlawful conduct.
By committing to pursue the UN’s Sustainable Development Goals and voluntarily disclosing information through the
annual Sustainability Report and through specific requests from customers and Environmental, Social, and Governance
Annual Reports and Accounts 2018 Page | 14
(ESG) rating agencies, IGT is leveraging the long-standing results of its CSR strategy to strengthen its reputation,
improve customers’ confidence, and gain a competitive advantage.
KEY PERFORMANCE INDICATORS
Overview
The Company is a leading commercial operator and provider of technology in the regulated worldwide gaming markets
that operates and provides a full range of services and leading-edge technology products across all gaming markets,
including lotteries, machine gaming, sports betting, interactive gaming and commercial services. The Company's state-
of-the-art information technology platforms and software enable distribution of its products and services through land-
based systems, the internet and mobile devices.
The structure of its internal organization is customer-facing aligned around four segments operating in three regions as
follows:
• North America Gaming and Interactive;
• North America Lottery;
International; and
•
Italy.
•
Consolidated Results
The discussion below includes our key performance indicators calculated at constant currency. We calculate constant
currency by applying the prior-year/period exchange rates to current financial data expressed in local currency in order
to eliminate the impact of foreign exchange rate fluctuations originating from translating the income statement of the
Company's foreign entities into U.S. dollars. The Company believes that such results excluding the impact of currency
fluctuations period-on-period provide additional useful information to investors regarding operating performance on a
local currency basis.
Annual Reports and Accounts 2018 Page | 15
Comparison of the years ended December 31, 2018 and 2017
($ thousands)
Service revenue
Product sales
Total revenue
Cost of services
Cost of product sales
Selling, general and administrative
Research and development
Restructuring expense
Impairment loss
Transaction expense (income), net
Total operating expenses
Operating income (loss)
Interest income
Interest expense
Foreign exchange gain (loss), net
Other expense, net
Total non-operating expenses
For the year ended
December 31, 2018
December 31, 2017
$
4,044,595
784,942
4,829,537
2,449,344
490,876
836,230
262,262
14,781
186,407
51
4,239,951
589,586
14,231
(431,690 )
129,025
(203,308 )
(491,742 )
% of
Revenue
83.7
16.3
100.0
50.7
10.2
17.3
5.4
0.3
3.9
—
87.8
12.2
0.3
(8.9 )
2.7
(4.2 )
$
4,134,828
802,403
4,937,231
2,552,110
579,435
809,746
313,124
39,876
760,220
(26,740 )
5,027,771
(90,540 )
10,436
(459,591 )
(443,809 )
(107,931 )
% of
Revenue
83.7
16.3
100.0
51.7
11.7
16.4
6.3
0.8
15.4
(0.5 )
101.8
(1.8 )
0.2
(9.3 )
(9.0 )
(2.2 )
(10.2 )
(1,000,895 )
(20.3 )
Income (loss) before provision for (benefit from) income
taxes
97,844
2.0
(1,091,435 )
(22.1 )
Provision for (benefit from) income taxes
184,216
3.8
(24,639 )
(0.5 )
Net loss
(86,372 )
(1.8 )
(1,066,796 )
(21.6 )
Less: Net income attributable to non-controlling interests
Net loss attributable to IGT PLC
58,003
(144,375 )
1.2
(3.0 )
55,400
(1,122,196 )
1.1
(22.7 )
Annual Reports and Accounts 2018 Page | 16
Service revenue
($ thousands)
North America Gaming and Interactive
North America Lottery
International
Italy
Operating Segments
Corporate Support
Purchase accounting
For the year ended
December 31
$ Change
2018
624,476
1,111,069
495,497
1,812,830
4,043,872
—
723
4,044,595
2017
780,579
1,093,048
557,049
1,702,227
4,132,903
1,203
722
4,134,828
$
(156,103 )
18,021
(61,552 )
110,603
(89,031 )
(1,203 )
1
(90,233 )
%
(20.0 )
1.6
(11.0 )
6.5
(2.2 )
(100.0 )
0.1
(2.2 )
The following table sets forth constant currency changes in service revenue:
($ thousands)
North America Gaming and Interactive
North America Lottery
International
Italy
Operating Segments
Corporate support
Purchase accounting
North America Gaming and Interactive
Constant Currency Change
2018 vs. 2017
$
(155,945 )
18,314
(60,249 )
46,100
(151,822 )
1,203
—
(151,822 )
%
(20.0 )
1.7
(10.8 )
2.7
(3.7 )
100.0
—
(3.7 )
The following table sets forth changes in service revenue in the North America Gaming and Interactive segment:
($ thousands)
Social gaming
Machine gaming
Other services
Service Revenue Change
2018 vs. 2017
Constant
Currency
$ Change
(111,267 )
(67,524 )
22,846
(155,945 )
(111,267 )
(67,688 )
22,852
(156,103 )
The principal drivers of the $156.0 million constant currency decrease in service revenue for the year ended December
31, 2018 compared to the year ended December 31, 2017 were as follows:
• A decrease of $111.3 million in Social gaming, principally associated with the June 2017 sale of DoubleDown;
• A decrease of $67.6 million in Machine gaming, primarily driven by a $58.4 million reclassification of jackpot
expense from cost of services upon adoption of International Financial Reporting Standards ("IFRS)" 15, Revenue
from Contracts with Customers ("IFRS 15") and a decrease in the average yield from overall machine mix, partially
offset by a 1.3% increase in the casino installed base (23,108 machines installed at December 31, 2018 compared
to 22,807 machines installed at December 31, 2017); and
• An increase of $22.8 million in Other services, principally due to:
◦ An increase of $11.7 million in poker revenue, primarily due to a large, multi-year poker contract; and
Annual Reports and Accounts 2018 Page | 17
◦ An increase of $10.1 million in interactive, principally due to a content licensing and support agreement entered
into in June 2017.
North America Lottery
The following table sets forth changes in service revenue in the North America Lottery segment:
($ thousands)
Operating and Facilities Management Contracts
Lottery Management Agreements
Machine gaming
Other services
Service Revenue Change
2018 vs. 2017
Constant
Currency
$ Change
42,654
(27,988 )
182
3,466
18,314
42,657
(27,988 )
182
3,170
18,021
The principal drivers of the $18.3 million constant currency increase in service revenue for the year ended December 31,
2018 compared to the year ended December 31, 2017 were as follows:
• An increase of $42.7 million in Operating and Facilities Management Contracts, primarily related to strong same
store revenue (revenue from existing customers as opposed to new customers) growth of 8.9%, primarily due to an
increase of 34.0% in multi-state jackpot activity and an increase of 5.0% in instant tickets and draw-based games,
partially offset by a lower effective rate due to certain recent contract extensions; and
• A decrease of $28.0 million in Lottery Management Agreements ("LMA"), principally due to a $39.1 million decrease
in pass-through service revenue related to reimbursable expenses due to the end of the Illinois LMA contract;
partially offset by an $11.1 million increase in the level of LMA incentives achieved in the year ended December 31,
2018 compared to the year ended December 31, 2017.
International
The following table sets forth changes in service revenue in the International segment:
($ thousands)
Operating and Facilities Management Contracts
Machine gaming
Other services
Service Revenue Change
2018 vs. 2017
Constant
Currency
$ Change
(6,952 )
5,898
(59,195 )
(60,249 )
(4,732 )
2,177
(58,997 )
(61,552 )
The principal drivers of the $60.2 million constant currency decrease in service revenue for the year ended December
31, 2018 compared to the year ended December 31, 2017 were as follows:
• A decrease of $59.2 million in Other services, principally due to:
◦ A decrease of $19.1 million in software revenue, primarily related to Europe, partially due to a $9.7 million
decrease as a result of licenses being identified as distinct performance obligations and recognized in product
sales in the current year in connection with the adoption of IFRS 15;
◦ A decrease of $14.8 million in Interactive Business-to-Business and Business-to-Consumer activities, primarily
due to the release of a prior year jackpot liability and the exit from certain low-margin contracts;
◦ A decrease of $12.9 million in megajackpot revenue, primarily related to the $8.4 million reclassification of
jackpot expense from cost of services upon adoption of IFRS 15; and
◦ A decrease of $10.7 million from a customer in Europe, principally related to the achievement of certain
contractual milestones in 2017 that did not recur in the current year.
Annual Reports and Accounts 2018 Page | 18
Italy
The following table sets forth constant currency changes in service revenue in the Italy segment:
($ thousands)
Operating and Facilities Management Contracts
Machine gaming
Other services
Service Revenue Change
2018 vs. 2017
Constant
Currency
$ Change
43,068
(3,372 )
6,404
46,100
71,613
19,652
19,338
110,603
The constant currency changes in service revenue for each of the core activities within the Italy segment are discussed
below.
Operating and Facilities Management Contracts
The following table sets forth constant currency changes in Operating and Facilities Management Contracts:
($ thousands)
Lotto
Instant tickets
Lotto
Constant Currency Change
2018 vs. 2017
$
37,877
5,191
43,068
%
9.1
1.7
6.0
At constant currency, Lotto revenue for the year ended December 31, 2018 increased by $37.9 million compared to the
year ended December 31, 2017, principally due to an increase of 11.0% in 10eLotto wagers as a result of an additional
game option, Doppio Numero Oro, which launched in October 2017.
Wagers for the years ended December 31, 2018 and 2017 are as follows:
(€ millions)
10eLotto wagers
Core wagers
Wagers for late numbers
Million day
Instant tickets
For the year ended
December 31,
2018
2017
5,728
1,877
227
185
8,017
5,160
2,011
310
—
7,481
€ Change
2018 vs. 2017
€
%
568
(134 )
(83 )
185
536
11.0
(6.7 )
(26.8 )
—
7.2
At constant currency, Instant tickets revenue for the year ended December 31, 2018 increased by $5.2 million compared
to the year ended December 31, 2017, principally driven by a 1.6% increase in instant ticket wagers assisted by a 1.8%
increase in the average price point (the average value of the ticket sold), as a result of the July 2017 relaunch of
Miliardario.
Annual Reports and Accounts 2018 Page | 19
Total wagers for the years ended December 31, 2018 and 2017 are as follows:
(€ millions)
Total wagers
Machine gaming
For the year ended
December 31,
2018
2017
€ Change
2018 vs. 2017
€
%
9,207
9,065
142
1.6
At constant currency, Machine gaming for the year ended December 31, 2018 decreased by $3.4 million compared to
the year ended December 31, 2017, primarily driven by a decrease in total machines installed due to a regulator-
mandated reduction in AWP machines and an increase in gaming machine taxes related to the Prelievo Unico Erariale
("PREU") increase in April 2017 and September 2018 (PREU AWP increased on annual basis from 18.52% to 19.09%
and PREU VLT increased on annual basis from 5.84% to 6.09%), partially offset by an increase of 0.7% on wagers
driven by VLT.
Total wagers for the years ended December 31, 2018 and 2017 are as follows:
(€ millions)
VLT wagers
AWP wagers
Total wagers
For the year ended
December 31,
2018
2017
€ Change
2018 vs. 2017
€
%
5,838
3,717
9,555
5,543
3,949
9,492
295
(232 )
63
5.3
(5.9 )
0.7
Total wagers and machines installed correspond to the management of VLTs and AWPs under the Company's licenses.
Other services
At constant currency, Other services for the year ended December 31, 2018 increased by $6.4 million compared to the
year ended December 31, 2017, primarily driven by an 8.3% increase in interactive game wagers (€1,890.0 million for
the year ended December 31, 2018 compared to €1,745.0 million for the year ended December 31, 2017), a 3.0%
increase in sports betting wagers (€988.0 million for the year ended December 31, 2018 compared to €959.0 million for
the year ended December 31, 2017) and a slightly lower combined payout in sports betting (82.4% for the year ended
December 31, 2018 compared to 82.7% for the year ended December 31, 2017).
Product sales
($ thousands)
North America Gaming and Interactive
North America Lottery
International
Italy
Operating Segments
Purchase accounting
For the year ended
December 31,
$ Change
2018
378,693
80,833
324,486
930
784,942
—
784,942
2017
377,065
92,174
332,015
1,149
802,403
—
802,403
$
1,628
(11,341 )
(7,529 )
(219 )
(17,461 )
—
(17,461 )
%
0.4
(12.3 )
(2.3 )
(19.1 )
(2.2 )
—
(2.2 )
Annual Reports and Accounts 2018 Page | 20
The following table sets forth constant currency changes in product sales:
($ thousands)
North America Gaming and Interactive
North America Lottery
International
Italy
Operating Segments
Purchase accounting
North America Gaming and Interactive
Constant Currency Change
2018 vs. 2017
$
3,830
(11,417 )
(4,467 )
(239 )
(12,293 )
—
(12,293 )
%
1.0
(12.4 )
(1.3 )
(20.8 )
(1.5 )
—
(1.5 )
The following table sets forth changes in product sales in the North America Gaming and Interactive segment:
($ thousands)
Gaming machines
Systems and other
Product Sales Change
2018 vs. 2017
Constant
Currency
$ Change
19,823
(15,993 )
3,830
17,864
(16,236 )
1,628
The principal drivers of the $3.8 million constant currency increase in product sales for the year ended December 31,
2018 compared to the year ended December 31, 2017 were as follows:
• An increase of $19.8 million in Gaming machines, primarily related to 715 more machines sold during the year
ended December 31, 2018 compared to the year ended December 31, 2017, driven primarily by replacement sales,
along with an increase in the average selling price for the year ended December 31, 2018 compared to the year
ended December 31, 2017; and
• A decrease of $16.0 million in Systems and other, principally associated with:
◦ A decrease of $16.3 million in software sales, primarily related to sales in Oregon that did not recur in the
current year;
◦ A decrease of $13.2 million in intellectual property revenue due to the timing of recognition of multi-year
licenses upon adoption of IFRS 15. Under IFRS 15, the Company now recognizes revenue upon transfer of the
multi-year license to the customer rather than as payments become due throughout the contract period; and
◦ An increase of $15.3 million in casino systems.
North America Lottery
The following sets forth changes in product sales in the North America Lottery segment:
($ thousands)
Lottery machines
Systems and other
Product Sales Change
2018 vs. 2017
Constant
Currency
$ Change
663
(12,080 )
(11,417 )
739
(12,080 )
(11,341 )
The principal drivers of the $11.4 million constant currency decrease in product sales for the year ended December 31,
2018 compared to the year ended December 31, 2017 were as follows:
Annual Reports and Accounts 2018 Page | 21
• An increase of $0.7 million in Lottery machines, principally due to lottery point-of-sale machines and hardware sales
in Massachusetts, offset primarily by lottery machine sales in Canada that did not recur in the current year and a
decrease of $14.5 million upon adoption of IFRS 15 related to lottery machine sales in California. Under IFRS 15, it
was determined that control of the lottery machines sold to California had transferred to the customer prior to the
adoption of IFRS 15 resulting in an adjustment to retained earnings; and
• A decrease of $12.1 million in Systems and other driven by gaming system and related hardware sales in Canada
and Oregon in 2017 that did not recur in the current year.
International
The following sets forth changes in product sales in the International segment:
($ thousands)
Lottery machines
Gaming machines
Systems and other
Product Sales Change
2018 vs. 2017
Constant
Currency
$ Change
(14,941 )
(4,641 )
15,115
(4,467 )
(14,846 )
(6,420 )
13,737
(7,529 )
The principal drivers of the $4.5 million constant currency decrease in product sales for the year ended December 31,
2018 compared to the year ended December 31, 2017 were as follows:
• A decrease of $14.9 million in Lottery machines, primarily related to a $6.7 million sale in Europe and a $4.9 million
sale in Latin America that did not recur in the current year;
• A decrease of $4.6 million in Gaming machines, principally due to decreased machine sales in Europe of $25.5
million and Latin America of $8.1 million, partially offset by increased machines sales in Africa of $15.7 million and
the Asia Pacific region of $13.3 million; and
• An increase of $15.1 million in Systems and other, primarily due to:
◦ An increase of $6.2 million in software sales, principally driven by increased sales of $10.0 million in Africa,
partially offset by lower sales of $3.0 million in the Asia Pacific region;
◦ An increase of $38.4 million in other product sales, principally driven by a significant product sale within Europe
and a $10.0 million increase due to, in connection with IFRS 15, licenses being identified as distinct
performance obligations and recognized in product sales in the current year;
◦ A decrease of $8.7 million in gaming system sales, primarily driven by a decrease of $17.3 million related to a
VLT system sale in Europe in 2017 and reduced gaming system sales in Latin America, partially offset by
increased gaming system sales of $8.5 million in the Asia Pacific region; and
◦ A decrease of $20.8 million in sports betting, primarily driven by sales in Europe that did not recur in the current
year.
Annual Reports and Accounts 2018 Page | 22
Operating Expenses
The following table sets forth constant currency changes in operating expenses:
($ thousands)
Cost of services
Cost of product sales
Selling, general and administrative
Research and development
Restructuring expense
Impairment loss
Transaction expense (income), net
Total operating expenses
Cost of services
Constant Currency Change
2018 vs. 2017
$ Change
2018 vs. 2017
$
(139,367 )
(85,289 )
24,126
(52,316 )
(25,106 )
(573,756 )
26,791
(824,917 )
%
(5.5 )
(14.7 )
3.0
(16.7 )
(63.0 )
(75.5 )
(100.2 )
(16.4 )
$
(102,766 )
(88,559 )
26,484
(50,862 )
(25,095 )
(573,813 )
26,791
(787,820 )
%
(4.0 )
(15.3 )
3.3
(16.2 )
(62.9 )
(75.5 )
(100.2 )
(15.7 )
Cost of services decreased $139.4 million on a constant currency basis for the year ended December 31, 2018
compared to the year ended December 31, 2017, principally due to:
• A decrease of $67.0 million in the North America Gaming and Interactive segment, principally due to:
◦ A decrease of $40.1 million from the June 2017 sale of DoubleDown;
◦ A decrease of $63.8 million related to the reclassification of jackpot expense to service revenue upon adoption
of IFRS 15; and
◦ An increase of $32.0 million in depreciation and amortization;
• A decrease of $21.6 million in the International segment, primarily related to the $60.2 million decrease in service
revenue and the reclassification of $12.1 million in jackpot expense to service revenue upon adoption of IFRS 15;
and
• A decrease of $61.2 million in Purchase Accounting, principally associated with a $61.3 million decrease in
depreciation and amortization, primarily related to the Company's game library (acquired in the 2015 acquisition of
IGT) being fully depreciated at year ended December 31, 2017. On April 7, 2015, the Company acquired IGT, a
global leader in casino and social gaming entertainment, headquartered in Las Vegas, Nevada.
Cost of product sales
Cost of product sales decreased $85.3 million on a constant currency basis for the year ended December 31, 2018
compared to the year ended December 31, 2017, principally due to:
• A $16.3 million increase in the North America Gaming and Interactive segment, primarily related to a $20.0 million
increase in machine sales costs driven by a higher volume in sales, partially offset by a $4.0 million decrease in
software costs associated with software sales in Oregon that did not recur in the current year;
• A $10.0 million decrease in the North America Lottery segment, primarily driven by gaming system and related
hardware sales in 2017 that did not recur in the current year;
• An $18.4 million decrease in the International segment, principally due to a change in product mix; and
• A $72.0 million decrease in Purchase Accounting, principally associated with a $72.0 million decrease in
depreciation and amortization, primarily related to the Company's game library (acquired in the 2015 acquisition of
IGT) being fully depreciated at year ended December 31, 2017.
Annual Reports and Accounts 2018 Page | 23
Research and development
Research and development expense decreased $52.3 million on a constant currency basis for the year ended
December 31, 2018 compared to the year ended December 31, 2017, principally due to:
• A $31.8 million decrease in the North America Gaming and Interactive segment, primarily related to a $13.6 million
decrease from the June 2017 sale of DoubleDown and a $25.9 million decrease in employee related costs
associated with optimization efforts; and
• A $10.0 million decrease in the International segment and a $9.1 million decrease in the Italy segment, principally
related to cost saving initiatives.
Impairment loss
In 2018, the Company incurred a $184.0 million impairment loss in the International segment. In 2017, the Company
incurred a $759.0 million impairment loss in the North America Gaming and Interactive segment. Impairment losses for
the years ended December 31, 2018 and 2017 are recorded within Purchase Accounting.
Operating income (loss)
($ thousands)
North America Gaming and Interactive
North America Lottery
International
Italy
Operating Segments
Corporate support
Purchase accounting
For the year ended
December 31,
$ Change
2018
221,868
297,836
143,182
540,187
1,203,073
(222,779 )
(390,708 )
589,586
2017
279,008
289,002
163,702
476,969
1,208,681
(190,796 )
(1,108,425 )
(90,540 )
$
(57,140 )
8,834
(20,520 )
63,218
(5,608 )
(31,983 )
717,717
680,126
%
(20.5 )
3.1
(12.5 )
13.3
(0.5 )
16.8
(64.8 )
> 200.0
The following table sets forth constant currency changes in operating income (loss):
($ thousands)
North America Gaming and Interactive
North America Lottery
International
Italy
Operating Segments
Corporate support
Purchase accounting
Operating margin for each of the Company's operating segments is as follows:
North America Gaming and Interactive
North America Lottery
International
Italy
Constant Currency Change
2018 vs. 2017
$
(55,714 )
9,027
(20,828 )
39,697
(27,818 )
(30,384 )
717,847
659,645
%
(20.0 )
3.1
(12.7 )
8.3
(2.3 )
15.9
(64.8 )
>200.0
For the year ended
December 31,
2018
2017
22.1 %
25.0 %
17.5 %
29.8 %
24.1 %
24.4 %
18.4 %
28.0 %
Annual Reports and Accounts 2018 Page | 24
North America Gaming and Interactive
Segment operating margin decreased from 24.1% at year ended December 31, 2017 to 22.1% at year ended
December 31, 2018, principally due to service revenue versus product sales margin mix and an increase in depreciation
and amortization.
North America Lottery
Segment operating margin increased slightly from 24.4% at year ended December 31, 2017 to 25.0% at year ended
December 31, 2018, principally due to strong same store revenue due to multi-state jackpot activity and increased
instant tickets sales, partially offset by an increase in depreciation and amortization.
International
Segment operating margin decreased from 18.4% at year ended December 31, 2017 to 17.5% at year ended
December 31, 2018, principally due the achievement of certain high-margin contractual milestones in 2017.
Italy
Segment operating margin increased from 28.0% at year ended December 31, 2017 to 29.8% at year ended
December 31, 2018, principally due to overall business performance and capital expenditure optimization, partially offset
by one time effects of certain reimbursements that did not recur in the current year.
Non-operating expenses
Interest expense
($ thousands)
Senior Secured Notes
Term Loan Facilities
Revolving Credit Facilities
Other
For the year ended
December 31,
$ Change
2018
(351,387 )
(39,462 )
(27,805 )
(13,036 )
(431,690 )
2017
(390,840 )
(23,567 )
(34,984 )
(10,200 )
(459,591 )
$
39,453
(15,895 )
7,179
(2,836 )
27,901
%
(10.1 )
67.4
(20.5 )
27.8
(6.1 )
Interest expense for the year ended December 31, 2018 decreased by $27.9 million compared to the year ended
December 31, 2017, primarily related to:
• A $39.5 million decrease in the senior secured notes, principally due to:
◦ A decrease of $38.8 million due to the redemption of the €500 million 6.625% Senior Secured Notes due
February 2018 when they matured on February 2, 2018;
◦ A decrease of $11.8 million due to the repurchase of $355.7 million of the $500 million 7.500% Senior Secured
Notes due July 2019 in June 2017;
◦ A decrease of $9.1 million due to the September 2018 redemption of the $600 million 5.625% Senior Secured
Notes due February 2020 (the "5.625% Notes");
◦ An increase of $12.5 million due to the September 2018 issuance of the $750 million 6.250% Senior Secured
Notes due January 2027; and
◦ An increase of $10.9 million due to the June 2018 issuance of the €500 million 3.500% Senior Secured Notes
due July 2024; and
• A $15.9 million increase in term loan facilities, primarily related to:
◦ A $26.9 million increase due to the July 2017 execution of the €1.5 billion term loan facility due January 2023;
and
Annual Reports and Accounts 2018 Page | 25
◦ An $11.0 million decrease due to the July 2017 prepayment of the €800 million term loan facility due January
2019.
Foreign exchange gain (loss), net
The Company recorded foreign exchange gains (losses), net of $129.0 million and $(443.8) million for the years ended
December 31, 2018 and 2017, respectively, which are principally non-cash and relate to fluctuations in the euro to U.S.
dollar exchange rate on euro denominated debt.
Other (expense) income, net
The components of other (expense) income, net are as follows:
($ thousands)
Debt related transactions
Redeemable non-controlling interest
Other
Debt related transactions
For the year ended
December 31,
2018
2017
(54,907 )
(148,416 )
15
(203,308 )
(31,593 )
(74,253 )
(2,085 )
(107,931 )
$ Change
2018 vs. 2017
$
(23,314 )
(74,163 )
2,100
(95,377 )
%
73.8
99.9
(100.7 )
88.4
In October 2018, the Company redeemed in full its subsidiary's $144.3 million 7.500% Senior Secured Notes due July
2019 (the "7.500% Notes") and $96.8 million of its subsidiary's $124.1 million 5.500% Senior Secured Notes due June
2020 (the "5.500% Notes") for total consideration, excluding interest, of $248.7 million and recorded a $4.8 million loss
on extinguishment of debt in connection with the redemption.
In September 2018, the Company redeemed in full the 5.625% Notes for total consideration, excluding interest, of
$617.1 million and recorded a $20.0 million loss on extinguishment of debt in connection with the redemption.
In June 2018, the Company offered to purchase up to €500 million of the €700 million 4.125% Senior Secured Notes
due February 2020 (the "4.125% Notes") and the €500 million 4.750% Senior Secured Notes due March 2020 (the
"4.750% Notes"). The Company purchased €262.4 million ($303.6 million) of the 4.125% Notes and €112.1 million
($129.7 million) of the 4.750% Notes for total consideration, excluding interest, of €395.5 million ($457.5 million) and
recorded a $29.6 million loss on extinguishment of debt in connection with the purchase.
In June 2017, the Company offered to purchase any and all of the $500.0 million 7.500% Notes and the Company
purchased $355.7 million of these notes for total consideration, excluding interest, of $393.5 million. The Company
recorded a $25.7 million loss on early extinguishment of debt in connection with the purchase.
Redeemable non-controlling interest
The Company classifies its non-controlling interest in Lottoitalia S.r.l. as a financial liability recorded at amortized cost.
The increase of $74.2 million in accretion expense from December 31, 2018 compared to December 31, 2017 was due
to the Company updating the net present value of estimated cash flows due to a revised estimate in the future dividends
to be paid.
Non-financial measures
Non-financial measures have a useful role alongside financial measures to inform decision making and to evaluate
the Company's performance. Refer to the Directors' Report, Greenhouse gas emissions for further information on
non-financial measures.
FUTURE STRATEGY
Annual Reports and Accounts 2018 Page | 26
The Company's vision is to maintain our leading presence in the gaming industry through continued innovation,
compelling product and service offerings, and excellent government and customer relationships. The Company has the
resources, content, technologies, and market leading research and development capabilities to support this vision.
The Company is focused on six broad strategic initiatives:
• Grow lottery worldwide;
• Gain gaming market share globally;
•
•
•
• Grow profits and generate cash.
Expand the PlayDigital segment and increase distribution of IGT’s content library;
Protect the Italy business;
Fully participate in the U.S. sports betting market; and
NAGI
NAGI is focused on regaining its market leading position by supporting a continued turnaround in its premium recurring
category, recapturing market share in the core business, and expanding into new gaming verticals and concepts. The
Company will support these efforts through concentrated research and development investment, disciplined game and
cabinet development, comprehensive customer engagement, and thorough exploration of player preferences. The
Company is also well positioned to continue to increase its systems’ market share with the Company’s best-in-class
systems agnostic software technology, and to pursue opportunities in under-served markets.
NALO
NALO is focused on continuing to drive same-store sales growth and to achieve growth in instant tickets by innovating
game development, changing the distribution paradigm, modernising customer and retailer technology solutions, and
driving customer engagement, loyalty and performance.
International
The International segment is focused on stabilizing its position in commercial gaming by growing its installed base,
achieving market share expansion for shipped units, installing new systems, and continuing to turnaround the Australian
business. The International lottery segment is focused on securing several new contracts, rebids, and multiple contract
extensions, thereby strengthening the business’s recurring revenue stream and further strengthening its competitive
positioning for upcoming contract opportunities.
Italy
The Italy segment is focused on continuing to protect profitability by continuing to pursue operational efficiency and
investing to reinforce long-term strategic positioning. In lottery, the segment will focus on sustaining long-term scratch
and win growth and overall wager stability, leveraging digital, product innovation, and channel convergence, while
gaming revenue and profitability will continue to be supported by new content development and a strengthened
distribution network. In addition, the Italy segment will continue to see improvements in its betting and interactive
performance through strengthened product offering, improved platform quality, and other enhancements.
Annual Reports and Accounts 2018 Page | 27
MARKET TRENDS
Lottery
A main driver behind lottery growth in maturing markets is same-store sales optimization, while new or under penetrated
markets are more focused on driving growth in the player base. The Company anticipates that in North America, instant
tickets will continue to outpace online growth through portfolio optimization and advancements in the procurement
process. Digital lottery has increased current player engagement and reached new audiences, and it will continue to be
a growth driver in existing regulated markets (many of which are in Europe) as well as a source of growth in newly
regulated markets.
Gaming Machine
The North America casino market recovery is expected to continue, with Gross Gaming Revenue (GGR) forecasted to
grow at a 1.5% Compound Annual Growth Rate (CAGR) over the next four years, according to H2 Gambling Capital.
Machine replacement rates are expected to continue to experience low single digit growth in North America while new
and expansionary opportunities are expected to achieve more stable short-term growth than in recent years.
International markets are expected to benefit from ongoing appreciation in gaming replacements while new market
expansion is expected to experience volatility over the next few years.
Digital
The expansion of the digital business is expected from new nationally regulated markets, ongoing adoption of mobile
devices, and product innovation. Growth in existing regulated markets is expected to continue to come mainly from
interactive betting, lottery, and casino with mobile adoption increasing engagement with existing and new players alike.
PRINCIPAL RISKS AND UNCERTAINTIES
The Company seeks to minimise, control, and monitor the impact of risks to
profitability whilst maximizing the opportunities they present.
The Company acknowledges that it faces a number of risks which could impact the achievement of its strategy. While it
is not possible to identify or anticipate every risk due to the changing business environment, the Company has an
established risk management process to manage and mitigate risk. The Company’s process for identifying and
managing risk is set by the board of directors.
Risks are considered in terms of their impact and likelihood from both a financial and reputational perspective. Although
not exhaustive, the principal risks facing the Company are essentially categorised into the following broad risk
categories:
• Risks relating to the Company’s business and industry;
• Legal and compliance risks;
• Operational risks; and
• Financial and tax risks.
The potential impact of these risks and the mitigating controls in place to manage their impact are as follows:
RISK
IMPACT
MITIGATION
Business and industry
Reductions in market discretionary
consumer spending, due to general
economic or political conditions.
The global economic and political
climate may impact the Company
and its operations, business,
financial conditions or prospects.
We constantly review our business
strategy and remain closely aligned
with governments and other policy
makers across our markets. We also
have a diverse portfolio across many
regions.
Annual Reports and Accounts 2018 Page | 28
RISK
If the U.K.'s membership in the E.U.
terminates (Brexit) without a formal
withdrawal agreement, there could
be further political and economic
uncertainty in the U.K. and the E.U.
that may impact our global
operations.
Termination of or failure to renew or
extend contracts and early
termination or non-renewal of
government concessions.
Slow growth and competition in the
lottery and gaming industries.
Our Italian licenses, lottery contracts
in the U.S. and in other jurisdictions,
and other service contracts often
require performance bonds or letters
of credit to secure our performance
under such contracts and require us
to pay substantial monetary
liquidated damages in the event of
our non-performance. At
December 31, 2018, we had
outstanding performance bonds and
letters of credit in an aggregate
amount of approximately $1.217
billion.
Intellectual property laws may afford
differing and limited protection for our
proprietary technology and
intellectual property.
IMPACT
Because we maintain significant
operations in the E.U., Brexit could
impact intercompany transactions
and increase certain tax liabilities.
Our ability to operate in Italy may be
negatively impacted if Brexit does not
maintain equal rights for U.K. and
E.U. companies or the current Italian
regulatory framework is modified as
a result of Brexit.
A significant portion of the
Company’s business and profitability
will continue to depend upon the
portfolio of long-term contracts and
the concessions awarded. Failure in
the continued ability to retain and
extend our existing contracts and win
new contracts could have a
materially adverse effect on the
results of the Company’s operations,
business, financial conditions or
prospects.
Reduced demand for our products
and services may impact the
Company and its operations,
business, financial conditions or
prospects.
These instruments present a
potential for expense and divert
financial resources from other uses.
Claims on performance bonds,
drawings on letters of credit, and
payment of liquidated damages could
individually or in the aggregate have
a material adverse effect on results
of our operations, our business, our
financial condition, or our prospects.
MITIGATION
We continue to monitor Brexit and its
potential impacts on our results of
operations, business, financial
condition, or prospects.
We maintain strong and open
relationships with the regulators and
operators, carefully monitoring,
reviewing, and improving our
customer base relationships. We
have a strong history of renewing
long-term important contracts,
including the Italian Lotto and
Scratch & Win licenses.
We work with other participants in
the lottery industry to attract and
retain new players, and devote
significant resources to developing
innovative services, products, and
distribution methods/systems.
We strive to perform under each of
our contracts. To date, we have not
had to pay any substantial monetary
liquidated damages as a result of our
non-performance.
Our competitors may duplicate our
products, design around our
patented products, or gain access to
our proprietary technology and
intellectual property.
We vigorously protect our proprietary
technology and intellectual property
to ensure that our competitors do not
use such technology and intellectual
property. We also prevent disclosure
of trade secrets and proprietary
know-how through non-disclosure
and confidentiality agreements and
other contractual restrictions.
Annual Reports and Accounts 2018 Page | 29
RISK
Pursuant to our loyalty plan, special
voting shares cannot be traded and,
immediately prior to the
deregistration of ordinary shares
from the register of loyalty shares,
any corresponding special voting
shares shall cease to confer any
voting rights in connection with such
special voting shares. At February
28, 2019, De Agostini S.p.A. (De
Agostini) had an economic interest of
approximately 50.64% and, due to its
election to exercise the special voting
shares associated with its ordinary
shares pursuant to the loyalty plan, a
voting interest in the Parent of
approximately 67.23% of the total
voting rights.
Legal and Compliance
The extensive and complex laws and
regulations applicable to our
operations. Responding to changes
in or breaches of regulatory or
legislative requirements.
On January 14, 2019, the U.S.
Department of Justice, (the DOJ)
published an opinion reversing its
previously-issued opinion that the
Wire Act was applicable only to
sports betting (the 2019 Opinion).
The 2019 Opinion interprets the Wire
Act as applying to other forms of
gambling that cross state lines,
though the precise scope of the 2019
Opinion is unclear, and the DOJ has
not yet provided final guidance on
how it plans to enforce the Wire Act
in light of the 2019 Opinion.
Operational
Failure to attract, retain, and motivate
key management and employees.
IMPACT
De Agostini may make decisions with
which other shareholders may
disagree, including, among other
things, delaying, discouraging, or
preventing a change of control or a
potential merger, consolidation,
tender offer, takeover, or other
business combination and may also
prevent or discourage shareholders’
initiatives aimed at changes in our
management. The loyalty voting
structure may limit the liquidity and
adversely affect the trading prices of
our ordinary shares.
Lower than anticipated sales due to
legal and compliance (including
regulatory) issues could have a
materially adverse effect on the
results of the Company’s operations,
business, financial conditions or
prospects. In particular, the Italian
government has recently banned
gaming advertising and significantly
raised gaming taxes. Any changes in
the legal or regulatory framework or
other changes, such as increases in
the taxation of sports betting or
gaming, changes in the
compensation paid to licensees, or
increases in the number of licenses,
authorizations, or licenses awarded
to the Company's competitors, could
materially affect its profitability.
If the Wire Act is broadly interpreted
to prohibit activities in which we and
our customers are engaged, we
could be subject to investigations,
criminal and civil penalties, sanctions
and/or other remedial measures
and/or we may be required to
substantially change the way we
conduct our business, any of which
could have a material adverse effect
on our results of operations,
business, financial condition, or
prospects, as they may require
significant resources or prevent us
from operating in certain sectors or
locations.
Our success relies on the continued
service of our senior management
and technical personnel, and on our
ability to continue to attract, motivate,
and retain highly qualified
employees.
MITIGATION
In line with its legal requirements, our
board of directors takes actions that
are beneficial for us and our
shareholders taken as a whole and
that are not prejudicial to any
individual shareholder.
We continuously evaluate our
exposure to such types of risks for
any changes in government
regulations and their effect on our
operations, business, financial
conditions or prospects. We adjust
our business strategy as necessary
to remain compliant with laws and
regulations and also remain
profitable.
We are evaluating the 2019 Opinion,
the DOJ's positions on the issues
and the implications thereof to us,
our customers, and the industries in
which we operate.
Provide well-structured and
competitive reward and benefit
packages that ensure our ability to
attract and retain the employees we
need. We invest in training and
career development opportunities for
our people to support them in their
careers.
Annual Reports and Accounts 2018 Page | 30
RISK
Lack of integrity of our employees,
directors, and agents and the
security of our systems.
IMPACT
The real and perceived integrity and
security of our systems are critical to
our ability to attract customers.
MITIGATION
The Company strives to set exacting
standards of personal integrity for its
employees and directors, as well as
system security for the systems that
it provides to its customers. The
Company has a robust global
compliance programme that requires
employees to acknowledge they
understand and comply with
Company policies.
Systems, network or
telecommunications failures or cyber-
attacks may disrupt the Company’s
business and have an adverse effect
on its results of operations.
Any disruption in our network or
telecommunications services, or
those of third parties that we utilise in
our operations, could affect the
Company’s ability to operate our
games or financial systems, which
would result in reduced revenues
and customer downtime.
We continuously implement and
improve network security measures
and data protection safeguards,
including a disaster recovery strategy
for back office systems. We also hold
insurance policies that can mitigate
losses incurred due to cyber-attacks.
Financial and Tax
Covenants in the Company’s debt
agreements may limit our ability to
operate our business.
Adverse changes in tax regulation
and differing interpretations by
authorities on taxation.
The breach of such covenants could
materially and adversely affect our
business, financial conditions and
results of operations as well as our
ability to pay dividends.
Any increases in the levels of
taxation or duties to which we are
subject, or the implementation of any
new taxes or levies to which we will
be subject, could have a materially
adverse effect on our business,
financial conditions and results of
operations.
We maintain long debt maturities and
reasonable net debt to EBITDA
leverage to help minimise our
refinancing risk.
We maintain a well qualified tax
department as well as good
relationships with third party tax
experts, helping to assess these
risks and achieve compliance with
the relevant tax legislation.
Approval
This Strategic Report has been approved by the Board of Directors on April 12, 2019.
Signed on behalf of the Board of Directors by:
Marco Sala
Chief Executive Officer
Annual Reports and Accounts 2018 Page | 31
2. REMUNERATION REPORT
REMUNERATION REPORT:
ANNUAL STATEMENT BY THE COMPENSATION COMMITTEE
CHAIRMAN
Dear Recipient,
As the Chairman of the Compensation Committee (the Committee), I am pleased to present the Directors' Remuneration
Report of the Parent for the financial year ended December 31, 2018 (the Remuneration Report) for which we seek your
support at our Annual General Meeting (AGM) in London on May 17, 2019.
The Remuneration Report is designed to demonstrate the link between the Company's strategy, its performance and the
remuneration outcomes of our Directors and particularly those of our Executive Director and Chief Executive Officer
(CEO), Mr. Marco Sala.
We believe our current program is competitive and appropriate within the market where we primarily compete for
directors and executive talent. However, we are sensitive to U.K. corporate governance practices and recognize that
some aspects of our current remuneration arrangements may not be consistent with these practices. One characteristic
that differs from typical U.K. practice but is common and appropriately competitive within our market includes the use of
equity for compensating Non-Executive Directors; equity is a common component of Non-Executive Director
compensation within our compensation and performance peer groups.
Our remuneration arrangements also take into account the additional director responsibilities involved with service on
the board of a public limited company incorporated under the laws of England and Wales, listed on the New York Stock
Exchange and subject to the U.S. Securities and Exchange Commission reporting requirements, as compared with other
companies that are listed and incorporated solely in the U.K. The Committee aims to balance any conflict between the
two sets of guidelines.
Noting the Company does not have to comply with the U.K. Corporate Governance Code, the Remuneration Report has
been prepared in accordance with all applicable U.K. legislation, capitalizing on corporate governance and proxy
guidelines. Going forward, the Committee is working to bring our remuneration structures in-line with the latest proxy
guidelines and with shareholder expectations, as much as possible.
The Remuneration Policy
Following the 16.62% vote against the Parent's Directors’ Remuneration Policy (the Remuneration Policy) at last year’s
AGM, which we understand was largely in relation to the Executive Director's service contract, we are taking steps to
address shareholder concerns through regular engagement and feedback which we feed into our compensation
philosophy. The Committee approved changes to severance payment arrangements with Mr. Sala and any future
Executive Directors which are in the aggregate substantially less than are permitted under the current Remuneration
Annual Reports and Accounts 2018 Page | 32
Policy, but required changes to the Remuneration Policy with respect to potential payments made as consideration for
non-compete provisions.
The Remuneration Implementation Report
As required by the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations
2013 (the Regulations), the Remuneration Implementation Report sets out the payments and awards made to Directors
and details the link between the Parent’s performance and remuneration for the 2018 financial year and explains how
the Remuneration Policy was implemented in the financial year under review. The Remuneration Implementation Report
together with this letter is subject to an annual advisory shareholder vote at the AGM.
2018 Remuneration Highlights
Below are the highlights of the compensation-related decisions that impacted our Directors during 2018:
• Key Metrics: As set out in the Remuneration Implementation Report, the Parent performed well overall based
on key metrics. Under our short-term incentive plan, the Parent achieved its objectives for adjusted operating
income and adjusted earnings before interest, income taxes, depreciation and amortization (Adjusted EBITDA)
and exceeded its objectives for adjusted net debt.
• Executive Director Remuneration: The Executive Director received a bonus equal to 232.5% of his base
salary under the Parent's short-term incentive plan and 77.5% of the maximum amount of annual bonus for the
financial year ended December 31, 2018. In addition, the performance metrics of the long-term performance
based units were partially met and, therefore, the Executive Director’s award vested at 40.2% of the total
awards granted (being 37.0% of the maximum opportunity) in accordance with its terms. The performance
conditions for the awards granted under the 2015 long-term co-investment plan for the awards vesting this year
were also met and vested at 100% of target and maximum.
• Additional metrics added to LTIP: In 2018, the Committee exercised its discretion to adjust the financial
metrics used for the 2016 and 2017 LTIP awards (as permitted by the Remuneration Policy) to enable the
Parent to achieve a more balanced result in relation to its outstanding Performance-based Stock Units (PSUs).
For these awards, the Committee eliminated the Net Debt / EBITDA leverage ratio and replaced it with a three-
year Cumulative Consolidated Adjusted EBITDA and Adjusted Net Debt. These changes were made because
the prior plan put too much weight on EBITDA, which was essentially double counted through both the Adjusted
EBITDA metric and net debt to EBITDA leverage ratio. This reduced the focus on net debt, which is an
important measure of de-leveraging.
• 2018 Long-Term Co-Investment Plan: During 2018, the Committee granted the Executive Director a co-
investment award, for which vesting is dependent on absolute total shareholder return (TSR) growth of 20%
over the three-year performance period, continued ownership of 345,000 shares during the vesting period and
re-investment of at least 50% of the total committed and awarded shares in the next 2021 co-investment plan, if
applicable. In addition, Mr. Sala must remain an Executive Director of the Parent until shareholders approve the
Parent's 2020 financial statements at the AGM in 2021.
Substantial changes made to Non-Executive Directors’ Remuneration during the
year
The role of a Lead Independent Director was introduced in 2018 - this position was given to an existing independent
Non-Executive Director, James McCann. This role has more responsibility attached to it, namely, the Lead Independent
Director is required to:
•
•
Serve as a liaison between the Chairperson of the Board of Directors (Board) and the independent
Directors;
Lead executive sessions of the Board, together with the Chairperson of the Board if the Chairperson of the
Board is a non-employee director;
• Have authority to call meetings of the Board and meetings of the independent Directors;
•
Lead the Board in discussions concerning Executive Director performance, compensation and succession,
together with the Chairperson of the Board if the Chairperson of the Board is a non-employee director;
• Have authority to attend meetings of all committees of the Board, and if requested by institutional and other
major shareholders, be available for consultation and direct communication; and
Annual Reports and Accounts 2018 Page | 33
•
Perform such other duties and responsibilities as requested by the Board.
Therefore, the Committee has exceptionally granted an additional 20% on top of the current Non-Executive Directors'
base salary and an additional 20% on top of the current Non-Executive Directors' restricted share unit (RSU) award to
James McCann, pro-rated from appointment. This increase was permitted under the Remuneration Policy.
