International Game
Annual Report 2020

Plain-text annual report

CONTENTS CEO STATEMENT................................................................................................................................. 1. STRATEGIC REPORT....................................................................................................................... Key Performance Indicators....................................................................................................... Business Overview...................................................................................................................... Financial Performance................................................................................................................. Market Trends............................................................................................................................... Section 172 Statement................................................................................................................. Corporate Social Responsibility................................................................................................. Principal Risks and Uncertainties.............................................................................................. 2. DIRECTORS' REMUNERATION REPORT........................................................................................ Annual Statement......................................................................................................................... Remuneration Report................................................................................................................... Remuneration Policy.................................................................................................................... 3. DIRECTORS' REPORT...................................................................................................................... 4. INDEPENDENT AUDITORS’ REPORT.............................................................................................. 5. FINANCIAL STATEMENTS............................................................................................................... Consolidated Financial Statements........................................................................................... 4 7 8 9 19 28 30 36 42 48 48 50 62 76 82 90 90 Parent Financial Statements....................................................................................................... 165 Annual Report and Accounts 2020 Page | 3 CEO STATEMENT we expected to be significantly impacted by the pandemic. The aforementioned swift actions and cost-saving measures applied to manage the crisis at the outset, combined with the resilient nature of our business and diversity of our portfolio, allowed us to achieve results that helped mitigate the pandemic impact. for financial flexibility increased In addition, we successfully amended our senior revolving credit facilities and our term loan facility to allow and demonstrated efficient access to the capital markets with the issuance of notes with an 8-year term at the Company’s lowest historical interest rate for U.S. Dollar denominated notes. The proceeds were used partially to retire a portion of our 2022 USD bonds and partially to build additional liquidity to our balance sheet. Dear Stakeholder, IGT’s business showed extraordinary resilience despite the unique circumstances that COVID-19 brought upon our industry and the world in 2020. We adapted to new ways of working and successfully navigated through unprecedented challenges. I am grateful for the hard work and dedication of our employees who continue to go above and beyond for our customers, shareholders, and each other. When the virus began to have an impact in the countries where we do business, the safety and well- being of our employees and customers around the globe became our top priority. A cross-functional COVID-19 crisis management team was created to execute robust business continuity plans and ensure that we had the tools in place to support our customers. As more fully described in the Financial Performance section of the Strategic Report, the pandemic impact was significant to our financial results in 2020, as revenue fell 23% with a more severe decline affecting our Gaming business, while Lottery, despite an initial decline suffered at the outset of the pandemic, was able to recover swiftly with a resilient performance in the second half of the year. The impact from the revenue decline was partially mitigated by actions taken to preserve cash across our business portfolio, which resulted in $365 million of temporary cost savings and $138 million of capital expenditure avoidance. Despite these actions, we recorded an operating loss of $91 million, which included a $296 million impairment charge. This reduced the value of our former International and North America Gaming and Interactive segments that interim goodwill focused on Streamlining the Business In July 2020, we announced a new organizational structure primarily two business segments, Global Lottery and Global Gaming, with a streamlined corporate support function. This change was designed to provide greater responsiveness to customers and players, increase our effectiveness, harmonize best practices across both the B2B and B2C channels in each product category, and increase organizational efficiency. Additionally, a New Business and Strategic Initiatives group was created for managing new in-country initiatives during the start-up phase, and offering on- demand commercial support globally for key accounts with multiple product requirements. In late 2020, we agreed to sell our Italian businesses relating to B2C gaming machines, sports betting and digital gaming to Gamenet Group S.p.A., a leading company in the Italian regulated gaming sector. This agreement allows us to focus on our Italian lottery contracts, which continue to be top strategic priorities. It also helps improve our portfolio performance and supports equity market re-rating objectives. We expect this transaction to be finalized in the first half of 2021. Global Lottery We streamlined our lottery organization to provide better insight into the unique attributes of our Global Lottery business. Lottery has consistently provided stability in our quarterly earnings, and throughout the pandemic, it demonstrated substantial strength. In fact, despite global game and market closures at the onset of the pandemic, we achieved record revenue and profit levels in the second half of the year. In the fourth quarter, global same-store sales grew by 8%. For the full year, North America same-store sales Annual Report and Accounts 2020 Page | 4 grew by 7%, marking the strongest growth for instants and draw games we have seen in the region in seven years. Our lottery leadership was strengthened in 2020 with new long-term facilities management contracts in certain