Mr. Vincent Sadusky, Mr. Paget Alves and Ms. Heather McGregor were paid additional fees of $14,000, $7,500 and
$7,500, respectively, for participating in (i) dedicated meetings on certain extraordinary transactions of the Parent and
additional work required for those meetings, and (ii) the significant time commitment and effort connected to monitoring
and evaluating complex technical cybersecurity risks. The Committee granted an additional 10%, 7.5 % and 7.5%,
respectively, on top of their current annual fee as Non-Executive Directors. This increase is permitted under the
Remuneration Policy.
Changes to the Board during the year
Mr. Paolo Ceretti retired from the Board of Directors of the Parent on May 17, 2018. The Committee considered it
appropriate to award him his full RSU award as he retired on the date of the 2018 AGM and RSU awards run from AGM
to AGM. However, his fee was pro-rated from January 1 through to his retirement date.
Mr. Philip Satre also retired from the Board of Directors of the Parent as Chairman effective August 6, 2018. The
Committee deemed it appropriate to award him his full RSU award as he served at least eight years as a Director of the
Parent or predecessor companies and so was entitled to the full RSU award under his RSU agreement. His fee was pro-
rated from January 1 through to his retirement date.
In conclusion
The Remuneration Report, consisting of the Annual Statement by the Compensation Committee Chairman, the
Remuneration Policy and Remuneration Implementation Report is compliant with its reporting requirements and forms
part of the statutory annual reports and accounts of the Parent for the year ended December 31, 2018. We welcome
your feedback as we remain committed to open and transparent dialogue with shareholders and we hope to receive
your support at the forthcoming AGM.
Gianmario Tondato Da Ruos
Chairman of the Compensation Committee
Annual Reports and Accounts 2018 Page | 34
REMUNERATION REPORT:
REMUNERATION IMPLEMENTATION REPORT
This part of the Remuneration Report has been prepared in accordance with the Regulations. The information in this
section has been audited where required under the Regulations save for the paragraphs on the performance graph, the
relative importance of spend on pay, the statement of implementation of the Remuneration Policy in 2018, the
consideration by the directors of matters relating to directors’ remuneration, the statement of voting at last year's AGM,
the service agreements, and the statement of consideration of shareholder views.
Executive Director's remuneration as a single figure - audited
The remuneration of the Executive Director for the financial years ended December 31, 2018 and 2017 is set out below
and relates to his performance of his role as the Executive Director of the Parent or in connection with the management
of the affairs of any subsidiary of the Parent. Total remuneration of the Executive Director decreased $0.4 million in 2018
as compared to 2017, excluding 2018 remuneration of $10.2 million related to the settlement of the 2015 Co-Investment
award, which is granted once every three years, and a $0.9 million housing allowance payment made once every three
years.
The remuneration of the Non-Executive Directors is set out on page 44.
($)
2018
2017
Salary(1)
Benefits(2)
Annual
Bonus(3)
LTIP(4)
Pension(5)
Total(6)
922,590
4,127,103
2,325,000
11,680,286
913,281
19,968,260
887,588
3,415,827
1,832,250
2,545,109
558,172
9,238,946
(1) Mr. Sala’s annual salary is $1,000,000, which is paid 70% in the U.K. in pounds sterling (converted at an exchange rate 1.33) and 30% in Italy in Euros (converted at
an exchange rate of 1.18). This payment arrangement requires periodic true-ups related to foreign currency fluctuations.
(2) Taxable benefits include the following:
Housing(a)
Car Benefit
Meals, Travel
& Other
Allowances
Health
Insurance
968,804
12,673
19,290
22,882
44,583
7,758
4,425
4,232
($)
2018
2017
Tax(b)
1,939,062
3,368,281
FX
Adjustments(c)
1,150,939
—
Total Taxable
Benefits
4,127,103
3,415,826
(a) The 2018 housing benefit includes a $944,800 housing allowance payment, which is paid once every three years per Mr. Sala's Italian employment agreement.
(b) Represents foreign tax payments net of reimbursements of $1,849,439 and other tax equalization and preparation services of $89,623.
(c) Represents the 2018 payments to adjust prior periods' salary and bonus payments for foreign currency fluctuations, per Mr. Sala's employment contract.
(3) Represents annual bonus earned for the annual performance periods ended 2018 and 2017, paid in 2019 and 2018, respectively.
(4) The amount in 2017 has been modified to represent units earned subject to performance periods ended 2017 multiplied by the market price of the underlying shares
as at such settlement date. Previously the reported 2017 amount of $5,453,150 represented the units vested in 2017 multiplied by the market price of the underlying
shares as at such vesting date. Total LTIP is as follows:
Performance Units(a)
Co-Investment Units(b)(d)
Shares
89,656
88,702
($)
1,471,986
2,545,109
Shares
250,000
—
($)
7,045,400
—
Co-Investment Options(c)(d)
($)
3,162,900
—
Shares
250,000
—
Total LTIP
Shares
589,656
88,702
($)
11,680,286
2,545,109
2018
2017
(a) The 2018 amount represents 40.2% of target PSUs subject to the 2016 through 2018 performance period, which will vest in April 2019 and 2020 multiplied by
$16.42, the three-month average closing stock price ending December 31, 2018. The 2017 amount represents 69% of target PSUs subject to the 2015 through
2017 performance period, which were settled on April 10, 2018, multiplied by the settlement date closing stock price of $28.69.
(b) Represents units subject to the 2015 co-investment award, which was settled on May 18, 2018, multiplied by the settlement date closing price of $28.18.
(c) Represents options subject to the 2015 co-investment award, which was settled on May 18, 2018, multiplied by the difference between the settlement date
closing price of $28.18 and the option exercise price of $15.53.
(d) Under the Co-Investment vesting rules, 50% of the award is reinvested in the plan, the amount in the single figure table above includes the value of the required
reinvestment.
(5) Pension includes base pension contributions, severance and employer social tax contributions, net of employee contributions, in respect of his Italian service
agreement. Mr. Sala does not participate in any U.K. pension plan.
(6) Total remuneration reflects all remuneration related to Mr. Sala’s employment contract with the Parent, and for the avoidance of doubt, under his employment contract
with Lottomatica S.p.A. which merged with and was absorbed by Lottomatica Holding S.r.l., effective December 1, 2018.
Annual Reports and Accounts 2018 Page | 35
Performance against performance conditions for the STIP - audited
Bonuses under the STIP are earned by reference to the financial year and paid in March following the end of the
financial year.
The Committee reviews the performance measures and targets of the STIP annually to evaluate whether these
measures remain appropriately aligned to the Parent's overall business strategy. Payment to the Executive Director
under the 2018 STIP was based on both predetermined financial performance metrics, including Adjusted Consolidated
Corporate EBITDA (EBITDA), Adjusted Consolidated Operating Income (OI) (excluding Purchase Price Accounting) and
Adjusted Consolidated Net Debt, and individual Management by Objectives (MBOs). Target payments continue to be
based on 150% of the Executive Director's salary with a maximum opportunity of 300% of base salary.
The table below sets out the 2018 STIP financial metrics, actual performance and the bonuses accruing in 2018 to the
Executive Director:
($ in millions)
Weighting Threshold
Target Maximum
Performance Payout %
2018
Financial Performance Measures
Adjusted Consolidated OI
Adjusted Consolidated EBITDA
Adjusted Consolidated Net Debt
Personal Performance Measures
MBOs
25%
25%
30%
20%
848
1,523
8,109
942
1,692
7,911
1,036
1,862
7,713
955
1,713
7,673
113%
107%
200%
200%
Payout as % of Target
155.0%
Payout as % of Maximum
77.5%
During financial year ended December 31, 2018, Mr. Sala exceeded targets related to his individual MBOs which were
weighted 50% on achieving specific organizational redesign synergies and 50% on achieving global transformation
milestones, all of which the Company deems commercially sensitive as these are related to longer-term strategic
initiatives.
Performance against performance conditions for the LTIP vesting - audited
The LTIP amount included in the 2018 single total figure of remuneration reflects the PSUs granted in 2016 (together
with the performance units and performance stock options granted under the Co-Investment Plan - see below). Vesting
was dependent on performance over three financial years ending on December 31, 2018 and continued service until
April 1, 2019 for 50% of the units earned and April 1, 2020 for the remaining 50% of units earned. The performance
achieved against the performance targets is shown below.
($ in millions)
Threshold
Target
Maximum
2018
Performance
Performance
% of Target
Payout %
2016 - 2018
Adjusted Cumulative EBITDA
Adjusted Net Debt
EBITDA/Net Debt Matrix Result
Relative TSR Modifier
Performance results (% of target)(1)
Plan Adjustment Factor(2)
5,169
7,870
5,588
7,570
5,867
7,270
5,342
7,428
95.6%
101.9%
<25th
60th
>75th
38.0%
63.3%
Total units earned (% of target)(3)
Total units earned (% of maximum)(4)
63.7%
84.3%
53.7%
75.0%
40.2%
37.0%
Annual Reports and Accounts 2018 Page | 36
(1) EBITDA/Net Debt Matrix Result payout (63.7%) multiplied by Relative TSR Percentile payout (84.3%).
(2)
In conjunction with the modification to the 2016 - 2018 financial metrics, the Compensation Committee also approved a 25% reduction in earned shares per the
revised performance metrics. Therefore, the 75% plan adjustment factor reduces the earned units by 25%.
(3) Total units earned is the product of payout under the performance results multiplied by the 75% plan adjustment factor.
(4) The maximum number of shares to be earned under the plan, including the 25% reduction approved in 2018, is 108.75% of target.
Performance against performance conditions for the Co-Investment Plan - audited
The amount relating to the Co-Investment Award in the 2018 single total figure of remuneration reflects the performance
stock options and performance stock units granted to Mr. Sala under the co-investment agreement entered into with the
Parent in November 2015 (2015 Co-Investment Agreement). The purpose of the 2015 Co-Investment Agreement was to
focus Mr. Sala on the strategic and business objectives of the Company as well as further aligning the interests of Mr.
Sala with those of the Company's shareholders. Under the agreement, the Parent agreed to match (up to a maximum
500,000 ordinary shares) Mr. Sala's existing ownership of 500,000 ordinary shares in the Parent. The 500,000 ordinary
shares were to be comprised of up to 250,000 ordinary shares and 250,000 options for ordinary shares. Vesting was
dependent on different metrics as set out below over the three financial years ending on December 31, 2017.
• Continued service with the Parent as CEO until the date on which the annual accounts for the year ended
December 31, 2017 were approved by the Directors (the Vesting Period);
• The 500,000 ordinary shares were continuously held by the CEO for the duration of the Vesting Period;
• The volume weighted average price of the Parent’s shares during the 90-day trading period ending on the
vesting date (Applicable Share Price) being equal to or greater than $16.83, which is the 20-day average
closing price ending on the grant date, increased by 5%; and
• There is a re-investment of 50% of the total committed and awarded shares (involving the use of cash proceeds
for any exercised performance stock options, net of tax) in a subsequent three-year Co-Investment Award
agreement if in the financial year ending December 31, 2018, Mr. Sala is reappointed in his role as CEO for
another three year mandate. The percentage re-invested into the requisite shares would be accounted for to
satisfy the Parent's share ownership requirements under the agreement.
During the financial period ended 2018, the Committee determined Mr. Sala had met all of the performance conditions,
including the adoption of the 2018 Co-Investment Award Agreement as discussed below. Accordingly, on May 17, 2018,
all performance stock units and performance stock options subject to the 2015 Co-Investment Award agreement vested
in full. The options subject to the award have an exercise price of $15.53 and will expire in 2022.
Pensions - audited
The Parent offers a group personal pension plan, under which the Parent may match the contributed percentage of base
salary (between 2% and 6%) plus one percent up to a maximum of 7% for contributions at 6% or above. Mr. Sala does
not currently participate in the group personal pension plan.
The figure in the single-figure table reflects Mr. Sala's Italian pension under his service agreement with Lottomatica
S.p.A. which merged with and was absorbed by Lottomatica Holding S.r.l. (Lottomatica), effective December 1, 2018.
This pension fund is structured as a contribution scheme. The employee contributions rate is equal to 10.19% and the
employer quota is approximately 27%. The estimated retirement date for Mr. Sala is in January 2027, which, in
accordance with Italian regulations, could be postponed to March 2027.
As far as the contributions to the Italian integrative pension fund are concerned, Mr. Sala’s contributions are levied at a
rate of 3.45% on remuneration earned for his employment under the Lottomatica service agreement. Lottomatica
contributes 8.55% of such remuneration.
During the financial year ended December 31, 2018, there was no accrual for an Italian severance payment for Mr. Sala.
Schemes interests awarded during the financial year - audited
In 2018, 100% of the awards granted to the Executive Director under the Parent's LTIP were PSUs (2018 PSUs); 50% of
the awards granted under the Parent's Co-Investment Plan were PSUs and 50% of the awards were performance based
stock options (together the 2018 Co-Investment Awards). The table below sets out the details of the 2018 PSUs and the
2018 Co-Investment Awards granted to our Executive Director from January 1, 2018 through December 31, 2018:
Annual Reports and Accounts 2018 Page | 37
Type of Award
Maximum
Units/Opti
ons
Face Value
on Grant
Date(1) ($)
Vesting
PSUs under the LTIP
227,771
6,860,463
Based on 2018, 2019 and 2020 performance; 50%
vesting in 2021 and remaining 50% vesting in 2022
PSUs under the Co-
Investment Plan
Performance Stock Options
under the Co-Investment
Plan
172,500
5,195,700 May 2021 Based on Co-Investment Criteria
172,500
—
May 2021 Based on Co-Investment Criteria
(1) The face value on grant date is calculated as the maximum number of units or options which could be earned under the award times the difference between the Price
on Grant Date and the Exercise Price, if applicable, as follows:
Performance Awards
Maximum
Units/Options
Price on
Grant Date ($)
Exercise Price ($)
Face Value on
Grant Date ($)
PSUs under the LTIP
PSUs under the Co-Investment Plan
Performance Stock Options under the Co-Investment Plan
227,771
172,500
172,500
30.12
30.12
30.12
—
—
30.12
6,860,463
5,195,700
—
Vesting criteria of the 2018 PSUs
The vesting of the 2018 PSUs is tied to three performance metrics:
Three-Year Cumulative Consolidated Adjusted EBITDA Profitability measure
Adjusted Net Debt
Relative TSR
Use of Cash
Performance Against Peers
In 2018, the Committee adjusted the financial metrics used for the 2016 and 2017 LTIP awards to enable the Parent to
achieve a more balanced scoring result in its outstanding PSUs. For these awards, the Committee eliminated the Net
Debt / EBITDA leverage ratio and replaced it with a three-year Cumulative Adjusted EBITDA and Adjusted Net Debt.
Adjusted EBITDA and TSR were selected as performance measures because they provide strong focus on profit and
alignment to shareholder returns, respectively. The Adjusted Net Debt Scoring Factor is designed to ensure focus on de-
leveraging and reducing net debt. Financial objectives were established by the Committee and reviewed by the Board,
consistent with the authorization provided by the Parent’s shareholders. The following metrics discussed below were
used for the 2018 PSUs based on performance over the measurement period of 2018 through 2020, which will vest 50%
in 2021 and 50% in 2022. These changes were made because the prior plan put too much weight on EBITDA, which
was essentially double counted through both the Adjusted EBITDA metric and net debt to EBITDA leverage ratio. This
reduced the focus on net debt, which is an important measure of de-leveraging.
Vesting criteria for the 2018 PSUs in 2021 and 2022 based on performance in 2018 - 2020
• A three-year Cumulative Consolidated Adjusted EBITDA of at least 92.5% of the plan target $5.262 billion;
• An Adjusted Net Debt Scoring Factor measured on an Adjusted EBITDA/Adjusted Net Debt Scoring Matrix that
positively or negatively adjusts the EBITDA payout based on net debt results versus the plan target of $7.381 billion;
and
• Relative TSR against the Russell Mid Cap Market Index.
Step 1: Adjusted EBITDA
Adjusted EBITDA Target $5.262 billion
% Vesting
<92.5%
-
92.5%
33.5%
100%
100%
105%
110%
Linear interpolation will be used between the applicable Adjusted EBITDA targets set forth above. In no event will the
Adjusted EBITDA Payment Factor exceed 110%. Target Adjusted EBITDA for the measurement period is $5.262 billion
with adjustments for the following: foreign currency exchange differences (EUR only); US GAAP accounting changes;
acquisitions, divestitures and asset sales; restructuring cost in excess of the Parent’s strategic plan, from time to time, to
be applied as negative adjustment to EBITDA.
Annual Reports and Accounts 2018 Page | 38
Step 2: Adjusted Net Debt Scoring Factor
The Adjusted Net Debt Scoring Factor is a secondary scoring criteria that positively or negatively adjusts the Adjusted
EBITDA payout based upon Adjusted Net Debt results versus the plan. Adjusted Net Debt refers to net debt as reported
by the Company for the relevant period and Target Net Debt for the measurement period is $7.381 billion with
adjustments for the following: foreign currency exchange differences (EUR only); US GAAP accounting changes;
acquisitions, divestitures, asset sales, refinancing, minority capital and transaction costs; stock transactions (i.e., net
settlement, buy back); timing of significant upfront contract payments; and dividends and factoring/securitization. In no
event will the Adjusted Net Debt Scoring Factor exceed 106%.
Step 3: Adjusted EBITDA/Adjusted Net Debt Payment Matrix
Adjusted EBITDA and Adjusted Net Debt performance are combined in a grid of outcomes: the Adjusted EBITDA and
Adjusted Net Debt Payment Matrix. The Adjusted EBITDA and Adjusted Net Debt Payment Matrix is the net vesting
percentage, prior to TSR adjustment, resulting from the combined Adjusted EBITDA and Adjusted Net Debt
Performance, which is determined at the end of the performance period as follows:
• Actual Adjusted EBITDA is divided by Target Adjusted EBITDA to determine the percent attainment versus
Target;
• Actual Adjusted Net Debt is compared to the Target Net Debt; and
• These two metrics are combined in the Adjusted EBITDA and Adjusted Net Debt Payment Matrix to result in a
single financial score that is used to determine the vesting percentage prior to the TSR adjustment. In no event
will the Adjusted EBITDA and Adjusted Net Debt Payment factor exceed 116%.
Step 4: Relative TSR Payment Factor
Relative TSR Payment Factor
% Vesting
<25th
Percentile
75%
60th
Percentile
100%
>75th
Percentile
125%
The Relative TSR Payment Factor is based on relative TSR for the companies included in the Russell MidCap Index as
of the first day of the measurement period. After Adjusted EBITDA and Adjusted Net Debt are calculated, the TSR
modifier is applied to the calculated vesting.
Step 5: Performance Factor
The Performance Factor is the product of the Adjusted EBITDA and Adjusted Net Debt Payment Matrix, multiplied by the
Relative TSR Payment Factor. Actual vesting under the plan can range from 0% to 145% if all maximum targets are met.
Vesting criteria of the 2018 Co-Investment Awards
On May 15, 2018 the Executive Director, Mr. Marco Sala, entered into a co-investment agreement with the Parent. The
purpose of the agreement is to focus the CEO on the strategic and business objectives of the Company as well as
further aligning the interests of the CEO with those of the shareholders of the Parent. Under the agreement, the Parent
agreed to match the CEO’s existing ownership of 345,000 ordinary shares in the Parent. The 345,000 ordinary shares
were to be comprised of up to 172,500 ordinary shares and 172,500 options for ordinary shares, so long as the following
performance conditions are met:
• Absolute TSR is equal to or greater than 20% over the three-year performance period (the initial price of $28.32
is equal to the 20-trading-days average stock price ending on the date of grant, and the final price is equal to
the 60-trading-days-average stock price ending on the approval of the Parent's 2020 financial statements at the
AGM in 2021);
• The CEO’s continued ownership of 345,000 ordinary shares during the three-year performance period;
• The CEO remains an Executive Director of the Parent until the shareholders approve the Parent's 2020
financial statements at the AGM in 2021; and
• The CEO's agreement to re-invest 50% of the total committed and awarded shares (considering also cash
proceeds for exercised stock options, net of tax) in the next three-year co-investment plan if in 2021 he is
confirmed as an Executive Director of the Parent for another three-year mandate.
Annual Reports and Accounts 2018 Page | 39
According to the terms of 2018 Co-Investment Award, if all of the conditions listed above are met, all shares and all
options will fully vest on the date the shareholders approve the Parent's 2020 financial statements at the AGM in 2021.
Options will have an additional three-year exercise period, with the option exercise price on the date of grant of $30.12.
Statement of Executive Director's shareholding and share interests - audited
Executive Director's interests in performance share awards
The table below sets out details of the interests of the Executive Director in performance share awards for the year
ended December 31, 2018:
Awards
Held at
January
1, 2018
38,938
128,554
250,000
223,025
184,576
—
—
Granted/Perf
ormance
Adjustments
During the
Year(1)
272
(39,852 )
—
(133,369 )
—
157,084
172,500
Shares
Vested
During the
Year
39,210
88,702
250,000
—
—
—
—
Awards
Held at
December
31, 2018(2)
—
—
—
89,656
184,576
157,084
172,500
Date of
Grant
05/31/2014
11/10/2015
11/30/2015
07/26/2016
05/23/2017
05/15/2018
05/15/2018
Market
Price at
Grant Date
$20.29
$16.00
End of
Performance
Period
2016
2017
$15.53
$21.11
$20.63
$30.12
$30.12
2017
2018
2019
2020
2021
Vesting Date
2017 & 2018
2017 & 2018
2018
2019 & 2020
2020 & 2021
2021 & 2022
2021
(1) The 272 share increase in the May 31, 2014 award relates to dividend equivalent units earned prior to vesting. Prior year decreases relate to adjustments for actual
performance achieved.
(2) No award held at December 31, 2018 is eligible to receive dividends or dividend equivalents.
Executive Director's interests in share options
The table below sets out details of the interests of the Executive Director in share options which are outstanding at
December 31, 2018:
Date of
Grant
Awards
Held at
January
1, 2018
07/30/2013
251,329
07/31/2014
328,124
11/30/2015
250,000
05/15/2018
—
Granted
During
the Year
Exercised
During
the Year
—
—
—
172,500
—
—
—
—
Awards
Held at
December
31, 2018
251,329
328,124
250,000
Exercise
Price(1)
End of
Performance
Period
Vesting
Date
Expires
On
$21.74
$20.29
$15.53
2015
2016
2017
2021
2016
2017
2018
2021
2019
2020
2022
2024
172,500
$30.12
(1) The market price at grant date is equal to the exercise price of the stock option.
Executive Director's total share interests
The table below shows the Executive Director's share interests at December 31, 2018, including shares held by
connected persons.
Performance Shares
Share Option Grant
603,816
1,001,953
Total of Outstanding
Options and Shares
1,605,769
Shares Beneficially
Owned Outright(1)
1,560,169
(1) All shareholding ownership guideline requirements have been complied with to the extent applicable.
Total remuneration of the Chief Executive Officer
Annual Reports and Accounts 2018 Page | 40
The table below sets out the total remuneration of the CEO for the financial years ended December 31, 2011 to 2018,
inclusive. Please note that Mr. Sala was CEO of the Parent from April 7, 2015 to the year ended December 31, 2018 and
remains CEO as at the date of this document. Prior to this time, Mr. Sala was a director of the subsidiaries.
2018(1)
($)
2017
($)
2016
($)
2015(1)
($)
2014
(€)
2013
(€)
2012
(€)
2011
(€)
Salary and Benefits 5,962,974 4,861,587 2,598,463 3,139,008 1,768,256 1,727,901 1,710,893 1,626,110
STIP paid as % of
maximum
LTIP vested as a %
of maximum
(awards actually
vested in year)
77.5%
61.0%
81.9%
75.0%
96.3%
93.3%
96.1%
85.0%
37.0%
85.8%
72%
78%
100%
92%
66%
0% - 2008
LTI
(1) Salary and benefits include a housing allowance paid once every three years subject to his Lottomatica contract.
Percentage change in the remuneration of the Chief Executive Officer
The following table compares the percentage change, year over year, in Mr. Sala's base salary, benefits and annual
bonus, with the change in the average of those components for employees as a whole, in all jurisdictions.
Category
Salary(1)
Benefits(2)
Annual Bonus
Executive Director
3.94%
20.82%
26.89%
Company
(2.42)%
(5.41)%
8.91%
(1)
In effect, there has been no percentage change in the CEO's Salary for 2018. The 3.94% difference is due to foreign exchange rate fluctuations between pounds
sterling, Euro and dollar figures for 2017 and 2018.
(2) The percentage change for the CEO's benefits is primarily related to 2018 payments of $1,150,939 to adjust prior periods' salary and bonus payments for foreign
currency fluctuations and a $944,800 housing allowance payment which is paid once every three years offset by a $1,429,219 decrease in foreign tax payments net of
reimbursements.
Total shareholder return performance graph
The chart below shows the TSR index for the Company as against the Russell Mid-Cap Index. The Company considers
it appropriate to benchmark its performance to the Russell Mid-Cap Index due to the Company's nature and size.
Annual Reports and Accounts 2018 Page | 41
Relative importance of spend on pay
The following table shows the year-on-year movement in total remuneration of all employees, compared to the level of
dividends paid and declared on ordinary shares in respect of the financial years ended December 31, 2017 and 2018:
(2) Dividends increased 0.4% in 2018 when compared to 2017.
(3) The Parent is not aware of any other extraordinary payments utilising cash flow or profit. Total Pay includes wages, benefits, STIP, LTIP, and training and other
personnel costs. 2018 Total Pay is calculated at the prior year's foreign exchange rate to 2017 actual Total Pay.
(4) There were no share buy-backs for the financial years ended December 31, 2017 and 2018.
(1) The total pay decreased 0.7% in 2018 when compared to 2017.
Annual Reports and Accounts 2018 Page | 42
Non-Executive Directors' remuneration as a single figure - audited
The remuneration of the Non-Executive Directors for the financial years ended December 31, 2018 and 2017 is set out
below and relates to his or her performance of his or her role as a Non-Executive Director of the Parent.
($)
Lorenzo Pellicioli (Chairman)(3)
2018
2017
James McCann (Lead Independent Director)(4)
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Paget Alves(5)
Paolo Ceretti(6)
Alberto Dessy(7)
Marco Drago
Patti Hart
Heather McGregor(5)
Vincent Sadusky(8)
Philip Satre(9)
2018
2017
Gianmario Tondato Da Ruos
2018
2017
Fees
Taxable
Benefits(1)
RSU(2)
Total
100,000
100,000
122,651
120,000
107,500
100,000
50,000
100,000
110,730
104,000
100,000
100,000
100,000
100,000
107,500
81,667
154,000
140,000
61,331
150,000
16,247
4,369
54,785
34,699
11,679
33,848
1,514
2,459
—
—
63,868
44,594
17,224
10,858
—
—
25,714
20,892
12,972
50,148
286,848
221,310
286,848
221,310
286,848
221,310
286,848
221,310
286,848
221,310
286,848
221,310
286,848
221,310
286,848
44,054
286,848
221,310
512,128
276,632
403,095
325,679
464,284
376,009
406,027
355,158
338,362
323,769
397,578
325,310
450,716
365,904
404,072
332,168
394,348
125,721
466,562
382,202
586,431
476,780
416,848
351,310
(1) Primarily relates to reimbursable meal and travel expenses for attending Board of Director meetings in the U.K. Amounts in 2017 have been modified to reflect this
286,848
221,310
130,000
130,000
—
—
compensation.
(2) Unless otherwise noted below, RSU($) represents the number of shares vested on May 18, 2018 times the closing stock price $30.38.
(3) Mr. Pellicioli was appointed Chairperson effective November 19, 2018.
(4) Mr. McCann was appointed Lead Independent Director effective November 19, 2018 and received a prorated amount of additional compensation.
(5) Fees include payment of $7,500 for participating in (i) dedicated meetings on certain extraordinary transactions of the Parent and additional work required for those
meetings, and (ii) the significant time commitment and effort connected to monitoring and evaluating complex technical cybersecurity risks. The additional payments
are aligned with the Remuneration Policy as the maximum opportunity for an increase in fees on an annual basis is 10% of that year’s annual fees rising to a
maximum of 20% in exceptional circumstances. Ms.McGregor's fees and RSU in 2017 were pro-rated from her appointment on March 8, 2017.
(6) Mr. Ceretti retired from the Board of Directors effective May 16, 2018, therefore his fee has been pro-rated from January 1 through his retirement date.
(7) Mr. Dessy fees include 4% stipend related to Italian regulatory requirements.
(8) Fees include payment of $14,000 for participating in (i) dedicated meetings on certain extraordinary transactions of the Parent and additional work required for those
meetings, and (ii) the significant time commitment and effort connected to monitoring and evaluating complex technical cybersecurity risks. The additional payments
are aligned with the Remuneration Policy as the maximum opportunity for an increase in fees on an annual basis is 10% of that year’s annual fees rising to a
maximum of 20% in exceptional circumstances.
(9) Mr. Satre retired from the Board of Directors effective August 6, 2018, therefore his fee has been pro-rated from January 1 through his retirement date. Furthermore,
Mr. Satre's RSUs includes $358,575 for services performed through May 17, 2018 and $153,553 for services performed from May 17, 2018 through his retirement
date, which vested on September 14, 2018 at a closing stock price of $18.66.
Annual Reports and Accounts 2018 Page | 43
Non-Executive Directors’ share interests - audited
The table below shows the Non-Executive Directors’ share interests at December 31, 2018, unless otherwise noted,
including shares held by connected persons.
Name
Restricted
Shares
Total of
Outstanding
Options and
Shares
Shares
Beneficially
Owned
Outright(1)
Lorenzo Pellicioli(2)
James McCann(3)
Paget Alves
Paolo Ceretti(4)
Alberto Dessy
Marco Drago
Patti Hart
Heather McGregor
Vincent Sadusky
Philip Satre(4)
Gianmario Tondato Da Ruos
6,583
7,249
6,583
—
6,583
6,583
6,583
6,583
6,583
8,229
6,583
6,583
7,249
6,583
—
6,583
6,583
6,583
6,583
6,583
8,229
6,583
89,564
71,332
27,983
30,938
24,405
20,986
58,325
6,106
35,123
77,568
21,993
(1) All shareholding ownership guideline requirements have been complied with to the extent applicable.
(2) Mr. Pellicioli's restricted shares excludes 1,667 RSUs awarded on February 12, 2019, which reflects a pro-rated grant related to his November 13, 2018 appointment
as Chairman of the Parent for service through the date of the 2019 AGM.
(3) Mr. McCann's restricted shares includes 666 RSUs awarded on November 13, 2018, which reflects a pro-rated grant related to his November 13, 2018 appointment
as Lead Independent Director of the Parent for service through the date of the 2019 AGM.
(4) Mr. Ceretti and Mr. Satre retired from the Board on May 22, 2018 and August 6, 2018, respectively, and do not have any outstanding equity subject to the Plans. Their
beneficial ownership is as of each of their respective retirement dates.
Payments to past Non-Executive Directors and payments for loss of office
Mr. Ceretti and Mr. Satre retired as a members of the Board of Directors of the Parent on May 17, 2018 and August 6,
2018, respectively. Their fees and RSU awards have been included in tables above.
There have been no other payments of money or other assets to any director of the Parent who was not a director of the
Parent or for loss of office, in each case, at any time during the financial year ended December 31, 2018.
Compensation Committee Meetings & Consideration of Matters Relating to
Directors' Remuneration
The Committee is responsible for recommending to the Board the remuneration policy for directors and for setting the
remuneration packages for the Chairman, each Executive Director and each Non-Executive Director. The Committee
also has oversight of the remuneration policy and packages for other senior members of staff.
The Committee currently comprises three independent Non-Executive Directors. As at the date of this document, the
Committee is chaired by Mr. Gianmario Tondato Da Ruos, and its other members are Mr. Paget Alves and Mr. Alberto
Dessy. All members served on the Committee since its establishment on April 7, 2015 up to the date of this document.
The Committee held four meetings during the year. Attendance at the meetings is shown in the table below.
Director
Gianmario Tondato Da Ruos (Chairman)
Attendance Percentage
100%
Paget Alves
Alberto Dessy
100%
100%
Annual Reports and Accounts 2018 Page | 44
The CEO does not attend the meetings of the Committee, however, certain officers and employees, such as the
Executive Vice President of People and Transformation, the Chief Financial Officer, the General Counsel and the
Company Secretary of the Parent, usually attend meetings of the Committee, save in circumstances in which that
person is the subject of the meeting.
During its meetings, the Committee may also receive assistance and advice from third parties. The Committee has been
advised by Mercer for the financial year ended December 31, 2018. Mercer is part of the Marsh & McLennan
Companies, Inc., a global professional services firm, a third party unconnected with the Parent. The Committee has
therefore satisfied itself that the advice received from Mercer was objective and independent. The total fees in relation to
the advice provided to the Committee and the Board during the year were $276,175. Mercer also assists the Company
in providing general consulting services, salary surveys, and advice on its 401(k) plans in the U.S.. The principal
activities undertaken by the Committee for the year ended December 31, 2018 consisted of:
• Reviewing the remuneration of the Executive Director and Non-Executive Directors;
• Monitoring compliance with guidelines on share ownership by the Directors in the Parent;
• Reviewing legal and market practice updates in the U.K. and the U.S.; and
• Approving updates to the Compensation Committee charter, clawback policy, expense reimbursement policy
and any other compensation related policies; .
While the Remuneration Policy provides the framework for Directors’ remuneration, it is intended that the Committee be
entitled to exercise a level of discretion in certain circumstances, when it deems appropriate. The Committee may not
use any discretion outside the Remuneration Policy without first seeking shareholder approval.
External advisors
No external advisors assisted the Parent with the drafting of this report.
External directorships
The Directors are required to inform the Nominating and Corporate Governance Committee in the event an external
commitment (e.g. employment or directorship) is taken up in a publicly held company. Salary and fees for such external
commitments may be retained by the Director in question.
Statement of voting
At the 2018 AGM, 88.28% of voting shareholders voted in favour of the 2017 Report on Remuneration, with 0.37%
voting against the resolution and 2.26% abstaining from voting. The remaining 9.09% did not cast a vote. On the
Remuneration Policy, 72.04% of voting shareholders voted in favour of the resolution, with 16.62% voting against the
resolution and 2.26% abstaining from voting. The remaining 9.08% did not cast a vote.
Annual Reports and Accounts 2018 Page | 45
REMUNERATION REPORT:
REMUNERATION POLICY
Policy overview
The current remuneration policy was approved by shareholders at the Company's 2018 AGM. The Company does not
currently intend to implement any new elements of remuneration, however, certain proposed changes to the executive
director’s service agreement, including in relation to post-employment restrictive covenants, require amendments to the
current policy. Pursuant to the proposed changes, the period during which the executive director is subject to post-
employment restrictive covenants will be extended from 9 months to 24 months. In consideration for complying with
such covenants, the executive director will be entitled to receive a lump sum payment on termination calculated by
reference to two years’ base salary and short-term incentives as described in the “Executive Director’s contractual
arrangements” section below. In addition, the amount of any severance payment to which the executive director may be
entitled will be reduced from three years’ base salary and short-term incentives at maximum level to one year’s base
salary.
The Committee believes the overall reduction in the quantum of termination payments and the extended restrictive
covenant period are beneficial changes which provide additional protection for the Company in the event of the
executive director’s termination and Shareholders are therefore being asked to approve a new remuneration policy (the
Remuneration Policy).
The proposed Remuneration Policy, if approved at this year's AGM, will remain in effect until changes to the policy are
made, which require shareholder approval, or until the policy is put before shareholders for approval at the 2022 AGM,
whichever is sooner.
The proposed Remuneration Policy begins with an outline of remuneration structures and is followed by the executive
director and non-executive director remuneration policy tables and narrative.
The aim of the Remuneration Policy is to:
• Attract, retain, and motivate high calibre directors;
• Focus those directors on the delivery of the Company’s strategic and business objectives;
• Promote a strong and sustainable performance culture; and
• Align the interests of directors with those of the shareholders.
Remuneration of the executive director is determined by the Committee and is subject to the provisions of the Parent’s
articles of association and the Parent’s proposed Remuneration Policy.
Implementation of the Remuneration Policy for the Executive Director the year
ending December 31, 2019
The proposed Remuneration Policy, if approved at the AGM, will be implemented in 2019 with effect from the AGM as
follows.
Salary
For the financial year ending December 31, 2019, the Committee has determined not to increase the Executive
Director's salary. The results of the salary review are set out in the table below:
Salary FY19
$1,000,000
Salary FY18
$1,000,000
Percentage Change
0%
Annual salary is equal to $1,000,000, which is paid 70% in the U.K. in pounds sterling (£450,520) and 30% in Italy in
Euros (€272,003). This payment arrangement requires periodic true-ups for currency fluctuations to ensure he is paid
Annual Reports and Accounts 2018 Page | 46
$1,000,000 annually. Salary amounts disclosed in the single-figure table include the impact of foreign exchange rate
fluctuations and will therefore vary from annual salary above.
Benefits
An Executive Director will continue to be eligible to receive selected benefits including housing allowance, life insurance,
private medical care, income protection, and critical illness insurance.
Pension
The Parent will continue to offer to match an Executive Director’s pension contributions between 2% and 6% of base
salary, plus one percent, up to a maximum of 7% for contributions at 6% or above.
STIP
The annual bonus for an Executive Director will operate in a broadly similar manner to the year ended December 31,
2018. The maximum annual bonus award will remain at 300% of base salary.
The Committee reviews the performance measures and targets on an annual basis to evaluate whether they remain
appropriately aligned to the overall business strategy. The Committee reviews annually the Company's performance
measures and targets.
LTIP
The Committee is yet to approve how the LTIP shall be operated for the financial year ending December 31, 2019. It is
expected that awards under the LTIP shall be subject to long-term financial and TSR performance measures over a
three-year period and continue to require additional service over a longer vesting period.
Implementation of the Remuneration Policy for Non-Executive Directors for the year
ending December 31, 2019
Non-Executive Directors' fees
As at the date of this document, the Chairman fees and the fees of the other Non-Executive Directors remain unchanged
from the year ended December 31, 2018.
The Committee retains discretion to review the fees of the Non-Executive Directors for the remainder of this financial
year ending December 31, 2019, and any changes to fees will be in line with the Remuneration Policy. The fees of Non-
Executive Directors are therefore as follows:
FY19
Non-Executive
Director
($)
Chairman
($)
Additional fees related to service for:
Lead
Independent
Director
($)
Audit
Committee
($)
Compensation
Committee
($)
Nominating
and Corporate
Governance
Committee
($)
Fees
100,000
50,000
20,000
40,000
30,000
20,000
Non-Executive Directors' contractual arrangements and loss of office payments
The Non-Executive Directors' contractual arrangements with the Parent and the way the Committee reviews the
circumstances of any non-executive director's departure remain the same as detailed in the Remuneration Policy.
Annual Reports and Accounts 2018 Page | 47
RSU
The Committee has reviewed the terms of the non-executive directors’ RSU agreements and has determined that RSU
agreements will operate in a broadly similar manner to the year ended December 31, 2018.
Additional RSU related to service for:
FY19
Non-Executive
Director
($)
Chairperson
($)
Lead Independent Director
($)
RSU
200,000
50,000
20,000
Annual Reports and Accounts 2018 Page | 48
The proposed Remuneration Policy
The table on the following pages sets out the proposed Remuneration Policy for executive directors and Non-executive directors which shareholders will be asked
to approve at this year’s AGM.
Operation and Performance Conditions
Maximum Opportunity
Recovery or Withholding
Executive Directors
Element, Purpose and Link to
Strategy
Fixed Pay
Base salary: to pay a salary that
reflects the role, responsibilities,
experience and knowledge of the
individual, provide a salary intended to
be competitive with other employers in
our industry, in addition to attracting
and retaining appropriate executive
directors to support the long-term
interests of the Company.
Salaries are reviewed annually by the Committee. Annual reviews take into account
increases to the salaries of the workforce as a whole, performance of the Company and
the individual, skill set and experience of the individual and external factors such as
inflation, and an assessment of the competitive market.
There are no performance conditions other than a qualitative assessment of individual
performance.
The maximum opportunity for
an increase in base salary on
an annual basis is 10% of that
year’s annual base salary
rising to a maximum of 20% of
that base salary in exceptional
circumstances as determined
by the Committee in its sole
discretion. Therefore, where
appropriate and necessary,
larger increases may be
awarded (for example, where a
role has increased in scope).
There is no maximum level of
benefit; the overall level of
benefits will depend on the cost
of providing individual items
based on the individual’s
circumstances.
There is no provision for
recovery.
There is no provision for
recovery.
Benefits: to provide market
competitive benefits to enable
executive directors to undertake their
role through ensuring well-being and
security.
Executive directors receive a range of benefits which may include, but are not limited to,
private medical insurance, private dental insurance, life insurance, tax preparation
benefits, and housing and car allowances. Benefits are reviewed regularly but not on a
pre-determined schedule.
The Company has in place an expense reimbursement policy. The Committee may
repay any reasonable travelling, hotel and other expenses, which a Director properly
incurs in performing his or her duties as director in connection with his attendance at
directors' meetings, committee meetings, general meetings or separate meetings of the
holders of any class of shares or of debentures of the Company, or otherwise in
connection with the exercise of their powers and the discharge of his or her
responsibilities in relation to the Company.
Subject to the U.K. Companies Act 2006, the directors may make arrangements to
provide a director with funds to meet expenditure incurred (or to be incurred) by him or
her for the purposes of the Company, enabling him or her to properly perform his or her
duties as an officer of the Company; or enabling him or her to avoid incurring any such
expenditure. The expense reimbursement policy also permits the reimbursement of
expenses of individuals accompanying a Director in connection with the performance of
his or her duties as a director.
There are no performance conditions.
Annual Reports and Accounts 2018 Page | 49
Executive Directors
Element, Purpose and Link to
Strategy
Pension: to attract and retain
appropriate executive directors to
support the long-term interests of the
Company.
Operation and Performance Conditions
Maximum Opportunity
Recovery or Withholding
Under the U.K. Government’s Workplace Pension Scheme, executive directors are
entitled to a U.K. pension.
The Company offers a Company personal pension plan, or any other pension scheme
as required by law, to current and new executive directors. If an executive director’s
pension contributions are between 2% and 6% of base salary, the Company may match
the contributed percentage of base salary plus one percent up to a maximum of 7% for
contributions at 6% or above.
A pension is provided for any executive director located in other jurisdictions.
There are no performance conditions.
The maximum Company
contribution is a matching of a
non-executive director's
contributed percentage of base
salary between 2% and 6%
plus one percent up to a
maximum of 7% for
contributions at 6% or above.
There is no provision for
recovery.
Variable Pay
Annual bonus: to encourage
executive directors to achieve both
short-term financial results and
individual targets.
The STIP is performance-based, measured against a combination of financial and non-
financial targets determined by the Committee by reference to the then current business
strategy. Non-financial targets shall only be used in combination with financial targets,
with financial targets constituting a majority of the payout.
The maximum pay out is 300%
of base salary.
Non-financial targets shall only be used if they are material to the business and
quantifiable.
Payments may be based on financial and non-financial targets which may include, but
are not limited to, EBITDA, consolidated operating income, net debt, and individual
performance, at the discretion of the Committee. Where non-financial targets are used,
the majority of the bonus opportunity will be subject to financial targets.
The metrics underlying the financial and non-financial targets may be adjusted or
amended at the discretion of the Committee. Payments may be adjusted upwards or
downwards at the discretion of the Committee to account for certain events, which may
include, but are not limited to, currency fluctuations, securitizations, unbudgeted
acquisitions, refinancings, and unusually negative or positive financial results due to
events outside the control of an executive director, subject always to the limit in the
adjacent column and to ensure that the rewards properly reflect business performance.
The Company has
implemented an executive
compensation recoupment
policy pursuant to which
incentive compensation
made to executive
directors may be
recouped in certain
instances, such as a
material restatement of
the Company’s financial
statements or fraud, and
incentive compensation is
generally subject to any
clawback, recoupment, or
forfeiture provisions
required by laws
applicable to the
Company or its
subsidiaries or affiliates.
The executive
compensation recoupment
policy may be amended
from time to time by the
Board or a committee
thereof.
Annual Reports and Accounts 2018 Page | 50
Executive Directors
Element, Purpose and Link to
Strategy
Long-term share incentive plan (the
2015 Equity Incentive Plan): to
encourage executive directors to
achieve long-term performance
targets.
Operation and Performance Conditions
Maximum Opportunity
Recovery or Withholding
The maximum target is 600%
of base salary.
The Company has
implemented an executive
compensation recoupment
policy pursuant to which
incentive compensation
made to executive
directors may be
recouped in certain
instances, such as a
material restatement of
the Company’s financial
statements or fraud, and
incentive compensation is
generally subject to any
clawback, recoupment, or
forfeiture provisions
required by laws
applicable to the
Company or its
subsidiaries or affiliates.
The executive
compensation recoupment
policy may be amended
from time to time by the
Board or a committee
thereof.
The LTIP is performance-based, measured against a combination of financial and non-
financial targets determined by the Committee by reference to the then current business
strategy. Non-financial targets shall only be used in combination with financial targets,
with financial targets constituting a majority of the payout. Non-financial targets shall
only be used if they are material to the business and quantifiable. Payments may be
based on financial and non-financial targets which may include, but are not limited to,
EBITDA, consolidated operating income, net debt, relative total shareholder return, and
individual performance, at the discretion of the Committee. The metrics underlying the
financial and non-financial targets may be adjusted or amended at the discretion of the
Committee acting in accordance with the terms of the LTIP. Payments may be adjusted
upwards or downwards at the discretion of the Committee acting in accordance with the
terms of the LTIP, to account for certain events, which may include, but are not limited
to, currency fluctuations, securitizations, unbudgeted acquisitions, refinancings, and
unusually negative or positive financial results due to events outside the control of an
executive director, subject always to the limits in the adjacent column and to ensure that
the rewards properly reflect business performance.
The Committee may grant share options, share appreciation rights, performance units,
performance shares, restricted shares, other share-based awards or any combination
thereof to current or prospective directors and employees of the Company or any of its
subsidiaries as permitted by, and in accordance with, the terms of the LTIP.
The Committee has the discretion to determine the number of shares in respect of
which an award can be granted and to approve the terms and form of award agreement,
which may include, but are not limited to, the exercise price (if any), prior to the vesting
date any of any grant, award of shares relating thereto from time to time.
The Committee also has the discretion to modify, amend or adjust the terms and
conditions performance, at the discretion of the Committee. The metrics underlying the
financial and non-financial targets may be adjusted or amended at the discretion of the
Committee acting in accordance with the terms of the LTIP. Payments may be adjusted
upwards or downwards at the discretion of the Committee acting in accordance with the
terms of the LTIP, to account for certain events, which may include, but are not limited
to, currency fluctuations, securitizations, unbudgeted acquisitions, refinancings, and
unusually negative or positive financial results due to events outside the control of an
executive director, subject always to the limits in the adjacent column and to ensure that
the rewards properly reflect business performance.
The Committee also has the discretion to adopt, alter and repeal the administrative
rules, guidelines and practice governing the LTIP.
Annual Reports and Accounts 2018 Page | 51
Executive Directors
Element, Purpose and Link to
Strategy
Co-investment plan: to encourage
executive directors to commit to the
short-to-medium term interests of the
Company.
Operation and Performance Conditions
Maximum Opportunity
Recovery or Withholding
The Committee has the discretion to require that an executive director enter into a co-
investment agreement with the Company, subject to any contractual obligations.
500,000 share awards.
Any such co-investment agreement shall only be entered into once over up to a three-
year period. Under a co-investment agreement the Company may issue and/or grant
options over shares, share appreciation rights, units or restricted shares or other share-
based awards or any combination thereof (in each case being "awarded shares") to an
executive director resulting in a shareholding of up to 500,000 awarded shares held by
the executive director. Vesting of the awarded shares will be subject to continued
service of the executive director and the executive director continuing to hold up to
500,000 shares in the Company (the "committed shares") as the Committee may deem
appropriate, and may be subject to certain further conditions, if the Committee
determines it necessary in its sole discretion, which may include, but are not limited to,
performance targets and associated metrics and the executive director agreeing to re-
invest up to a given amount of the total committed and awarded shares into a
subsequent co-investment agreement following vesting of any previous co-investment
agreement.
If an executive director ceases to be a director or CEO, as appropriate, of the Company
options over awarded shares lapse and any matching awarded shares are forfeited.
Within the above limits on terms of the agreement and on the number of matching
awarded shares issued or shares over which an option is granted (or over which
another share based award subsists), the Committee has the discretion to set, and
amend, the terms and conditions of any co-investment agreement, including, but not
limited to, the number of shares under option, shares issued, the quantity of any
matched shareholding as well as the percentage of shares which are required to be
reinvested, and, whether or not such executive director would be required to reinvest
into subsequent co-investment arrangements following vesting, as well as discretion to
include or amend performance targets and metrics, and determine settlement in cash,
shares, other property or a combination of the foregoing, as well as terminate the co-
investment agreement where appropriate. In determining the terms and conditions of a
co-investment agreement, the Committee shall take into consideration corporate
governance and institutional investor guidelines.
The Company has
implemented an executive
compensation recoupment
policy pursuant to which
incentive compensation
made to executive
directors may be
recouped in certain
instances, such as a
material restatement of
the Company’s financial
statements or fraud, and
incentive compensation is
generally subject to any
clawback, recoupment, or
forfeiture provisions
required by laws
applicable to the
Company or its
subsidiaries or affiliates.
The executive
compensation recoupment
policy may be amended
from time to time by the
Board or a committee
thereof.
Annual Reports and Accounts 2018 Page | 52
Non-Executive Directors
Element, Purpose and Link to
Strategy
Fixed Pay
Fees: to attract and retain high-calibre
individuals, with appropriate
experience or industry-related skills,
by offering market competitive fee
levels
RSU - Annual Equity Awards for
Continuing Non-Executive Directors
Operation and Performance Conditions
Maximum Opportunity
Recovery or Withholding
The maximum opportunity for an increase
in fees on an annual basis is 10% of that
year’s annual fees rising to a maximum of
20% of those fees in exceptional
circumstances, as determined by the
Committee in its sole discretion.
There is no provision for
recovery.
The maximum opportunity for an increase
in the Annual Equity Award on an annual
basis is 10% of that year’s Annual Equity
Award rising to a maximum of 20% of that
Annual Equity Award in exceptional
circumstances, as determined by the
Committee in its sole discretion, taking
market considerations into account.
Awards made to non-
executive directors may be
recouped in certain
instances, such as a material
restatement of the
Company’s financial
statements or fraud, and the
RSUs are generally subject
to any clawback,
recoupment, or forfeiture
provisions required by laws
applicable to the Company or
its subsidiaries or affiliates.
Such recoupment policy may
be amended from time to
time by the Board or a
committee thereof.
A non-executive director is provided an annual fee, payable in quarterly
tranches.
When recruiting a new non-executive director, fees will be in line with the
prevailing fee schedule applicable to other non-executive directors at that
time. Higher cash retainers are provided for non-executive directors
serving as a Chairperson of the board, the Audit Committee,
Compensation Committee and Nominating and Corporate Governance
Committee.
The Committee reviews the annual cash retainer for the non-executive
directors periodically, taking into account an assessment of the
competitive market.
The non-executive directors do not participate in any annual bonus.
On the date of each AGM of the Company’s shareholders, each non-
executive director continuing to serve after that date may be granted
restricted share unit (RSU) award, a time-based award, vesting on a
yearly basis in each case unconnected to the performance of such non-
executive director.
The number of RSUs covered by each such award will be determined by
dividing (1) the "Annual Equity Award" (currently $250,000 for the role of
Chairperson and $200,000 for other non-executive director roles subject
to change at the discretion of the Committee capped by the maximum
opportunity set out opposite) grant value by (2) the closing share price as
of the date of grant (rounded down to the nearest whole unit), (2) being
subject to change at the discretion of the Committee taking market
considerations into account.
Annual RSU awards granted to non-executive directors under this policy
will vest following the approval of financial statements by shareholders
that occurs in the Company’s financial year after the financial year in
which the date of grant occurs.
The Committee reviews the terms of the RSU awards for non-executive
directors periodically with reference to any change in the time
commitment required and an assessment of the competitive market. The
Committee has the discretion to determine the appropriate awards and
vesting mechanics by reference to the then current business strategy, and
will take into account the then current institutional investor guidelines
when making their decision. The Committee has the discretion to amend
the formula to calculate the Annual Equity Award.
Annual Reports and Accounts 2018 Page | 53
Awards made to Non-
executive directors may be
recouped in certain
instances, such as a material
restatement of the
Company’s financial
statements or fraud, and the
RSUs are generally subject
to any clawback,
recoupment, or forfeiture
provisions required by laws
applicable to the Company or
its subsidiaries or affiliates.
Such recoupment policy may
be amended from time to
time by the Board or a
committee thereof.
RSU - Initial Equity Awards for New
Non-Executive Directors
Each new non-executive director may be granted an award of RSUs
determined by dividing (1) a pro-rata portion of the "Initial Equity Award"
(currently $250,000 for the role of Chairperson and $200,000 for other
non-executive director roles, subject to change at the discretion of the
Committee capped by the maximum opportunity set out opposite) value
by (2) the closing share price as of that date (rounded down to the
nearest whole unit), (2) being subject to change at the discretion of the
Committee taking market considerations into account. The pro-rata
portion of the Initial Equity Award value will equal the Initial Equity Award
value multiplied by the fraction which results from the following formula:
The maximum opportunity for an increase
in the Initial Equity Award on an annual
basis is 10% of that year’s Annual Equity
Award rising to a maximum of 20% of that
Initial Equity Award in exceptional
circumstances, as determined by the
Committee in its sole discretion, taking
market considerations into account.
X - Y
X
where:
X is the number of days in the period beginning with (and including) the
date 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.
The RSUs granted at the previous AGM vest following the approval of
financial statements by shareholders at each annual general meeting of
the Company.
If, on the date RSUs are granted, the date of the Next AGM is not known,
the RSUs shall be granted on the basis that the date of the Next AGM is
the date of the first anniversary of the Previous AGM.
The Committee has the discretion to amend the formula to calculate the
Initial Equity Award.
The Committee reviews the terms of the RSU awards for non-executive
directors periodically and has the discretion to determine the appropriate
awards and vesting mechanics by reference to the then current business
strategy, any change in the time commitment required, and an
assessment of the competitive market.
Annual Reports and Accounts 2018 Page | 54
The Company will honour prior commitments (including as to loss of office payments) entered into, and Directors will be
eligible to receive payment in respect of any award granted, prior to the approval and implementation of this proposed
Remuneration Policy as described above, even if these commitments and/or awards would not otherwise be within this
policy. The Company will also honour any commitment entered into at a time prior to an individual becoming a director if,
in the opinion of the Committee, the payment was not in consideration for the individual becoming a director of the
Company.
Share Ownership Guidelines
Following the date of their appointment to the Board, executive directors are required to acquire and maintain shares
with a fair market value equal to at least two times base salary (or such lower limit as specified in institutional investor
guidelines from time to time) (the Minimum) and a maximum of up to at least five times base salary. Shares included in
the ownership criteria include shares which are beneficially owned regardless of whether issued under a Company plan
or purchased on the market, and vested shares held in trust to benefit the executive director or his family members.
Unearned performance shares do not count towards the ownership criteria until such shares have been earned.
Unvested RSUs and unexercised share options are not taken into account for purposes of the guidelines. If the Director
has a co-investment agreement, up to 50% of shares committed to the co-investment may be taken into account. If an
executive director is at any time not in compliance with the share ownership guidelines, there is an additional holding
requirement to hold a minimum of 50% of the after tax value of shares acquired upon the vesting of units or exercise of
options after the effective date of the share ownership guidelines until the target share ownership is met.
If an executive director is in compliance with the share ownership guidelines, there is an additional requirement to hold a
minimum of 20% of the number of shares acquired through the vesting and/or exercise of an award for a period of up to
3 years following the date those shares were acquired or for as long as the executive director is in sit. The Committee
has the discretion to amend the shareholding guidelines at any time, but not so as to reduce the required holding to
below the Minimum nor count unearned performance shares, unvested RSUs or unexercised share options against the
Minimum.
Beginning November 10, 2020 (or five years after joining the Board if such date is subsequent to November 10, 2020), a
non-executive director is expected to hold, for as long as they remain on the Board, ordinary shares of the Company that
have a fair market value equal to up to at least three times the base annual retainer amount then in effect for that non-
executive director. Unvested RSUs and unexercised share options are not taken into account for the purposes of the
guidelines.
Executive Directors’ Remuneration Policy
The remuneration structure for executive directors is designed to incentivize the delivery of sustained performance
consistent with the Parent’s strategic goals and appropriate risk management, and to reward success in doing so. At the
date of this document the only executive director of the Parent is its CEO, Mr. Marco Sala.
The executive director plays a key role in the management and business success of a company. The Parent’s
remuneration policy and structure are designed to reflect these combined roles. When setting the policy for executive
directors’ remuneration, the Committee takes into account total remuneration levels in companies of a similar size and
complexity, the responsibilities of the individual's role, the individual's performance and the individual’s experience. The
Committee also considers developments in market practice and the pay and employment conditions within the
Company.
The Parent’s proposed Remuneration Policy for the executive director as an employee of the Parent or of the Company,
is to provide: (i) a base salary (ii) participation in an annual cash bonus plan, or STIP; and (iii) participation in an equity
based LTIP, seeking to give a proportion of the total annual remuneration in the form of variable remuneration, which is
linked to the performance of the Parent.
The Parent’s proposed Remuneration Policy for the executive director also provides participation in a Co-Investment
Plan to incentivize him to commit to the short-to-medium term interests of the Parent.
Annual Reports and Accounts 2018 Page | 55
Differences in Remuneration Policy for Executive Directors compared to other
employees
Like the executive director, employees at management level and above receive a fixed salary and the potential for an
uplift by way of a variable annual bonus through the same STIP. The STIP differs between employee levels of seniority:
the executive director and senior management employees are subject to an 80% bonus weighting as to financial results
based on either any of or all of operating income, EBITDA and net debt of the Parent and a bonus weighting of 20%
based on personal performance. The STIP is paid out on an annual basis subject to financial results of the Parent and
the personal performance of each employee. Manager and above level employees in general also participate in the
same STIP. The percentage of the plan allocated to financial and individual objectives varies by level. Target as a
percentage of base salary also varies by level. Only the executive director and the non-executive directors receive
RSUs. Director level employees and above also participate in the same LTIP as the executive director. Employees, other
than the executive director, are not eligible to participate in the Parent’s co-investment plan.
Approach to remuneration for new Executive Directors
The Parent operates in a specialized sector and many of its competitors for talent are outside the U.K. The Committee’s
approach to recruitment remuneration is to pay no more than is necessary to attract appropriate candidates to the role.
On the recruitment of a new executive director, the level of fixed remuneration will be determined after considering the
candidate’s skills and experience and the market data for the role that they will be undertaking. New executive directors
will be eligible for the STIP and LTIP as set out in the proposed Remuneration Policy and be subject to the same
constraints as those for the existing executive director. A new executive director may also be required to enter into a co-
investment agreement with the Parent similar to that described in the executive directors’ Remuneration Policy
paragraph above and subject to the same constraints as set out.
The Compensation Committee recognises that a new executive director may forfeit remuneration as a result of leaving a
previous employer and the Committee will consider mitigating that loss or part of that loss by making an award in
addition to the remuneration outlined above. In determining remuneration, the Committee will consider any relevant
factors, including any performance conditions attached to any previous incentive arrangements and the likelihood of
these conditions being met.
Directors' contractual arrangements and loss of office payment policy
The Executive Director's contractual arrangements
The current sole executive director, Marco Sala, CEO, has a service agreement with the Parent and a service
agreement with its wholly owned subsidiary, Lottomatica, only.
The Parent service agreement
The 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 directors.
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 the any group company, among others.
As consideration for compliance with the post-employment restrictive covenants, Mr. Sala is entitled to a lump sum
payment equal to two years’ base salary and any short-term incentive payments for the two financial years prior to the
date of termination.
Mr. Sala is entitled to a salary of £450,520 per annum and this salary shall be reviewed by the directors annually, but the
Company is under no obligation to award an increase in salary. The Company has made available to Mr. Sala an
apartment rented in the Company’s name. In addition, the Company will fully reimburse
Mr. Sala for any expenses incurred as a result of his appointment. Mr. Sala is not entitled to any other benefits under his
service agreement with the Company.
Annual Reports and Accounts 2018 Page | 56
Under the service agreement, Mr. Sala is entitled to participate in the LTIP and the co-investment plan under which Mr.
Sala may be awarded restricted share units and/or share options.
The Lottomatica service agreement
Under the Lottomatica service agreement, Mr. Sala is entitled to a base salary of €271,500, which has been subject to
an Italian statutory increase to €272,003, paid in 13 equal gross instalments, plus additional benefits, including a
company car. Mr. Sala is also entitled to an integrative pension fund in accordance with Italian law. The base salary paid
by Lottomatica will not be less than 25% of the total salary paid to him by the Company.
The severance agreement
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 working his notice period, he is entitled to a severance
payment equal to one year’s base salary (plus any amounts owed to Mr. Sala). 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 amended severance arrangements
with our current and future Executive Directors.
($)
Base Pay
Non-Compete
Period
12-months
24-months
Additional Base Pay
STIP
Actual base of last 2 years
Actual payout of last 2 years
Total Value
Estimated Value
2019
1,000,000
2,000,000
4,157,250
7,157,250
Non-Executive Directors' appointment agreements
All non-executive directors’ services are provided for in accordance with the prior approval of the Directors and their
individual appointment agreements. They currently equally receive RSUs to the value of a $200,000 equity award save
for the Chairperson who receives a $250,000 equity award.
No remuneration is payable on termination of the appointment of the non-executive directors, other than accrued fees
and expenses, subject to the discretion of the Committee. Details of the terms of the appointment of the current non-
executive directors are as follows:
Non-Executive Director
Lorenzo Pellicioli (Chairperson)
James McCann (Lead
Independent Director)
Paget Alves
Alberto Dessy
Marco Drago
Patti Hart
Heather McGregor
Vincent Sadusky
Gianmario Tondato Da Ruos
Start of Current Term
17 May 2018
Expiry of Current Term
17 May 2019
17 May 2018
17 May 2018
17 May 2018
17 May 2018
17 May 2018
17 May 2018
17 May 2018
17 May 2018
17 May 2019
17 May 2019
17 May 2019
17 May 2019
17 May 2019
17 May 2019
17 May 2019
17 May 2019
Annual Reports and Accounts 2018 Page | 57
Loss of office
When an executive director leaves the Company, the Committee will review the circumstances and apply the appropriate
treatment under the terms of the applicable incentive plans and in accordance with the executive director’s contractual
entitlements (see above). Where applicable, the Committee aims to avoid rewarding poor performance.
Salary and benefits will continue to be paid throughout the notice period although the Committee has the discretion to
make a payment in lieu of notice.
In the event of a termination of the role of any of the directors for any reason prior to their vesting date, all outstanding
and unvested restricted shares, restricted share units and/or options shall be automatically and immediately forfeited for
no consideration as of such termination, subject to good and bad leaver provisions and any provision permitting a waiver
of such forfeit at the discretion of the Committee, as appropriate.
How the views of shareholders and employees are taken into account
Shareholders
The Committee values shareholder feedback when forming the remuneration policy and takes into account shareholder
views received in relation to resolutions to be considered at the AGM each year.
Employees
When determining executive director remuneration arrangements, the Committee takes into account pay and conditions
throughout the Company as well as those of our peer companies to evaluate whether the structure and quantum of the
executive director’s pay remains appropriate in this context.
The Committee does not consider it appropriate to consult directly with other directors when developing a directors’
remuneration policy. The Committee does receive, however, periodic updates from the People and Transformation (HR)
department on the overall remuneration structures and policies for all employees. At other levels of the Company,
employees will receive a remuneration package that is reflective of their role and responsibilities, set by reference to
relative remuneration throughout the Company and external market data, where applicable. Employees at an executive
level will typically have a greater emphasis on performance-related and long-term pay compared to those below this
level. Annual incentives may be payable based on performance measures which are suitable to the nature and
responsibility of the role. This is considered when determining the policy for executive directors.
Remuneration illustrations
The chart below gives an indication of what could be received by an executive director under the proposed
Remuneration Policy. The bar chart shows (1) the minimum remuneration receivable as a percentage of total
remuneration, (2) the remuneration receivable for performance in line with the Company’s expectations as a percentage
of total remuneration, and (3) the maximum remuneration receivable as a percentage of total remuneration on the
implementation of the proposed Remuneration Policy.
Fixed remuneration, shown in the chart below, is comprised of salary, pension contributions, other benefits and any cash
alternative. Variable remuneration comprises remuneration under the STIP and LTIP. Future remuneration will be
determined based on profitability and performance as described in the proposed Remuneration Policy.
Annual Reports and Accounts 2018 Page | 58
Approval
This Directors’ Remuneration Report, including both the Directors’ proposed Remuneration Policy and the Remuneration
Implementation Report, has been approved by the Board of Directors on April 12, 2019.
Signed on behalf of the Board of Directors by:
Gianmario Tondato Da Ruos
Chairman of the Compensation Committee
Annual Reports and Accounts 2018 Page | 59
3. DIRECTORS’ REPORT
The Directors present their report and the audited financial statements for the Parent and the Company for the period
from January 1, 2018 to December 31, 2018. The Directors’ Report should be read in conjunction with the Strategic
Report, the Directors’ Remuneration Report and other sections of the Annual Reports and Accounts, all of which are
incorporated into this Directors’ Report by reference.
General information
The Strategic Report and the notes to the financial statements contain information on the domicile and legal form of the
Parent, its country of incorporation and the address of its registered office.
Future developments and important events
The Strategic Report contains details of likely future developments and important events which have occurred since the
end of the financial year ended December 31, 2018 affecting the Company.
Dividends
There are no recommended dividend payments for approval by shareholders for the period from January 1, 2018 to
December 31, 2018. The Directors approved and paid interim dividends totalling, in aggregate, $163.2 million for the
financial year ended December 31, 2018.
As at the date of this Directors’ Report, the Company has sufficient distributable reserves available to pay dividends in
accordance with the U.K. Companies Act 2006 (the Act).
Related party transactions
Internal controls are in place to ensure that any related party transactions are carried out on an arm’s length basis and
are disclosed in the financial statements. Accordingly, related party transactions are set out in Note 26, Related Party
Transactions to the consolidated financial statements and form part of this Directors’ Report.
Directors and their interests
The directors of the Parent for the financial year ended December 31, 2018 are set out below:
Marco Sala (CEO), Lorenzo Pellicioli (Chairman), James McCann (Lead Independent Director and Vice-Chairman),
Paget Alves, Paolo Ceretti (noting Paolo Ceretti resigned with effect from May 17, 2018), Alberto Dessy, Marco Drago,
Patti Hart, Heather McGregor, Vincent Sadusky and Gianmario Tondato Da Ruos.
All of the directors listed above were appointed on April 7, 2015 and remain Directors of the Parent as at the date of this
Directors' Report, save for Heather McGregor, who was appointed on March 8, 2017. Patti Hart has informed the Parent
that she does not intend to be re-appointed as a director of the Parent at the 2019 AGM, hence why she has not been
included in the list of candidates in the notice of AGM.
The Directors have interests in the Parent’s ordinary shares, namely share based plans, detailed in the Remuneration
Report set out in section 2 of this Annual Reports and Accounts.
Annual Reports and Accounts 2018 Page | 60
Financial risk management objectives and policies
The Company's activities expose it to a variety of risks including interest rate risk, foreign currency exchange rate risk,
liquidity risk and credit 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 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.
Further disclosures relating to financial risk management objectives and policies, as well as disclosures relating to
exposure to interest rate risk, foreign currency exchange risk, liquidity risk and credit risk, are set out in Note 10, Financial
Risk Management to the consolidated financial statements. The Company's accounting policies regarding derivatives and
hedging are set out in Note 2, Summary of Significant Accounting Policies to the consolidated financial statements.
Directors’ indemnities
In accordance with the Parent's articles of association and to the extent permitted by law, the Directors are granted a
qualifying third party indemnity from the Parent in respect of liability incurred as a result of their office. In addition, the
Parent maintained a directors’ and officers’ liability insurance policy throughout the financial year and continue to do so.
Neither the indemnity nor the insurance provides cover in the event that a director of the Parent is proven to have acted
dishonestly or fraudulently.
Share capital
The issued share capital of the Parent as at April 5, 2019 is $20,421,073.10 and £50,000, consisting of 204,391,203
ordinary shares of $0.10 each,204,391,203 special voting shares of $0.000001 each, and 50,000 sterling non-voting
shares of £1 each.
The special voting shares carry 0.9995 votes each (compared to 1 vote for each ordinary share) and are held at all times
by a nominee appointed by the Parent. Shareholders who maintain their ownership of ordinary shares continuously for at
least three years are eligible to elect to direct the voting rights in respect of one special voting share per ordinary share
held for such period, provided that such shareholders meet certain conditions set out in the Parent's Loyalty Plan (details
of which are available at www.IGT.com). Once those conditions have been met and that eligible shareholder has
successfully elected to participate in the Loyalty Plan, that shareholder will have the voting power of the equivalent of
1.9995 votes for each ordinary share held. 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. Further details of the special voting
shares and the rights attaching to them are set out in the Parent's articles of association.
The Directors are authorised to issue share capital up to an aggregate nominal amount of $185,000,000 for a period of
five years from March 13, 2015. The Directors are requesting a new authority for the Parent to issue share capital at the
2019 AGM. The Parent currently has the authority to purchase a maximum of 20% of the aggregate issued share capital
of each class of shares in the Parent. This authority will expire on July 28, 2020. The Parent did not purchase any of its
own share capital for the financial year ended December 31, 2018.
Research and Development
To remain competitive, the Company invests resources toward its R&D efforts to introduce new and innovative games
with dynamic features to attract new customers and retain existing customers. The Company's R&D efforts cover multiple
creative and engineering disciplines, including creative game content, hardware, electrical, systems and software for
Annual Reports and Accounts 2018 Page | 61
lottery, land-based, online social, and online real-money applications. R&D costs include salaries and benefits, stock-
based compensation, consultants' fees, facilities-related costs, material costs, depreciation, and travel and are expensed
as incurred. The Company devotes substantial resources on R&D and incurred $262.3 million and $313.1 million of
related expenses for the years ended December 31, 2018 and 2017, respectively.
Branches
As the Company is a global business there are activities operated through many jurisdictions. In 2018, the Company was
active in over 100 countries and had 26 branches.
Political donations and political expenditure
During the year ended December 31, 2018 subsidiaries of the Company made various forms of contributions (i.e.
charitable donations, membership dues, sponsorships) to entities in the U.S. and Sweden that have political, charitable,
social welfare, trade and business sector affiliations and missions. Some of these organisations and entities have
affiliations with government officials. These contributions totalled $1.9 million in the U.S. and $5,000 in Sweden. The
Company has fully complied with jurisdictional reporting of these contributions and such contributions are permissible
under the relevant countries' laws.
The Company policy is that no political donations be made or political expenditure incurred outside the U.S. or Canada.
Other than as set forth above, neither the Company nor any of its subsidiaries for the year ended December 31, 2018:
• Made any donations to a registered political party or other political or any independent election candidate or
organisation in or outside the E.U.; or
Incurred any political expenditure in or outside the E.U.
•
Equal employment policies; Diversity and Inclusion
The Company is committed to providing equal opportunities in employment and a work environment that values diversity
and inclusion and provides a workplace environment where all employees are valued and respected. In 2017, the
Company updated its policies, outlining the Company’s commitment to equal employment opportunities and non-
discrimination. In 2018, all of the Company’s employees participated in training that focused on building awareness of the
Company’s global policies relating to equal employment and anti-harassment and bullying. In addition, members of the
Company’s senior leadership team participated in inclusive leadership briefings designed to promote inclusion for all
levels of the Company’s employees.
It is the Company’s policy to provide equal employment opportunities for all applicants and employees on the basis of
qualification and merit. The Company will not permit discrimination on the basis of characteristics such as, race, colour,
religion, sex, gender, sexual orientation, gender identity or expression, pregnancy, marital status or civil partnership
status, national origin, citizenship, covered veteran status, ancestry, age, physical or mental disability, medical condition,
genetic information, or any other legally protected status in accordance with applicable local, state, and federal laws.
To the extent reasonably possible, the Company will accommodate employees with disabilities. Reasonable
accommodation is available to all employees and applicants as long as the accommodation does not create an undue
hardship for the Company and can be provided without posing a substantial safety risk to the employee or others. It is the
responsibility of management to support and enforce the policy and to address and report any known conduct that might
violate this policy.
Employees who believe they have been subjected to discrimination or are aware of incidents of discrimination in the
workplace are asked to immediately report the incident. Any allegation of discrimination brought to the attention of the
Company will be promptly investigated. It is expected that all parties cooperate with the investigative process. Retaliation
against any individual for reporting discrimination will not be tolerated. Individuals who are not themselves complainants,
but who assist in an investigation, will also be protected from retaliation.
Annual Reports and Accounts 2018 Page | 62
The Company enforces compliance with this policy by implementing practices to execute this policy in the conduct of our
business, training employees in the application of such procedures, and taking appropriate disciplinary action, up to and
including termination of employment, for violation of the Company’s policy (except where prohibited by law or contrary to
local collective bargaining agreements).
In 2018, the Company established the Office of Diversity and Inclusion which is responsible for implementing the
Company’s Global Strategic Plan for Diversity and Inclusion, including programs that address increasing workplace
diversity and inclusion. In 2018, the Office of Diversity and Inclusion created employee business resource groups, which
are employee led groups formed around underrepresented dimensions of diversity and are open to all employees. The
first group to launch in 2018, was WIN with IGT, the Company’s women’s inclusion network. Groups for military veterans,
persons with disabilities, employees who are 50 years and above and lesbian, gay, bisexual, transgender and queer
employees and their supporters were approved to launch in early 2019.
Employee involvement and recognition
The Company maintains communication tools and channels that allow for the distribution of information to employees
through email, social networking and print materials covering, among other topics, financial and economic factors
affecting the Company. The Company has an internal website that enables employees to access certain corporate
information, which, in addition to providing corporate information and commercial updates, provides a platform for
employees to ask anonymous questions to be answered by the senior executive team as appropriate and responses are
published on the internal website.
The Company also hosts Company-wide meetings in which employees or their representatives are consulted on a
regular basis so that the views of employees can be considered in making decisions that are likely to affect their interests.
The Company has conducted its second global survey on employee engagement in 2018 which enabled employees to
provide feedback, influencing employee-related programs for implementation by the Company. In addition, the Company
hosted two town halls, which focused on organizational culture and employee engagement.
As part of encouraging employee involvement in the performance of the Company, the Company offers several
performance-based programs, e.g. a share award program for employees at a senior management level. The share
award is based on a three-year performance cycle, measured from the achievement of several financial metrics. Setting
these thresholds and offering this share incentive helps drive leadership accountability which significantly impacts the
overall performance of the Company. The Company also offers a short term incentive program related to fiscal year
results and an employee recognition program that provides monetary and non-monetary awards for employee
contributions.
Greenhouse gas emissions
As part of the Company's sustainability strategy, the Company is committed to ensuring that its business interacts with
the environment in a socially responsible manner. The collection of emissions data is performed globally on a business-
site basis.
Annual Reports and Accounts 2018 Page | 63
Greenhouse Gas Emissions
For the year ended
December 31, 2018
For the year ended
December 31, 2018
(comparable to 2017)***
For the year ended
December 31, 2017****
Combustion of fuel and operation
of facilities*
Electricity, heat, steam and
cooling purchased for own use**
Total emissions (tCO2e)
36,514
47,941
84,455
36,047
40,217
76,264
27,784
46,028
73,812
Notes:
*Scope I: Fuel consumption (including natural gas and LPG for heating, diesel consumption for generators, diesel, gasoline, LPG and propane
consumption for vehicles such as company cars, small trucks or forklifts) and fugitive emissions of refrigerants.
Ton CO2 eq = data (fuel consumption or refrigerants refill). Data has been collected from invoices (from refrigerants assuming each kg of refill has been
a kg of fugitive emissions during the year).
**Scope II: Electricity consumption only.
Ton CO2 eq = kWh*Emission Factor. kWh have been collected from invoices.
The ratio of the annual emissions associated with the Company’s activities based on the quantity of tonnage per thousand dollars is equal to 0.0175
(scope I and II divided by total revenues in U.S. thousand dollars).
***This column refers to the 2018 Greenhouse Gas emissions calculated using the same geographic locations that were used in 2017 (making the last
2 columns comparable).
****The 2017 greenhouse gas emissions data has been updated above - it is now comparable with the data disclosed in IGT's 2017 Sustainability
Report. The difference occurred due to a disparity in data collection methodology that has been eliminated.
Greenhouse gas emissions increased in 2018 due to an increase in reported geographic locations. The 2018 greenhouse gas emissions data will be in
line with the Company’s Sustainability Report 2018. Geographic locations reported increased compared to previous years, covering approximately
95% of all Company’s facilities (with around 60% covered in 2017).
The methodology used is based on voluntary and mandatory GHG reporting guidance issued by DEFRA. For fuels and operations we have utilised
DEFRA protocol conversion factors within our reporting methodology. For GHG emissions related to electricity we have used DEFRA EFs, except for
U.S. states for which we used state-based EPA emission factors, for Italy and countries for which the DEFRA EFs were not available we used ISPRA
and GHG Protocol EFs respectively.
The Company's activities are mainly related to office work: software implementation, research and development, and
administrative work. IGT's industrial activities are printing, which takes place in Lakeland (Florida, U.S.) and in Tito Scalo
(Italy), and assembling, which occurs in Reno (Nevada, U.S.).
The Company also has several environmental management systems that comply with the ISO 14001 (environmental
management standards published by the International Organisation for Standardisation).
Moreover, since 2011, the Company has implemented an ISO 50001 certified Energy Management System (EMS) for the
Rome, Italy, location.
In addition, the Reno, Nevada (U.S.), facility has a LEED gold certification awarded by the United States Green Building
Council in 2015 and valid until 2025. It operates with less water and energy, consequently reducing greenhouse gas
emissions. IGT Reno operates as Nevada’s first Gold certified combined office, data processing and manufacturing
facility under the LEED for Existing Buildings: Operations & Maintenance distinction. One of the many benchmarks the
Reno office met to earn its LEED certification was the elimination of approximately 1,530 tons of GHG’s annually by
providing a fitness center, cafeteria, and on-site childcare services.
Potential environmental impacts are related to:
•
• Material consumption: there can be both an indirect impact in IGT's assembling plant with sub-products
provided by suppliers, and a direct impact in terms of paper and ink consumption in the printing activities;
Energy can be both direct and indirect: direct - fuel consumption for heating, company fleet (cars and small
trucks) and emergency electricity supplies; indirect - electricity consumption (office, manufacturing and
printing);
Emissions related to energy use (both direct and indirect) and transportation of goods made by IGT's service
providers;
•
• Waste production: the Company's assembling process and printing processes do not produce a significant
•
amount of waste; generally the waste is not hazardous. It is the Company’s policy to recycle; and
Indirect environmental potential impacts: these can be significant for some processes relating to the
production of the sub-products that are assembled in Reno (Nevada, U.S.) (such as chroming). The suppliers
used for such processes are periodically monitored through on-site inspections in order to verify their
compliance with environmental regulations.
Annual Reports and Accounts 2018 Page | 64
The annual amount in tons of emissions of carbon dioxide from activities for which the Company is responsible, including
for fuel consumption and facility operations, refers to the following facilities:
• Main facilities in the U.S.: fuel consumption, electricity and refrigerant gases;
• U.S. fleet consumption (covering 100% of U.S. facilitates): cars and small trucks;
•
Facilities in Italy (the headquarters in Rome and the other facilities owned or leased in Italy): fuel
consumption, electricity and refrigerant gases;
Italian fleet consumption;
•
• Main facilities outside the U.S. and Italy: fuel consumption, electricity, refrigerant gases and fleet
consumption; and
• Remaining data centers worldwide: electricity.
Since 2016, an internal web-based tool is used to collect environmental data from Company sites all over the world. The
tool has enabled the collection process to be systemised and harmonised, giving a more comprehensive overview of the
Company’s environmental impact. In 2018, improvements were made to the tool shifting from a SharePoint based
technology to Office 365, which allowed the Company to significantly improve usability and to ensure full automation of
data retrieval and aggregation, reducing risk of errors. Thanks to these updates reporting boundaries increased further
compared to previous years, covering about 95% of all Company’s facilities.
Board and Committee Evaluation
The effectiveness of the Board is vital to the success of the Company. The Board undertakes a rigorous self-evaluation
process each year to assess how it, its committees and each of the individual directors is performing. The evaluation is
undertaken by way of an internal questionnaire, supported by discussions with the Nominating and Corporate
Governance Committee, the Independent Directors and the full Board. Any items of note that result from the
questionnaire or subsequent discussions are followed up on by the Board or relevant committee.
The Board and committee self-evaluation for 2018 revealed that the Board is generally satisfied with individual director
performance, the overall composition of the Board and the amount of information provided to the Board. Directors
indicated that the Board fosters open and honest communication and is adequately involved in monitoring management’s
implementation of strategy, reviewing significant transactions and identifying and discussing key risks with management.
Increasing diversity and promoting inclusion remain ongoing goals of the Board and of the Company in general. In 2018,
the Company appointed Kim Barker Lee to Vice President of Diversity and Inclusion to implement the Company's global
diversity and inclusion strategy. Ms. Lee also chairs the Executive Diversity and Inclusion Council, whose role is to
provide leadership support for the Company's diversity and inclusion initiatives.
Going concern
The current activities of the Company and those factors likely to affect its future development, together with a description
of its financial position, are described in the Strategic Report. Principal risks and uncertainties affecting the Company are
described in the Principal Risks and Uncertainties section of the Strategic Report. Critical accounting estimates affecting
the carrying values of assets and liabilities of the Company are discussed in Note 2, Summary of Significant Accounting
Policies to the consolidated financial statements.
Having reviewed management's forecasts, Company cash flow and net debt, the Directors have a reasonable
expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and
therefore will be well placed to manage its business risks successfully.
Accordingly, the Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing
the financial statements contained in these Annual Reports and Accounts.
Annual Reports and Accounts 2018 Page | 65
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Strategic Report, Directors’ Report, the Remuneration Report and the
financial statements in accordance with applicable law and regulations.
The Act and its associated regulations require directors to prepare financial statements for each financial year. Under the
Act, the Directors have prepared the consolidated financial statements and the Parent financial statements in accordance
with International Financial Reporting Standards as adopted by the E.U. (IFRS). Under the Act, the Directors must not
approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the
Parent and the Company and of the profit or loss of the Parent and the Company for that period. In preparing these
financial statements, the Directors are required to:
Select suitable accounting policies and then apply them consistently;
•
• Make judgements and accounting estimates that are reasonable and prudent;
•
State whether applicable standards issued under IFRS and IFRS Interpretations Committee (IFRS IC)
interpretations as adopted by the European Union and the Companies Act 2006 applicable to companies
reporting under IFRS have been followed for the Consolidated and Parent financial statements, subject to any
material departures disclosed and explained in the financial statements; and
Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Parent and the Company will continue in business.
•
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent
and the Company’s transactions and disclose with reasonable accuracy the financial position of the Parent and the
Company at any time and enable them to ensure that the financial statements comply with the Act. They are also
responsible for safeguarding the assets of the Parent and the Company and hence for taking reasonable steps toward
the prevention and detection of fraud and other irregularities and maintaining the Parent’s website. Legislation in the U.K.
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The auditor and disclosure of information to the auditor
In accordance with section 418 of the Act, each of the Directors confirms that:
•
•
So far as such Director is aware, there is no relevant audit information of which the Company’s auditor is
unaware; and
Such Director has taken all the steps that he or she ought to have taken as a director in order to make him or
her aware of any relevant audit information, and to establish that the Company’s auditor is aware of that
information.
Independent auditor
The auditor, PricewaterhouseCoopers LLP, has indicated its willingness to continue in office and a resolution concerning
its re-appointment will be proposed at the AGM. There are no significant post balance sheet events.
Approval
This Directors’ Report has been approved by the Board of Directors on April 12, 2019.
Signed on behalf of the Board of Directors by:
Marco Sala
Chief Executive Officer
Annual Reports and Accounts 2018 Page | 66
4.
INDEPENDENT AUDITORS’ REPORT
Independent auditors’ report to the members of International Game Technology
PLC
Report on the audit of the financial statements
Opinion
In our opinion, International Game Technology PLC’s group financial statements and parent company financial statements (the “financial
statements”):
• give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2018 and of the group’s loss,
the parent company’s profit and the group’s and the parent company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union;
and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Reports and Accounts 2018 (the “Annual Report”), which comprise: the
Consolidated Balance Sheet as at 31 December 2018; the Parent Balance Sheet as at 31 December 2018; the Consolidated Statement of Operations;
the Parent Statement of Operations; the Consolidated Statement of Comprehensive Income; the Parent Statement of Comprehensive Income; the
Consolidated Statement of Cash Flows; the Parent Statement of Cash Flows; the Consolidated Statement of Shareholders' Equity; the Parent
Statement of Shareholders' Equity for the year then ended; and the notes to the financial statements, which include a description of the significant
accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Our audit approach
Overview
• Overall group materiality: $35 million (2017: $35 million), based on 2.3% of Earnings before interest, tax,
depreciation and amortisation (EBITDA); adjusted to remove the impact of impairment losses and foreign
exchange gains and losses.
• Overall parent company materiality: $70 million (2017: $70 million), based on 1% of Total Liabilities.
• We conducted full scope audit work over 3 components in which the group has significant operations
(Rome, Italy and Las Vegas, Nevada and Providence, Rhode Island, USA.) and a full scope audit of the
parent company.
•
In addition, we performed audit procedures on specific balances at 10 non-significant components.
• During the year, the group engagement team visited significant components in Italy and the USA.
• Revenue recognition: multiple - element arrangements.
•
Impairment of goodwill and indefinite-lived intangible assets.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular,
we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override
of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to
fraud.
Annual Reports and Accounts 2018 Page | 67
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is
not a complete list of all risks identified by our audit.
Key audit matter
Revenue recognition: multiple - element arrangements
The groups’ revenue transactions include various complex aspects
including multiple-element arrangements, software revenue
recognition, and contingent revenue.
We considered this a significant risk given the level of complexity
and judgment involved in understanding the revenue-affecting terms
and conditions in the Company's multiple-element arrangements, as
well as the allocation of consideration in multiple-element
arrangements, accounted for under IFRS 15. It is noted that under
this guidance, the allocation of arrangement consideration to each of
the obligations in a contract can require significant management
judgment.
Based on the risk assessment performed and a consideration of the
group’s revenue process, the engagement team considered accuracy
to be the relevant assertion with respect to the risk in multiple-
element arrangements.
Impairment of goodwill and indefinite-lived intangible assets
The group holds goodwill and indefinite-lived intangible asset
balances of $5.6 billion and $247 million, respectively, at 31
December 2018. We focused on this area because the estimates
underlying the group’s impairment tests on the recoverability of
these goodwill and indefinite-lived intangible assets are subject to
high estimation uncertainty.
As disclosed in notes 12 and 23 to the consolidated financial
statements, the group’s annual impairment test identified an excess of
fair value compared to carrying value in all but one of its reporting
units. For the International reporting unit, an impairment of $184
million was recorded.
How our audit addressed the key audit matter
Our procedures included the following:
Assessing whether the revenue recognised on these contracts was in
line with the group's accounting policy by performing a combination
of controls testing and substantive procedures.
Assessing the controls in place over the revenue recognition of
complex contracts. In addition, we also assessed the business
processes and relevant controls related to order management,
product sales, subscriptions, other services, deferred revenue
recognition, invoicing, cash receipts credit memos, ledger
maintenance, and standing data.
Testing a sample of revenue recognised on contracts and orders by
validation against source documentation and compliance with the
groups’ revenue recognition policies for multiple-element
arrangements.
Testing a sample of individually immaterial transactions that were
selected on a haphazard basis by agreeing to documentation and
assessing compliance with IFRS 15.
Testing management’s determination of the standalone selling price
of contractual performance obligations.
Based on the procedures performed, we noted no material issues from
our work.
We evaluated the appropriateness of management’s identification of
the group’s reporting units and the continued satisfactory operation
of the group’s controls over the impairment assessment process.
Our procedures included the following:
Assessing the business processes and controls related to
impairments of indefinite-lived intangible assets and goodwill.
Assessing the suitability of the impairment model and understanding
management's process and judgements utilised for developing
estimates and assumptions.
Performing a retrospective review of the prior period estimates by
comparing to actual results in the current period and agreeing the
current year cash flow assumptions to current year actual results.
Using PwC valuation specialists to review significant assumptions
and third party reports.
Obtaining corroborating evidence to support significant assumptions
and changes in the cash flow projections.
Considering any contrary evidence to the assumptions used.
Performing a sensitivity analysis based on reasonably possible
outcomes.
Checking the mathematical accuracy of the calculations.
Based on the procedures performed, we noted no material issues from
our work.
We determined that there were no key audit matters applicable to the parent company to communicate in our report.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the group and the parent company, the accounting processes and controls, and the industry in which they
operate.
The group has its corporate headquarters in London, England, and operating headquarters in Rome, Italy and Las Vegas, Nevada and Providence,
Rhode Island, USA. The worldwide engagement team is aligned to the group’s geographical organization and broadly mirrors the management
structure.
As the group’s corporate headquarters are based in London, the group engagement team is also based in London and supported by component
teams in Rome, Italy and Boston, Massachusetts, USA, with supplemental assistance over specified audit procedures from a team in Cyprus.
Annual Reports and Accounts 2018 Page | 68
Where work was performed by teams outside of the UK, we determined the level of independent involvement needed at those local operations to be
able to conclude whether sufficient audit evidence had been obtained as a basis for our opinion on the consolidated financial statements as a whole.
We issued formal, written instructions to the teams outside the UK setting out the work to be performed by each of them and maintained regular
communication throughout the audit cycle. These interactions included participating in the planning and clearance meetings with our teams in
Rome, Cyprus and Boston, holding regular conference calls, as well as reviewing work papers and assessing matters reported.
We performed certain specified audit procedures across 10 non-significant components to gain sufficient audit coverage over certain balances in the
consolidated financial statements. The balances covered at each individual component varied based on their size, but consisted of some or all of the
following: service revenue, cost of services, interest expense, deferred revenue, long term debt, inventories, other assets, property plant and
equipment and trade receivables.
In total, the audit work performed addressed approximately 90% of consolidated net revenue and over 90% of the consolidated total assets. At the
group level, we also carried out analytical and other procedures on the components not covered by the procedures described above. The group
engagement team also performed audit procedures over the consolidation.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
Group financial statements
$35 million (2017: $35 million).
2.3% of Earnings before interest, tax,
depreciation and amortisation (EBITDA);
adjusted to remove the impact of impairment
losses and foreign exchange gains and losses
Parent company financial statements
$70 million (2017: $70 million).
1% of Total Liabilities.
Rationale for benchmark applied
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was between $3.5 million and $34 million (with $10.5 million being used for the parent company
for the purposes of the group audit).
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $2.5 million (group
audit) (2017: $2.5 million) and $3.5 million (parent company audit) (2017: $3.5 million) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the
group’s and parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s and parent company’s
ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear,
and it is difficult to evaluate all of the potential implications on the group’s trade, customers, suppliers and the wider economy.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to
report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.
Annual Reports and Accounts 2018 Page | 69
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 and ISAs (UK) require
us also to report certain opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report
for the year ended 31 December 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements.
In light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit, we
did not identify any material misstatements in the Strategic Report and Directors’ Report.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities set out on page 67, the directors are responsible for the preparation of the
financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditors
responsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior
consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
certain disclosures of directors’ remuneration specified by law are not made; or
the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns
•
•
We have no exceptions to report arising from this responsibility.
Gregory Briggs (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Uxbridge
12 April 2019
Annual Reports and Accounts 2018 Page | 70
5. FINANCIAL STATEMENTS
INTERNATIONAL GAME TECHNOLOGY PLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at December 31, 2018 and 2017 and January 1, 2017 .........................................................
72
Consolidated Statement of Operations for the years ended December 31, 2018 and 2017 ..............................................
73
Consolidated Statement of Comprehensive Income for the years ended December 31, 2018 and 2017 ..........................
74
Consolidated Statement of Cash Flows for the years ended December 31, 2018 and 2017 .............................................
75
Consolidated Statement of Shareholders' Equity for the years ended December 31, 2018 and 2017 ...............................
77
Notes to the Consolidated Financial Statements ...............................................................................................................
78
Annual Reports and Accounts 2018 Page | 71
International Game Technology PLC
Consolidated Balance Sheet
($ thousands)
Notes
December 31,
2018
2017
January 1,
2017
Assets
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Trade and other receivables, net
Inventories
Other current assets
Income taxes receivable
Total current assets
Systems, equipment and other assets related to contracts, net
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other non-current assets
Deferred income taxes
Total non-current assets
Total assets
Liabilities and shareholders' equity
Current liabilities:
Accounts payable
Other current liabilities
Current portion of long-term debt
Short-term borrowings
Income taxes payable
Total current liabilities
Long-term debt, less current portion
Deferred income taxes
Income taxes payable
Other non-current liabilities
Total non-current liabilities
Total liabilities
Shareholders’ equity
Share capital
Share premium
Retained (deficit) earnings
Other reserves
Total IGT PLC’s shareholders’ equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
5
6
7
11
11
12
13
7
16
21
14
15
15
15
16
14
19
20
250,669
189,149
949,085
282,698
489,278
39,075
2,199,954
1,424,909
154,539
5,631,186
2,038,315
2,120,570
38,117
11,407,636
13,607,590
1,070,412
924,516
—
34,822
49,011
2,078,761
7,976,838
430,260
25,654
716,492
9,149,244
11,228,005
20,421
2,856,487
(1,330,669 )
226,211
1,772,450
607,135
2,379,585
13,607,590
1,057,418
152,039
937,854
319,545
396,130
89,794
2,952,780
1,454,340
163,228
5,848,454
2,266,263
2,414,984
41,546
12,188,815
15,141,595
1,144,780
1,889,980
599,061
—
86,009
3,719,830
7,776,611
462,851
55,665
698,543
8,993,670
12,713,500
20,344
2,845,190
(1,073,935 )
298,647
2,090,246
337,849
2,428,095
15,141,595
294,094
138,702
947,237
347,494
402,268
24,713
2,154,508
1,218,027
327,656
6,959,114
2,865,925
1,496,835
31,376
12,898,933
15,053,441
1,107,559
1,125,870
77
—
38,137
2,271,643
7,861,404
729,285
—
614,474
9,205,163
11,476,806
20,228
2,855,604
215,998
141,177
3,233,007
343,628
3,576,635
15,053,441
The accompanying notes are an integral part of these consolidated financial statements.
The consolidated financial statements were approved by the Board of Directors on April 12, 2019 and signed on its behalf on April 12, 2019
by:
Marco Sala
Chief Executive Officer
Company registration number: 09127533
Annual Reports and Accounts 2018 Page | 72
International Game Technology PLC
Consolidated Statement of Operations
($ and shares in thousands, except per share amounts)
Service revenue
Product sales
Total revenue
Cost of services
Cost of product sales
Selling, general and administrative
Research and development
Restructuring expense
Impairment loss
Transaction expense (income), net
Total operating expenses
Operating income (loss)
Interest income
Interest expense
Foreign exchange gain (loss), net
Other expense, net
Total non-operating expenses
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net loss
Less: Net income attributable to non-controlling interests
Net loss attributable to IGT PLC
Net loss attributable to IGT PLC per common share - basic
Net loss attributable to IGT PLC per common share - diluted
Weighted-average shares - basic
Weighted-average shares - diluted
Notes
3, 21
3, 21
3, 21
23
21
15
24
16
16
20
25
25
25
25
For the year ended December 31,
2018
4,044,595
784,942
4,829,537
2,449,344
490,876
836,230
262,262
14,781
186,407
51
4,239,951
2017
4,134,828
802,403
4,937,231
2,552,110
579,435
809,746
313,124
39,876
760,220
(26,740 )
5,027,771
589,586
(90,540 )
14,231
(431,690 )
129,025
(203,308 )
10,436
(459,591 )
(443,809 )
(107,931 )
(491,742 )
(1,000,895 )
97,844
(1,091,435 )
184,216
(24,639 )
(86,372 )
(1,066,796 )
58,003
(144,375 )
55,400
(1,122,196 )
(0.71 )
(0.71 )
(5.52 )
(5.52 )
204,083
204,083
203,130
203,130
The accompanying notes are an integral part of these consolidated financial statements.
Annual Reports and Accounts 2018 Page | 73
International Game Technology PLC
Consolidated Statement of Comprehensive Income
($ thousands)
Net loss
Other comprehensive (loss) income, before tax:1
Change in foreign currency translation:
Foreign currency translation adjustments
Reclassification of income to net income
Total foreign currency translation adjustments
Change in unrealized gain (loss) on cash flow hedges:
Unrealized loss on cash flow hedges
Reclassification of loss to net income
Total change in unrealized gain (loss) on cash flow hedges
Unrealized loss on available-for-sale securities
Unrealized gain (loss) on defined benefit plans
Other comprehensive (loss) income, before tax
For the year ended December 31,
Notes
2018
2017
(86,372 )
(1,066,796 )
19
19
19
19
19
19
(83,121 )
(4,254 )
(87,375 )
159,785
—
159,785
(204 )
536
332
(5,408 )
429
(6,610 )
1,744
(4,866 )
(678 )
(120 )
(92,022 )
154,121
895
(91,127 )
2,886
157,007
(177,499 )
(909,789 )
39,312
(216,811 )
54,937
(964,726 )
Income tax benefit related to items of other comprehensive income
16, 19
Other comprehensive (loss) income
Total comprehensive loss
Less: Total comprehensive income attributable to non-controlling interests
Total comprehensive loss attributable to IGT PLC
(1) All items in other comprehensive income (loss), before tax will be reclassified subsequently to profit or loss when specific conditions are met, with the
exception of unrealized (loss) gain on defined benefit plans.
The accompanying notes are an integral part of these consolidated financial statements.
Annual Reports and Accounts 2018 Page | 74
International Game Technology PLC
Consolidated Statement of Cash Flows
($ thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation
Amortization
Service revenue amortization
Impairment loss
Redeemable non-controlling interest
Loss on extinguishment of debt
Stock-based compensation expense
Debt issuance cost amortization
Deferred income tax provision
Foreign exchange (gain) loss, net
Gain on sale of Double Down Interactive LLC
Other non-cash costs, net
Changes in operating assets and liabilities, excluding the effects of disposition and acquisitions:
Trade and other receivables
Inventories
Upfront Italian license fees
Accounts payable
Other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Proceeds from sale of assets
Proceeds from sale of Double Down Interactive LLC, net of cash divested
Other
Net cash (used in) provided by investing activities
Cash flows from financing activities
Principal payments on long-term debt
Dividends paid
Dividends paid - redeemable non-controlling interests
Dividends paid - non-controlling interests
Payments in connection with the extinguishment of debt
Return of capital - non-controlling interests
Return of capital - redeemable non-controlling interests
Debt issuance costs paid
Net receipts from (payments of) financial liabilities
Net proceeds from short-term borrowings
Capital increase - non-controlling interests
Proceeds from long-term debt
Capital increase - redeemable non-controlling interests
Other
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
For the year ended December 31,
Notes
2018
2017
(86,372 )
(1,066,796 )
23
24
24
22
16
4
14, 20
4
15
441,066
271,772
219,069
186,407
148,416
54,423
22,896
22,475
(40,422 )
(129,025 )
—
30,302
(54,356 )
12,556
(878,055 )
(39,203 )
(173,294 )
8,655
(533,052 )
19,243
—
(1,741 )
(515,550 )
(1,899,888 )
(163,236 )
(71,024 )
(55,902 )
(49,976 )
(46,044 )
(39,077 )
(17,033 )
7,123
34,822
321,584
1,687,761
—
(20,655 )
(311,545 )
(818,440 )
11,691
1,057,418
250,669
409,575
400,447
211,449
760,220
74,253
25,733
4,566
24,179
(292,888 )
443,809
(51,348 )
19,649
45,465
51,406
(244,698 )
12,565
(141,658 )
685,928
(698,010 )
167,452
823,788
5,435
298,665
(1,754,259 )
(162,528 )
(7,307 )
(50,601 )
(38,832 )
(52,352 )
(32,039 )
(16,378 )
(150 )
—
41,011
1,762,270
107,457
(43,264 )
(246,972 )
737,621
25,703
294,094
1,057,418
Annual Reports and Accounts 2018 Page | 75
International Game Technology PLC
Consolidated Statement of Cash Flows
($ thousands)
Supplemental Cash Flow Information
Interest paid
Income taxes paid
Capital expenditures
Non-cash investing activities, net
Dividends declared - non-controlling interests
Non-cash financing activities, net
The accompanying notes are an integral part of these consolidated financial statements.
For the year ended December 31,
2018
2017
(445,698 )
(239,831 )
(51,805 )
(51,805 )
—
—
(417,110 )
(296,386 )
(62,858 )
(62,858 )
(12,588 )
(12,588 )
Annual Reports and Accounts 2018 Page | 76
International Game Technology PLC
Consolidated Statement of Shareholders’ Equity
($ thousands)
Balance at December 31, 2016
20,228
2,855,604
215,998
141,177
Share
Capital
Share
Premium
Retained
(Deficit)
Earnings
Other Reserves
(Note 19)
Total
IGT PLC
Equity
3,233,007
Non-
Controlling
Interests
(Note 20)
343,628
Total
Equity
3,576,635
(1,066,796 )
157,007
(909,789 )
41,799
4,566
(1,993 )
(3,545 )
(11,419 )
(51,211 )
(212,305 )
(4,643 )
2,428,095
(86,372 )
(91,127 )
(177,499 )
55,400
(463 )
54,937
41,799
—
—
—
—
(51,211 )
(49,777 )
(1,527 )
337,849
58,003
(18,691 )
39,312
Net (loss) income
Other comprehensive income (loss),
net of tax
Total comprehensive (loss) income
Capital increase
Stock-based compensation expense
(Note 22)
Tax benefit on stock-based
compensation expense
Shares issued upon exercise of stock
options
Shares issued under stock award
plans
Return of capital
Dividends paid
Other
Balance at December 31, 2017
Net (loss) income
Other comprehensive loss, net of tax
Total comprehensive (loss) income
Capital increase
Adoption of new accounting
standards
Stock-based compensation expense
(Note 22)
Tax benefit on stock-based
compensation expense
Shares issued upon exercise of stock
options
Shares issued under stock award
plans
Return of capital
Dividends paid
Other
Balance at December 31, 2018
—
—
—
—
—
—
21
95
—
—
—
20,344
—
—
—
—
—
—
—
15
62
—
—
—
20,421
—
—
—
—
4,566
100
(3,566 )
(11,514 )
—
—
—
2,845,190
—
—
—
—
—
22,896
1,119
(1,566 )
(11,153 )
—
—
1
2,856,487
(1,122,196 )
—
(1,122,196 )
—
—
(2,093 )
—
—
—
(162,528 )
(3,116 )
(1,073,935 )
(144,375 )
—
(144,375 )
—
50,874
—
—
—
—
—
(163,236 )
3
(1,330,669 )
—
(1,122,196 )
157,470
157,470
157,470
(964,726 )
—
4,566
(1,993 )
(3,545 )
(11,419 )
—
(162,528 )
(3,116 )
2,090,246
(144,375 )
(72,436 )
(216,811 )
—
—
—
—
—
—
—
—
298,647
—
(72,436 )
(72,436 )
—
—
—
—
—
The accompanying notes are an integral part of these consolidated financial statements.
Annual Reports and Accounts 2018 Page | 77
—
319,254
319,254
50,874
22,896
1,119
(1,551 )
—
—
—
—
50,874
22,896
1,119
(1,551 )
—
—
—
—
226,211
(11,091 )
—
(163,236 )
4
1,772,450
—
(45,967 )
(43,313 )
—
607,135
(11,091 )
(45,967 )
(206,549 )
4
2,379,585
International Game Technology PLC
Notes to the Consolidated Financial Statements
1. Description of Business
International Game Technology PLC, a public limited company organized under the laws of England and Wales (the "Parent"), has
its corporate headquarters at 66 Seymour Street, 2nd floor, London, W1H 5BT, United Kingdom. The Parent is the successor to
GTECH S.p.A., a società per azioni incorporated under the laws of Italy ("GTECH"), and the sole stockholder of International
Game Technology, a Nevada corporation ("IGT"). The Parent, together with its consolidated subsidiaries, has principal operating
facilities in Providence, Rhode Island; Las Vegas, Nevada; and Rome, Italy.
When used in these notes, unless otherwise specified or the context otherwise indicates, all references to "IGT PLC," the
"Company," "we," "our," or "us" refer to the business and operations of the Parent and its consolidated subsidiaries.
We are majority owned by De Agostini S.p.A. ("De Agostini"), a century-old publishing, media, and financial services company that
is incorporated in Italy. Our remaining shares not held by De Agostini are publicly held. De Agostini is the smallest group to
consolidate these financial statements and is majority owned by B&D Holding di Marco Drago e C. S.a.p.a. ("B&D") which is
incorporated in Italy and the largest group to consolidate these financial statements. B&D is wholly owned by the Boroli and Drago
families.
We are a leading commercial operator and provider of technology in the regulated worldwide gaming markets that operates and
provides a full range of services and leading-edge technology products across all gaming markets, including lotteries, machine
gaming, sports betting, interactive gaming and commercial services. Our state-of-the-art information technology platforms and
software enable distribution of our products and services through land-based systems, internet and mobile devices.
2. Summary of Significant Accounting Policies
The principal accounting policies adopted are set out below and have been consistently applied to all years presented, unless
otherwise noted.
Basis of Preparation
The accompanying consolidated financial statements and notes of the Company, prepared for statutory purposes, have been prepared
on a going concern basis and in accordance with International Financial Reporting Standards ("IFRS") and IFRS Interpretations
Committee ("IFRS IC") interpretations as adopted by the European Union and the Companies Act 2006 applicable to companies
reporting under IFRS. For internal and external reporting purposes, we also apply accounting principles generally accepted in the
United States of America ("GAAP"). GAAP is our primary accounting standard for setting financial and operational performance
targets.
The Company previously prepared its consolidated financial statements for the year ended December 31, 2017 under GAAP using
the transitional benefit available under Statutory Instrument 2015 No. 1675 ("SI 1675"), "The Accounting Standards (Prescribed
Bodies) (United States of America and Japan) Regulations 2015". The transitional benefit, which expired in 2018, allowed the
Company to prepare its statutory consolidated financial statements under GAAP for the first four years after incorporation in the UK.
The Company has elected to retrospectively restate prior periods that were reported under GAAP and to not apply IFRS No. 1, First-
time Adoption of International Financial Reporting Standards ("IFRS 1"). Historically, the Company has prepared a reporting
package annually in accordance with IFRS for De Agostini. Further, the Company reported its consolidated financial statements
under IFRS for the year ended December 31, 2015.
Annual Reports and Accounts 2018 Page | 78
The material differences between our GAAP and IFRS consolidated balance sheet are as follows:
($ thousands)
Restricted cash and cash equivalents
Other current assets
Income taxes receivable
Systems, equipment and other assets related to contracts, net
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other non-current assets
Accounts payable
Other current liabilities
Income tax payable
Deferred income taxes
Other non-current liabilities
Shareholders' equity
Notes
2018
2017
2017
December 31,
January 1,
2
16
16
18
18
12, 23
13
14, 16
2
14, 18
16
16
14, 16, 18
19
(71,959 )
(14,783 )
—
20,483
(30,810 )
50,959
(6,408 )
11,606
(71,959 )
107,897
40,802
(15,823 )
311,849
372,344
(95,973 )
(11,390 )
(4,374 )
20,146
(30,495 )
124,639
(7,197 )
(12,969 )
(95,973 )
109,105
30,074
(28,609 )
252,429
73,165
(108,520 )
(22,459 )
(4,079 )
18,384
(30,185 )
149,102
(8,105 )
(828 )
(108,520 )
28,782
9,547
(32,639 )
170,465
150,970
The material differences between our GAAP and IFRS consolidated statement of operations are as follows:
($ thousands)
Selling, general and administrative
Impairment loss
Other expense, net
(Benefit from) provision for income taxes
Notes
18, 22
23
14
16
December 31,
2018
2017
(8,494 )
66,000
(148,416 )
(5,185 )
(6,347 )
45,000
(74,538 )
4,776
The consolidated financial statements have been prepared on a historical cost basis unless otherwise stated. Intercompany accounts
and transactions have been eliminated. The consolidated financial statements are presented in U.S. dollars and all amounts are
rounded to the nearest thousand (except share, per share, and employee headcount data) unless otherwise indicated. We have
reclassified certain prior period amounts to align with the current period presentation. All references to "U.S. dollars," "U.S. dollar"
and "$" refer to the currency of the United States of America. All references to "euro" and "€" refer to the currency introduced at the
start of the third stage of the European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European
Union, as amended.
Use of Estimates
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingencies on the balance sheet dates and the reported amounts of
revenue and expense during the reporting periods.
We evaluate our estimates continuously and base them on historical experience and on various other assumptions that we believe to
be reasonable under the circumstances. Actual results may differ from these estimates if the assumptions prove incorrect. To the
extent there are material differences between actual results and these estimates, our future results could be materially and adversely
affected. We believe the accounting policies described below require us to make significant judgments and estimates in the
preparation of our consolidated financial statements.
Our most critical accounting estimates include revenue recognition, allowance for doubtful accounts and credit losses, income taxes,
legal and other contingencies and evaluation of long-lived assets for impairment.
Annual Reports and Accounts 2018 Page | 79
Principles of Consolidation
The consolidated financial statements include the accounts of the Parent and its controlled subsidiaries, which are primarily majority
owned. Investments in other entities that we have the ability to control, through a majority voting interest or otherwise, or with
respect to which we are the primary beneficiary, are consolidated. Intercompany accounts and transactions have been eliminated in
the consolidation. Earnings or losses attributable to any non-controlling interests in a subsidiary are included in net income (loss) in
the consolidated statement of operations.
Investments in affiliates, through 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. Investments in affiliates through
which we have no ability to exercise significant influence are accounted for using the cost method of accounting.
Foreign Currency Translation
Assets and liabilities of subsidiaries located outside of the United States that have a local functional currency are translated to U.S.
dollars at exchange rates in effect at the balance sheet date. Income and expense accounts for these subsidiaries are translated at the
average exchange rates for the periods. Resulting translation adjustments are recorded as a component of other reserves within
shareholders’ equity. We record gains and losses from currency transactions denominated in currencies other than the functional
currency in the consolidated statement of operations.
Revenue Recognition
We account for a contract with a customer when:
i. we have written approval;
ii.
the contract is committed;
iii. the rights of the parties, including payment terms, are identified;
iv. the contract has commercial substance; and
v. collectability of consideration is probable.
A performance obligation is a promise in a contract with a customer to transfer products or services that are distinct. If we enter into
two or more contracts at or near the same time, the contracts may be combined 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:
• The 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.
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, in 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 a significant financing component include
explicit financing terms.
We may include subcontractor services or third-party vendor services or products in certain arrangements. In these arrangements,
revenue from sales of third-party vendor services or products 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
Annual Reports and Accounts 2018 Page | 80
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.
Service Revenue
Service revenue is derived from the following sources:
• Operating and Facilities Management Contracts;
• Lottery Management Agreements ("LMA");
• Machine Gaming; and
• Other Services.
Operating and Facilities Management Contracts
Our revenue from operating contracts, primarily from the Italy segment, is derived from long-term exclusive operating licenses.
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 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 completed performance. 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. When such upfront license payments are made to
our customers, the payment is recorded as a non-current asset and amortized ratably as a reduction of service revenue over the period
of usage of the license.
Our revenue from facilities management contracts ("FMC") is generated by constructing, 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 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. 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.
Lottery Management Agreements
Our revenue from LMAs is primarily derived from two exclusive contracts within the North America Lottery segment. Similar to
operating contracts, under LMAs 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. The
arrangement 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). In LMAs, we satisfy the performance obligation and recognize revenue
over time because the customer simultaneously receives and consumes the benefits provided as we perform the services. These
contracts are annual cost reimbursable contracts with incentives based on the achievement of contractual metrics. Annually, we
estimate the amount of incentive to which we expect to be entitled and recognize the incentive and gross revenues on costs incurred
as we perform the service. Changes in the annual estimated incentive are made cumulatively each reporting period.
Under LMAs, we can be required to pay an upfront license fee. When such upfront license payments are made to our customers, the
payment is recorded as a non-current asset and amortized ratably as a reduction of service revenue over the period of usage of the
license.
Annual Reports and Accounts 2018 Page | 81
Machine Gaming
Our revenue from machine gaming services is generated by providing customers with proprietary land-based gaming systems and
equipment under a variety of recurring revenue arrangements, including a percentage of coin-in (amounts wagered), a percentage of
net win, or a fixed daily/monthly fee.
Included in machine gaming services are Wide Area Progressive ("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 the coin-in 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.
Other Services
We also generate revenue from other services, including sports betting and commercial services.
We provide sports betting technology to lotteries and commercial operators in regulated markets, primarily in Italy and other
countries in Europe as well as in the U.S. We currently offer two types of sports betting services: fixed odds contracts and sports
pools arrangements.
In fixed odds contracts, we establish and assume the risks related to the odds. The potential payout is fixed at the time bets are placed
and we bear the risk of odds setting. We are responsible for collecting the wagers, paying prizes, and paying fees to retailers. We
retain the remaining amounts as profits. We record revenue as wagers are collected, net of estimated prize payouts.
Our revenue from sports pools arrangements is derived from the management of sports pools where the prizes are divided among
those players who select the correct outcome. There are no odds involved in sports pools and each winner’s payoff depends on the
number of players and the size of the pool. Under sports pools arrangements, we collect the wagers, pay prizes, pay a percentage fee
to retailers, withhold our fee, and remit the balance to the respective regulatory agency. We assume no risk associated with sports
pool wagering. We record revenue net of prize payouts, retailer commissions, and remittances to state authorities once the event
occurs.
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.
Our contracts generally include other services, including telephone support, software maintenance, content licensing, hardware
maintenance, and the right to receive unspecified upgrades or enhancements on a when-and-if-available basis and other professional
services. Fees earned for other services are generally recognized as service revenue in the period the service is performed (i.e., over
the support period).
Annual Reports and Accounts 2018 Page | 82
Product Sales
Product sales are derived from the following sources:
• Lottery and gaming machines, including game content; and
• Lottery and gaming systems and other.
Lottery and Gaming Machines, including Game Content
Our revenue from the sale of lottery and gaming machines includes game content, non-machine gaming services related equipment,
licensing and royalty fees, and component parts (including game themes and electronics conversion kits). 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 and 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 lottery and gaming machines includes multiple performance obligations, these arrangements are accounted
for under arrangements with multiple performance obligations, discussed below.
Lottery and Gaming Systems and Other
Our revenue from the sale of lottery systems and gaming systems typically includes multiple performance obligations, where we
construct, 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. 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. Such arrangements include hardware, software, and professional services. In these 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 recognized based upon the
contractual terms of each arrangement, but predominantly upon transfer of physical possession of the goods or the satisfaction of
customer acceptance provisions. Our other 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.
Arrangements with Multiple Performance Obligations
We often enter into contracts that consist of any 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 the amount of consideration to which we expect
to be entitled in exchange for transferring the promised services or products. If the services and products are not distinct, we
determine an appropriate measure of progress based on the nature of our overall promise for the single performance obligation.
To the extent we grant the customer the option to acquire additional services or products 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 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
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
Annual Reports and Accounts 2018 Page | 83
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 statement 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 and (ii) contracts for which we recognize revenue at the amount that we have the right to invoice for services performed.
Contract Assets and Liabilities
Contract assets arise from contracts when revenue is recognized over time and the amount of revenue recognized exceeds the
amount billed to the customer. These amounts are included in contract assets until the right to payment is no longer conditional on
events other than the passage of time. Contract liabilities include deferred revenue, advance payments and billings in excess of
revenue recognized.
Upfront License Fees
We periodically make long-term investments in contracts with customers and obtain licenses to supply products and services to the
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 statement 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
Annual Reports and Accounts 2018 Page | 84
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, 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 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 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.
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.
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 online 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.
Restricted cash equivalents are primarily composed of publicly-traded foreign government and corporate bonds and mutual funds,
and are valued using quoted market prices.
Certain cash related to our Italy segment is classified as restricted cash under GAAP while IFRS requires the cash to be netted
against the related liability resulting in a $72.0 million, $96.0 million and $108.5 million difference within restricted cash and cash
equivalents and accounts payable on the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1, 2017,
respectively.
Allowance for Credit Losses
We maintain an allowance for credit losses for the estimated probable losses on uncollectible trade and customer financing
receivables. The allowance is estimated based upon the credit-worthiness of our customers, historical experience and aging analysis,
as well as current market and economic conditions. Receivables are written off against these allowances in the period they are
determined to be uncollectible.
We determine our allowances for credit losses on customer financing receivables based on two classes: contracts and notes.
Contracts include extended payment terms granted to qualifying customers for periods from one to six years and are typically
secured by the related products sold. Notes consist of development financing loans granted to select customers to assist in the
funding of new or expanding gaming facilities, generally under terms of one to seven years, and are secured by the developed
property and/or other customer assets. Customer financing interest income is recognized based on market rates prevailing at
issuance.
Annual Reports and Accounts 2018 Page | 85
Fair Value of Financial Instruments
The International Accounting Standards Board ("IASB") IFRS 13, Fair Value Measurement, defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The fair value measurement hierarchy prioritizes the inputs to valuation techniques used to measure fair value as
follows:
• Level 1: Valuations based on inputs such as unadjusted quoted prices for identical assets or liabilities in active markets that
the entity has the ability to access.
• Level 2: Valuations based on inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities, quoted
prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for
substantially the full term of the assets or liabilities.
• Level 3: Valuations based on inputs that are unobservable and should reflect the assumptions that market participants would
use when pricing the assets or liabilities including assumptions about risk.
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. Valuation methods and
assumptions used to estimate fair value, when Level 1 inputs are not available, are subject to judgments and changes in these factors
can materially affect fair value estimates.
For financial assets and financial liabilities that are recognized at fair value on a recurring basis, we determine whether transfers
have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.
The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, restricted cash, trade and other
receivables, other current assets, accounts payable, and other current liabilities approximate fair value due to relatively short periods
to maturity.
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 on the
nature of the hedge and the hedge effectiveness. Derivative gains and losses are reported in the consolidated statement 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 and are
subsequently reclassified when the hedged item affects earnings. At that time, the amount is reclassified from other comprehensive
income 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 in the fair value of the underlying debt instrument due to changes in the benchmark interest rate.
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 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 gain (loss), net, in the consolidated statement of operations.
Annual Reports and Accounts 2018 Page | 86
Concentrations of Risks
Financial instruments that potentially subject us to concentration of credit risk consist principally of bank deposits, short and long-
term investments, trade receivables, customer financing receivables and foreign currency exchange contracts. Deposits held with
banks in the United States may exceed the amount of Federal Deposit Insurance Corporation ("FDIC") insurance provided on such
deposits. Deposits held with banks outside the United States generally do not benefit from FDIC insurance. The majority of our day-
to-day banking operations globally are maintained with major, financially sound counterparties with high-grade credit ratings, and
we limit our exposure to any one counterparty.
We provide credit to customers in the normal course of business. Credit is extended to new customers based on checks of credit
references, credit scores and industry reputation. Credit is extended to existing customers based on prior payment history and
demonstrated financial stability. The credit risk associated with trade and customer financing receivables is generally limited due to
the large number of customers and their geographic dispersion. We establish an allowance for the estimated uncollectible portion of
trade and customer financing receivables. Product sales are generally dispersed among a large number of customers, minimizing the
reliance on any particular customer or group of customers.
The counterparties to our foreign currency exchange contracts consist of a number of major financial institutions. In addition to
limiting the amount of contracts we enter into with any one party, we monitor the credit quality of the counterparties on an ongoing
basis.
We purchase or license many sophisticated components and products from one or a limited number of qualified suppliers. If any of
our suppliers were to cancel or materially change contracts or commitments with the Company or fail to meet the quality or delivery
requirements needed to satisfy customer orders for our products, we could lose customer orders. We attempt to minimize this risk by
finding alternative suppliers or maintaining adequate inventory levels.
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.
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 when there is a range of possible outcomes, or when a best estimate cannot be made, at the midpoint of the range
when any point in a continuous range is as likely as any other, 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.
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 not recorded 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.
Annual Reports and Accounts 2018 Page | 87
We recognize interest and penalties related to unrecognized tax benefits on the provision for taxes line of the consolidated statement
of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheets.
At December 31, 2018, we finalized our policy and have elected to 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.
Business Combinations
We account for acquired subsidiaries using the acquisition method and accordingly, the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree are recorded at their acquisition date fair values. The excess of the costs of
an acquired subsidiary over the net of the amounts assigned to identifiable assets acquired and liabilities incurred or assumed, is
capitalized as goodwill. Acquisition and disposition related costs are included in transaction (income) expense, net in the
consolidated statement of operations. Transaction (income) expense, net is composed of transaction costs on significant business
combinations and gains and losses incurred on disposals of group entities or businesses. The results of operations of acquired
subsidiaries are included in the consolidated financial statements from the date control is obtained.
Goodwill
Goodwill represents the excess of the costs of an acquisition, including the fair value of any contingent consideration, over the fair
value of the amounts assigned to assets acquired and liabilities incurred or assumed of the acquired subsidiary at the date of
acquisition. The primary drivers that generate goodwill are the value of synergies between the acquired subsidiary and the Company
and the acquired assembled workforce, neither of which qualifies as a separately identifiable intangible asset. Goodwill is stated at
cost less accumulated impairment losses.
Other Intangible Assets
Other intangible assets are stated at cost, less accumulated amortization and accumulated impairment losses, and include indefinite-
lived and definite-lived intangible assets.
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,
computer software and game library, licenses, and developed technologies, are capitalized and amortized on a straight-line basis over
their estimated economic 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.
The estimated economic lives of our definite-lived intangible assets are as follows:
Category
Networks
Sports and horse racing betting rights
Computer software and game library
Licenses
Trademarks
Developed technologies
Customer relationships
Other
Estimated economic
life
7 years
7 years
3 - 14 years
3 - 15 years
3 - 20 years
5 - 14 years
7 - 20 years
3 - 17 years
Annual Reports and Accounts 2018 Page | 88
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 and facilities management contracts (collectively, the
"Contracts") and are principally composed of lottery and gaming assets. PPE are assets we use internally, primarily in
manufacturing, selling, general and administration, research and development ("R&D"), and commercial service applications not
associated with Contracts.
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 costs, including planned maintenance, are expensed as incurred.
The estimated useful lives for Systems & Equipment depends on the type of cost as follows:
• Lottery costs (such as terminals, mainframe computers, communications equipment, and software development costs); and
• Commercial gaming machines.
Lottery costs are typically depreciated over their estimated useful lives, generally not to exceed 10 years, and commercial gaming
machines over three to five years.
The estimated useful lives for PPE is 40 years for buildings and five to 10 years for furniture and equipment. Leasehold
improvements are amortized over the shorter of the lease term or estimated useful life.
Evaluation of Long-Lived Assets for Impairment
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. Goodwill is tested at the cash-generating unit level, which is the same as the Company's
reporting unit level and one level below or the same level as an operating segment.
Goodwill is reviewed for impairment using either a qualitative assessment or a quantitative one-step process. The goodwill
impairment test compares the recoverable 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 recoverable value, not to exceed the total amount of goodwill
allocated to that reporting unit. In performing the goodwill impairment test, we estimate the recoverable value of the reporting units
using an income approach that analyzes projected discounted cash flows.
Other 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 perform a quantitative analysis that
compares the recoverable value of indefinite-lived intangible assets to their carrying amount and an impairment loss is recognized
when the carrying amount exceeds the receoverable value.
Long-lived assets, other than goodwill and other indefinite-lived intangible assets, are tested for impairment whenever events or
changes in circumstances indicate the carrying amount of those assets or asset groups may not be recoverable. If the recoverable
amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable
amount.
The Company calculates its recoverable amount as its fair value less costs to dispose.
Research and Development Costs
R&D costs, which include salaries and benefits, stock-based compensation, consultants' fees, facilities-related costs, material costs,
depreciation and travel, are expensed as incurred, as the criteria to capitalize development costs have not been met.
Annual Reports and Accounts 2018 Page | 89
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. Material software development costs incurred subsequent to establishing technological
feasibility and through the general release of the software products are capitalized. Technological feasibility is demonstrated by the
completion of a detailed program design or working model, if no program design is completed. Capitalized costs are amortized over
the products’ estimated economic life to cost of product sales in the consolidated statement of operations.
Costs incurred in the development of software to be used only for services provided to customers are capitalized as internal-use
software and amortized over the useful life to cost of services. Costs incurred in the development of software to be used only for
internal use are capitalized as internal-use software and amortized over the useful life to selling, general and administrative expenses
in the consolidated statement of operations.
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, based on the estimated fair value of the award and recognized as expense, net of
estimated forfeitures, over the vesting period. For awards that contain only a service vesting feature, compensation cost is recognized
on a straight-line basis over the awards’ vesting period. For awards with a performance condition, when achievement of the
performance condition is deemed probable, compensation cost is recognized on a graded-vesting basis over the awards’ expected
vesting period.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $61.5 million and $111.9 million for the years ended
December 31, 2018 and 2017, respectively.
New Accounting Standards - Recently Adopted
In March 2018, the IASB issued International Financial Reporting Interpretations Committee (“IFRIC”) 22 - Foreign Currency
Transactions and Advance Consideration, (“IFRIC 22”). The interpretation provides guidance when an entity recognizes a non-
monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes
the related asset, expense or income (or part of it) in a foreign currency transaction. The guidance was adopted in the first quarter of
2018 and did not have a material impact on our consolidated financial statements.
In July 2014, the IASB issued IFRS 9, Financial Instruments (“IFRS 9”), which replaces IAS 39, Financial Instruments:
Recognition and Measurement. The amended guidance introduces new requirements for classification and measurement, impairment
and hedge accounting. All financial assets are measured at amortized cost, fair value through other comprehensive income or fair
value through profit and loss. The basis for classification and measurement depends on the business model objective and the
contractual cash flow characteristics of the financial asset. The Company has a number of trade receivable factoring arrangements
which have been considered in the adoption of IFRS 9. The new IFRS 9 credit impairment model replaces the incurred loss model
used under IAS 39, and is intended to result in earlier loss recognition. Most of the requirements for financial liabilities were carried
forward unchanged from IAS 39. Hedge accounting under IFRS 9 is more closely aligned with the Company’s risk management
activities. We adopted the new standard effective January 1, 2018. The adoption did not have a material impact on the Parent or the
consolidated financial statements.
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers ("IFRS 15"). The amended guidance outlines a
single comprehensive revenue model in accounting for revenue from contracts with customers. IFRS 15 supersedes existing revenue
recognition guidance under IFRS and replaces it with a five-step revenue model with a core principle to recognize revenue when
promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received
for those goods or services. Under IFRS 15, more judgment and estimates are required within the revenue recognition process than
required under prior IFRS, including identifying performance obligations in the contract, estimating the amount of variable
consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation.
We adopted IFRS 15 in the first quarter of 2018 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. We recognized the cumulative effect of initially
applying the new revenue recognition standard as an adjustment to beginning retained deficit.
Annual Reports and Accounts 2018 Page | 90
On January 1, 2018, we recorded a pre-tax transition adjustment within retained deficit of $61.2 million ($50.9 million after tax) in
our consolidated financial statements, primarily due to multi-year licenses, LMA incentives, and lottery machines wherein control
transferred in advance of delivery. IFRS 15 resulted in the reclassification of our jackpot expense from cost of services to a reduction
of service revenue in our consolidated statement of operations. We did not experience and do not currently anticipate significant
changes to our business practices and systems to support the adoption of IFRS 15. See Note 3, Revenue Recognition, for additional
information on the adoption of IFRS 15.
New Accounting Standards - Not Yet Adopted
In October 2018, the IASB issued IFRIC 23 - Uncertainty Over Income Taxes (“IFRIC 23”). IFRIC 23 clarifies how to apply the
recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. The guidance is
effective for the Company as of January 1, 2019. We are currently evaluating the impact of adoption.
In January 2016, the IASB issued IFRS 16, Leases ("IFRS 16") to increase transparency and comparability among organizations by
recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. IFRS 16
adopts a single model that requires entities to recognize assets and liabilities on the balance sheet for most lease arrangements,
similar to the accounting for finance lease arrangements under the existing guidance. IFRS 16 is effective for the Company as of
January 1, 2019. The Company will adopt IFRS 16 using the modified retrospective approach, which will result in a cumulative
effect adjustment to retained earnings on January 1, 2019. Additionally, we have elected to use the transition expedient to not
reassess whether a lease continues to be a lease and to use hindsight in determining the lease term and assessing impairment.
As a lessee of real estate globally, we expect the adoption of IFRS 16 to have a significant impact on the consolidated balance sheet,
consolidated statement of operations, and consolidated statement of cash flows due to the recognition of right of use (“ROU”) assets
and lease liabilities and the reclassification of lease expense to interest and depreciation expense for existing operating leases. As a
lessee, we will record a ROU asset and lease liability on the balance sheet for substantially all leases with initial lease terms longer
than 12 months. We expect this to increase our reported assets and liabilities by an amount in the range of $390 million to $445
million at March 31, 2019. We will recognize depreciation of the ROU asset and interest expense on the lease liability in our
consolidated statement of operations. The cash repayments of the lease liability will be presented as operating activities for the
interest portion of the payments and financing activities for the principal portion of the payments in the consolidated statement of
cash flows. There will not be a significant change to our liquidity.
While lessor accounting is largely unchanged under IFRS 16, certain of our lottery and gaming arrangements may include leases for
implicitly or explicitly identified equipment installed at customer locations as part of our long-term technology service contracts. In
these arrangements, we are typically compensated based on a percentage of sales or other forms of variable payment. While most of
these leases will be classified as operating leases, certain of these are leases that could be classified as sales-type financing leases
either at inception or upon modification of existing contracts in future periods.
We will continue to assess the anticipated impact of adopting this guidance on ongoing business policies and processes.
Annual Reports and Accounts 2018 Page | 91
3. Revenue Recognition
Disaggregation of Revenue
The following table summarizes customer contract revenue disaggregated by reportable segment and the source of the revenue
for the year ended December 31, 2018:
For the year ended December 31, 2018
North America
Gaming and
Interactive
North America
Lottery
International
Italy
Other
Total
—
—
420,447
204,029
624,476
—
261,696
116,997
378,693
1,003,169
828,641
129,104
99,679
53,645
1,111,069
80,405
—
428
80,833
1,191,902
282,864
—
53,586
159,047
495,497
20,246
193,092
111,148
324,486
819,983
791,586
—
672,200
349,044
1,812,830
—
—
930
930
1,813,760
—
—
—
723
723
—
—
—
—
723
1,903,091
129,104
1,245,912
766,488
4,044,595
100,651
454,788
229,503
784,942
4,829,537
($ thousands)
Operating and Facilities Management
Contracts
Lottery Management Agreements
Machine gaming
Other services
Service revenue
Lottery machines
Gaming machines
Systems and other
Product sales
Total revenue
Contract Balances
Information about receivables, contract assets and contract liabilities subject to IFRS 15 is as follows:
($ thousands)
Receivables, net
Contract assets:
Current
Non-current
Contract liabilities:
Current
Non-current
December 31,
2018
949,085
January 1, 2018
(As Adjusted)
Balance Sheet Classification
938,958 Trade and other receivables, net
58,739
69,691
128,430
27,903 Other current assets
43,511 Other non-current assets
71,414
(72,005 )
(67,022 )
(62,847 ) Other current liabilities
(51,848 ) Other non-current liabilities
(139,027 )
(114,695 )
The amount of revenue recognized during the year ended December 31, 2018 that was included in the contract liabilities balance at
January 1, 2018 was $44.5 million.
Transaction Price Allocated to Remaining Performance Obligations
Estimated revenue expected to be recognized in the future related to remaining performance obligations includes estimates of
variable consideration, except when the variable consideration is a sales-based or usage-based royalty promised in exchange for a
license of intellectual property, the original duration of the contract is one year or less, or we apply the right to invoice practical
expedient. Remaining performance obligation estimates are subject to change and are affected by several factors, including
terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and
adjustments for currency.
At December 31, 2018, unsatisfied performance obligations for contracts expected to be greater than one year or contracts for which
we do not have a right to consideration from the customer in the amount that corresponds to the value to the customer for our
Annual Reports and Accounts 2018 Page | 92
performance completed to date were approximately 3% of our annual revenue for 2018, of which approximately 25% is expected to
be satisfied within one year and the remainder is expected to be satisfied over the subsequent seven years.
Reconciliation of IFRS 15 to Prior Accounting Standards
The following table summarizes the impacts of adopting IFRS 15 to our consolidated statement of operations for the year ended
December 31, 2018:
For the year ended December 31, 2018
($ thousands, except per share amounts)
Revenue
Operating expenses
Provision for income taxes
Net loss attributable to IGT PLC
Under Prior
Accounting
4,894,581
(4,320,007 )
(182,712 )
(157,883 )
Net loss attributable to IGT PLC per common share - basic
Net loss attributable to IGT PLC per common share - diluted
(0.78 )
(0.78 )
Revenue
Recognition
Adjustment
(65,044 )
80,056
(1,504 )
13,508
0.07
0.07
As Adjusted
4,829,537
(4,239,951 )
(184,216 )
(144,375 )
(0.71 )
(0.71 )
The following table summarizes the impacts of adopting IFRS 15 to our consolidated balance sheet at December 31, 2018:
($ thousands)
Trade and other receivables, net
Inventories, net
Other current assets
Other non-current assets
Other current liabilities
Other non-current liabilities
Retained deficit
Under Prior
Accounting
943,935
298,234
431,502
2,092,721
910,383
719,804
(1,395,087 )
December 31, 2018
Revenue
Recognition
Adjustment
5,150
(15,536 )
57,776
27,849
14,133
(3,312 )
64,418
As Adjusted
949,085
282,698
489,278
2,120,570
924,516
716,492
(1,330,669 )
The following table summarizes the impacts of adopting IFRS 15 to our consolidated statement of cash flows for the year ended
December 31, 2018:
($ thousands)
Net loss
Trade and other receivables
Inventories
Other assets and liabilities
Net cash provided by operating activities
For the year ended December 31, 2018
Under Prior
Accounting
Revenue
Recognition
Adjustment
As Adjusted
(99,917 )
(50,310 )
18,429
(169,668 )
8,655
13,545
(4,046 )
(5,873 )
(3,626 )
—
(86,372 )
(54,356 )
12,556
(173,294 )
8,655
Annual Reports and Accounts 2018 Page | 93
4. Dispositions
Sale of Double Down Interactive LLC
On June 1, 2017, we sold Double Down Interactive LLC ("DoubleDown") to DoubleU Games Co., Ltd. Details of the transaction
are summarized in the table below.
($ thousands)
Cash proceeds
Less: Cash divested
Net cash proceeds
Net book value
Gain on sale
Selling costs
Gain on sale, net of selling costs
For the year ended
December 31, 2017
825,751
(1,963 )
823,788
(772,440 )
51,348
(24,116 )
27,232
The $27.2 million gain on sale of DoubleDown, net of selling costs, is classified within transaction expense (income), net in the
consolidated statement of operations for the year ended December 31, 2017.
5. Trade and Other Receivables, net
Trade and other receivables, net are recorded at cost.
($ thousands)
Gross
Allowance for credit losses
Net
The following table presents the activity in the allowance for credit losses:
($ thousands)
Balance at beginning of year
Provisions, net
Amounts written off as uncollectible
Foreign currency translation
Other
Balance at end of year
December 31,
2018
1,008,509
(59,424 )
949,085
2017
991,177
(53,323 )
937,854
December 31,
2018
2017
(53,323 )
(10,800 )
2,222
2,869
(392 )
(59,424 )
(58,884 )
(12,255 )
17,826
(5,885 )
5,875
(53,323 )
The following table presents an analysis of our past due trade and other receivables, gross of allowance for credit losses:
($ thousands)
Current
Past due:
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
Over 180 days
For the year ended
December 31, 2018
$
835,299
%
82.8 %
71,209
16,656
17,473
19,441
48,431
1,008,509
7.1 %
1.7 %
1.7 %
1.9 %
4.8 %
100.0 %
For the year ended
December 31, 2017
$
817,279
72,253
24,446
11,805
13,915
51,479
991,177
%
82.4 %
7.3 %
2.5 %
1.2 %
1.4 %
5.2 %
100.0 %
Annual Reports and Accounts 2018 Page | 94
We have two agreements with major European financial institutions to sell certain trade receivables related to the Italy segment on a
non-recourse basis. At December 31, 2018 and 2017, there were €203.1 million ($232.6 million at the December 31, 2018 exchange
rate) and €221.3 million ($265.4 million at the December 31, 2017 exchange rate) of trade receivables outstanding that had been sold
and derecognized from the consolidated balance sheet, respectively.
We also sell certain other trade receivables on a non-recourse basis which have been derecognized from the consolidated balance
sheet. At December 31, 2018 and 2017, there were $21.4 million and $18.6 million of these receivables outstanding that had been
sold, respectively, primarily in the North America Gaming and Interactive segment.
6.
Inventories
($ thousands)
Raw materials
Work in progress
Finished goods
December 31,
2018
140,143
32,835
109,720
282,698
2017
156,336
33,588
129,621
319,545
The cost of inventories related to product sales that were recognized as an expense during 2018 and 2017 was $422.3 million and
$441.8 million, respectively.
The amount of write-down of inventories recognized as an expense during 2018 and 2017 was $11.3 million and $8.9 million,
respectively, which is included in our consolidated statement of operations as follows:
($ thousands)
Cost of product sales
Cost of services
7. Other Assets
Other Current Assets
($ thousands)
Customer financing receivables, net
Other receivables
Value-added tax receivable
Contract assets
Prepaid royalties
Prepaid expenses
Other
December 31,
2018
2017
11,280
41
11,321
8,289
619
8,908
December 31,
2018
170,273
61,055
60,232
58,739
52,712
47,781
38,486
489,278
2017
151,360
65,891
49,962
—
59,596
30,977
38,344
396,130
Annual Reports and Accounts 2018 Page | 95
Other Non-Current Assets
($ thousands)
Upfront license fees, net:
Italian Scratch & Win
Italian Lotto
New Jersey
Indiana
Customer financing receivables, net
Contract assets
Prepaid royalties
Prepaid income taxes
Other
Upfront License Fees
Italian Scratch & Win
December 31,
2018
2017
992,333
689,170
91,970
13,247
1,786,720
88,354
69,691
64,598
25,942
85,265
2,120,570
1,145,998
826,216
100,730
14,642
2,087,586
74,898
—
103,322
45,295
103,883
2,414,984
In December 2017, Lotterie Nazionali S.r.l., our majority-owned subsidiary, was awarded a nine-year contract extension for the
Italian Scratch & Win license (the "Italian Scratch & Win extension") that required an upfront license fee of €800.0 million ($937.4
million).
The upfront license fees are being amortized as follows:
Upfront License Fee
Italian Scratch & Win
Italian Scratch & Win extension
Italian Lotto
New Jersey
Indiana
Contract Assets
License Term
Amortization Start Date
9 years
9 years
9 years
15 years, 9 months
15 years
October 2010
October 2019
December 2016
October 2013
July 2013
Contract assets were recorded as a result of our adoption of IFRS 15 in the first quarter of 2018. Refer to the revenue recognition
policy in Note 2, Summary of Significant Accounting Policies, for more information.
Customer Financing Receivables
Customer financing receivables, net are recorded at amortized cost.
($ thousands)
Current
Non-current
December 31, 2018
Allowance for
credit losses
Gross
196,831
91,005
287,836
(26,558 )
(2,651 )
(29,209 )
Net
170,273
88,354
258,627
Annual Reports and Accounts 2018 Page | 96
($ thousands)
Current
Non-current
The following table presents the activity in the allowance for credit losses:
($ thousands)
Balance at beginning of year
Provisions, net
Amounts written off as uncollectible
Foreign currency translation
Other
Balance at end of year
December 31, 2017
Allowance for
credit losses
Gross
167,985
77,847
245,832
(16,625 )
(2,949 )
(19,574 )
Net
151,360
74,898
226,258
December 31,
2018
2017
(19,574 )
(10,131 )
317
179
—
(29,209 )
(7,856 )
(5,236 )
—
(159 )
(6,323 )
(19,574 )
The following table presents an analysis of our past due customer financing receivables, gross of allowance for credit losses:
($ thousands)
Current
Past due:
1 -30 days
31 - 60 days
61 - 90 days
91 - 180 days
Over 180 days
For the year ended
December 31, 2018
For the year ended
December 31, 2017
$
209,559
19,461
5,323
3,273
7,877
42,343
287,836
%
72.8 %
6.8 %
1.9 %
1.1 %
2.7 %
14.7 %
100.0 %
$
197,720
5,223
4,565
2,785
8,042
27,497
245,832
%
80.4 %
2.1 %
1.9 %
1.1 %
3.3 %
11.2 %
100.0 %
At December 31, 2018 and 2017, $6.9 million and $34.2 million, respectively, of certain outstanding customer financing receivables
were sold on a non-recourse basis.
Customer financing receivables, net are recorded and valued based on expected payments and market interest rates relative to the
credit risk of each customer region. At December 31, 2018 and 2017, the carrying value of customer financing receivables
approximated its fair value and was classified within Level 3 of the fair value hierarchy.
8. Fair Value of Financial Assets and Liabilities
Financial Assets and Liabilities Carried at Fair Value
The following tables represent the fair value hierarchy for financial assets and liabilities measured at fair value at December 31,
2018 and 2017:
($ thousands)
Restricted cash equivalents
Derivative assets
Available-for-sale investments
Derivative liabilities
Level 1
Level 2
Level 3
December 31, 2018
56,550
—
6,585
—
—
7,317
—
25,473
Total Fair Value
56,550
9,836
6,585
25,473
—
2,519
—
—
Annual Reports and Accounts 2018 Page | 97
($ thousands)
Restricted cash equivalents
Derivative assets
Available-for-sale investments
Contingent consideration liabilities
Derivative liabilities
Level 1
Level 2
Level 3
Total
December 31, 2017
57,465
—
11,991
—
—
—
501
—
—
19,352
—
2,638
—
7,755
—
57,465
3,139
11,991
7,755
19,352
Valuation Techniques and Balance Sheet Presentation
Restricted cash equivalents are primarily composed of publicly-traded foreign government and corporate bonds and mutual funds,
and were valued using quoted market prices. Restricted cash equivalents are presented in restricted cash and cash equivalents in the
consolidated balance sheet.
Derivative assets and liabilities classified as Level 2 in the table above 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, LIBOR rates, among others. The
Level 3 derivative asset in the table above was valued based on a free cash flow forecast. Refer to Note 9, Derivative Financial
Instruments, for additional information.
Certain of our available-for-sale investments are carried at fair value and were valued using quoted market prices. Available-for-sale
investments are presented as other non-current assets in the consolidated balance sheet.
Contingent consideration was valued using a multiple of earnings before interest, taxes, depreciation and amortization ("EBITDA")
and is presented as other current liabilities in the consolidated balance sheet.
Assets and Liabilities Not Carried at Fair Value
The following tables represent the fair value hierarchy for assets and liabilities not measured at fair value at December 31, 2018 and
2017:
($ thousands)
Available-for-sale investments
Jackpot liabilities
Debt
($ thousands)
Available-for-sale investments
Jackpot liabilities
Debt
Carrying
Value
13,509
254,567
7,996,073
Carrying
Value
12,409
275,626
8,391,647
December 31, 2018
Level 1
Level 2
Level 3
—
—
—
—
—
8,089,154
December 31, 2017
—
—
—
—
—
8,974,126
Total Fair Value
13,509
229,089
8,089,154
13,509
229,089
—
Total Fair Value
12,409
268,581
8,974,126
12,409
268,581
—
Level 1
Level 2
Level 3
Valuation Techniques and Balance Sheet Presentation
Certain of our available-for-sale investments are carried at cost (which approximates fair value) and are presented as other non-
current assets in the consolidated balance sheet.
Jackpot liabilities were primarily valued using discounted cash flows, incorporating expected future payment timing, estimated
funding rates based on the treasury yield curve, and nonperformance credit risk. Expected annuity payments over one to 25 years
(average 10 years) were discounted using the 10-year treasury yield curve rate (2.69%) for the estimated funding rate and the 10-
year credit default swap rate (3.60%) for nonperformance risk. The present value (carrying value) of the expected lump sum
payments were discounted using the 1-year treasury yield curve rate (2.63%) with the 1-year credit default swap rate (0.22%) for the
Annual Reports and Accounts 2018 Page | 98
current amounts, and the 2-year treasury yield curve rate (2.48%) with the 2-year credit default swap rate (0.60%) for non-current
amounts. Significant increases (decreases) in any inputs in isolation would result in a lower (higher) fair value measurement.
Generally, changes in the estimated funding rates do not correlate with changes in non-performance credit risk. Jackpot liabilities are
presented as other current and other non-current liabilities in the consolidated balance sheet.
Debt is categorized within Level 2 of the fair value hierarchy and valued using quoted market prices, dealer quotes, or current
interest rates. Carrying values in the table exclude swap adjustments.
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, 2018 and
2017 were $74.0 million and $100.8 million, respectively. The amount recorded within other comprehensive income at
December 31, 2018 is expected to impact the consolidated statement of operations in 2019.
In March 2018, prior to the issuance of the €500 million of 3.500% Senior Secured Notes due July 2024 (the "3.500% Notes"), we
executed €200.0 million notional amount of forward starting interest rate swaps to hedge against an increase in the interest rate
benchmark applicable to the future expected issuance of euro denominated debt securities. We settled these swaps in June 2018 at a
loss of €3.8 million ($4.4 million).
In March 2018, prior to the issuance of the $750 million of 6.250% Senior Secured Notes due January 2027 (the "6.250% Notes"),
we executed $200.0 million notional amount of treasury rate lock contracts to hedge against an increase in the interest rate
benchmark applicable to the future expected issuance of U.S. dollar denominated debt securities. We settled these treasury rate lock
contracts in June and September 2018 at a loss of $1.1 million and a gain of $1.4 million, respectively.
There were no forward starting interest rate swaps or treasury locks outstanding at December 31, 2018 or 2017.
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
6.250% Senior Secured Notes due February 2022 from fixed interest rate debt to variable rate debt. Under the terms of these swaps,
we are required to make variable rate interest payments based on six-month LIBOR plus a fixed spread, ranging between 6.95% and
7.07% at December 31, 2018, and will receive fixed rate interest payments from our counterparties based on a fixed rate of 6.25%.
The LIBOR rate resets semiannually on February 15 and August 15. Settlement of the net amount of interest receivable or payable
under the swaps occurs semiannually on February 15 and August 15. The swaps expire in February 2022.
Net Investment Hedges
In October 2018, we executed $200.0 million notional amount of cross-currency swaps that effectively converted fixed rate U.S.
dollar denominated debt to euros. These cross-currency swaps are being used to hedge a net investment. Under the terms of these
swaps, we are required to make semi-annual fixed rate interest payments in euros based on a fixed rate of 2.86% and will receive
fixed rate interest payments from our counterparties in U.S. dollars based on a fixed rate of 6.25% on February 15 and August 15 in
each year. A final notional exchange will occur on settlement where we receive $200.0 million and pay €174.2 million. These cross-
currency swaps expire in August 2021. There were no cross-currency swap contracts outstanding as of December 31, 2017.
Derivatives Not Designated as Hedging Instruments
The notional amount of foreign currency forward contracts, not designated as hedging instruments, outstanding at December 31,
2018 and 2017 was $518.7 million and $460.6 million, respectively.
Annual Reports and Accounts 2018 Page | 99
Balance Sheet Location and Fair Value
($ thousands)
Derivatives designated as hedging instruments
Foreign currency forward contracts
Interest rate swaps
Cross-currency swaps
Balance Sheet Location
Current assets
Current liabilities
Current liabilities
Non-current liabilities
Current assets
Non-current liabilities
December 31,
2018
2017
1,634
—
(2,118 )
(17,839 )
4,100
(1,850 )
—
(2,362 )
—
(14,953 )
—
—
Derivatives not designated as hedging instruments
Foreign currency forward contracts
Current assets
Current liabilities
1,583
(3,666 )
501
(2,037 )
Option contract
Non-current assets
2,519
2,638
Income Statement Location and Effect
($ thousands)
Derivatives designated as hedging instruments
Foreign currency forward contracts
Income Statement Location
Gain (Loss) Recognized in Income
for the year ended December 31,
2018
2017
Service revenue
(536 )
(1,744 )
Interest rate swaps
Other income (expense), net
Interest income and Interest expense
Cross-currency swaps
Interest income and Interest expense
(443 )
941
1,340
427
—
—
Derivatives not designated as hedging instruments
Foreign currency forward contracts
Foreign exchange gain (loss), net
(17,944 )
(21,870 )
Refer to Note 19, Shareholders’ Equity - Other Reserves for further information.
10. Financial Risk Management
Our activities expose us to a variety of risks including interest rate risk, foreign currency exchange rate risk, liquidity risk and credit
risk. Our overall risk management strategy focuses on the unpredictability of financial markets and seeks to minimize potential
adverse effects on our performance through ongoing operational and finance activities. We monitor and manage our exposure to such
risks both centrally and at the local level, as appropriate, as part of our overall risk management program with the objective of
seeking to reduce the potential adverse effects of such risks on our results of operations and financial position.
Depending upon the risk assessment, we use 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 our operations and
sources of financing. Our policy is not to enter into such contracts for speculative purposes. Our accounting policies and disclosures
regarding derivatives are set out in Note 2, Summary of Significant Accounting Policies, and Note 9, Derivative Financial
Instruments.
Annual Reports and Accounts 2018 Page | 100
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
Our exposure to changes in market interest rates relates primarily to our cash and financial liabilities which bear floating interest
rates. Our policy is to manage interest cost using a mix of fixed and variable rate debt. We have 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.
In 2018 and 2017, our exposure to floating rates of interest related primarily to the Revolving Credit Facilities and Term Loan
Facilities.
At December 31, 2018 and 2017, we held $625.0 million (notional amount) in interest rate swaps that effectively convert $625.0
million of the 6.250% Senior Secured Notes due June 2022 from fixed interest rate debt to variable rate debt. At December 31, 2018
and 2017, approximately 35% and 30% of our net debt portfolio was exposed to interest rate fluctuations, respectively.
A hypothetical 10 basis points increase in interest rates for 2018 and 2017, with all other variables held constant, would have
resulted in incremental pre-tax losses of approximately $2.8 million and $2.5 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 our cost to
fund jackpots and corresponding gaming operating income. If interest rates decline, jackpot cost increases and operating income
decreases. We estimate a hypothetical decline of one percentage point in applicable interest rates would have reduced operating
income by approximately $7.1 million and $9.0 million in 2018 and 2017, respectively. We do not manage this exposure with
derivative financial instruments.
Foreign Currency Exchange Rate Risk
We operate on an international basis across a number of geographical locations. We are 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 we translate the financial statements of our foreign entities into U.S. dollars for the preparation of the
consolidated financial statements.
Transactional Risk
Our subsidiaries generally execute their operating activities in their respective functional currencies. In circumstances where we
enter into transactions in a currency other than the functional currency of the relevant entity, we seek to minimize our exposure by
(i) sharing risk with our customers (for example, in limited circumstances, but whenever possible, we negotiate clauses into our
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 we are exposed is the euro. A hypothetical 10% decrease in the U.S. dollar to euro exchange
rate, with all other variables held constant, would have resulted in incremental pre-tax losses of approximately $337.8 million and
$362.2 million for 2018 and 2017, respectively.
From time to time, we enter 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 our policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximize hedge
effectiveness.
Annual Reports and Accounts 2018 Page | 101
At December 31, 2018, we had forward contracts for the sale of approximately $283.2 million of foreign currency (primarily euro
and British pounds) and the purchase of approximately $309.5 million of foreign currency (primarily U.S. dollars, Canadian dollars
and Swedish krona).
At December 31, 2017, we had forward contracts for the sale of approximately $333.9 million of foreign currency (primarily euro
and British pounds) and the purchase of approximately $227.5 million of foreign currency (primarily U.S. dollars, Canadian dollars
and Swedish krona).
Translation Risk
Certain of our subsidiaries are located in countries that are outside of the United States, in particular the Eurozone. As our 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 statement of changes in equity within
other reserves.
Our foreign currency exposure primarily arises from changes between the U.S. dollar and the euro and the U.S. dollar and Swedish
krona. A hypothetical 10% decrease in the U.S. dollar to euro exchange rate, with all other variables held constant, would have
reduced equity by $143.7 million and $94.2 million for 2018 and 2017, respectively. A hypothetical 10% decrease in the U.S. dollar
to Swedish krona exchange rate, with all other variables held constant, would have reduced equity by $15.8 million and $21.9
million for 2018 and 2017, respectively.
Liquidity Risk
Liquidity risk is the risk of not being able to fulfill present or future obligations if the Company does not have sufficient funds
available to meet such obligations. Liquidity risk arises mostly in relation to cash flows generated and used in working capital and
from financing activities, particularly by servicing our debt, in terms of both interest and principal, and its payment obligations
relating to its ordinary business activities. We believe that the cash which we generate from our operating activities, together with
our committed borrowing capacity, will be sufficient to meet our financial obligations and operating requirements in the foreseeable
future. Therefore, we do not believe that we are exposed to a significant concentration of liquidity risk.
Credit Risk
Our credit risk primarily arises from cash, trade receivables and customer financing receivables. We have established risk
management policies, where we hold cash deposits with major, financially sound counterparties with high credit ratings, that also
limit exposure to any one credit party.
We enter into commercial transactions only with recognized, creditworthy third parties. A significant portion of trade receivables are
from government lottery entities which we consider to pose insignificant credit risk. Additionally, we do not have significant credit
risk to any one customer.
Annual Reports and Accounts 2018 Page | 102
Geographically, credit risk is concentrated as follows:
(in thousands)
Italy
United States
Latin America
Rest of Europe and Africa
Other
Reconciliation to Balance Sheet:
Trade and other receivables, net (Note 5)
Customer financing receivables, net - current (Note 7)
Customer financing receivables, net - non-current (Note 7)
December 31,
2018
2017
$
427,148
303,616
218,577
159,311
99,060
1,207,712
949,085
170,273
88,354
1,207,712
%
35.4
25.1
18.1
13.2
8.2
100.0
%
37.2
25.1
16.3
18.1
3.4
100.0
$
432,533
291,729
189,730
210,516
39,604
1,164,112
937,854
151,360
74,898
1,164,112
An analysis of our past due trade and other receivables and past due customer financing receivables is included in Note 5, Trade and
Other Receivables, net and Note 7, Other Assets, respectively.
Commodity Price Risk
Our exposure to commodity price changes is not considered material and is managed through our procurement and sales practices.
Capital Management
The primary goal of our capital management strategy is to ensure strong credit ratings and healthy financial ratios in order to support
our business while maximizing corporate value and reducing our financial risks. We consider all equity and debt to be managed
capital of the Company.
We manage our capital structure and make adjustments based on long-term strategy decisions in light of changes in economic
conditions. Additionally, we seek to preserve an optimal weighted average cost of capital and maintain sufficient financial flexibility
to pursue growth opportunities.
Our capital structure is as follows:
($ thousands, except ratios)
Total Debt (Note 15)
Less: Cash and cash equivalents
Total Net Debt
Total Equity
Net Debt to Equity Ratio
December 31,
2018
8,011,660
250,669
7,760,991
2017
8,375,672
1,057,418
7,318,254
2,379,585
2,428,095
3.3x
3.0x
Annual Reports and Accounts 2018 Page | 103
11. Systems, Equipment and Other Assets Related to Contracts, net and Property, Plant and Equipment, net
Systems & Equipment, net consists of the following:
($ thousands)
Net book value
Balance at December 31, 2016
Additions
Acquisition
Depreciation
Impairment loss
Disposals
Foreign currency translation
Transfers
Other
Balance at December 31, 2017
Additions
Depreciation
Impairment loss
Disposals
Foreign currency translation
Transfers
Other
Balance at December 31, 2018
Balance at December 31, 2017
Cost
Accumulated depreciation
Net book value
Balance at December 31, 2018
Cost
Accumulated depreciation
Net book value
Land
Buildings
Terminals and
Systems
Furniture and
Equipment
Contracts in
Progress
Total
574
—
—
—
—
(27 )
—
—
—
547
—
—
—
(7 )
—
—
(237 )
303
547
—
547
303
—
303
40,040
12,825
1,039
(12,880 )
—
(66 )
3,931
1,042
—
45,931
11,477
(14,320 )
—
—
(1,202 )
1,349
—
43,235
948,731
69,363
182
(341,787 )
(1,220 )
(16,477 )
77,760
474,095
(13,191 )
1,197,456
96,984
(368,686 )
(2,407 )
(43,817 )
(31,108 )
397,242
1,347
1,247,011
151,962
(106,031 )
45,931
3,019,155
(1,821,699 )
1,197,456
157,611
(114,376 )
43,235
3,065,028
(1,818,017 )
1,247,011
59,315
16,210
144
(14,531 )
—
(216 )
(5,650 )
5,889
—
61,161
9,427
(19,469 )
—
(85 )
3,303
7,223
(1,582 )
59,978
197,610
(136,449 )
61,161
205,305
(145,327 )
59,978
169,367
325,856
—
—
—
(91 )
(4,682 )
(341,205 )
—
149,245
205,813
—
—
(15 )
184
(280,845 )
—
74,382
1,218,027
424,254
1,365
(369,198 )
(1,220 )
(16,877 )
71,359
139,821
(13,191 )
1,454,340
323,701
(402,475 )
(2,407 )
(43,924 )
(28,823 )
124,969
(472 )
1,424,909
149,245
—
149,245
3,518,519
(2,064,179 )
1,454,340
74,382
—
74,382
3,502,629
(2,077,720 )
1,424,909
Borrowing costs of $1.1 million and $4.2 million were capitalized to Systems & Equipment in 2018 and 2017, respectively. The rate
used to determine the amount of borrowing costs eligible for capitalization was approximately 5.3% and 5.8% for 2018 and 2017,
respectively, which was the effective interest rate of all borrowings.
Annual Reports and Accounts 2018 Page | 104
PPE, net consists of the following:
($ thousands)
Net book value
Balance at December 31, 2016
Additions
Depreciation
Disposals
Foreign currency translation
Transfers
Other
Balance at December 31, 2017
Additions
Depreciation
Disposals
Foreign currency translation
Transfers
Other
Balance at December 31, 2018
Balance at December 31, 2017
Cost
Accumulated depreciation
Net book value
Balance at December 31, 2018
Cost
Accumulated depreciation
Net book value
Land
Buildings
Furniture and
Equipment
Contracts in
Progress
Total
18,787
272
—
(16,665 )
233
—
(85 )
2,542
—
—
—
(80 )
—
—
2,462
2,542
—
2,542
2,462
—
2,462
159,488
1,003
(2,422 )
(135,179 )
806
2
(85 )
23,613
32
(1,408 )
(117 )
(355 )
—
—
21,765
42,224
(18,611 )
23,613
41,518
(19,753 )
21,765
113,029
5,152
(37,955 )
(2,357 )
1,009
38,456
(864 )
116,470
8,357
(37,183 )
(961 )
1,165
30,031
(344 )
117,535
241,634
(125,164 )
116,470
257,444
(139,909 )
117,535
36,352
35,434
—
(6,107 )
253
(45,329 )
—
20,603
22,082
—
(18 )
(113 )
(29,777 )
—
12,777
20,603
—
20,603
12,777
—
12,777
327,656
41,861
(40,377 )
(160,308 )
2,301
(6,871 )
(1,034 )
163,228
30,471
(38,591 )
(1,096 )
617
254
(344 )
154,539
307,003
(143,775 )
163,228
314,201
(159,662 )
154,539
Annual Reports and Accounts 2018 Page | 105
12. Goodwill
Changes in the carrying amount of goodwill consist of the following:
($ thousands)
Balance at December 31, 2016
Impairment loss
Disposal of DoubleDown
Acquisitions
Foreign currency translation
Other
Balance at December 31, 2017
Impairment loss
Foreign currency translation
Other
Balance at December 31, 2018
Balance at December 31, 2017
Cost
Accumulated impairment loss
Balance at December 31, 2018
Cost
Accumulated impairment loss
North America
Gaming and
Interactive
2,625,880
(759,000 )
(473,000 )
—
—
987
1,394,867
—
—
—
1,394,867
North America
Lottery
1,221,529
—
—
—
—
60
1,221,589
—
—
—
1,221,589
International
1,522,656
—
—
14,890
11,679
156
1,549,381
(184,000 )
(8,533 )
—
1,356,848
Italy
1,589,049
—
—
7,303
86,593
(328 )
1,682,617
—
(25,000 )
265
1,657,882
Total
6,959,114
(759,000 )
(473,000 )
22,193
98,272
875
5,848,454
(184,000 )
(33,533 )
265
5,631,186
2,153,867
(759,000 )
1,394,867
1,225,682
(4,093 )
1,221,589
1,674,381
(125,000 )
1,549,381
1,684,416
(1,799 )
1,682,617
6,738,346
(889,892 )
5,848,454
2,153,867
(759,000 )
1,394,867
1,225,682
(4,093 )
1,221,589
1,658,698
(301,850 )
1,356,848
1,659,600
(1,718 )
1,657,882
6,697,847
(1,066,661 )
5,631,186
We assess our reporting units annually and have four reporting units (which are equivalent to our segments) at December 31, 2018 as
follows:
• North America Gaming and Interactive;
• North America Lottery;
International; and
•
Italy.
•
For a discussion of the goodwill impairment losses in 2018 and 2017, refer to Note 23, Impairment Loss.
GAAP Differences
Upon an acquisition of a business, GAAP requires an acquirer, on the date of acquisition, to recognize, separately from goodwill, the
identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. Under a previous adoption of
IFRS, the Company elected to not restate its prior acquisitions resulting in an acquisition that did not recognize intangible assets
separately from goodwill. This difference resulted in a $173.7 million, $181.9 million and $159.9 million increase within goodwill
on the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1, 2017, respectively.
In 2013, the Company acquired 51% of an entity that it consolidates. GAAP requires an acquirer to recognize and consolidate assets
acquired, liabilities assumed and any non-controlling interest at 100% of their fair values. As goodwill is calculated as a residual, all
goodwill of the acquired business is recognized under this approach. IFRS allowed for proportionate consolidation of the entity in
which the Company's proportionate share of the fair value of the acquiree's identifiable net assets, exclusive of goodwill, are
recorded upon acquisition. This difference resulted in a $11.7 million, $12.3 million and $10.8 million decrease within goodwill on
the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1, 2017, respectively.
Annual Reports and Accounts 2018 Page | 106
13. Intangible Assets, net
Customer
relationships
($ thousands)
Balance at December 31, 2016 1,772,451
4,076
Acquisitions
2,420
(98,880 )
Disposal of DoubleDown
Additions
Amortization
(151,241 )
Foreign currency translation
(58,558 )
—
Write-off and other
Balance at December 31, 2017 1,470,268
—
Additions
(140,415 )
Amortization
Foreign currency translation
(1,068 )
—
Write-off and other
Balance at December 31, 2018 1,328,785
Trademarks
(indefinite-
lived)
311,913
—
—
—
—
(65,000 )
—
246,913
—
—
—
—
246,913
Trademarks
(definite-
lived)
164,184
58
—
(83,226 )
Computer
software and
game library
395,644
3,494
43,618
(35,382 )
(17,965 )
76,114
—
139,165
—
(15,393 )
11
—
123,783
(166,274 )
5,514
(10,132 )
236,482
35,434
(54,681 )
(2,473 )
(94 )
214,668
Net Book Value
Licenses
102,022
—
10,068
—
(28,809 )
12,635
(242 )
95,674
7,469
(27,271 )
(3,719 )
16
72,169
Developed
technologies
106,220
—
1,043
(59,860 )
(33,644 )
50,998
(414 )
64,343
545
(23,383 )
—
(600 )
40,905
Networks
4,464
—
1,091
—
(760 )
627
(187 )
5,235
919
(1,052 )
(211 )
(62 )
4,829
Sports and
horse racing
betting rights
3,931
—
347
—
(1,321 )
490
186
3,633
8,355
(9,144 )
(553 )
(26 )
2,265
Other
5,096
—
7
—
(553 )
—
—
4,550
—
(553 )
10
(9 )
3,998
Total
2,865,925
7,628
58,594
(277,348 )
(400,567 )
22,820
(10,789 )
2,266,263
52,722
(271,892 )
(8,003 )
(775 )
2,038,315
December 31, 2017
Cost
Accumulated amortization
Accumulated impairment loss
Weighted average life (in
years)
December 31, 2018
Cost
Accumulated amortization
Accumulated impairment loss
Weighted average life (in
years)
2,463,656
(943,040 )
(50,348 )
1,470,268
256,602
—
(9,689 )
246,913
227,955
(47,053 )
(41,737 )
139,165
954,028
(710,725 )
(6,821 )
236,482
300,207
(204,533 )
—
95,674
220,404
(155,870 )
(191 )
64,343
38,693
(13,571 )
(19,887 )
5,235
132,521
(128,888 )
—
3,633
8,864
(4,110 )
4,602,930
(2,207,790 )
(204 )
4,550
(128,877 )
2,266,263
15.2
—
14.1
5.6
10.1
5.4
7.0
6.5
16.1
2,456,468
(1,079,418 )
(48,265 )
1,328,785
256,602
—
(9,689 )
246,913
225,286
(61,807 )
(39,696 )
123,783
974,429
(753,160 )
(6,601 )
214,668
294,104
(221,935 )
—
72,169
220,292
(179,192 )
(195 )
40,905
38,001
(13,979 )
(19,193 )
4,829
134,197
(131,932 )
—
2,265
8,847
(4,653 )
4,608,226
(2,446,076 )
(196 )
3,998
(123,835 )
2,038,315
15.2
—
14.1
5.5
10.0
5.4
7.0
6.5
16.1
Annual Reports and Accounts 2018 Page | 107
Trademarks with indefinite lives have been allocated to the cash generating units for impairment testing as follows:
($ thousands)
North America Gaming and Interactive
International
For the year ended
December 31,
2018
205,000
41,913
246,913
2017
205,000
41,913
246,913
In connection with the June 2017 sale of DoubleDown, we recorded a $277.3 million reduction in net book value of intangible assets
(principally customer relationships and trademarks) related to the sale.
Intangible asset amortization expense of $271.9 million and $400.6 million includes computer software amortization expense of
$29.6 million and $31.4 million in 2018 and 2017, respectively.
Amortization expense on intangible assets for the next five years is expected to be as follows:
($ thousands)
2019
2020
2021
2022
2023
Total
GAAP Differences
Amount
255,144
225,381
195,443
173,534
147,223
996,725
When determining whether an impairment exists, GAAP requires a recoverability test to be performed to determine if the asset is
recoverable using future undiscounted cash flows. If the carrying amount of the asset is less than the future undiscounted cash flows,
the asset is recoverable and an impairment cannot be recorded. IFRS does not have an undiscounted cash flow recoverability test and
requires, once an impairment indicator exists, an impairment to be recognized by the amount the carrying amount exceeds its
recoverable amount. This difference resulted in a decrease of $6.4 million, $7.2 million and $8.1 million within intangible assets, net
on the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1, 2017, respectively.
14. Other Liabilities
Other Current Liabilities
($ thousands)
Taxes other than income taxes
Employee compensation
Accrued interest payable
Accrued expenses
Current financial liabilities
Redeemable non-controlling interest
Jackpot liabilities
Contract liabilities
Payable to Italian regulator
Other
December 31,
2018
149,203
145,616
139,276
115,165
113,027
102,776
76,191
72,005
—
11,257
924,516
2017
128,703
146,891
179,230
121,181
118,732
104,306
84,250
81,111
899,475
26,101
1,889,980
Annual Reports and Accounts 2018 Page | 108
Payable to Italian Regulator
The Italian Scratch & Win extension required an upfront license fee to Agenzia delle Dogane e Dei Monopoli, the governmental
authority responsible for regulating and supervising gaming in Italy ("ADM" or the "Italian regulator") of €800.0 million, of which
€50.0 million ($59.3 million) was paid in 2017 and the remaining €750.0 million ($878.1 million) was paid in 2018.
Other Non-Current Liabilities
($ thousands)
Redeemable non-controlling interest
Jackpot liabilities
Contract liabilities
Finance leases
Royalties payable
Other
Redeemable Non-controlling interest
December 31,
2018
331,317
178,376
67,022
43,791
26,686
69,300
716,492
2017
306,738
191,376
54,634
47,138
32,997
65,660
698,543
In March 2016, the Parent, through its subsidiary Lottomatica S.p.A. (“Lottomatica”), Italian Gaming Holding a.s. (“IGH”), Arianna
2001 and Novomatic Italia (collectively the “Members”) entered into a consortium (Lottoitalia S.r.l. or “Lottoitalia”) to bid on the
Italian Gioco del Lotto service license (the "Lotto License"). On May 16, 2016, Lottoitalia 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 fulfilling
the requirements of the Lotto License.
The Company consolidates Lottoitalia due to the Company's risks and rewards of the investment and Lottoitalia's need for funding to
finance planned operations.
In connection with the formation of Lottoitalia, Lottomatica entered into an agreement with IGH in May 2016, which contains a
deadlock put/call option in which IGH has the right, at its discretion, to sell its interest in Lottoitalia to Lottomatica and Lottomatica
has a reciprocal call right, in the event of certain specified events as defined in the agreement. The put/call options expire 60 days
following written notice by either party following the applicable event. The strike price of the options is determined based on a
specified formula as defined in the agreement. The agreement also allows for the extension of Lottoitalia past its fixed term of
December 31, 2026 if agreed to by both, Lottomatica and IGH.
The agreement with IGH also contained an underperformance put option within the control of IGH which expired on April 3, 2018.
GAAP Differences
Under GAAP, shares that are redeemable at the option of the holder are considered to be temporary equity and require mezzanine
classification on the consolidated balance sheet. IFRS does not have a temporary equity concept and, as such, those shares are
classified as liabilities. This difference resulted in a $104.3 million and $24.2 million increase within other current liabilities on the
consolidated balance sheet at December 31, 2017 and January 1, 2017, respectively. This difference also resulted in a $306.7 million
and $198.6 million increase within other non-current liabilities at December 31, 2017 and January 1, 2017, respectively.
During 2018, the Company determined that the shares were no longer redeemable at the option of the holder and, as such, GAAP
required the shares to be reclassified to non-controlling interest within shareholders' equity. IFRS still requires liability treatment for
the shares as the liquidation of Lottoitalia is not in the sole control of the Company. This difference resulted in a $102.8 million and
$331.3 million increase in other current liabilities and other non-current liabilities, respectively, within the consolidated balance
sheet at December 31, 2018.
IFRS requires the Lottoitalia financial liability be recorded at amortized cost. GAAP does not have a similar requirement as the
shares were recorded as mezzanine equity at December 31, 2017 and as non-controlling interests within shareholders' equity at
December 31, 2018. This difference resulted in a $148.4 million and $74.3 million increase in other expense, net within the
consolidated statement of operations at December 31, 2018 and 2017, respectively.
Annual Reports and Accounts 2018 Page | 109
Upon the formation of Lottoitalia, IFRS allowed for the capitalization of certain costs while GAAP required those costs to be
expensed as incurred. This difference resulted in an increase of $11.6 million, $13.9 million and $13.2 million in other non-current
assets within the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1, 2017, respectively.
15. Debt
($ thousands)
7.500% Senior Secured Notes due July 2019
4.125% Senior Secured Notes due February 2020
5.625% Senior Secured Notes due February 2020
4.750% Senior Secured Notes due March 2020
5.500% Senior Secured Notes due June 2020
6.250% Senior Secured Notes due February 2022
4.750% Senior Secured Notes due February 2023
5.350% Senior Secured Notes due October 2023
3.500% Senior Secured Notes due July 2024
6.500% Senior Secured Notes due February 2025
6.250% Senior Secured Notes due January 2027
Senior Secured Notes, long-term
Revolving Credit Facilities due July 2021
Term Loan Facility due January 2023
Long-term debt, less current portion
6.625% Senior Secured Notes due February 2018
Current portion of long-term debt
Short-term borrowings
Total Debt
December 31,
2018
—
499,167
—
437,823
27,519
1,469,609
964,730
60,983
567,179
1,088,385
742,667
5,858,062
413,381
1,705,395
7,976,838
2017
148,231
833,655
595,767
584,337
125,709
1,470,075
1,008,601
61,082
—
1,086,913
—
5,914,370
76,880
1,785,361
7,776,611
—
—
599,061
599,061
34,822
—
8,011,660
8,375,672
The principal balance of each debt obligation, excluding short-term borrowings, reconciles to the consolidated balance sheet as
follows:
($ thousands)
4.125% Senior Secured Notes due February 2020
4.750% Senior Secured Notes due March 2020
5.500% Senior Secured Notes due June 2020
6.250% Senior Secured Notes due February 2022
4.750% Senior Secured Notes due February 2023
5.350% Senior Secured Notes due October 2023
3.500% Senior Secured Notes due July 2024
6.500% Senior Secured Notes due February 2025
6.250% Senior Secured Notes due January 2027
Senior Secured Notes, long-term
Principal
501,058
444,146
27,311
1,500,000
973,250
60,567
572,500
1,100,000
750,000
5,928,832
December 31, 2018
Debt issuance
cost, net
Premium
Swap
(1,891 )
(6,323 )
—
(11,611 )
(8,520 )
—
(5,321 )
(11,615 )
(7,333 )
(52,614 )
—
—
234
—
—
416
—
—
—
650
—
—
(26 )
(18,780 )
—
—
—
—
—
(18,806 )
Total
499,167
437,823
27,519
1,469,609
964,730
60,983
567,179
1,088,385
742,667
5,858,062
Revolving Credit Facilities due July 2021
Term Loan Facility due January 2023
Total Debt, excluding short-term borrowings
428,158
1,717,500
8,074,490
(14,777 )
(12,105 )
(79,496 )
—
—
650
—
—
(18,806 )
413,381
1,705,395
7,976,838
Annual Reports and Accounts 2018 Page | 110
December 31, 2017
Debt issuance
cost, net
Premium
Swap
($ thousands)
7.500% Senior Secured Notes due July 2019
4.125% Senior Secured Notes due February 2020
5.625% Senior Secured Notes due February 2020
4.750% Senior Secured Notes due March 2020
5.500% Senior Secured Notes due June 2020
6.250% Senior Secured Notes due February 2022
4.750% Senior Secured Notes due February 2023
5.350% Senior Secured Notes due October 2023
6.500% Senior Secured Notes due February 2025
Senior Secured Notes, long-term
6.625% Senior Secured Notes due February 2018
Revolving Credit Facilities due July 2021
Term Loan Facility due January 2023
Total Debt, excluding short-term borrowings
Principal
144,303
839,510
600,000
599,650
124,143
1,500,000
1,019,405
60,567
1,100,000
5,987,578
599,650
95,000
1,798,950
8,481,178
—
(5,855 )
(4,233 )
(15,313 )
—
(14,808 )
(10,804 )
—
(13,087 )
(64,100 )
(589 )
(18,120 )
(13,589 )
(96,398 )
3,708
—
—
—
1,757
—
—
515
—
5,980
220
—
—
—
(191 )
(15,117 )
—
—
—
(15,088 )
Total
148,231
833,655
595,767
584,337
125,709
1,470,075
1,008,601
61,082
1,086,913
5,914,370
—
—
—
5,980
—
—
—
(15,088 )
599,061
76,880
1,785,361
8,375,672
Principal payments for each debt obligation, excluding short-term borrowings, for the next five years and thereafter are as follows:
($ thousands)
2019
2020
2021
2022
2023
2024 and
thereafter
Total
Calendar year
4.125% Senior Secured
Notes due February 2020
4.750% Senior Secured
Notes due March 2020
5.500% Senior Secured
Notes due June 2020
6.250% Senior Secured
Notes due February 2022
4.750% Senior Secured
Notes due February 2023
5.350% Senior Secured
Notes due October 2023
3.500% Senior Secured
Notes due July 2024
6.500% Senior Secured
Notes due February 2025
6.250% Senior Secured
Notes due January 2027
Senior Secured Notes,
long-term
Revolving Credit Facilities
due July 2021
Term Loan Facility due
January 2023
Total Principal Payments
—
—
—
—
—
—
—
—
—
—
—
501,058
444,146
27,311
—
—
—
—
—
—
—
—
—
—
—
—
—
1,500,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
973,250
60,567
—
—
—
501,058
444,146
27,311
—
1,500,000
—
—
973,250
60,567
—
572,500
572,500
—
1,100,000
1,100,000
—
750,000
750,000
972,515
—
1,500,000
1,033,817
2,422,500
5,928,832
—
428,158
—
—
—
428,158
366,400
—
— 1,338,915
366,400
1,717,500
618,300
794,558 1,866,400 1,652,117 2,422,500 8,074,490
366,400
—
Annual Reports and Accounts 2018 Page | 111
Senior Secured Notes
The key terms of our senior secured notes (the "Notes"), which are rated Ba2 and BB+ by Moody’s Investor Service ("Moody’s")
and Standard & Poor’s Ratings Services ("S&P"), respectively, are as follows:
Description
4.125% Senior Secured Notes
due February 2020
4.750% Senior Secured Notes
due March 2020 (1)
5.500% Senior Secured Notes
due June 2020
6.250% Senior Secured Notes
due February 2022
4.750% Senior Secured Notes
due February 2023
5.350% Senior Secured Notes
due October 2023
3.500% Senior Secured Notes
due July 2024
6.500% Senior Secured Notes
due February 2025
Principal
Effective
Interest Rate
(thousands)
Issuer
Guarantors Collateral Redemption
Interest
payments
€437,605
4.47%
Parent
€387,900
6.00%
Parent
*
*
†
†
+
++
$27,311
4.88%
IGT
**
††
+++
$1,500,000
6.52%
Parent
€850,000
4.98%
Parent
*
*
†
†
++++
++++
$60,567
5.47%
IGT
**
††
+++
€500,000
3.68%
Parent
$1,100,000
6.71%
Parent
*
*
†
†
†
++++
++++
++++
Semi-annually
in arrears
Annually in
arrears
Semi-annually
in arrears
Semi-annually
in arrears
Semi-annually
in arrears
Semi-annually
in arrears
Semi-annually
in arrears
Semi-annually
in arrears
Semi-annually
in arrears
6.250% Senior Secured Notes
due January 2027
(1) Subject to a 1.25% per annum decrease in the event of an upgrade in ratings by Moody’s and S&P.
$750,000
Parent
6.41%
*
*
Certain subsidiaries of the Parent.
**
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.
+
++
The Parent may redeem in whole or in part at any time prior to the date which is three 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 their principal amount together with accrued and unpaid interest. The Parent may also
redeem in whole but not in part at 100% of their principal amount together with accrued and unpaid interest in connection
with certain tax events. Upon the occurrence of certain events, the Parent will be required to offer to repurchase all of the
notes at a price equal to 101% of their principal amount together with accrued and unpaid interest.
The Parent may redeem in whole but not 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. The Parent may also redeem in whole but not in part at 100% of
their principal amount together with accrued and unpaid interest in connection with certain tax events. Upon the occurrence
of certain events, the Parent will be required to redeem in whole or in part at 100% of their principal amount together with
accrued and unpaid interest.
+++
IGT may redeem in whole or in part at any time prior 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.
Annual Reports and Accounts 2018 Page | 112
++++ 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 their principal amount together with accrued and unpaid interest. The Parent may also
redeem in whole but not in part at 100% of their principal amount together with accrued and unpaid interest in connection
with certain tax events. Upon the occurrence of certain events, the Parent will be required to offer to repurchase all of the
notes at a price equal to 101% of their principal amount together with accrued and unpaid interest.
The Notes contain customary covenants and events of default. At December 31, 2018, the issuers were in compliance with all
covenants.
6.250% Senior Secured Notes due January 2027
On September 26, 2018, the Parent issued $750 million of 6.250% Senior Secured Notes due January 2027 (the "6.250% Notes") at
par.
The Parent used the net proceeds from the 6.250% Notes and borrowings under the Revolving Credit Facilities due July 2021 to
redeem $600.0 million of the 5.625% Senior Secured Notes due February 2020 (the "5.625% Notes"), $144.3 million of the 7.500%
Senior Secured Notes due July 2019 (the "7.500% Notes") and $96.8 million of the 5.500% Senior Secured Notes due June 2020
(the "5.500% Notes"), for total consideration, excluding interest, of $865.8 million. The Company recorded a $24.8 million loss on
extinguishment of debt in connection with the redemptions, which is classified in other expense, net on the consolidated statement of
operations for the year ended December 31, 2018.
Interest on the 6.250% Notes is payable semi-annually in arrears.
The 6.250% Notes are guaranteed by certain subsidiaries of the Parent and are secured by ownership interests of the Parent in certain
of its direct subsidiaries and certain intercompany loans with principal balances in excess of $10 million.
Prior to July 15, 2026, the Parent may redeem the 6.250% Notes in whole or in part at 100% of their principal amount together with
accrued and unpaid interest and a make-whole premium. On or after July 15, 2026, the Parent may redeem the 6.250% Notes in
whole or in part at 100% of their principal amount together with accrued and unpaid interest. The Parent may also redeem the
6.250% 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 required to offer to repurchase all of the 6.250%
Notes at a price equal to 101% of their principal amount together with accrued and unpaid interest. In certain events of default, the
6.250% Notes outstanding may become due and payable immediately.
3.500% Senior Secured Notes due July 2024
On June 27, 2018, the Parent issued €500 million of 3.500% Senior Secured Notes due July 2024 (the "3.500% Notes") at par.
The Parent used the net proceeds from the 3.500% Notes to repurchase €262.4 million ($303.6 million) of the 4.125% Senior
Secured Notes due February 2020 (the "4.125% Notes") and €112.1 million ($129.7 million) of the 4.750% Senior Secured Notes
due March 2020 (the "4.750% Notes"), for total consideration, excluding interest, of €395.5 million ($457.5 million). The Company
recorded a $29.6 million loss on extinguishment of debt in connection with the repurchases, which is classified in other expense, net
on the consolidated statement of operations for the year ended December 31, 2018.
Interest on the 3.500% Notes is payable semi-annually in arrears.
The 3.500% Notes are guaranteed by certain subsidiaries of the Parent and are secured by ownership interests of the Parent in certain
of its direct subsidiaries and certain intercompany loans with principal balances in excess of $10 million.
Prior to January 15, 2024, the Parent may redeem the 3.500% Notes in whole or in part at 100% of their principal amount together
with accrued and unpaid interest and a make-whole premium. On or after January 15, 2024, the Parent may redeem the 3.500%
Notes in whole or in part at 100% of their principal amount together with accrued and unpaid interest. The Parent may also redeem
the 3.500% Notes in whole but not in part at 100% of their principal amount together with accrued and unpaid interest in connection
with certain tax events. Upon the occurrence of certain events, the Parent will be required to offer to repurchase all of the 3.500%
Notes at a price equal to 101% of their principal amount together with accrued and unpaid interest. In certain events of default, the
3.500% Notes outstanding may become due and payable immediately.
Annual Reports and Accounts 2018 Page | 113
6.625% Senior Secured Notes due February 2018
The Parent redeemed the €500 million ($625.5 million) 6.625% Senior Secured Notes due February 2018 when they matured on
February 2, 2018, using proceeds from the Term Loan Facility due January 2023.
7.500% Senior Secured Notes due July 2019
On June 12, 2017, the Parent offered to purchase any and all of the $500.0 million 7.500% Notes and on June 21, 2017 the Parent
purchased $355.7 million of these notes for total consideration, excluding interest, of $393.5 million. The Company recorded a $25.7
million loss on extinguishment of debt in connection with the purchase, which is classified in other expense, net, on the consolidated
statement of operations for the year ended December 31, 2017.
Term Loan Facility
On July 25, 2017, the Parent entered into 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").
The Parent must repay the Term Loan Facility in four installments, as detailed below:
Due Date
January 25, 2020
January 25, 2021
January 25, 2022
January 25, 2023
Amount
(€ thousands)
320,000
320,000
320,000
540,000
Interest on the Term Loan Facility is payable between one and six months in arrears at rates equal to the applicable LIBOR or
EURIBOR plus a margin based on our long-term ratings by Moody’s and S&P. At December 31, 2018 and 2017, the effective
interest rate on the Term Loan Facility was 2.05%.
The Term Loan Facility is guaranteed by 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.
Upon the occurrence of certain events, the Parent may be required to prepay the Term Loan Facility in full.
The Term Loan Facility Agreement 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, 2018, the Parent was in
compliance with all covenants.
Revolving Credit Facilities
The Parent and certain of its subsidiaries are party to a senior facilities agreement (the "RCF Agreement") which provides for the
following multi-currency revolving credit facilities (the "Revolving Credit Facilities"):
Maximum Amount
Available (thousands)
$1,200,000
€725,000
Facility
Borrowers
Revolving Credit Facility A
Parent, IGT and IGT Global Solutions Corporation
Revolving Credit Facility B
Parent and Lottomatica Holding S.r.l.
Interest on the Revolving Credit Facilities is payable between one and six months in arrears at rates equal to the applicable LIBOR
or EURIBOR plus a margin based on the Parent’s long-term ratings by Moody’s and S&P. At December 31, 2018 and 2017, the
effective interest rate on the Revolving Credit Facilities was 2.66% and 3.48%, respectively.
The RCF Agreement provides that the following fees, which are recorded in interest expense in the consolidated statement of
operations, are payable quarterly in arrears:
• Commitment fees - payable on the aggregate undrawn and un-cancelled amount of the Revolving Credit Facilities
depending on the Parent’s long-term ratings by Moody’s and S&P. The applicable rate was 0.725% at December 31, 2018.
Annual Reports and Accounts 2018 Page | 114
• Utilization fees - payable on the aggregate drawn amount of the Revolving Credit Facilities at a rate depending on the
percentage of the Revolving Credit Facilities utilized. The applicable rate was 0.150% at December 31, 2018.
The Revolving Credit Facilities are guaranteed by the Parent and certain of its subsidiaries and are secured by ownership interests of
the Parent in certain of its direct subsidiaries and certain intercompany loans with principal balances in excess of $10 million.
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, 2018 and 2017, the available liquidity under the Revolving Credit Facilities was $1.602 billion and $1.974 billion,
respectively.
The RCF Agreement 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, 2018, the borrowers were in compliance with
all covenants.
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, 2018, there was $34.8 million in borrowings under these facilities with an
effective interest rate of 3.64%. At December 31, 2017, there were no borrowings under these facilities.
Letters of Credit
The Parent and certain of its subsidiaries may obtain letters of credit under the Revolving Credit Facilities and under senior
unsecured uncommitted demand credit facilities. The letters of credit secure various obligations, including obligations arising under
customer contracts and real estate leases. The following table summarizes the letters of credit outstanding at December 31, 2018 and
2017 and the weighted average annual cost of such letters of credit:
($ thousands)
December 31, 2018
December 31, 2017
Interest Expense
Interest expense is composed of the following:
($ thousands)
Senior Secured Notes
Term Loan Facilities
Revolving Credit Facilities
Other
Letters of Credit Outstanding
Not under the
Revolving Credit
Facilities
Under the
Revolving Credit
Facilities
453,719
510,962
—
—
Total
453,719
510,962
Weighted
Average
Annual Cost
0.98 %
1.02 %
For the year ended
December 31,
2018
(351,387 )
(39,462 )
(27,805 )
(13,036 )
(431,690 )
2017
(390,840 )
(23,567 )
(34,984 )
(10,200 )
(459,591 )
Annual Reports and Accounts 2018 Page | 115
16. Income Taxes
The components of income (loss) before provision for (benefit from) income taxes, determined by tax jurisdiction, are as follows:
($ thousands)
United Kingdom
United States
Italy
All other
The provision for (benefit from) income taxes consists of:
($ thousands)
Current:
United Kingdom
United States
Italy
All other
Deferred:
United Kingdom
United States
Italy
All other
For the year ended December 31,
2018
195,170
(355,080 )
386,683
(128,929 )
97,844
2017
(408,595 )
(1,212,710 )
404,452
125,418
(1,091,435 )
For the year ended December 31,
2018
2017
3,579
(11,287 )
186,405
45,941
224,638
(282 )
(27,002 )
(3,186 )
(9,952 )
(40,422 )
184,216
733
81,537
131,155
54,824
268,249
4,366
(172,362 )
865
(125,757 )
(292,888 )
(24,639 )
Income taxes paid, net of refunds, were $239.8 million and $296.4 million in 2018 and 2017, respectively.
Deferred tax related to items recognized in other comprehensive income ("OCI") during the year:
($ thousands)
Net loss on available for sale securities
Net (gain) loss on cash flow hedges
Net (gain) loss on defined benefit plans
Net loss (gain) on net investment hedge
Translation
Deferred tax charged to OCI
December 31,
2018
2017
15
(790 )
(44 )
28
1,686
895
57
1,138
8
(969 )
2,652
2,886
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the "Tax Act") which
has resulted in significant changes to the U.S. corporate income tax system. Changes include, but are not limited to: a corporate tax
rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017; the transition of U.S. international
taxation from a worldwide tax system to a modified territorial tax system; and a one-time transition tax on the mandatory deemed
repatriation of cumulative foreign earnings (the "transition tax") as of December 31, 2017. In accordance with the Tax Act, we
recorded a $114.2 million income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The total
tax benefit included a $60.5 million tax expense related to the transition tax and a $174.7 million tax benefit related to the
remeasurement of deferred tax assets and liabilities.
Annual Reports and Accounts 2018 Page | 116
The Parent is a tax resident in the United Kingdom (the "U.K."). A reconciliation of the provision for (benefit from) income taxes,
with the amount computed by applying the weighted average rate of the U.K. statutory main corporation tax rates enacted in each of
the Parent’s calendar year reporting periods to income (loss) before provision for (benefit from) income taxes is as follows:
($ thousands)
Income (loss) before provision for (benefit from) income taxes
United Kingdom statutory tax rate
Statutory tax expense (benefit)
Foreign tax and statutory rate differential (1)
IRAP and state taxes
Nondeductible goodwill impairment
Italian tax settlement
Foreign tax expense, net of U.S. federal benefit
BEAT tax
GILTI tax
Change in unrecognized tax benefits
Tax cost of tax dividends
Tax impact of tax law and rate changes excluding the Tax Act
Nondeductible expenses
Foreign withholding and state taxes on unremitted earnings
Non-controlling interest
U.S. research and development tax credit
Provision to return adjustments
Italian allowance for corporate equity
Tax impact of Tax Act
Nontaxable foreign exchange gain
Change in unrecognized deferred tax assets
Capital gain taxes on sale of DoubleDown
Other
For the year ended December 31,
2018
97,844
19.00 %
18,590
2017
(1,091,435 )
19.25 %
(210,101 )
33,740
38,820
34,960
16,664
14,930
13,769
11,079
9,166
6,613
4,337
37,331
(880 )
(1,132 )
(2,823 )
(2,909 )
(4,515 )
(10,852 )
(12,384 )
(13,723 )
—
(6,565 )
184,216
(71,118 )
33,484
146,108
—
14,500
—
—
20,624
3,041
(2,463 )
19,148
9,290
(2,205 )
(5,052 )
(1,334 )
(11,761 )
(113,938 )
—
58,672
94,303
(5,837 )
(24,639 )
Effective tax rate
(1) Includes the effects of foreign subsidiaries' earnings taxed at rates other than the U.K. statutory rate
188.3 %
2.3 %
In 2018, our effective tax rate was higher than the U.K. statutory rate of 19.00% primarily due to the impact of the international
provisions of the Tax Act (the base-erosion and anti-abuse tax or "BEAT" and GILTI), a goodwill impairment with no associated tax
benefit, increases in uncertain tax positions, non-deductible expenses and the settlement of an Italian tax audit.
In 2017, our effective tax rate was higher than the U.K. statutory rate of 19.25% primarily due to a goodwill impairment with no
associated tax benefit, capital gain taxes incurred on the sale of DoubleDown, non-deductible expenses, a net increase in valuation
allowances in the U.K. and other foreign jurisdictions offset by a favorable net tax benefit recorded related to the impact of the Tax
Act.
Annual Reports and Accounts 2018 Page | 117
The components of deferred tax assets and liabilities are as follows:
($ thousands)
Deferred tax assets:
Net operating losses
Provisions not currently deductible for tax purposes
Section 163(j) interest limitation
Depreciation and amortization
Jackpot timing differences
Inventory reserves
Stock-based compensation
Deferred revenue
Other
Total deferred tax assets
Deferred tax liabilities:
Acquired intangible assets
Depreciation and amortization
Other
Total deferred tax liabilities
Net deferred income tax liability
Our net deferred income taxes are recorded in the consolidated balance sheet as follows:
($ thousands)
Deferred income taxes - non-current asset
Deferred income taxes - non-current liability
December 31,
2018
2017
71,430
111,402
75,778
46,742
42,651
10,497
2,714
2,161
9,480
372,855
69,726
133,147
—
69,447
51,438
9,913
1,706
4,211
3,872
343,460
589,993
142,298
32,707
764,998
(392,143 )
635,471
110,385
18,909
764,765
(421,305 )
December 31,
2018
38,117
(430,260 )
(392,143 )
2017
41,546
(462,851 )
(421,305 )
As of December 31, 2018, we had recognized deferred tax assets of $372.9 million. We also have $170.8 million of unrecognized
deferred tax assets primarily related to net operating losses. These deferred tax assets were not recorded because the realization of
these assets is uncertain.
Reconciliation of deferred tax liabilities, net
($ thousands)
Balance at beginning of year
Tax expense during the period recognized in income or loss
Tax expense during the period recognized in OCI
Adoption of new accounting standards
Translation/Other
Balance at end of year
Net Operating Loss Carryforwards
December 31,
2018
(421,305 )
40,422
(895 )
(10,173 )
(192 )
(392,143 )
2017
(697,909 )
292,888
(2,886 )
—
(13,398 )
(421,305 )
We have a $265.6 million gross tax loss carryforward, of which $220.3 million relates to U.S. Federal tax and $45.3 million relates
to other foreign tax jurisdictions. Carryforwards in certain tax jurisdictions begin to expire in 2030, while others have an unlimited
carryforward period. Portions of the tax loss carryforwards are subject to annual limitations, 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. In addition,
as of December 31, 2018, 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 $13.9 million. U.S. state tax net operating loss carryfowards generally expire in the years 2019 through
2038.
Annual Reports and Accounts 2018 Page | 118
Unremitted Earnings
Prior to the Tax Act, we considered the earnings in our foreign subsidiaries to be indefinitely reinvested and, accordingly, recorded
no deferred income taxes. The Tax Act eliminated the deferral of U.S. income tax on these foreign earnings by imposing the
transition tax. As a result, we now intend to repatriate substantially all of our accumulated foreign earnings (not including the
earnings of our Italian sub-group of entities). We continue to have significant cash needs outside the United States and, accordingly,
the extent and timing of repatriation of these earnings continues to be monitored. The Tax Act, however, has given us more
flexibility to manage and deploy cash globally. As of December 31, 2018, we have recorded an $8.4 million deferred tax liability
associated with foreign withholding and other taxes resulting from our intention to repatriate foreign earnings.
We continue to indefinitely reinvest the earnings of our subsidiary investments held by our Italian parent sub-holding company and,
therefore, no deferred income taxes have been provided on these earnings. If we were to change our position with respect to the
indefinite reinvestment of earnings on our Italian parent sub-holding company, the estimated deferred tax effects would be $10.5
million as of December 31, 2018.
Accounting for Uncertainty in Income Taxes
A reconciliation of the unrecognized tax benefits is as follows:
($ thousands)
Balance at beginning of year
Additions to tax positions - current year
Additions to tax positions - prior years
Reductions to tax positions - current year
Reductions to tax positions - prior years
Settlements
Lapses in statutes of limitations
Balance at end of year
December 31,
2018
2017
20,975
11,947
16,973
—
(4,610 )
(17,238 )
(1,412 )
26,635
14,340
479
7,503
(893 )
(41 )
—
(413 )
20,975
At December 31, 2018 and 2017, $26.6 million and $16.6 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 provision for income taxes. For 2018 and 2017, we
recognized $0.7 million and $12.1 million, respectively, in interest expense, penalties, and inflationary adjustments. At
December 31, 2018 and 2017, the gross balance of accrued interest and penalties was $16.4 million and $15.7 million, respectively.
Unrecognized tax benefits increased during 2018 and 2017 as a result of various international tax audits.
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 calendar year 2015 are closed with the IRS. As of December 31, 2018, we are subject to income tax
audits in various tax jurisdictions globally, most significantly in Mexico and Italy.
Mexico Tax Audit
In November 2012, GTECH Mexico, S.A. de C.V. ("GTECH Mexico") concluded a tax audit related to tax year 2006. This
conclusion resulted in a tax assessment of approximately 424 million Mexican Pesos, including interest, inflationary adjustments and
penalties. As of December 31, 2018, this assessment has increased as a result of additional inflationary adjustments to 539 million
Mexican Pesos. The Mexico assessment primarily relates to the deductibility of cost of goods sold (approximately 65% of the
updated total assessment) and to intercompany loan proceeds being treated as taxable income. GTECH Mexico filed appeals of the
different components of the assessment and on the issue of the deductibility of cost of goods sold. The Supreme Court ruled against
us in 2017. As a result of this loss, an accrual in the amount of 354.8 million Mexican Pesos ($18.1 million at the December 31,
2018 exchange rate) was recorded in 2017 to income taxes payable and is included in the consolidated balance sheet at
December 31, 2018. The other tax issues are still being addressed in the courts in Mexico.
Annual Reports and Accounts 2018 Page | 119
Italy Tax Audits
On December 21, 2017 and on March 29, 2018, the Italian Tax Authority issued a preliminary tax audit report 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.
GAAP Differences
Prepaid income taxes
Under GAAP, the tax effects of intra entity asset sales are recorded as prepaid income taxes that are included in either other current
assets or other non-current assets. Under IFRS, the tax effects of intra entity asset sales are recorded in deferred income taxes on the
consolidated balance sheet. This difference resulted in a decrease of $14.8 million, $11.4 million and $22.5 million to other current
assets on the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1, 2017, respectively. This
difference also resulted in a decrease of $26.9 million and $14.0 million to other non-current assets on the consolidated balance sheet
at December 31, 2017 and January 1, 2017, respectively.
Income taxes receivable
Under GAAP, uncertain tax positions are recorded in other non-current liabilities on the consolidated balance sheet. Under IFRS,
uncertain tax positions are recorded on the income tax payable or income tax receivable line on the consolidated balance sheet. This
difference resulted in a decrease of $4.4 million and $4.1 million to income tax receivable and other non-current liabilities on the
consolidated balance sheet at December 31, 2017 and January 1, 2017, respectively. There was no difference at December 31, 2018.
Income tax payable
Under GAAP, uncertain tax positions are recorded in either current liabilities or other non-current liabilities on the consolidated
balance sheet. Under IFRS, uncertain tax positions are recorded on the income tax payable or income tax receivable line on the
consolidated balance sheet. This difference resulted in a increase of $40.8 million, $30.1 million and $9.5 million to income tax
payable and other non-current liabilities on the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1,
2017, respectively.
Deferred income taxes
Under GAAP, the tax effects of intra entity asset sales are recorded as prepaid income taxes that are included in either other current
assets or other non-current assets. Under IFRS, the tax effects of intra entity asset sales are recorded in deferred income taxes on the
consolidated balance sheet. In addition, GAAP and IFRS have different methods of calculating the deferred tax impact of share
based compensation. This difference resulted in a decrease of $15.8 million, $28.6 million and $32.6 million to deferred income tax,
net on the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1, 2017, respectively.
Provision for (benefit from) income taxes
GAAP and IFRS have different methods of calculating the deferred tax impact of share based compensation and intra entity asset
sales. This difference resulted in a $5.2 million decrease in the provision for income taxes and a $4.8 million decrease in the benefit
from income taxes within the consolidated statement of operations for the year ended December 31, 2018 and 2017, respectively.
17. Employee Benefit Plans
Defined Contribution Plan
We maintain a salary deferral 401(k) plan that allows eligible employees to contribute a portion of their base pay up to the IRS
prescribed limit. We match a portion of the employee’s contribution. Employee and Company matching contributions vest
immediately. We recognized expense related to the matching contribution of $13.6 million and $13.8 million in 2018 and 2017,
respectively.
Annual Reports and Accounts 2018 Page | 120
Defined Benefit Plan
We have a defined benefit plan to provide certain post-employment benefits to Italian employees following termination from the
Company. These employees may choose to participate in an unfunded plan within the Company or transfer their plan balance to
independent external funds. These benefits are funded only to the extent paid to external funds. The cost of providing benefits under
the plan, for those employees that participate in the unfunded plan within the Company, is determined using the projected unit credit
actuarial valuation method. The cost of providing benefits for those employees that choose to transfer their plan to independent
external funds is considered a defined contribution and is accrued as the employees render the related service. Net benefit expense
was $8.4 million and $8.1 million in 2018 and 2017, respectively. The present value of the defined benefit obligation was $11.5
million and $12.3 million at December 31, 2018 and 2017, respectively.
18. Commitments and Contingencies
Commitments
Operating Leases
Rent and lease expense was $110.5 million and $97.8 million for the years ended December 31, 2018 and 2017, respectively, and
included contingent rent payments of $28.7 million and $24.2 million for the years ended December 31, 2018 and 2017,
respectively.
The future minimum lease payments for the remaining non-cancellable term at December 31, 2018 are as follows:
($ thousands)
Not later than one year
Between one year and five years
Later than five years
Total future minimum lease payments
Finance Leases
Communication Equipment
Amount
67,484
180,989
204,216
452,689
We have finance leases for certain communication equipment that is primarily used to provide services under our FMCs and LMAs.
These leases expire between 2019 and 2028. The leases have options to extend and options to purchase the equipment, and do not
contain escalation clauses. The assets associated with these leases, which are classified as Systems & Equipment in the consolidated
balance sheets, are carried at a net book value of $17.1 million at December 31, 2018.
Facility
We have a finance lease for a facility in Providence, Rhode Island. We have the right to terminate the lease after June 30, 2023 if our
FMC with the State of Rhode Island is not renewed, in exchange for a termination fee equal to six months of base rent plus operating
expenses. The lease includes two 10-year extension options. We have the unilateral right to extend the lease under the two extension
options under the same terms as in the initial term. We may not assign the lease or sublease a portion of the building without the
lessor’s approval, which is not to be unreasonably withheld. The asset associated with this lease, which is classified as PPE in the
consolidated balance sheet, is carried at a net book value of $7.8 million at December 31, 2018.
Vehicles
We have finance leases for certain vehicles that are primarily used to provide services under our FMCs and LMAs. In the majority of
these arrangements, we have the right to terminate an individual lease at any point after the first 12 months of the lease term;
however, we have guaranteed the residual value of the leased vehicle. As a result, the leases are classified as finance leases. The
assets associated with these leases, which are classified as Systems & Equipment in the consolidated balance sheets, are carried at
net book value of $20.3 million at December 31, 2018.
Annual Reports and Accounts 2018 Page | 121
The future minimum lease payments and the present values for communication equipment, the facility, and vehicle finance leases at
December 31, 2018 are as follows:
($ thousands)
Not later than one year
Between one year and five years
Later than five years
Total future minimum payments
Less amount representing interest
Finance lease obligation
Sale and Leaseback Transactions
Communication
Equipment
Facility
Vehicles
Present
Value of
Payments
4,681
10,777
2,639
18,097
Minimum
Payments
5,598
12,238
2,979
20,815
(2,718 )
18,097
Present
Value of
Payments
2,284
13,455
—
15,739
Minimum
Payments
3,473
15,975
—
19,448
(3,709 )
15,739
Present
Value of
Payments
7,761
12,540
28
20,329
Minimum
Payments
8,282
13,979
31
22,292
(1,963 )
20,329
On March 29, 2017, we entered into a sale-leaseback transaction for our main manufacturing and production facility located in
Reno, Nevada. The transaction included a 15.5 year initial lease term, with four 5-year additional renewal periods exercisable at our
option, 3% annual rent increases, and payment and performance guarantees. Rent expense was $13.4 million for the year ended
December 31, 2018. The transaction is accounted for as an operating lease, and future minimum lease payments of $186.6 million
are included in the operating lease section above.
GAAP Differences
Finance Lease - Facility: Under GAAP, the transaction is accounted for under the build-to-suit guidance and we carry the entire cost
of the facility as an asset with an offsetting liability that is reduced over time under the financing method. Under IFRS, our lease for
a facility in Providence, Rhode Island is treated as a finance lease. Under IFRS, we recognized an asset and liability upon
commencement of the lease for only the portion of the building leased by the Company. This difference resulted in a decrease of
$30.8 million, $30.5 million, and $30.2 million to PPE, net on the consolidated balance sheet at December 31, 2018, December 31,
2017, and January 1, 2017, respectively. The difference resulted in a decrease of $29.3 million, $28.7 million, and $28.3 million to
non-current liabilities on the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1, 2017,
respectively.
Finance Leases - Vehicles: Certain vehicle leases are operating leases under GAAP and finance leases under IFRS because of the
existence of a residual value guarantee. Under GAAP, the lease payments are recognized as an expense on a straight-line basis.
Under IFRS, we recognize an asset and liability upon commencement of the lease. This difference resulted in an increase of $20.5
million, $20.1 million, and $18.4 million to Systems & Equipment on the consolidated balance sheet at December 31, 2018,
December 31, 2017, and January 1, 2017, respectively. The difference resulted in an increase of $5.1 million, $5.0 million, and $4.6
million to other current liabilities on the consolidated balance sheet at December 31, 2018, December 31, 2017, and January 1, 2017,
respectively. The difference resulted in an increase of $15.2 million, $15.1 million, and $13.8 million to other non-current liabilities
on the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1, 2017, respectively.
Sale and Leaseback Transactions: Under GAAP, the gain or loss is deferred and recognized over the lease term if the Company
leases back more than a minor portion of the asset sold. Under IFRS, the gain or loss associated with a sale and leaseback transaction
is recognized immediately if the transaction involves an operating lease. The $6.7 million gain associated with the sale and leaseback
transaction for the facility in Reno, Nevada, was recognized in 2017 under IFRS. The gain was deferred and is recognized over the
lease term from 2017 to 2032 under GAAP. The difference resulted in a decrease of $6.4 million in selling, general and
administrative expense on the consolidated statement of operations for the year ended December 31, 2017. The difference resulted in
a decrease of $5.5 million and $6.0 million to other non-current liabilities on the consolidated balance sheet at December 31, 2018
and 2017, respectively.
Annual Reports and Accounts 2018 Page | 122
Jackpot Commitments
Jackpot liabilities are recorded as current and non-current liabilities as follows:
($ thousands)
Current liabilities
Non-current liabilities
Future jackpot payments are due as follows:
($ thousands)
2019
2020
2021
2022
2023
Thereafter
Future jackpot payments due
Unamortized discounts
Total jackpot liabilities
Other Commitments
Yeonama Holdings Co. Limited
December 31,
2018
76,191
178,376
254,567
Total
76,044
39,001
25,464
22,691
20,426
116,059
299,685
(45,118 )
254,567
Previous
Winners
Future Winners
41,865
9,882
709
709
709
10,641
64,515
34,179
29,119
24,755
21,982
19,717
105,418
235,170
In 2013, we invested €19.8 million in Yeonama Holdings Co. Limited ("Yeonama"), a shareholder in Emma Delta Limited, the fund
that holds a 33% interest in OPAP S.A. ("OPAP"), the Greek gaming and sports betting operator, with a commitment to invest up to
an additional €10.2 million. In the first quarter of 2018, our commitment was reduced from €10.2 million to €1.5 million ($1.7
million at the December 31, 2018 exchange rate) in Yeonama, representing a total potential €21.3 million ($24.4 million at the
December 31, 2018 exchange rate) investment.
Contingencies
Performance and other bonds
In connection with certain contracts and procurements, we have delivered performance bonds for the benefit of customers and bid
and litigation bonds for the benefit of potential customers. These bonds give the beneficiary the right to obtain payment and/or
performance from the issuer of the bond if certain specified events occur. In the case of performance bonds, which generally have a
term of one year, such events include our failure to perform our obligations under the applicable contract. The following table
provides information related to potential commitments for bonds outstanding at December 31, 2018:
($ thousands)
Performance bonds
Wide Area Progressive bonds
Bid and litigation bonds
All other bonds
Total bonds
480,744
240,560
38,411
3,154
762,869
Annual Reports and Accounts 2018 Page | 123
Guarantees and Indemnifications
Loxley GTECH Technology Co., LTD Guarantee
We have a 49% interest in Loxley GTECH Technology Co., LTD ("LGT"). LGT is a joint venture that was formed to provide an
online lottery system in Thailand.
We have guaranteed, along with the 51% shareholder in LGT, performance bonds provided on behalf of LGT by an unrelated
commercial lender. The performance bonds relate to LGT’s performance under the July 2005 contract between the Government
Lottery Office of Thailand and LGT should such contract become operational. We are jointly and severally liable with the other
shareholder in LGT for this guarantee. There is no scheduled termination date for our guarantee obligation. At December 31, 2018,
the maximum liability under the guarantee was Baht 375 million ($11.6 million). We do not have any obligation related to this
guarantee because the July 2005 contract to provide the online lottery system is not in operation due to continuing political
instability in Thailand.
Zest Gaming Contingent Consideration
On July 25, 2017, we acquired the video bingo subsidiaries and related operating assets of Zest Gaming S.r.l., a leading supplier of
multi-card video bingo solutions headquartered in Italy. The acquisition consideration included a fair value estimate of contingent
consideration related to existing operations for the twelve month period ending June 30, 2018. As of December 31, 2017, the
contingent consideration was remeasured and a €2.6 million ($3.1 million) gain was recorded within selling, general and
administrative expense on the consolidated statement of operations. Upon the conclusion of the contingent consideration period, the
threshold for the earn out calculation was not met. The related liability was remeasured and a €6.5 million ($7.5 million) gain was
recorded within selling, general and administrative expense on the consolidated statement of operations for the year ended December
31, 2018.
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. Licenses are also subject to legal challenges by competitors, including Sisal and Stanley International Betting Limited,
seeking to annul awards made to the Company. The Parent and/or one or more of its subsidiaries are also, from time to time, subjects
of or parties to ethics and compliance inquiries and investigations related to the Company’s ongoing operations. Legal proceedings
can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings are often difficult to
predict and our view of these matters may change as the related proceedings and events unfold. At December 31, 2018, provisions
for litigation matters amounted to $12.0 million. With respect to litigation and other legal proceedings where we have determined
that a loss is reasonably possible but we are unable to estimate the amount or range of 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
Five lawsuits have been filed against IGT Global Solutions Corporation (f/k/a GTECH Corporation) in Texas state court arising out
of the Fun 5’s instant ticket game sold by the Texas Lottery Commission ("TLC") from September 14, 2014 to October 21, 2014.
Plaintiffs allege each ticket’s instruction for Game 5 provided a 5x win (five times the prize box amount) any time the "Money Bag"
symbol was revealed in the "5X BOX". However, TLC awarded a 5x win only when (1) the "Money Bag" symbol was revealed and
(2) three symbols in a pattern were revealed.
(a)
(b)
Steele, James et al. v. GTECH Corp., filed on December 9, 2014, in Travis County (No. D1GN145114). Through intervenor
actions, over 1,200 plaintiffs claim damages in excess of $500.0 million. GTECH Corporation’s plea to the jurisdiction for
dismissal based on sovereign immunity was denied. GTECH Corporation appealed. The appellate court ordered that
plaintiffs' sole remaining claim should be reconsidered. On April 27, 2018, IGT Global Solutions Corporation petitioned
for Texas Supreme Court review and the Texas Supreme Court has requested briefs.
Nettles, Dawn v. GTECH Corp. et al., filed on January 7, 2015, in Dallas County (No. 051501559CV). Plaintiff claims
damages in excess of $4.0 million. GTECH Corporation and the Texas Lottery Commission won pleas to the jurisdiction
for dismissal based on sovereign immunity. Plaintiff lost her appeal and petitioned for Texas Supreme Court review. The
Texas Supreme Court has requested briefs.
Annual Reports and Accounts 2018 Page | 124
(c)
(d)
(e)
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.
Wiggins, Mario & Kimberly v. IGT Global Solutions Corp., filed on September 15, 2016, in Travis County (No.
D1GN16004344). Plaintiffs claim damages in excess of $1.0 million.
Campos, Osvaldo Guadalupe et al. v. GTECH Corp., filed on October 20, 2016, in Travis County (No. D1GN16005300).
Plaintiffs claim damages in excess of $1.0 million.
We dispute the claims made in each of these cases and continue to defend against these lawsuits.
Illinois State Lottery
On February 2, 2017, putative class representatives of retailers and lottery ticket purchasers alleged the Illinois Lottery collected
millions of dollars from sales of instant ticket games and wrongfully ended certain games before all top prizes had been sold. Raqqa,
Inc. et al. v. Northstar Lottery Group, LLC., was filed in Illinois state court, St. Clair County (No. 17L51) against Northstar Lottery
Group LLC, a consortium in which the Parent indirectly holds an 80% controlling interest. The claims include tortious interference
with contract, violations of Illinois Consumer Fraud and Deceptive Practices Act, and unjust enrichment. The lawsuit was removed
to the U.S. District Court for the Southern District of Illinois. On May 9, 2018, IGT Global Solutions Corporation and Scientific
Games International, Inc. were added as defendants. On March 15, 2017, a second lawsuit, Atteberry, Dennis et al. v. Northstar
Lottery Group, LLC, was filed in Illinois state court, Cook County (No. 2017CHO3755) seeking damages on the same matter. We
dispute the claims made in both cases and continue to defend against these lawsuits.
Mexican Inventory Tax
The Mexican Tax Administration Service levied an assessment of income tax, VAT, profit sharing, interest and penalties on GTECH
Mexico for the 2006 fiscal year that, as at December 31, 2018, amounted to 539 million Mexican Pesos. Approximately 65% of the
assessment relates to denial of the deductibility of cost of goods sold ("cost of goods sold deduction") by GTECH Mexico to its
parent and the remaining assessment relates primarily to intercompany loan proceeds (treated as taxable income) received from
GTECH Mexico’s parent. Although lower courts upheld the assessment, the Mexican Appellate Court ruled the loan proceeds non-
taxable, but denied our cost of goods sold deduction. The Mexican Supreme Court upheld the Appellate Court’s ruling that the cost
of goods sold deduction would not apply. As a result of this loss, an accrual in the amount of 354.8 million Mexican Pesos ($18.1
million at the December 31, 2018 exchange rate) was recorded in 2017 to income taxes payable and is included in the consolidated
balance sheet at December 31, 2018. GTECH Mexico filed a constitutional appeal on November 23, 2017. The other tax issues are
still being addressed in the courts in Mexico. We maintain that the assessment is without merit. For a further discussion of the cost of
goods sold deduction tax issue, refer to Note 15, Income Taxes.
Previously Disclosed Matters
Set forth below are legal proceedings that were previously disclosed and for which we determined will not have a material impact on
our operations, financial position, liquidity, or results of operations.
Brazil ICMS Tax
Since 1997, GTECH Brazil has paid ISS service taxes on its revenues derived from its lottery contract with Caixa Eonomica Federal.
On July 26, 2005, the State of São Paulo challenged this tax classification, claiming the higher ICMS tax (Brazilian VAT) should
have been applied on the value of printing ribbons, rolls of paper, and wagering slips ("Consumables") distributed to lottery outlets.
On February 27, 2017, the Brazilian court ruled that rolls of paper and wagering slips were not subject to ICMS, but printing ribbons
were, although at a lower tax rate than the São Paulo tax authorities had applied. Both parties appealed the respective unfavorable
aspects of the lower court’s ruling to the Court of Appeals. On March 7, 2018, the Court of Appeals ruled in GTECH Brazil’s favor
with respect to its petition to also exclude the printer ribbons from the ICMS tax. The Court of Appeals also ruled against the petition
of the tax authority to reverse the lower court’s ruling to exclude rolls of paper and wagering slips from ICMS tax. The Brazilian tax
authority has appealed the Court of Appeals' rulings in favor of GTECH Brazil. The proceedings are likely to take several years, and
we have determined that a ruling adverse to us will not have a material impact on our operations, financial position, liquidity, or
results of operations.
Annual Reports and Accounts 2018 Page | 125
19. Shareholders’ Equity
Shares Authorized and Outstanding
The Board of Directors of the Parent (the "Board") is authorized to issue shares of any class in the capital of the Parent. The
authorized ordinary shares of the Parent consists of 1.850 billion ordinary shares with a $0.10 per share par value.
Ordinary shares of common stock outstanding were as follows:
Balance at beginning of year
Shares issued under restricted stock plans
Shares issued upon exercise of stock options
Balance at end of year
Repurchases of Ordinary Shares
December 31,
2018
203,446,572
619,614
144,545
204,210,731
2017
202,285,166
947,709
213,697
203,446,572
The Parent has the authority to repurchase, subject to a maximum repurchase price, a maximum of 20% of the aggregate issued share
capital of ordinary shares as of April 7, 2015. This authority will expire on July 28, 2020.
The Parent did not repurchase any of its ordinary shares in 2018 or 2017.
Dividends
We declared cash dividends per share during the periods presented as follows:
Per share amount ($)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total cash dividends declared
Future dividends are subject to Board approval.
2018
2017
0.20
0.20
0.20
0.20
0.80
0.20
0.20
0.20
0.20
0.80
During the first quarter of 2019, the Board declared a quarterly cash dividend of $0.20 per share payable in April 2019.
The RCF Agreement and Term Loan Facility Agreement limit the aggregate amount of dividends and repurchases of the Parent's
ordinary shares in each year to $300 million based on our current ratings by Moody’s and S&P, provided that the ratio of the sum of
total net debt and the aggregate amount of dividends and repurchases to EBITDA does not exceed:
• 95% of the applicable ratio of total net debt to EBITDA with respect to the fourth quarter of 2018 and each quarter of 2019;
and
• 90% of the applicable ratio of total net debt to EBITDA for each quarter thereafter.
For the years ended December 31, 2018 and 2017, cash dividends declared were paid by our Parent and were in accordance with
legal and compliance regulations.
Annual Reports and Accounts 2018 Page | 126
Other Reserves
The following table details the changes in other reserves:
Unrealized Gain (Loss) on:
Balance at December 31, 2016
Change during period
Reclassified to operations
Tax effect
OCI
Balance at December 31, 2017
Change during period
Reclassified to operations
Tax effect
OCI
Balance at December 31, 2018
Foreign
Currency
Translation
135,330
159,785
—
2,652
162,437
297,767
(83,121 )
(4,254 )
1,686
(85,689 )
212,078
Cash
Flow
Hedges
2,905
(6,610 )
1,744
1,138
(3,728 )
(823 )
(204 )
536
(790 )
(458 )
(1,281 )
Hedge of
Net
Investment
(4,578 )
—
—
(969 )
(969 )
(5,547 )
—
—
28
28
(5,519 )
Available
for Sale
Securities
Defined
Benefit
Plans
Share of
OCI of
Associate
Less: OCI
attributable
to non-
controlling
interests
Total
other
reserves
attributable
to
IGT PLC
12,209
(678 )
—
57
(621 )
11,588
(5,408 )
—
15
(5,393 )
6,195
(4,727 )
(120 )
—
8
(112 )
(4,839 )
429
—
(44 )
385
(4,454 )
(748 )
—
—
—
—
(748 )
—
—
—
—
(748 )
786
463
—
—
463
1,249
18,691
—
—
18,691
19,940
141,177
152,840
1,744
2,886
157,470
298,647
(69,613 )
(3,718 )
895
(72,436 )
226,211
For the years ended December 31, 2018 and 2017, $0.5 million and $1.7 million, respectively, were reclassified from other reserves
into service revenue in the consolidated statement of operations.
GAAP Differences
The transition from GAAP to IFRS resulted in an increase of $372.3 million, $73.2 million and $151.0 million within total
shareholders' equity on the consolidated balance sheet at December 31, 2018, December 31, 2017 and January 1, 2017.
20. Non-Controlling Interests
Non-controlling interests’ share of equity in the accompanying consolidated balance sheet was $607.1 million and $337.8 million at
December 31, 2018 and 2017, respectively. At December 31, 2018 our material non-controlling interests were as follows:
Name of subsidiary
Lotterie Nazionali S.r.l. ("LN")
Northstar New Jersey Lottery Group, LLC ("Northstar NJ")
% Ownership held by
the Company
64.00 %
82.31 %
LN holds the Scratch & Win license in Italy. In December 2017, the Italian regulator exercised a nine-year contract extension option
for the Scratch & Win license, extending the license through September 2028. LN was required to pay an upfront license fee of €800
million related to the extension, of which €50 million ($59.3 million) was paid in December 2017 and the remaining €750 million
($878.1 million) was paid in 2018.
Northstar NJ is a consolidated joint venture which is party to an agreement with the State of New Jersey, Department of the
Treasury, Division of Purchase and Property and Division of Lottery (the "Division of Lottery") where Northstar NJ manages a wide
range of the Division of Lottery’s marketing, sales, and related functions.
Annual Reports and Accounts 2018 Page | 127
Activity within non-controlling interests were as follows:
($ thousands)
Balance at December 31, 2016
Net income
Other comprehensive loss
Total comprehensive income
Capital increase
Return of capital
Dividends paid
Other
Balance at December 31, 2017
Net income
Other comprehensive (loss) income
Total comprehensive (loss) income
Capital increase
Return of capital
Dividends paid
Balance at December 31, 2018
Northstar NJ
LN
202,287
26,007
(443 )
25,564
21,587
(44,286 )
(27,157 )
—
177,995
26,917
(31,522 )
(4,605 )
316,956
(38,752 )
(28,320 )
423,274
64,508
10,935
—
10,935
—
—
(17,153 )
—
58,290
10,405
—
10,405
—
—
—
68,695
All Other
76,833
18,458
(20 )
18,438
20,212
(6,925 )
(5,467 )
(1,527 )
101,564
20,681
12,831
33,512
2,298
(7,215 )
(14,993 )
115,166
Total
343,628
55,400
(463 )
54,937
41,799
(51,211 )
(49,777 )
(1,527 )
337,849
58,003
(18,691 )
39,312
319,254
(45,967 )
(43,313 )
607,135
Summarized financial information for our material non-controlling interests is as follows:
Summarized Balance Sheets
($ thousands)
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
LN
December 31,
2018
414,456
1,021,119
1,435,575
317,431
838
318,269
1,117,306
1,435,575
2017
412,745
1,190,575
1,603,320
1,225,888
641
1,226,529
376,791
1,603,320
Northstar NJ
December 31,
2018
2017
79,875
93,361
173,236
44,616
—
44,616
128,620
173,236
37,492
102,380
139,872
40,631
—
40,631
99,241
139,872
Summarized Income Statements
LN
Northstar NJ
($ thousands)
Total revenue
Total operating expenses
Operating income
Total non-operating (expenses) income
Income before benefit from income taxes
Benefit from income taxes
Net income
For the year ended December 31,
For the year ended December 31,
2018
321,388
(216,355 )
105,033
(251 )
104,782
(30,111 )
74,671
2017
402,164
(301,116 )
101,048
794
101,842
(29,705 )
72,137
2018
131,256
(114,859 )
16,397
—
16,397
—
16,397
2017
122,214
(105,000 )
17,214
—
17,214
—
17,214
Annual Reports and Accounts 2018 Page | 128
Summarized Cash Flow Statements
LN
Northstar NJ
($ thousands)
Net cash flows (used in) provided by operating activities
Net cash flows used in investing activities
Net cash flows provided by (used in) financing activities
2018
(720,809 )
(2,220 )
723,306
2017
217,208
(62,011 )
(155,207 )
2018
2017
5,538
—
—
33,277
—
(27,803 )
For the year ended December 31,
For the year ended December 31,
21. Segment Information
The structure of our internal organization is customer-facing aligned around four segments operating in three regions as follows:
• North America Gaming and Interactive
• North America Lottery
•
•
International
Italy
We monitor the operating results of our segments separately for the purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated based on operating income. Segment accounting policies are consistent
with those of the consolidated financial statements.
Corporate support expenses, which are not allocated to the segments, are principally composed of selling, general and administrative
expenses and other expenses that are managed at the corporate level, including restructuring, transaction, corporate headquarters and
Board expenses.
Purchase accounting principally represents the depreciation and amortization of acquired tangible and intangible assets in connection
with acquired companies.
Long-lived assets are composed of Systems & Equipment and PPE.
Segment information is as follows ($ thousands):
For the year ended
December 31, 2018
Service revenue
Product sales
Total revenue
North
America
Gaming and
Interactive
624,476
378,693
1,003,169
North
America
Lottery
1,111,069
80,833
1,191,902
International
495,497
324,486
819,983
Operating
Segment
Total
4,043,872
784,942
4,828,814
Italy
1,812,830
930
1,813,760
Corporate
Support
—
—
—
Purchase
Accounting
723
—
723
Total
4,044,595
784,942
4,829,537
Operating income (loss)
221,868
297,836
143,182
540,187
1,203,073
(222,779 )
(390,708 )
589,586
Depreciation and
amortization
Expenditures for long-
lived assets
Long-lived assets
(at year end)
Total assets (at year end)
105,295
160,104
62,688
161,758
489,845
14,693
208,300
712,838
(150,440 )
(163,912 )
(60,456 )
(93,252 )
(468,060 )
(9,719 )
—
(477,779 )
280,142
3,588,260
729,765
2,480,027
211,258
2,728,325
358,283
4,598,577
1,579,448
13,395,189
—
212,401
—
—
1,579,448
13,607,590
Annual Reports and Accounts 2018 Page | 129
For the year ended
December 31, 2017
Service revenue
Product sales
Total revenue
North
America
Gaming and
Interactive
780,579
377,065
1,157,644
North
America
Lottery
1,093,048
92,174
1,185,222
International
557,049
332,015
889,064
Operating
Segment
Total
4,132,903
802,403
4,935,306
Italy
1,702,227
1,149
1,703,376
Corporate
Support
1,203
—
1,203
Purchase
Accounting
722
—
722
Total
4,134,828
802,403
4,937,231
Operating income (loss)
279,008
289,002
163,702
476,969
1,208,681
(190,796 )
(1,108,425 )
(90,540 )
Depreciation and
amortization
Expenditures for long-
lived assets
Long-lived assets
(at year end)
Total assets (at year end)
81,325
137,840
66,745
161,484
447,394
11,752
350,876
810,022
(147,175 )
(204,104 )
(77,815 )
(188,013 )
(617,107 )
(3,964 )
—
(621,071 )
263,050
3,607,062
679,484
2,464,293
286,498
3,024,962
388,536
4,968,940
1,617,568
14,065,257
—
1,076,338
—
—
1,617,568
15,141,595
In connection with the June 2017 sale of DoubleDown, we recorded a $783.8 million reduction in assets in the North America
Gaming and Interactive segment, principally composed of goodwill and intangible assets.
Geographical Information
Revenue from external customers, which is based on the geographical location of our customers, is as follows:
($ thousands)
United States
Italy
United Kingdom
Rest of Europe
All other
Total
December 31,
2018
2,063,477
1,822,285
59,062
312,484
572,229
4,829,537
2017
2,195,738
1,726,797
74,567
383,170
556,959
4,937,231
Revenue from one customer in the Italy segment represented 16.4% and 14.6% of consolidated revenue in 2018 and 2017,
respectively.
Long-lived assets based on the geographical location of the assets are as follows:
($ thousands)
United States
Italy
United Kingdom
Rest of Europe
All other
Total
22. Stock-Based Compensation
Incentive Awards
December 31,
2018
983,288
332,378
26,256
115,345
122,181
1,579,448
2017
928,576
366,990
43,379
117,508
161,115
1,617,568
Stock-based incentive awards are provided to directors and employees under the terms of our 2015 Equity Incentive Plan (the
"Plan") as administered by the Board. Awards available under the Plan principally include stock options, performance share units,
restricted share units or any combination thereof. The maximum number of shares that may be granted under the Plan is 11.5 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.
We utilize authorized and unissued shares to satisfy all shares issued under the Plan.
Annual Reports and Accounts 2018 Page | 130
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 Plan at an exercise price not less than the fair market value of a share on the date of grant. In 2018, stock options were granted
solely to our Chief Executive Officer, which will vest in 2021 subject to certain performance and other criteria, and have a
contractual term of approximately six years. No stock options were granted in 2017.
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. PSUs typically vest 50% over an approximate three-year period and 50% over an approximate four-year period.
Dividend equivalents are not paid under the Plan. The fair value of each PSU is determined on the grant 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.
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. Dividend equivalents are not paid under the Plan.
Stock Option Activity
A summary of our stock option activity and related information is as follows:
Outstanding at January 1, 2018
Granted
Exercised
Expired
Outstanding at December 31, 2018
At December 31, 2018:
Vested and expected to vest
Exercisable
Weighted Average
Exercise Price
Per Share ($)
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
($ thousands)
19.76
30.12
18.73
20.28
21.07
21.07
20.10
1.72
1.72
1.33
—
—
Stock
Options
2,192,707
172,500
(549,986 )
(29,838 )
1,785,383
1,785,383
1,612,883
The total intrinsic value of stock options exercised was $6.0 million and $9.3 million in 2018 and 2017, respectively. There were no
cash proceeds from stock options exercised in 2018 and 2017.
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 2018 was $6.84 per share.
Valuation model
Exercise price ($)
Expected option term (in years)
Expected volatility of the Company’s stock (%)
Risk-free interest rate (%)
Dividend yield (%)
2018
Monte Carlo
30.12
2.83
35.00
2.73
2.66
Annual Reports and Accounts 2018 Page | 131
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:
Nonvested at January 1, 2018
Granted
Vested
Forfeited
Nonvested at December 31, 2018
At December 31, 2018:
Unrecognized cost for nonvested awards ($ thousands)
Weighted average future recognition period (in years)
PSUs
4,083,499
1,564,083
(882,426 )
(495,109 )
4,270,047
46,141
2.25
Weighted
Average
Grant Date
Fair Value ($)
16.35
28.93
13.44
19.41
25.79
Weighted
Average
Grant Date
Fair Value ($)
21.00
30.23
21.67
—
30.21
RSUs
106,223
68,142
(114,452 )
—
59,913
677
0.37
The total vest-date fair value of PSUs vested was $24.6 million and $28.8 million in 2018 and 2017, respectively. The total vest-date
fair value of RSUs vested was $3.4 million and $2.8 million in 2018 and 2017, respectively.
Fair Value of Stock Awards Granted
We estimated the fair value of PSUs at the date of grant using a Monte Carlo simulation valuation model, as the award includes a
market condition.
During 2018 and 2017, we estimated the fair value of RSUs at the date of grant based on our stock price. Details of the grants are as
follows:
PSUs granted during the year
Weighted average grant date fair value ($)
RSUs granted during the year
Weighted average grant date fair value ($)
Modifications
2018
2018
1,564,083
28.93
2017
1,723,730
17.74
68,142
30.23
117,745
21.12
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
$5.3 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 $8.3 million of compensation cost for the year ended December 31, 2018.
Annual Reports and Accounts 2018 Page | 132
2017
During the second quarter of 2017, we modified the measurement of a performance condition for the PSUs granted in 2016. The
modification affected 974 employees but did not result in any incremental compensation cost.
Stock-Based Compensation Expense
Total compensation cost for our stock-based compensation plans is recorded based on the employees’ respective functions as
detailed below.
($ thousands)
Cost of services
Cost of product sales
Selling, general and administrative
Research and development
Stock-based compensation expense before income taxes
Income tax benefit
Total stock-based compensation, net of tax
GAAP Differences
For the year ended December 31,
2018
2017
1,398
291
19,208
1,999
22,896
5,358
17,538
(8 )
(6 )
4,486
94
4,566
1,122
3,444
When an award is not probable of vesting, the modification of an award that is expected to vest is treated as a new grant under
GAAP and a new grant date fair value is established. Under IFRS, if only the vesting conditions are modified and it is modified in a
way that is beneficial to the employee, the modification is considered a change in the number of shares that is expected to vest and
the award's original grant date fair value would be used to recognize the expense over the remainder of the service period. The
difference resulted in an $8.5 million decrease within selling, general and administrative expense on the consolidated statement of
operations for the year ended December 31, 2018.
23. Impairment Loss
Impairment loss was recorded for the assets detailed below:
($ thousands)
Goodwill
Other
December 31,
2018
184,000
2,407
186,407
2017
759,000
1,220
760,220
Historically, goodwill and indefinite lived assets have been tested for impairment annually on November 1, or on an interim basis if
facts or circumstances indicate that they may be impaired. In 2018, the Company changed its impairment valuation testing date from
November 1 to December 31. The Company changed the valuation date to better align with the timing and completion of the
Company’s forecasting process. The change did not delay, accelerate, or avoid an impairment charge. The change has been applied
prospectively which resulted in the Company performing two impairment tests during the fourth quarter of 2018 (November 1 and
December 31).
Goodwill
Goodwill is tested for impairment at the reporting unit level. At December 31, 2018, the Company has the following four reporting
units (which are equivalent to its segments):
• North America Gaming and Interactive;
• North America Lottery;
International; and
•
Italy.
•
Annual Reports and Accounts 2018 Page | 133
The Company's goodwill impairment test compares the recoverable 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 recoverable value, not to
exceed the total amount of goodwill allocated to that reporting unit. The Company calculates its recoverable amount as its fair value
less costs to dispose for all reporting units.
In performing the goodwill impairment test, the Company estimates the recoverable value of the reporting units using an income
approach that analyzes projected discounted cash flows. The procedures the Company follows include, but are not limited to, the
following:
• Analysis of the conditions in, and the economic outlook for, the reporting units;
• Analysis of general market data, including economic, governmental, and environmental factors;
• Review of the history, current state, and future operations of the reporting units;
• Analysis of financial and operating projections based on historical operating results, industry results and expectations;
• Analysis of financial, transactional and trading data for companies engaged in similar lines of business to develop
appropriate valuation multiples and operating comparisons; and
• Calculation of the Company's market capitalization, total invested capital, the implied market participant acquisition
premium, and supporting qualitative and quantitative analysis.
Under the income approach, fair value of the reporting units is determined based on the present value of each unit's estimated future
cash flows, discounted at an appropriate risk-adjusted rate. The Company uses internal forecasts to estimate future cash flows and
estimates long-term future growth rates based on internal projections of the long-term outlook for each reporting unit. Cash flows
beyond the forecasted period of five years have been extrapolated using the percentage growth rates disclosed below. Actual results
may differ from those assumed in forecasts. The discount rates are based on a weighted average cost of capital analysis computed by
calculating the after-tax cost of debt and the cost of equity and then weighted based on the concluded capital structure of the
respective reporting unit. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in each
reporting unit and in internally developed forecasts. Discount rates used in the reporting unit valuations ranged
from 7.40% to 10.15%.
Estimating the recoverable value of the reporting units requires management to use its judgement in making estimates and making
forecasts that are based on a number of factors including future cash flows, growth rates, market comparables, perpetual growth
rates, weighted average cost of capital, and actual operating results. As with all forecasts, it is possible that the judgments and
estimates described above may change in future periods.
The Company performed quantitative assessments on all four reporting units.
The Company determined there was an impairment in the International reporting unit’s goodwill due to 2018 results being lower
than forecasted along with a higher weighted average cost of capital. A $184.0 million goodwill impairment loss with no income tax
benefit was recorded in the consolidated statement of operations to reduce the carrying amount of the International reporting unit to
its recoverable value. The goodwill remaining in the International reporting unit after the impairment was $1.357 billion for the year
ended December 31, 2018. The impairment loss had no impact on the Company’s cash flows, ability to service debt, compliance
with financial covenants, or underlying liquidity. The Company's fundamental outlook for the International reporting unit has not
changed, and expectations for growth remain similar to the prior year with the International reporting unit growing from a lower
base.
In calculating the recoverable value of the International reporting unit using the income approach, the following estimates and
assumptions were used in the discounted cash flow analysis:
• A normalized growth rate of 3.00% based on the estimated sustainable long-term growth rate for the reporting unit;
• A normalized operating EBITDA margin percentage was estimated based on a review of average margins within the
projection period;
• Normalized capital expenditure requirements were estimated based on a review of historical and projected capital
expenditures and typical replacement cycles; and
• A discount rate of 10.15% based on the weighted average cost of capital.
The results for the remaining reporting units are as follows:
Annual Reports and Accounts 2018 Page | 134
($ thousands)
North America Gaming and Interactive
North America Lottery
Italy
The key assumptions used are as follows:
North America Gaming and Interactive
North America Lottery
Italy
Estimated
Recoverable
Value
Carrying
Amount
2,966
3,382
4,961
2,824
2,136
3,164
Excess
%
142
1,246
1,797
5.03 %
58.33 %
56.80 %
Normalized
Growth Rate
Discount Rate
2.50 %
2.00 %
1.00 %
8.50 %
7.40 %
8.60 %
The quantitative assessments for the North America Lottery and Italy reporting units did not result in an impairment. The
recoverable values for the North America Lottery and Italy reporting units substantially exceeded their carrying amounts, which the
Company believes to be 20% or more.
The key assumptions used in the determination of the North America Gaming and Interactive reporting unit’s recoverable value are
as follows:
• A normalized growth rate of 2.50% based on the estimated sustainable long-term growth rate for the reporting unit;
• A normalized operating EBITDA margin percentage was estimated based on a review of average margins within the
projection period;
• Normalized capital expenditure requirements were estimated based on a review of historical and projected capital
expenditures and typical replacement cycles; and
• A discount rate of 8.50% based on the weighted average cost of capital.
Goodwill for the North America Gaming and Interactive reporting unit was $1.395 billion for the year ended December 31, 2018.
Although the estimated recoverable value of the North America Gaming and Interactive reporting unit was in excess of its carrying
amount, it was not substantially in excess. While the Company expects improved results for the North America Gaming and
Interactive reporting unit as new games and hardware are introduced to the market, a decrease in the recoverable value of the North
America Gaming and Interactive reporting unit could potentially result in a goodwill impairment loss.
During the third quarter of 2017, we determined that the North America Gaming and Interactive reporting unit's long-term strategy
of improving content and game performance to stabilize and then grow market share was taking longer than expected which resulted
in us performing an interim goodwill impairment test. As a result of the interim test, we recorded a $759.0 million impairment loss
with no income tax benefit to reduce the carrying amount of this reporting unit to its recoverable value. The Company's expectation
for long-term growth remains similar but the North America Gaming and Interactive reporting unit will be growing from a lower
base.
There were no goodwill impairment losses recorded in 2016.
GAAP Differences
When an impairment is recognized, GAAP requires the impairment loss to be measured as the difference between the carrying
amount of the asset or asset group and its fair value. IFRS measures the impairment loss as the difference between the carrying
amount of the cash-generating unit and its recoverable amount. This difference resulted in a $111.0 million and $45.0 million
decrease within goodwill on the consolidated balance sheet at December 31, 2018 and 2017, respectively, and a $66.0 million and
$45.0 million increase within impairment loss on the consolidated statement of operations for the year ended December 31, 2018 and
2017, respectively.
Annual Reports and Accounts 2018 Page | 135
24. Other Expense, Net
The components of other expense, net are as follows:
($ thousands)
Tender and redemption premium
Unamortized debt issuance costs
Swap
Unamortized debt premium
Other
Total debt related
Redeemable non-controlling interest
Other
Debt Related
For the year ended December 31,
2018
2017
(48,935 )
(7,059 )
(443 )
3,089
(1,559 )
(54,907 )
(37,793 )
(7,307 )
4,532
12,394
(3,419 )
(31,593 )
(148,416 )
15
(203,308 )
(74,253 )
(2,085 )
(107,931 )
During 2018, we completed the following debt transactions, which resulted in a $54.4 million loss on extinguishment of debt for the
year ended December 31, 2018:
• Repurchased a portion of the 4.125% Notes;
• Repurchased a portion of the 4.750% Notes;
• Redeemed the 5.625% Notes;
• Redeemed the remaining 7.500% Notes; and
• Redeemed a portion of the 5.500% Notes.
In 2017, we purchased of a portion of the 7.500% Notes which resulted in a $25.7 million loss on extinguishment of debt for the year
ended December 31, 2017.
Further details of these transactions are disclosed in Note 15, Debt.
Redeemable non-controlling interest
The Company classifies its non-controlling interest in Lottoitalia S.r.l. as a financial liability recorded at amortized cost. In 2018, we
updated the net present value of estimated cash flows due to a revised estimate in the future dividends to be paid which resulted in an
increase in accretion expense.
25. Earnings Per Share
The following table presents the computation of basic and diluted loss per share:
($ and shares in thousands, except per share amounts)
Numerator:
Net loss attributable to IGT PLC
Denominator:
Weighted-average shares - basic
Incremental shares under stock-based compensation plans
Weighted-average shares - diluted
Basic loss per share attributable to IGT PLC
Diluted loss per share attributable to IGT PLC
For the year ended December 31,
2018
2017
(144,375 )
(1,122,196 )
204,083
—
204,083
(0.71 )
(0.71 )
203,130
—
203,130
(5.52 )
(5.52 )
Annual Reports and Accounts 2018 Page | 136
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, 2018 and 2017, 1.6 million and 0.4 million stock options and unvested restricted stock awards,
respectively, were excluded from the computation of diluted earnings per share because including them would have had an
antidilutive effect.
GAAP Differences
Loss per share under GAAP was $(0.10) and $(5.26) for the years ended December 31, 2018 and 2017, respectively, as a result of
the IFRS difference in net loss attributable to IGT PLC. There was no change in diluted weighted-average shares between GAAP
and IFRS in 2018 or 2017.
26. Related Party Transactions
We engage in business transactions with certain related parties which include (i) entities and individuals capable of exercising
control, joint control, or significant influence over us, (ii) De Agostini or entities directly or indirectly controlled by De Agostini and
(iii) our unconsolidated subsidiaries or joint ventures. Members of our Board of Directors, 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.
Investments in and Material Transactions with Related Parties
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.
We have a 50% interest in Ringmaster S.r.l. that is accounted for using the equity method of accounting. Ringmaster S.r.l. provides
software development services for our interactive gaming business pursuant to an agreement dated December 7, 2011.
Telling IGT Information Technology (Shenzhen) Co. Ltd
We have a 49% interest in Telling IGT Information Technology (Shenzhen) Co. Ltd. ("Telling"), a Chinese joint venture, that is
accounted for using the equity method of accounting. Telling was formed to provide innovative lottery products to regulated lottery
centers in the People’s Republic of China. In addition to providing innovative lottery products, Telling will have the capability to
conduct independent market operations, business development, and technological innovations in China. We had no material
investments in Telling at December 31, 2018 and 2017.
Yeonama Holdings Co. Limited and OPAP S.A.
We have a 30% interest in Yeonama, which is accounted for at cost. Yeonama is a shareholder in Emma Delta Limited, the fund that
holds a 33% interest in OPAP, the Greek gaming and sports betting operator. Marco Sala, our Chief Executive Officer and a Board
member, is a member of the board of directors of OPAP. We provide sports betting and player account management systems to Horse
Races S.A., a wholly-owned subsidiary of OPAP. We are also a technology provider of VLT central systems directly to OPAP.
Our investment in Yeonama was $22.0 million and $23.1 million at December 31, 2018 and 2017, respectively.
Connect Ventures One LP and Connect Ventures Two LP
We have held investments in Connect Ventures One LP and Connect Ventures Two LP (the "Connect Ventures") since 2011 and
2015, respectively, that are carried at cost and accounted for as available-for-sale investments. De Agostini also holds investments in
the Connect Ventures, and Nicola Drago, the son of director Marco Drago, holds a 10% ownership interest in Connect Ventures LLP,
Annual Reports and Accounts 2018 Page | 137
the fund that manages the Connect Ventures. He is also a non-executive member of with no profit shares in Connect Ventures LLP.
The Connect Ventures are venture capital funds that target "early stage" investment operations.
Our investment in Connect Ventures One LP was $4.3 million and $4.7 million at December 31, 2018 and 2017, respectively. Our
investment in Connect Ventures Two LP was $5.3 million and $3.8 million at December 31, 2018 and 2017, respectively.
De Agostini Group
We are majority owned by De Agostini. Amounts receivable from De Agostini and subsidiaries of De Agostini (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 have a tax unit agreement with De Agostini pursuant to which De Agostini consolidates certain Italian subsidiaries of De
Agostini for the collection and payment of taxes to the Italian tax authority.
On May 22, 2018, De Agostini entered into a variable forward transaction (the "Variable Forward Transaction") with Credit Suisse
International ("Credit Suisse") relating to 18.0 million of our ordinary shares owned by De Agostini. As part of the Variable Forward
Transaction, to hedge its exposure, Credit Suisse or its affiliates borrowed approximately 13.2 million of our 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 (the "Registration Statement").
We were not a party to the Variable Forward Transaction, did not issue or sell any ordinary shares in connection with the Variable
Forward Transaction, and did not receive any proceeds from the sale of the ordinary shares in the Variable Forward Transaction. De
Agostini agreed to reimburse us for certain costs and fees incurred by us in connection with the Variable Forward Transaction and
the preparation and filing of the Registration Statement. As of December 31, 2018, a $1.9 million receivable from De Agostini for
the reimbursement of such costs and fees was included in trade and other receivables, net in the consolidated balance sheet.
Summary of Material Related Party Transactions
Amounts receivable from and payable to related parties pursuant to material related party transactions are as follows:
($ thousands)
Trade receivables
OPAP S.A.
De Agostini Group
Total related party receivables
Tax related trade payables
De Agostini Group
Trade payables
De Agostini Group
Ringmaster S.r.l.
Total related party payables
December 31,
2018
2017
2,761
1,898
4,659
6,888
65
6,953
12,454
19,673
8,131
5,682
26,267
10,974
6,404
37,051
Annual Reports and Accounts 2018 Page | 138
The following table sets forth material transactions with related parties:
($ thousands)
Service revenue and product sales
OPAP S.A.
Research and development expenses
Ringmaster S.r.l.
For the year ended December 31,
2018
2017
14,101
14,101
10,412
10,412
37,512
37,512
10,940
10,940
Key Management Personnel - Officer Compensation
Key management personnel are those persons with authority and responsibility for planning, directing and controlling the activities
of the Company. In 2018 and 2017, key management personnel was composed of eight executive officers, including our Chief
Executive Officer and Chief Financial Officer. Officer compensation for key management personnel for the years ended
December 31, 2018 and 2017 is as follows:
($ thousands)
Short-term employee benefits
Stock-based compensation
Post-employment benefits
Other
27. Employee Information
Employee Benefit Expense
($ thousands)
Wages and salaries
Social Security and other benefits
Incentive compensation
Stock-based compensation
Post-employment benefits
Employees by Segment
North America Gaming and Interactive
North America Lottery
International
Italy
Corporate Support
For the year ended December 31,
2018
2017
19,453
12,644
913
—
33,010
19,097
5,975
760
—
25,832
For the year ended
December 31,
2018
836,678
177,322
94,758
22,896
22,062
1,153,716
2017
875,005
172,974
87,008
4,566
21,825
1,161,378
December 31,
2018
2017
5,438
1,635
1,505
2,034
1,488
12,100
4,777
2,608
1,542
1,950
1,401
12,278
For the years ended December 31, 2018 and 2017, we had an average of 12,163 and 12,529 employees, respectively.
Annual Reports and Accounts 2018 Page | 139
28. Auditors' Remuneration
PricewaterhouseCoopers LLP ("PwC U.K.") has been serving as our independent auditor since 2015.
Aggregate fees for professional services and other services rendered by PwC U.K. and its foreign entities belonging to the PwC
network in 2018 and 2017 were as follows:
($ thousands)
Audit services - Parent company and consolidated financial statements
Audit services - Subsidiaries' financial statements
Tax services
Audit-related services
All other services
For the year ended December 31,
2018
2017
10,880
2,374
1,242
1,028
189
15,713
11,453
3,129
552
204
134
15,472
29. The Parent's Directly and Indirectly Owned Subsidiaries
The Parent had the following subsidiaries for the year ended December 31, 2018:
Name of entity
Acres Gaming Incorporated
Anguilla Lottery and Gaming
Company Limited
Address of registered office
6355 South Buffalo Drive, Las Vegas,
Nevada 89113, United States
AXA Offshore Management Limited
The Law Building PO Box 687, The
Valley, Anguilla, British West Indies
Antigua Lottery Company Limited Fitzgerald House, Church & Cross
Streets, St. John's, Antigua
Atronic Australien GmbH
Beijing GTECH Computer
Technology Company Limited
Big Easy S.r.l.
BillBird S.A.
BringIt, Inc.
Business Venture Investments No
1560 Proprietary Limited
Caribbean Lottery Services, Inc.
CartaLis Istituto di Moneta
Elettronica S.p.A. (also known as
CartaLis IMEL S.p.A.)
Casagaming Holding Ltd
Casagaming Ltd
CLS-GTECH Technology
(Beijing) Co., Ltd.
Consorzio Lotterie Nazionali
Cyberview International, Inc.
Weseler Strab 253, Münster, Germany
48151
R1101-1102, 11F, Viva Plaza, No. 29
Suzhou Street, Haidian District,
Beijing 100080, China
Viale del Campo Boario, 56/d Roma,
Italy
ul. KAMIENNA, nr 21, lok., miejsc.
KRAKOW, kod 31-403, poczta
KRAKOW, Poland
6355 South Buffalo Drive, Las Vegas,
Nevada 89113, United States
GLMI House, Harlequins Office Park,
164 Totius Street, Groenkloof Pretoria,
0127, South Africa
c/o Moore Dodson & Russell P.C.,
5035 Norre Gade, Suite 201, St.
Thomas, VI 00802
Viale del Campo Boario, 56/d Roma,
Italy
Vincenti Buildings, 28/19 (Suite 1140)
Strait Street, Valletta VLT1432, Malta
Vincenti Buildings, 28/19 (Suite 1140)
Strait Street, Valletta VLT1432, Malta
2/F Block A, Raycom Info Tech Park, 2
Kexueyuan South Road, Zhong Guan
Cun, Haidian District, Beijing, 100190
China
Via Buonconvento, 6 Roma, Italy
6355 South Buffalo Drive, Las Vegas,
Nevada 89113, United States
Ownership % Shareholder
100
100
100
100
100
International Game Technology
Leeward Islands Lottery Holding
Company, Inc.
Leeward Islands Lottery Holding
Company, Inc.
International Game Technology PLC
IGT Foreign Holdings Corporation
56
Lottomatica Videolot Rete S.p.A.
100
IGT Global Services Limited
100
100
100
IGT
IGT Global Services Limited
Leeward Islands Lottery Holding
Company, Inc.
85
Lottomatica Italia Servizi S.p.A.
100
100
100
63
100
Casablanca Gaming Group AB (99%);
IGT Interactive (Sweden) AB (1%)
Casagaming Holding Ltd (99%); IGT
Interactive (Sweden) AB (1%)
CLS-GTECH Company Limited
Lottomatica Holding S.r.l.
IGT
Annual Reports and Accounts 2018 Page | 140
Name of entity
Data Transfer System Inc.
DoubleDown Interactive B.V.
Dreamport do Brasil Ltda.
Dreamport Suffolk Corporation
Dreamport, Inc.
Eagle Ice AB
Europrint (Promotions) Limited
Europrint Holdings Limited
Address of registered office
1209 Orange Street, Wilmington, DE
19801, United States
Galwin 2, 1046 AW Amsterdam,
Netherlands
Rua Barao do Triunfo, 88 room 1211,
Brooklin Paulista, 04602-000, Sao
Paulo, Brazil
1209 Orange Street, Wilmington, DE
19801, United States
1209 Orange Street, Wilmington, DE
19801, United States
Mannheimer Swartling Advokatbyra,
Norrlansgatan 21. Stockhom. 11187.
Sweden
1 Bridgewater Place, Water Lane,
Leeds, West Yorkshire, LS11 5QR
Lancaster House, 52 Preston New
Road, Blackburn, Lancashire,BB2
6AH, United Kingdom
1st Floor, Building 3 Croxley Green
Business Park, Hatters Lane, Watford,
Hertfordshire, England WD18 8YG
Gaming Productions Holding
Limited
Vincenti Buildings, 28/19 (Suite 1140)
Strait Street, Valletta VLT1432, Malta
GTECH (Gibraltar) Holdings
Limited f/k/a St. Enodoc Holdings
Limited
GTECH Asia Corporation
GTECH Brasil Ltda.
GTECH German Holdings
Corporation GmbH
GTECH Malta Poker Limited f/k/a
Boss Media Malta Poker Ltd.
23 Portland House, Glacis Road, GX11
1AA, Gibraltar
1209 Orange Street, Wilmington, DE
19801, United States
Rua Barao do Triunfo, 88 room 1211,
Brooklin Paulista, 04602-000, Sao
Paulo, Brazil
Weseler Straß 253, Mûnster,48151,
Germany
2, Belvedere Court, Triq Il- Qaliet, St.
Julians STJ 3255, Malta
GTECH Management P.I.
Corporation
1209 Orange Street, Wilmington, DE
19801, United States
GTECH Mexico S.A. de C.V.
Av. Constituyentes 635, 16 de
Septiembre,Mexico City, 11810,
Mexico
GTECH Southern Africa (Pty) Ltd. Ground Floor, Orbach Place, 261
Oxford Road, Illovo 2196, South
Africa
GTECH Ukraine
3-A Leiptsygska Street, Kyiv, Ukraine
GTECH WaterPlace Park
Company, LLC
1209 Orange Street, Wilmington, DE
19801, United States
GTECH West Africa Lottery
Limited
Hudson Alley Software, Inc.
I.G.T. - Argentina S.A.
I.G.T. (Australia) Pty Limited
IGT
98, Awolowo Road, Ikoyi, Nigeria
111 Eighth Avenue New York, NY
10011 Unites States
Hipolito Alferez Bouchard 4191,
Optima Park Tower, 5to piso - Munro,
Argentina
Level 5, 11 Talavera Road, Macquarie
Park, NSW 2113 Australia
9295 Prototype Drive Reno, Nevada
89113, United States
Ownership % Shareholder
100
100
100
100
100
100
IGT Global Solutions Corporation
IGT Interactive C.V.
Dreamport, Inc. (>99.99%); IGT Foreign
Holdings Corporation (<0.01%)
IGT Global Solutions Corporation
IGT Global Solutions Corporation
International Game Technology
100
Europrint Holdings Limited
100
IGT Global Solutions Corporation
100
100
100
100
Entraction Holding AB (99%); IGT
Interactive (Sweden) AB (1%)
IGT Global Services Limited
IGT Global Solutions Corporation
IGT Global Solutions Corporation
(>99.99%); IGT Foreign Holdings
Corporation (<0.01%)
100
International Game Technology PLC
99.99
IGT Malta Casino Holdings Limited
100
100
IGT Global Solutions Corporation
IGT Global Solutions Corporation
(99.700258%); IGT Foreign Holdings
Corporation (0.343297%); GTECH Latin
America Corporation (0.000006%)
100
IGT Global Solutions Corporation
100
100
100
100
100
100
100
GTECH Asia Corporation (99%); GTECH
Management P.I. Corporation (1%)
IGT Global Solutions Corporation
IGT Global Services Limited (75%); IGT
Ireland Operations Limited (25%)
IGT Global Solutions Corporation
International Game Technology (96.67%);
International Game Technology S.R.L.
(3.33%)
International Game Technology
International Game Technology
Annual Reports and Accounts 2018 Page | 141
Name of entity
IGT - UK Group Limited
IGT (Alderney 1) Limited
IGT (Alderney 2) Limited
IGT (Alderney 4) Limited
IGT (Alderney 5) Limited
IGT (Alderney 7) Limited
IGT (Alderney) Limited
Address of registered office
Quay West Trafford Wharf Road,
Trafford Park, Manchester, M17 1HH,
United Kingdom
Inchalla, Le Val, GY93UL, Alderney,
Bristish Channel Islands
Inchalla, Le Val, GY93UL, Alderney,
Bristish Channel Islands
Inchalla, Le Val, GY93UL, Alderney,
Bristish Channel Islands
Inchalla, Le Val, GY93UL, Alderney,
Bristish Channel Islands
Inchalla, Le Val, GY93UL, Alderney,
Bristish Channel Islands
Inchalla, Le Val, GY93UL, Alderney,
Bristish Channel Islands
IGT (Gibraltar) Limited
IGT (Gibraltar) Solutions Limited
f/k/a GTECH (Gibraltar) Limited
57 - 63 Line Wall Road, Gibraltar
23 Portland House, Glacis Road, GX11
1AA, Gibraltar
IGT (UK1) Limited
IGT (UK2) Limited
IGT Asia - Macau, S.A.
IGT ASIA PTE. LTD.
IGT Asiatic Development Limited
Quay West Trafford Wharf Road,
Trafford Park, Manchester, M17 1HH,
United Kingdom
Quay West Trafford Wharf Road,
Trafford Park, Manchester, M17 1HH,
United Kingdom
Avenida Comercial de Macau, nos.
251A-301, AIA Tower, 21/F, Room
2101, Macau, China
1 Changi North St 1, 02-01 and 02-03,
498789, Singapore
Jayla Place, Wickhams Cay I, Road
Town, Tortola, British Virgin Islands
IGT Australasia Corporation f/k/a
GTECH Australasia Corporation
1209 Orange Street, Wilmington, DE
19801, United States
IGT Austria GmbH f/k/a GTECH
Austria GmbH
IGT Canada Solutions ULC f/k/a
GTECH Canada ULC
Seering 13-14, 8141 Unterpremstatten,
Austria
1959 Upper Water Street, Suite 900,
Halifax B3J 3N2 Nova Scotia, Canada
IGT Colombia Ltda. f/k/a GTECH
Colombia Ltda.
Carrera 45, #108A-50, Piso 5, Bogata,
Colombia
99.99
IGT Colombia Solutions S.A.S.
IGT Commercial Services, S de R
L CV
Carrera 45, #108A-50, Piso 5, Bogata,
Colombia
Avenida Constituyentes 635, 16 de
Septiembre, Mexico City, 11810,
Mexico
100
100
Carrera 45, #108A-50, Piso 5, Bogata,
Colombia
99.99
IGT Comunicaciones Colombia
Ltda. f/k/a GTECH
Comunicaciones Colombia Ltda.
IGT Czech Republic LLC f/k/a
GTECH Czech Republic LLC
IGT Denmark Corporation f/k/a
GTECH Northern Europe
Corporation
IGT do Brasil Ltda.
1209 Orange Street, Wilmington, DE
19801, United States
1209 Orange Street, Wilmington, DE
19801, United States
Avenida das Nacoes Unidas, 14171,
15° Andar, City of Sao Paulo, Brazil
IGT Dutch Interactive LLC
IGT EMEA B.V.
160 Greentree Drive, Suite 101, Dover,
DE 19904, United States
Galwin 2, 1046 AW Amsterdam,
Netherlands
Ownership % Shareholder
100
International Game Technology
100
100
100
100
100
100
100
100
100
IGT (Alderney) Limited
IGT (Alderney) Limited
IGT (Alderney) Limited
IGT (Alderney) Limited
IGT (Alderney) Limited
IGT Interactive C.V.
IGT Interactive C.V.
GTECH (Gibraltar) Holdings Limited
IGT Interactive, Inc.
100
IGT – UK Group Limited
100
100
100
100
100
100
International Game Technology (99.92%);
IGT (0.04%); IGT International Holdings
1 LLC (0.04%)
International Game Technology
International Game Technology
IGT Global Solutions Corporation
IGT Germany Gaming GmbH
International Game Technology PLC
IGT Global Services Limited (99.998%);
IGT Comunicaciones Colombia Ltda.
(0.001%); Claudia Mendoza (0.001%)
International Game Technology PLC
IGT Global Solutions Corporation
(99.9%); IGT Foreign Holdings
Corporation (0.1%)
IGT Foreign Holdings Corporation
(>99.99%); Claudia Mendoza (<0.01%)
(Nominee share)
37
IGT Global Solutions Corporation
100
IGT Global Solutions Corporation
100
100
100
IGT International Treasury B.V. (99.99%);
IGT International Treasury Holding LLC
(0.01%)
IGT Interactive Holdings 2 C.V.
IGT-Europe B.V.
Annual Reports and Accounts 2018 Page | 142
Name of entity
IGT Estonia OÜ
IGT Far East Pte Ltd f/k/a GTECH
Far East Pte Ltd
IGT Foreign Holdings Corporation
f/k/a GTECH Foreign Holdings
Corporation
Address of registered office
Kawe Plaza, Parnu mnt 15, 10141
Tallinn, Estonia
8 Marina Boulevard, #05-02, Marina
Bay Financial Centre, 018981,
Singapore
1209 Orange Street, Wilmington, DE
19801, United States
IGT France SARL f/k/a GTECH
France SARL
IGT GAMES SAS f/k/a GTECH
SAS
19, Boulevard Malesherbes, 75008
Paris, France
Carrera 45, #108A-50, Piso 5, Bogata,
Colombia
IGT Germany Gaming GmbH f/k/a
GTECH Germany GmbH
Weseler Straß 253, Mûnster,48151,
Germany
IGT Germany GmbH f/k/a
GTECH GmbH
IGT Global Services Limited f/k/a
GTECH Global Services
Corporation Limited
Weseler Straß 253, Mûnster,48151,
Germany
Grigori Afxentiou, 27, 6021, Larnaca,
Cyprus
IGT Global Solutions Corporation
f/k/a GTECH Corporation
1209 Orange Street, Wilmington, DE
19801, United States
IGT Hong Kong Limited
IGT India Private Limited f/k/a
GTECH India Private Limited
26th Floor, No. 8 Queen's Road
Central. Hong Kong, China
2nd Floor, NCC House, Sy. No. 64,
Madhapur, Hyderabad, Kurnool,
Telangana 500081, India
IGT Indiana, LLC f/k/a GTECH
Indiana, LLC
150 West Market Street, Suite 800,
Indianapolis, IN 46204, United States
IGT Interactive (Malta) Holding
Ltd
IGT Interactive C.V.
Vincenti Buildings, 28/19 (Suite 1140)
Strait Street, Valletta VLT1432, Malta
Galwin 2, 1046 AW Amsterdam,
Netherlands
IGT Interactive Holdings 2 C.V.
Galwin 2, 1046 AW, Amsterdam,
Netherlands
IGT Interactive Network (Malta)
Holding Limited
IGT Interactive Network (Malta)
Limited
Vincenti Buildings, 28/19 (Suite 1140)
Strait Street, Valletta VLT1432, Malta
Vincenti Buildings, 28/19 (Suite 1140)
Strait Street, Valletta VLT1432, Malta
IGT Interactive, Inc.
IGT International Holdings 1 LLC
IGT International Treasury B.V.
160 Greentree Drive, Suite 101, Dover,
DE 19904, United States
160 Greentree Drive, Suite 101, Dover,
DE 19904, United States
Galwin 2, 1046 AW, Amsterdam,
Netherlands
IGT International Treasury
Holding LLC
160 Greentree Drive, Suite 101, Dover,
DE 19904, United States
Riverside One, Sir John Rogerson's
Quay, Dublin 2, Ireland
Ownership % Shareholder
Eagle Ice AB
100
100
IGT Global Services Limited
100
IGT Global Solutions Corporation
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
IGT Foreign Holdings Corporation
IGT Global Services Limited (80%); IGT
Comunicaciones Colombia Ltda. (10%);
IGT Foreign Holdings Corporation (10%)
GTECH German Holdings Corporation
GmbH
IGT Global Services Limited
IGT Global Solutions Corporation
IGT
IGT Asiatic Development Limited
IGT Global Services Limited (99.99%);
IGT Far East Pte Ltd. (0.01%)
IGT Global Solutions Corporation
IGT Interactive (Sweden) AB (99%);
Entraction Holding AB (1%)
IGT (35.8274668%); IGT Interactive
Holdings 2 C.V. (32.5220680%);
International Game Technology
(31.6504432%); IGT Dutch Interactive
LLC (0.0000220%)
IGT Interactive, Inc. (13.831555%);
International Game Technology
(86.168444%); IGT International Holdings
1 LLC (0.000001%)
IGT Interactive (Sweden) AB (99%);
Entraction Holding AB (1%)
IGT Interactive Network (Malta) Holding
Limited (99%); IGT Interactive (Sweden)
AB (1%)
International Game Technology
International Game Technology
International Game Technology
IGT International Treasury B.V.
IGT Global Services Limited
IGT Ireland Operations Limited
f/k/a GTECH Ireland Operations
Limited
IGT Italia Gaming Machines
Solutions S.r.l. f/k/a Spielo
International Italy S.r.l.
IGT Japan K.K.
Viale del Campo Boario, 56/d Roma,
Italy
100
Lottomatica Holding S.r.l.
Oak Minami-Azabu Building 2F, 3-19-
23 Minami-Azabu, Minato-ku, Tokyo,
106-0047, Japan
100
IGT International Treasury B.V.
Annual Reports and Accounts 2018 Page | 143
Name of entity
IGT Juegos S.A.S.
IGT Korea Yuhan Chaekim Hoesa
a/k/a IGT Korea LLC
IGT Latin America Corporation
f/k/a GTECH Latin America
Corporation
IGT Malta Casino Holdings
Limited f/k/a GTECH Malta
Holdings Limited
Address of registered office
Carrera 45, #108A-50, Piso 5, Bogata,
Colombia
16th, 17th Fl, Teheran-ro 134,
Gangnam-gu, Seoul, Korea
1209 Orange Street, Wilmington, DE
19801, United States
Ownership % Shareholder
100
100
80
IGT Peru Solutions S.A. (60%); IGT
Games S.A.S. (40%)
IGT Global Services Limited
IGT Global Solutions Corporation (80%);
Computers and Controls (Holdings)
Limited (20%)
2, Belvedere Court, Triq Il- Qaliet, St.
Julians STJ 3255, Malta
99.99
IGT Sweden Interactive AB
IGT Malta Casino Limited f/k/a
GTECH Malta Casino Limited
2, Belvedere Court, Triq Il- Qaliet, St.
Julians STJ 3255, Malta
IGT Mexico Lottery S. de R.L. de
C.V. f/k/a GTECH Servicios de
México, S. de R.L. de C.V.
Av. Constituyentes 635, 16 de
Septiembre, Mexico City, Mexico
11810
IGT Monaco S.A.M. f/k/a GTECH
Monaco S.A.M.
7, Rue Du Gabian, Le Gildo Pastor-
Bloc C-8 ETG-N° 22, 98000, Monaco
IGT Peru Solutions S.A. f/k/a
GTECH Peru S.A.
Av. Manuel Olguin, Officina 1001-
1002, Santiago de Surco, Lima, Peru
IGT Poland Sp. z.o.o. f/k/a
GTECH Poland Sp. z o.o.
AL. JEROZOLIMSKIE, nr 92, 00-807,
Warsaw, Poland
IGT Slovakia Corporation f/k/a
GTECH Slovakia Corporation
IGT SOLUTIONS CHILE SpA
IGT Spain Lottery, S.LU. f/k/a
GTECH Global Lottery S.L.
IGT Spain Operations, S.A. f/k/a
GTECH Spain S.A.
IGT SWEDEN AB f/k/a GTECH
Sweden AB
IGT Sweden Interactive AB f/k/a
GTECH Sweden Interactive AB
f/k/a Boss Media AB
IGT Sweden Investment AB f/k/a
GTECH Sweden Investment AB
IGT Technology Development
(Beijing) Co. Ltd.
IGT Turkey Teknik Hizmetler Ve
Musavirlik Anonim f/k/a GTECH
Avrasya Teknik Hizmetler Ve
Musavirlik A.S.
IGT U.K. Limited f/k/a GTECH
U.K. Limited
IGT UK Games Limited f/k/a
GTECH UK Games Limited
IGT UK Interactive Holdings
Limited f/k/a GTECH Sports
Betting Solutions Limited
IGT UK Interactive Limited f/k/a
GTECH UK Interactive Limited
IGT VIA DOMINICAN
REPUBLIC, SAS f/k/a GTECH
VIA DR, SAS
1209 Orange Street, Wilmington, DE
19801, United States
Avenida El Rosal N 5.108 Santiago,
Chile 8580000
Edificio Avant BCN, Selva 12, Planta
1, Modula A2, El Prat de Llobregat,
Barcelona 08820, Spain
El Prat de Llobregat, Calle Selva 12,
planta 1a, Modulo A2 08820,
Barcelona, Spain
Halsingegatan 40 12tr, 113 43
Stockholm, Sweden
Box 3243, 350 53 Vaxjo, Sweden
Honnorsgatan 2, Vaxjo 35053, Sweden
11F, Viva Plaza, No. 29 Suzhou Street,
Haidian District, Beijing 100080, P.R.
China
Nasuh Akar Mahallesi. Turkocagi cad.
1400. sok. No: 34/2, Balgat, Ankara,
Turkey
1st Floor Building, 3 Croxley Green
Business Park, Hatters Lane, Watford,
WD18 8YG, United Kingdom
3rd Floor 10 Finsbury Square, London,
EC2A 1AF, United Kingdom
3rd Floor 10 Finsbury Square, London,
EC2A 1AF, United Kingdom
3rd Floor 10 Finsbury Square, London,
EC2A 1AF, United Kingdom
Avenida Estrella Sadhala, Esquina
Bartolome Colon, Edificio Hache,
Primer Piso, Santiago, Dominican
Republic
99.99
IGT Malta Casino Holdings Limited
100
98
100
100
100
100
100
IGT Global Solutions Corporation
(99.9%); IGT Foreign Holdings
Corporation Holdings Corporation (0.1%)
IGT Austria GmbH (95%); Walter Bugno
(1%), Catherine Hageman(1%);
Abdelhalim Stri (1%)
IGT Germany Gaming GmbH
(99.9999%); GTECH German Holdings
Corporation GmbH (0.0001%)
IGT Global Solutions Corporation
IGT Global Solutions Corporation
International Game Technology PLC
IGT Global Services Limited
100
IGT Spain Lottery S.L.U.
100
100
100
100
IGT Global Services Limited
IGT Global Services Limited
IGT Sweden Interactive AB
IGT Hong Kong Limited
99.9
IGT Global Solutions Corporation
(99.9%); Ufuk Ozlu (0.1%)
100
IGT Global Solutions Corporation
100
100
100
100
IGT Sweden Interactive AB
IGT Global Services Limited
IGT UK Interactive Holdings Limited
IGT Global Services Limited (99.9666%);
IGT Ireland Operations Limited
(0.0333%)
Annual Reports and Accounts 2018 Page | 144
Name of entity
IGT Worldwide Services
Corporation f/k/a GTECH
Worldwide Services Corporation
Address of registered office
1209 Orange Street, Wilmington, DE
19801, United States
Ownership % Shareholder
100
IGT Global Solutions Corporation
IGT-Canada Inc.
IGT-China, Inc.
IGT-Europe B.V.
IGT-Íslandi ehf. (IGT-Iceland plc)
IGT-Latvia SIA
IGT-Mexicana de Juegos, S. de
R.L. de C.V.
IGT-UK Gaming Limited
Innoka Oy
Interactive Games International
Limited
International Game Technology
600-1134 Grande Allee O, bureau 600,
Quebec (Quebec) G1S1E5, Canada
160 Greentree Drive, Suite 101, Dover,
DE 19904, United States
Galwin 2, 1046 AW Amsterdam,
Netherlands
Sigtuni 3800, Selfoss, Iceland
Krisjana Valdemara Street 33-19. Riga,
Latvia
Andres Bello 45 Piso 14, Col. Polanco,
Chapultepec, Deleg. Miguel Hidalgo,
D.F.C.P. 11560, Mexico
Quay West, Trafford Wharf Road,
Trafford Park, Manchester, M17 1HH,
United Kingdom
Aku Korhosen tie 4, 00440 Helsinki,
Finland
1 Bridgewater Place, Water Lane,
Leeds, West Yorkshire LS11 5QR
9295 Prototype Drive Reno, Nevada
89113, United States
International Game Technology
(NZ) Limited
Birchwood Park, Unit 4, 483 Hutt
Road, Lower Hutt, New Zeland
International Game Technology
España, S.L.
International Game Technology
S.R.L.
International Game Technology
Services Limited
International Game Technology-
Africa (Pty) Ltd.
LB Participacões E Loterias Ltda.
LB Produtos Lotéricos E
Licenciamentos Ltda.
Pza de Pablo Ruiz Picasso 1, Torre
Picasso, 5, 28020, Madrid, Spain
Av. Pardo y Aliaga No. 695, Oficina
11, distrito de San Isidro, provincia y
departamento de Lima
27 Grigori, 6021, Larnaca, Cyprus
2 Brands Hatch Close, Corner
Indianapolis St, Kyalami Business
Park, Midrand 1685, South Africa
Calcada das Margaridas No. 163 Sala
02, CV 1237 Centro Comercial de
Alphaville, Barueri Sao Paulo Brazil
06453-038
Calcada das Margaridas No. 163 Sala
02, CV 1237 Centro Comercial de
Alphaville, Barueri Sao Paulo Brazil
06453-038
Leeward Islands Lottery Holding
Company, Inc.
C18, The Sands Complex, Bay Road,
Basseterre, St. Christopher, St. Kitts
LIS Istituto di Pagamento S.p.A.
Lotterie Nazionali S.r.l.
Lottery Equipment Company
LOTTOITALIA S.r.l.
Lottomatica Giochi e
Partecipazioni S.r.l.
Lottomatica Holding S.r.l.
Lottomatica Italia Servizi S.p.A.
Via Staro, 4 - Milano, Italy
Viale del Campo Boario, 56/d Roma,
Italy
c/o Shevchenko, Didkovskiy and
Parnters LLC, 2-A Kostyantynivska
Street, 5th Floor, Kyiv, Ukraine
Viale del Campo Boario, 56/d Roma,
Italy
Viale del Campo Boario, 56/d Roma,
Italy
Viale del Campo Boario, 56/d Roma,
Italy
Viale del Campo Boario, 56/d Roma,
Italy
100
100
100
100
100
100
International Game Technology
International Game Technology
International Game Technology
International Game Technology
International Game Technology
IGT (99.99%); International Game
Technology (0.01%)
100
IGT – UK Group Limited
81
100
100
100
100
100
100
100
IGT Global Services Limited
Europrint Holdings Ltd.
International Game Technology PLC
I.G.T. (Australia) Pty Limited
IGT-Europe B.V.
IGT (99.991%); IGT International
Holdings 1 LLC (0.009%)
International Game Technology PLC
IGT International Treasury B.V. (74.9%);
IGT Empowerment Trust (25.1%)
99.99
Lottomatica Giochi e Partecipazioni
(>99.99%); Randy Simoes (<0.01%)
99.99
LB Participacões E Loterias Ltda.
(>99.99%); Randy Simoes (<0.01%)
100
100
64
100
IGT Global Services Limited
Lottomatica Italia Servizi S.p.A.
Lottomatica Holding S.r.l.
GTECH Asia Corporation (99.994%);
GTECH Management P.I. Corporation
(0.006%)
61.5
Lottomatica Holding S.r.l.
100
100
100
International Game Technology PLC
International Game Technology PLC
Lottomatica Holding S.r.l.
Annual Reports and Accounts 2018 Page | 145
Name of entity
Lottomatica Scommesse S.r.l.
Lottomatica Videolot Rete S.p.A.
Address of registered office
Viale del Campo Boario, 56/d Roma,
Italy
Viale del Campo Boario, 56/d Roma,
Italy
Loxley GTECH Technology
Co., Ltd.
102 Na Ranong Road, Klongtoey,
Bangkok Metropolis, Thailand
Northstar Lottery Group, LLC
Northstar New Jersey Holding
Company, LLC
208 South LaSalle Street, Suite 814,
Chicago, IL 60601, United States
820 Bear Tavern Road, West Trenton,
NJ 08628, United States
Ownership % Shareholder
100
100
49
80
Lottomatica Holding S.r.l.
Lottomatica Holding S.r.l.
IGT Global Services Limited (10%); IGT
Global Solutions Corporation (39%)
IGT Global Solutions Corporation
50.15
IGT Global Solutions Corporation
Northstar New Jersey Lottery
Group, LLC
820 Bear Tavern Road, West Trenton,
NJ 08628, United States
82.31
Northstar New Jersey Lottery Holding
Company, LLC
Northstar SupplyCo New Jersey,
LLC
Online Transaction Technologies
S.à.r.l. à Associé Unique
Optima Gaming Service S.r.l.
Orbita Sp. z o.o.
Oy IGT Finland AB f/k/a Oy
GTECH Finland Ab
PCC Giochi e Servizi S.p.A.
Playyoo SA
Poker Provider Limited
Powerhouse Technologies, Inc.
Probability (Gibraltar) Limited
Prodigal Lottery Services, N.V.
820 Bear Tavern Road, West Trenton,
NJ 08628, United States
Twin Center, Tour A Angle Bd
Zerktouni et Al Massira El Khadra,
Casablanca, Morocco
Viale del Campo Boario, 56/d Roma,
Italy
ul. KAMIENNA, nr 21, KRAKOW,
31-403, Poland
c/o Veikkaus Oy, Karhunkierros 4,
01009 Veikkaus, Vantaa, Finland
Viale del Campo Boario, 56/d Roma,
Italy
Via Cantonale 19, Lugano 6900,
Switzerland
Vincenti Buildings, 28/19 (Suite 1140)
Strait Street, Valletta VLT1432, Malta
6355 South Buffalo Drive, Las Vegas,
Nevada, 89113, United States
Suite 23, Portland House Glacis Road,
GX11 1AA, Gibraltar
Walter J.A. Nisbeth Road, 63
Philipsburg, St. Maarten
Retail Display and Service
Handlers, LLC
1209 Orange Street, Wilmington, DE
19801, United States
SB Industria E Comercio Ltda.
SED Multitel S.r.l.
Servicios Corporativos y de
Administracion, S. de R.L. de C.V.
Siam GTECH Company Limited
Rua Rio Pauini 30, A, Quadra F,
conjunto Manauense, Bairro Nossa
Senhora das Graças, CEP 69053-001,
Cidade de Manaus, Estado do
Amazonas
Viale del Campo Boario, 56/d Roma,
Italy
Andres Bello 45 Piso 14, Col. Polanco,
Chapultepec, Deleg. Miguel Hidalgo,
D.F.C.P. 11560, Mexico
No. 102, 16th Floor, Na Ranong Road,
Klongtoey District, Bangkok, Thailand
Spielo International Argentina S.r.l. Paraguay 1365, Piso 4 Officiana 28,
C1057AAU Buenos Aires, Argentina
St. Kitts and Nevis Lottery
Company, Ltd.
C18, The Sands Complex, Bay Road,
Basseterre, St. Kitts
Technology Risk Management
Services, Inc.
UTE LOGISTA IGT f/k/a UTE
Logista-GTECH, Law 18/1982,
No. 1
VIA TECH Servicios SpA
1209 Orange Street, Wilmington, DE
19801, United States
Trigo n° 39, Polfgono Industrial
Polvoranca, Legan6s, Madrid, 18104
Spain
Isadora Goyenechea, 3447 Piso 19,
2215-21, Las Condes, Santiago, Chile
70
IGT Global Solutions Corporation
100
IGT Foreign Holdings Corporation
100
100
100
100
100
100
100
100
100
100
100
100
100
Lottomatica Videolot Rete S.p.A.
IGT Global Solutions Corporation
IGT Global Solutions Corporation
Lottomatica Holding S.r.l.
IGT UK Interactive Limited
Gaming Productions Holding Limited
(99%); IGT Interactive (Sweden) AB (1%)
International Game Technology
IGT UK Interactive Limited
Leeward Islands Lottery Holding
Company, Inc.
IGT Global Solutions Corporation
IGT Global Solutions Corporation
99.99%); IGT Foreign Holdings
(
0.01%)
Corporation (
˃
˂
Lottomatica Holding S.r.l.
International Game Technology (99.97%);
IGT (0.03%)
99.965
IGT Global Solutions Corporation
86.54
IGT Germany Gaming GmbH
100
100
50
Leeward Islands Lottery Holding
Company, Inc.
IGT Global Solutions Corporation
IGT Spain Lottery S.L.U.
100
IGT Global Services Limited
Annual Reports and Accounts 2018 Page | 146
Name of entity
VLC, Inc.
Zest Gaming España S.L.
Address of registered office
6355 South Buffalo Drive, Las Vegas,
Nevada, 89113, United States
Calle Caspe 155-157 Barcelona, 8013,
Spain
ZEST GAMING MEXICO, S.A.
DE C.V.
Campos Eliseos169, Col. Polanco,
Mexico City, 11560, Mexico
Joint Ventures
CLS-GTECH Company Limited
Ringmaster S.r.l.
Telling IGT Information
Technology (Shenzhen) Co., Ltd.
Associates
Yeonama Holdings Co. Limited
PO Box 957, Offshore Incorporations
Centre, Road Town, Tortola, British
Virgin Islands
Corso Francia, 110 - Torino, Italy
503D, Tian An Chuangxin Keji Square
(Phase II) East Block, the Interchange
of Binhe Road and Xiangmihu Road,
Shatou Street, Futian District,
Shenzhen, China
Ownership % Shareholder
100
100
100
50
50
49
Powerhouse Technologies, Inc.
International Game Technology PLC
International Game Technology PLC
(99%); Zest Gaming España S.L. (1%)
IGT Global Services Limited
Lottomatica Holding S.r.l.
IGT Global Services Limited
Nicosia Tower Center, 8th Floor,
Vyronos 36, Nicosia 1506, Cyprus
30
IGT Global Services Limited
Annual Reports and Accounts 2018 Page | 147
FINANCIAL STATEMENTS
INTERNATIONAL GAME TECHNOLOGY PLC
INDEX TO PARENT COMPANY FINANCIAL STATEMENTS
Parent Balance Sheet at December 31, 2018 and 2017 ......................................................................................................
Parent Statement of Operations for the years ended December 31, 2018 and 2017 ...........................................................
Parent Statement of Comprehensive Income for the years ended December 31, 2018 and 2017 .......................................
Parent Statement of Cash Flows for the years ended December 31, 2018 and 2017 ..........................................................
Parent Statement of Shareholders' Equity for the years ended December 31, 2018 and 2017 ...........................................
Notes to the Parent Financial Statements ...........................................................................................................................
149
150
151
152
153
154
Annual Reports and Accounts 2018 Page | 148
International Game Technology PLC
Parent Balance Sheet
($ thousands)
Notes
2018
2017
December 31,
Assets
Current assets:
Cash and cash equivalents
Other current assets
Income tax receivable
Current financial assets
Receivables from related parties
Loans receivable from related parties
Total current assets
Property, plant and equipment, net
Non-current financial assets
Investments in subsidiaries
Loans receivable from related parties
Total non-current assets
Total assets
Liabilities and shareholders' equity
Current liabilities:
Accounts payable
Other current liabilities
Current portion of long-term debt
Short-term borrowings
Loans payable to related parties
Payables to related parties
Current financial liabilities
Income taxes payable
Total current liabilities
Long-term debt, less current portion
Loans payable to related parties
Non-current financial liabilities
Total non-current liabilities
Total liabilities
Shareholders' equity
Share capital
Share premium
Retained earnings
Other reserves
Total shareholders' equity
Total liabilities and shareholders' equity
The accompanying notes are an integral part of these Parent financial statements.
5
5
4
5
6
6
5
5
6
5
12,827
2,873
1,031
6,565
110,202
457,143
590,641
1,379
13,956
4,504,754
7,456,989
11,977,078
12,567,719
10,671
140,630
—
29,007
83,043
518,136
3,244
2,991
787,722
7,806,987
52,746
20,586
7,880,319
8,668,041
20,421
21,002
3,715,278
142,977
3,899,678
12,567,719
692,894
2,882
1,080
479
34,890
551,959
1,284,184
1,724
19,093
4,244,416
6,793,337
11,058,570
12,342,754
13,704
179,205
599,061
—
260,498
118,386
5,118
—
1,175,972
7,351,652
126,582
16,086
7,494,320
8,670,292
20,344
21,002
3,480,825
150,291
3,672,462
12,342,754
The Parent financial statements were approved by the Board of Directors on April 12, 2019 and signed on its behalf on April 12, 2019 by:
Marco Sala
Chief Executive Officer
Company registration number: 09127533
Annual Reports and Accounts 2018 Page | 149
International Game Technology PLC
Parent Statement of Operations
($ thousands)
Selling, general and administrative
Transaction expense, net
Total operating expenses
Operating loss
Interest income
Interest expense
Related party interest income, net
Foreign exchange gain (loss), net
Other expense, net
Related party other income, net
Total non-operating income
Income before provision for income taxes
Provision for income taxes
Net income
The accompanying notes are an integral part of these Parent financial statements.
For the year ended
December 31,
Notes
2018
2017
43,751
42
43,793
42,076
483
42,559
(43,793 )
(42,559 )
943
(391,253 )
435,064
159,925
(49,794 )
295,401
450,286
67
(394,504 )
422,306
(388,962 )
(2,266 )
462,049
98,690
406,493
56,131
19,655
5,400
386,838
50,731
6
5
11
5
7
Annual Reports and Accounts 2018 Page | 150
International Game Technology PLC
Parent Statement of Comprehensive Income
($ thousands)
Net income
Foreign currency translation adjustments
Unrealized loss on available-for-sale investments and interest rate swaps
Other comprehensive loss1
Total comprehensive income
1. All items in other comprehensive loss will be reclassified subsequently to profit or loss when specific conditions are met.
The accompanying notes are an integral part of these Parent financial statements.
For the year ended
December 31,
2018
386,838
2017
50,731
1,799
(9,113 )
(7,314 )
1,210
(2,111 )
(901 )
379,524
49,830
Annual Reports and Accounts 2018 Page | 151
International Game Technology PLC
Parent Statement of Cash Flows
($ thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
For the year ended
December 31,
Notes
2018
2017
386,838
50,731
Interest expense
Loss on extinguishment of debt
Debt issuance cost amortization
Related party interest expense
Stock-based compensation expense
Zest contingent consideration
Foreign exchange (gain) loss, net
Related party interest income
Other
Changes in operating assets and liabilities:
Amounts due from/to related parties
Accounts payable
Other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities
Related party loans receivable, net
Investment in subsidiaries
Capital expenditures
Other
Net cash (used in) provided by investing activities
Cash flows from financing activities
Principal payments on long-term debt
Interest paid
Related party loans payable, net
Dividends paid
Payments made in connection with early termination of debt
Debt issuance costs paid
Related party interest paid
Net proceeds from short-term borrowings
Related party interest received
Proceeds from issuance of long-term debt
Other
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Effect of exchange rate changes on cash
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
5
10
5
367,673
49,598
23,580
12,197
6,613
(4,975 )
(159,925 )
(447,261 )
790
313,483
(3,217 )
(177 )
545,217
(697,285 )
(250,000 )
(1,527 )
—
(948,812 )
(1,658,753 )
(405,646 )
(245,268 )
(163,236 )
(42,355 )
(17,033 )
(7,429 )
29,007
508,990
1,697,761
(344 )
(304,306 )
(707,901 )
27,834
692,894
12,827
367,278
—
27,226
18,536
3,447
(2,059 )
388,962
(440,842 )
278
57,084
1,584
(4,845 )
467,380
418,219
(252,289 )
(3,332 )
67
162,665
(101,533 )
(346,730 )
(987,168 )
(162,528 )
—
(16,378 )
—
—
341,431
1,293,190
685
20,969
651,014
11,976
29,904
692,894
The accompanying notes are an integral part of these Parent financial statements.
Annual Reports and Accounts 2018 Page | 152
International Game Technology PLC
Parent Statement of Shareholders' Equity
($ thousands)
Share Capital
Share Premium
Retained
Earnings
Other Reserves
Total Equity
20,228
18,930
3,605,004
151,192
3,795,354
—
—
—
—
—
95
21
—
—
20,344
—
—
—
—
62
15
—
—
20,421
—
—
—
—
2,072
—
—
—
—
21,002
—
—
—
—
—
—
—
—
21,002
50,731
—
50,731
(162,528 )
(2,072 )
(11,100 )
(3,776 )
3,447
1,119
3,480,825
386,838
—
386,838
(163,236 )
(10,633 )
(1,695 )
6,613
16,566
3,715,278
—
(901 )
(901 )
—
—
—
—
—
—
150,291
—
(7,314 )
(7,314 )
—
—
—
—
—
142,977
50,731
(901 )
49,830
—
(162,528 )
—
(11,005 )
(3,755 )
3,447
1,119
3,672,462
386,838
(7,314 )
379,524
(163,236 )
(10,571 )
(1,680 )
6,613
16,566
3,899,678
Balance at December 31, 2016
Net income
Other comprehensive income
Total comprehensive income
Dividend distribution
Net share settlement reclassification
Shares issued under share award plans
Shares issued upon exercise of share options
Stock-based compensation expense
Non-cash investment in subsidiaries
Balance at December 31, 2017
Net income
Other comprehensive income
Total comprehensive income
Dividend distribution
Shares issued under share award plans
Shares issued upon exercise of share options
Stock-based compensation expense
Non-cash investment in subsidiaries
Balance at December 31, 2018
The accompanying notes are an integral part of these Parent financial statements.
Annual Reports and Accounts 2018 Page | 153
Notes to the Parent Financial Statements
1. Description of Business
International Game Technology PLC, a public limited company organized under the laws of England and Wales (the "Parent"), has
its corporate headquarters at 66 Seymour Street, 2nd floor, London, W1H 5BT, United Kingdom. The Parent is the successor to
GTECH S.p.A., a società per azioni incorporated under the laws of Italy ("GTECH") and the sole stockholder of International Game
Technology, a Nevada corporation ("IGT"). All references to the "Company" refer to the business and operations of the Parent and
its consolidated subsidiaries.
The principal activities of the Parent are to make investments and provide loans to its consolidated subsidiaries.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying financial statements and notes of the Parent, prepared for statutory purposes, have been prepared in accordance
with International Financial Reporting Standards ("IFRS") as adopted by the European Union and the Companies Act 2006
applicable to companies reporting under IFRS. The Parent financial statements are stated in thousands of U.S. dollars (except share
and per share data) unless otherwise indicated.
Significant Accounting Policies
The accounting policies used in the preparation of the Parent financial statements are the same as those used in the preparation of
the consolidated financial statements (in accordance with the Companies Act 2006). Refer to Note 2, Summary of Significant
Accounting Policies, in the notes to the consolidated financial statements included herein. In addition to those accounting policies,
the following accounting policy applies to the Parent financial statements.
Investments in Subsidiaries
Investments in subsidiaries are held at cost less accumulated impairment losses, if any.
Notes to the Consolidated Financial Statements
Some of the information included in the notes to the consolidated financial statements is directly relevant to the financial
statements of the Parent. Refer to the following notes to the consolidated financial statements included herein:
• Note 10, Financial Risk Management
• Note 15, Debt
• Note 19, Shareholders' Equity
• Note 24, Other Expense, Net
• Note 26, Related Party Transactions
Annual Reports and Accounts 2018 Page | 154
3. Fair Value of Financial Assets and Liabilities
Financial Assets and Liabilities Carried at Fair Value
The following tables represent the fair value hierarchy for financial assets and liabilities measured at fair value at December 31,
2018 and 2017:
($ thousands)
Derivative Assets
Available-for-Sale Investments
Derivative Liabilities
($ thousands)
Available-for-Sale Investments
Derivative Liabilities
Contingent Consideration
Level 1
Level 2
Level 3
December 31, 2018
—
4,447
—
4,100
—
21,807
Total Fair Value
4,100
4,447
21,807
—
—
—
Level 1
Level 2
Level 3
December 31, 2017
10,519
—
—
—
14,953
—
Total Fair Value
10,519
14,953
7,755
—
—
7,755
Valuation Techniques and Balance Sheet Presentation
Derivative assets and liabilities classified as Level 2 in the table above 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, LIBOR rates, among others.
Certain of our available-for-sale investments are carried at fair value and were valued using quoted market prices. Available-for-sale
investments are presented as other non-current assets in the Parent's balance sheet.
Assets and Liabilities Not Carried at Fair Value
The following tables represent the fair value hierarchy for assets and liabilities not measured at fair value at December 31, 2018
and 2017:
($ thousands)
Debt
Available-for-Sale Investments
($ thousands)
Debt
Available-for-Sale Investments
Carrying
Value
7,825,767
—
Carrying
Value
7,965,830
8,549
December 31, 2018
Level 1
—
—
Level 2
7,915,604
—
Level 3
—
9,508
December 31, 2017
Level 1
—
—
Level 2
8,527,225
—
Level 3
—
8,549
Total Fair
Value
7,915,604
9,508
Total Fair
Value
8,527,225
8,549
Valuation Techniques and Balance Sheet Presentation
Certain of our available-for-sale investments are carried at cost (which approximates fair value) and are presented as other non-
current assets in the Parent's balance sheet.
Debt is categorized within Level 2 of the fair value hierarchy and valued using quoted market prices, dealer quotes, or current
interest rates. Carrying values in the table exclude swap adjustments.
Annual Reports and Accounts 2018 Page | 155
4. Investments in Subsidiaries
($ thousands)
International Game Technology
Lottomatica Holding S.r.l.
Other
Country of
Incorporation
United States
Italy
December 31,
2018
3,422,908
836,439
245,407
4,504,754
2017
3,169,749
834,934
239,733
4,244,416
For a complete list of the Parent's subsidiaries, refer to Note 29, The Parent's Directly and Indirectly Owned Subsidiaries, in the
notes to the consolidated financial statements included herein.
5. Related Party Transactions
The companies listed below are considered related parties because they are either a directly or indirectly owned subsidiary of the
Parent. Loans receivable from related parties and loans payable to related parties are unsecured, and include interest receivables and
interest payables as current in the tables below.
Loans Receivable
($ thousands)
Loans receivable from related parties - current
IGT Global Solutions Corporation
IGT
International Game Technology
Lottomatica Holding S.r.l.
Other
Loans receivable from related parties - non-current
IGT
International Game Technology
Lottomatica Holding S.r.l.
Other
December 31,
2018
2017
364,870
38,441
22,841
14,262
16,729
457,143
370,301
39,859
86,843
26,190
28,766
551,959
3,538,704
2,461,013
1,140,564
316,708
7,456,989
3,538,704
2,590,013
475,074
189,546
6,793,337
Details of the material loans receivable between the Parent and its subsidiaries at December 31, 2018 are as follows:
($ thousands)
IGT Global Solutions Corporation
IGT
International Game Technology
International Game Technology
International Game Technology
Lottomatica Holding S.r.l.
Lottomatica Holding S.r.l.
Interest Rate
Maturity
2.000%
6.500%
6.500%
July 31, 2019
April 30, 2027
April 7, 2027
6.500%
May 13, 2027
5.625%
5.100%
4.430%
April 7, 2020
January 28, 2025
April 13, 2028
Principal
Balance
Outstanding
314,875
3,538,704
1,600,000
627,247
233,766
453,564
687,000
For the loans receivable described above, interest is received in arrears annually on the maturity date anniversary. The loans,
together with all accrued and unpaid interest, are due in full on the maturity date.
Annual Reports and Accounts 2018 Page | 156
Loans Payable
($ thousands)
Loans payable to related parties - current
IGT (Alderney 4) Limited
IGT-Mexicana de Juegos, S. de R.L. d S.V.
IGT Global Services Limited
IGT Canada Solutions ULC
Other
Loans payable to related parties - non-current
IGT-Canada Inc.
IGT Global Services Limited
Other
Amounts Due From/To Related Parties
($ thousands)
Amounts due from related parties - current
IGT Global Solutions Corporation
IGT (Gilbraltar) Solutions Limited
IGT UK Interactive Limited
IGT (UK2) Limited
Other
Amounts due to related parties - current
Lottomatica Holding S.r.l.
IGT Global Services Limited
IGT Germany Gaming GmbH
Other
December 31,
2018
2017
23,236
4,091
—
—
55,716
83,043
52,746
—
—
52,746
23,890
22,250
77,601
37,016
99,741
260,498
52,732
73,698
152
126,582
December 31,
2018
2017
35,460
23,331
20,479
18,300
12,632
110,202
200,323
193,542
28,731
95,540
518,136
22,876
—
—
—
12,014
34,890
—
94,758
1,973
21,655
118,386
Amounts due from/to related parties primarily relate to cash pooling arrangements between the Parent and its subsidiaries.
Annual Reports and Accounts 2018 Page | 157
Related Party Income Statement Activity
($ thousands)
Related party interest income, net
Interest income on loans receivable
Interest expense on loans payable
Related party other income, net
Other income
Other expense
Dividends
6. Debt
($ thousands)
4.125% Senior Secured Notes due February 2020
5.625% Senior Secured Notes due February 2020
4.750% Senior Secured Notes due March 2020
6.250% Senior Secured Notes due February 2022
4.750% Senior Secured Notes due February 2023
3.500% Senior Secured Notes due July 2024
6.500% Senior Secured Notes due February 2025
6.250% Senior Secured Notes due January 2027
Senior Secured Notes, long-term
Revolving Credit Facilities due July 2021
Term Loan Facilities due January 2023
Long-term debt, less current portion
6.625% Senior Secured Notes due February 2018
Current portion of long-term debt
Short-term borrowings
Total Debt
For the year ended
December 31,
2018
2017
447,261
(12,197 )
435,064
19,311
(25,780 )
301,870
295,401
440,842
(18,536 )
422,306
22,058
(23,649 )
463,640
462,049
December 31,
2018
499,167
—
437,823
1,469,609
964,730
567,179
1,088,385
742,667
5,769,560
332,032
1,705,395
7,806,987
2017
833,655
595,767
584,337
1,470,075
1,008,601
—
1,086,913
—
5,579,348
(13,058 )
1,785,362
7,351,652
—
—
599,061
599,061
29,007
—
7,835,994
7,950,713
Annual Reports and Accounts 2018 Page | 158
The principal balance of each debt obligation and a reconciliation to the balance sheet is as follows:
($ thousands)
4.125% Senior Secured Notes due February 2020
4.750% Senior Secured Notes due March 2020
6.250% Senior Secured Notes due February 2022
4.750% Senior Secured Notes due February 2023
3.500% Senior Secured Notes due July 2024
6.500% Senior Secured Notes due February 2025
6.250% Senior Secured Notes due January 2027
Senior Secured Notes, long-term
Revolving Credit Facilities due July 2021
Term Loan Facilities due January 2023
Long-term debt, less current portion
December 31, 2018
Principal
Debt issuance
cost, net
Swap
501,058
444,146
1,500,000
973,250
572,500
1,100,000
750,000
5,840,954
343,158
1,717,500
7,901,612
(1,891 )
(6,323 )
(11,611 )
(8,520 )
(5,321 )
(11,615 )
(7,333 )
(52,614 )
(11,126 )
(12,105 )
(75,845 )
—
—
(18,780 )
—
—
—
—
(18,780 )
—
—
(18,780 )
Total
499,167
437,823
1,469,609
964,730
567,179
1,088,385
742,667
5,769,560
332,032
1,705,395
7,806,987
Total Debt
7,901,612
(75,845 )
(18,780 )
7,806,987
($ thousands)
4.125% Senior Secured Notes due February 2020
5.625% Senior Secured Notes due February 2020
4.750% Senior Secured Notes due March 2020
6.250% Senior Secured Notes due February 2022
4.750% Senior Secured Notes due February 2023
6.500% Senior Secured Notes due February 2025
Senior Secured Notes, long-term
Revolving Credit Facilities due July 2021
Term Loan Facilities due January 2023
Long-term debt, less current portion
6.625% Senior Secured Notes due February 2018
Current portion of long-term debt
Total Debt
December 31, 2017
Principal
Debt issuance
cost, net
Swap
839,510
600,000
599,650
1,500,000
1,019,405
1,100,000
5,658,565
—
1,798,950
7,457,515
599,650
599,650
8,057,165
(5,855 )
(4,233 )
(15,313 )
(14,808 )
(10,804 )
(13,087 )
(64,100 )
(13,058 )
(13,588 )
(90,746 )
(589 )
(589 )
(91,335 )
—
—
—
(15,117 )
—
—
(15,117 )
—
—
(15,117 )
—
—
(15,117 )
Total
833,655
595,767
584,337
1,470,075
1,008,601
1,086,913
5,579,348
(13,058 )
1,785,362
7,351,652
599,061
599,061
7,950,713
Annual Reports and Accounts 2018 Page | 159
Principal payments for each debt obligation for the next five years and thereafter are as follows:
Calendar year
($ thousands)
2019
2020
2021
2022
2023
4.125% Senior Secured
Notes due February 2020
4.750% Senior Secured
Notes due March 2020
6.250% Senior Secured
Notes due February 2022
4.750% Senior Secured
Notes due February 2023
3.500% Senior Secured
Notes due July 2024
6.500% Senior Secured
Notes due February 2025
6.250% Senior Secured
Notes due January 2027
Senior Secured Notes,
long-term
Revolving Credit Facilities
due July 2021
Term Loan Facilities due
January 2023
Total Principal Payments
—
—
—
—
—
—
—
—
—
—
501,058
444,146
—
—
—
—
—
1,500,000
2024 and
thereafter
Total
—
—
—
—
—
501,058
444,146
—
1,500,000
—
—
—
—
—
—
—
—
—
—
—
—
—
973,250
—
973,250
—
572,500
572,500
—
1,100,000
1,100,000
—
750,000
750,000
945,204
—
1,500,000
973,250
2,422,500
5,840,954
—
343,158
—
—
—
343,158
366,400
366,400
366,400
618,300
—
1,717,500
—
1,311,604
709,558
1,866,400
1,591,550
2,422,500
7,901,612
Annual Reports and Accounts 2018 Page | 160
Senior Secured Notes
The key terms of the Parent's senior secured notes (the "Notes"), which are rated Ba2 and BB+ by Moody’s Investor Service
(“Moody’s”) and Standard & Poor’s Ratings Services (“S&P”), respectively, are as follows:
Description
Principal
(thousands)
Effective
Interest Rate
4.125% Senior Secured Notes due February 2020
$437,605
4.47%
4.750% Senior Secured Notes due March 2020
1
€387,900
6.00%
6.250% Senior Secured Notes due February 2022
$1,500,000
6.52%
4.750% Senior Secured Notes due February 2023
€850,000
4.98%
3.500% Senior Secured Notes due July 2024
€500,000
3.68%
6.500% Senior Secured Notes due February 2025
$1,100,000
6.71%
6.250% Senior Secured Notes due January 2027
$750,000
6.41%
Redemption
Interest payments
+
++
+++
+++
+++
+++
+++
Semi-annually in
arrears
Annually in
arrears
Semi-annually in
arrears
Semi-annually in
arrears
Semi-annually in
arrears
Semi-annually in
arrears
Semi-annually in
arrears
The Parent is the issuer of each of the Notes and certain subsidiaries of the Parent are the guarantors. Collateral for each of the Notes
is made up of ownership interests of the Parent in certain of its direct subsidiaries and certain intercompany loans with principal
balances in excess of $10 million.
+
++
The Parent may redeem in whole or in part at any time prior to the date which is three 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 their principal amount together with accrued and unpaid interest. The Parent may also
redeem in whole but not in part at 100% of their principal amount together with accrued and unpaid interest in connection
with certain tax events. Upon the occurrence of certain events, the Parent will be required to offer to repurchase all of the
notes at a price equal to 101% of their principal amount together with accrued and unpaid interest.
The Parent may redeem in whole but not 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. The Parent may also redeem in whole but not in part at 100% of
their principal amount together with accrued and unpaid interest in connection with certain tax events. Upon the occurrence
of certain events, the Parent will be required to redeem in whole or in part at 100% 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 their principal amount together with accrued and unpaid interest. The Parent may also
redeem in whole but not in part at 100% of their principal amount together with accrued and unpaid interest in connection
with certain tax events. Upon the occurrence of certain events, the Parent will be required to offer to repurchase all of the
notes at a price equal to 101% of their principal amount together with accrued and unpaid interest.
1 Subject to a 1.25% per annum decrease in the event of an upgrade in ratings by Moody’s and S&P.
The Notes contain customary covenants and events of default. At December 31, 2018, the issuers were in compliance with all
covenants.
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, 2018, there was $29.0 million in borrowings under these facilities with an
effective interest rate of 3.64% At December 31, 2017, there were no borrowings under these facilities.
Annual Reports and Accounts 2018 Page | 161
Interest Expense
Interest expense is composed of the following:
($ thousands)
Senior Secured Notes
Term Loan Facilities
Revolving Credit Facilities
Other
For the year ended
December 31,
2018
2017
(336,221 )
(39,462 )
(15,414 )
(156 )
(391,253 )
(362,897 )
(18,089 )
(13,461 )
(57 )
(394,504 )
For further information related to debt, refer to Note 15, Debt, in the notes to the consolidated financial statements included
herein.
7.
Income Taxes
The provision for income taxes consists of:
($ thousands)
Current:
Current tax on profit for the year
Withholding tax
Total current tax expense
Deferred:
Decrease in deferred tax assets
Total deferred tax expense
Total income tax expense
For the year ended
December 31,
2018
2017
19,655
—
19,655
—
—
19,655
—
573
573
4,827
4,827
5,400
Income taxes paid, net of refunds, were $16.7 million and $4.8 million for 2018 and 2017, respectively. There were no deferred tax
assets and deferred tax liabilities at December 31, 2018 and 2017.
Annual Reports and Accounts 2018 Page | 162
The Parent is tax resident in the United Kingdom ("U.K."). A reconciliation of the provision for income taxes, with the amount
computed by applying the weighted average rate of the U.K. statutory main corporation tax rates enacted in each of the Parent's
calendar year reporting periods (19.0% in 2018 and 19.25% in 2017) to income before provision for income taxes is as follows:
($ thousands, except tax rates)
Income before provision for income taxes
United Kingdom statutory tax rate
Statutory tax expense
Italian tax litigation settlement
Acquisition costs
Stock-based compensation
Impact of enacted tax rate change on deferred tax balances
Earnout investment adjustment
Change in unrecognized deferred tax asset
Unrealized foreign exchange
Non-taxable dividend income
Foreign withholding taxes
Other
For the year ended
December 31,
2018
406,493
19 %
77,234
2017
56,131
19.25 %
10,805
16,664
340
286
78
(945 )
(4,202 )
(12,384 )
(57,355 )
—
(61 )
19,655
—
93
543
9,706
(577 )
73,259
—
(89,251 )
573
249
5,400
Effective tax rate
4.8 %
9.6 %
The Parent's effective income tax rate was 4.8% in 2018 as compared to 9.6% in 2017. The principal drivers of the tax rate reduction
were a $73.3 million change in unrecognized deferred tax asset recorded in 2017 and a $12.4 million tax benefit recorded on
unrealized foreign exchange gains.
The tax rate for the year ended December 31, 2018 is lower than the tax rate for the year ended December 31, 2017 due to a change
in the U.K. corporate tax rate from 20% to 19% on April 1, 2017 that applied to the full calendar year in 2018.
Changes to the U.K. corporate tax rates were substantively enacted as part of Finance Bill 2015 (on October 26, 2015) and Finance
Bill 2016 (on September 7, 2016). These changes include reductions to the main tax rate to 19% effective from April 1, 2017 and to
17% from April 1, 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in
these financial statements.
Net Operating Losses
At December 31, 2018 and 2017, the Parent had gross tax loss carryforwards of $402.0 million and $426.0 million, respectively,
pertaining to the United Kingdom. No deferred tax assets were recorded for these tax loss carryforwards as realization is uncertain.
These tax loss carryforwards may be carried forward indefinitely notwithstanding that they offset only 50% of taxable income
(above a £5 million full allowance threshold) in a given year.
In assessing the need for a change in the unrecognized deferred tax asset, the Parent considered both positive and negative evidence
including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. When the Parent
changes its determination as to the amount of deferred tax assets that can be realized, the deferred tax asset is adjusted with a
corresponding impact to the provision for income taxes in the period in which such determination is made.
Annual Reports and Accounts 2018 Page | 163
8. Employee Information
Employee Benefit Expense
($ thousands)
Stock-based compensation
Social Security and other benefits
Incentive compensation
Wages and salaries
Employees by Segment
For the year ended
December 31,
2018
2017
6,613
5,767
3,632
1,892
17,904
3,447
4,406
2,251
1,759
11,863
The Parent had 10 and 12 people employed in the Corporate Support segment as of December 31, 2018 and 2017, respectively.
9. Commitments
Lease Commitments - Facilities
The Parent has a lease for its registered office in London that is effective from March 25, 2015 to March 25, 2025. The lease is
accounted for as an operating lease, and rent expense is recorded monthly on a straight line basis. Leasehold improvements are
capitalized and depreciated from the date placed in service through March 25, 2025, in accordance with the Company's depreciation
policy.
The Parent has a lease for another location in London that is utilized entirely by a subsidiary, which is effective from January 14,
2016 to January 13, 2026. The lease is accounted for as an operating lease; however, there is no rent expense recognized in the
financial statements as the Parent has a sublease with the subsidiary.
Rent and lease expense, net, was $1.0 million and $0.7 million for the years ended December 31, 2018 and 2017, respectively.
The future net minimum lease payments for the remaining non-cancellable term of the Parent's facility leases at December 31, 2018
are as follows:
($ thousands)
Not later than one year
Between one year and five years
Later than five years
Total future minimum lease payments
10. Stock-Based Compensation
Incentive Awards
1,393
5,573
2,845
9,811
Stock-based incentive awards are provided to directors and employees under the terms of the Company's 2015 Equity Incentive Plan
(the “Plan”) as administered by the Board. Awards available under the Plan principally include stock options, performance share
units, restricted share units or any combination thereof. The maximum number of shares that may be granted under the Plan is 11.5
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. The Company utilizes authorized and unissued shares to satisfy all shares issued under the Plan.
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 Plan at an exercise price not less than the fair market value of a share on the date of grant. In 2018, stock options were granted
solely to the Company's Chief Executive Officer, which will vest in 2021 subject to certain performance and other criteria, and have
a contractual term of approximately six years. No stock options were granted in 2017.
Annual Reports and Accounts 2018 Page | 164
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. PSUs typically vest 50% over an approximate three-year period and 50% over an approximate four-year period. Dividend
equivalents are not paid under the Plan. The fair value of each PSU is determined on the grant 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.
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. Dividend equivalents are not paid under the Plan.
Stock Option Activity
A summary of the Parent's stock option activity and related information is as follows:
Outstanding at January 1, 2018
Granted
Outstanding at December 31, 2018
At December 31, 2018:
Vested and expected to vest
Exercisable
Fair Value of Stock Options Granted
Weighted Average
Stock
Options
Exercise Price
Per Share ($)
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
($ thousands)
250,000
172,500
422,500
422,500
250,000
15.53
30.12
21.49
21.49
15.53
4.19
4.19
3.38
—
—
The Company estimates 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 2018 for the
Parent was $6.84 per share.
Valuation model
Exercise price ($)
Expected option term (in years)
Expected volatility of the Company’s stock (%)
Risk-free interest rate (%)
Dividend yield (%)
Monte Carlo
30.12
2.38
35.00
2.73
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.
Annual Reports and Accounts 2018 Page | 165
Stock Award Activity
A summary of the Parent's stock award activity and related information is as follows:
Nonvested at January 1, 2018
Granted
Vested
Forfeited
Nonvested at December 31, 2018
At December 31, 2018:
Unrecognized cost for nonvested awards ($ thousands)
Weighted average future recognition period (in years)
PSUs
812,658
342,309
(339,058 )
(40,012 )
775,897
8,130
2.17
Weighted
Average
Grant Date
Fair Value ($)
17.37
23.43
8.55
14.14
23.90
Weighted
Average
Grant Date
Fair Value ($)
21.00
30.23
21.67
—
30.21
RSUs
106,223
68,142
(114,452 )
—
59,913
677
0.37
The total vest-date fair value of PSUs vested was $2.5 million and $3.5 million in 2018 and 2017, respectively. The total vest-date
fair value of RSUs vested was $3.4 million, and $2.8 million for 2018 and 2017, respectively.
Fair Value of Stock Awards Granted
The Company estimated the fair value of PSUs at the date of grant using a Monte Carlo simulation valuation model, as the award
includes a market condition.
During 2018 and 2017, the Company estimated the fair value of RSUs at the date of grant based on its stock price adjusted for the
exclusion of dividend equivalents. Details of the grants are as follows:
PSUs granted during the year
Weighted average grant date fair value ($)
RSUs granted during the year
Weighted average grant date fair value ($)
Modifications
2018
2018
342,309
23.43
68,142
30.23
2017
198,018
17.19
117,745
21.12
During the first quarter of 2018, the Company modified the measurement of a performance condition for the outstanding
performance share units granted in 2015, as the original vesting conditions were not expected to be satisfied. The modification
affected 1 employee of the Parent and resulted in $1.0 million of compensation expense for the Parent for the year ended December
31, 2018.
During the third quarter of 2018, the Company modified the measurement of a performance condition for the outstanding
performance share units granted in 2016 and 2017, as the original vesting conditions were not expected to be satisfied. The
modification affected 6 employees of the Parent and resulted in $1.4 million of compensation expense for the Parent for the year
ended December 31, 2018.
2017
During the second quarter of 2017, the Company modified the measurement of a performance condition for the PSUs granted in
2016. The modification affected 5 employees of the Parent but did not result in any incremental compensation cost.
Annual Reports and Accounts 2018 Page | 166
Stock-Based Compensation Expense
Total stock-based compensation expense for the Parent was $6.6 million and $3.4 million for the years ended December 31, 2018
and 2017, respectively, which was recorded to selling, general and administrative expense on the Parent's statement of operations.
11. Other Expense, Net
The components of other expense, net are as follows:
($ thousands)
Tender and redemption premium
Unamortized debt issuance costs
Swap
Other
Total debt related
Other
For the year ended December 31,
2018
2017
(41,314 )
(7,059 )
(443 )
(1,265 )
(50,081 )
287
(49,794 )
—
(4,427 )
3,827
(938 )
(1,538 )
(728 )
(2,266 )
For further details on the debt transactions completed in 2018 and 2017, refer to Note 15, Debt, and Note 24, Other Expense, Net, in
the notes to the consolidated financial statements included herein.
12. Auditors' Remuneration
Aggregate fees for audit services rendered by PricewaterhouseCoopers LLP ("PwC U.K.") were $75,000 for the years ended
December 31, 2018 and 2017, respectively.
Audit services consist of professional services performed in connection with the Parent's annual financial statements.
Annual Reports and Accounts 2018 Page | 167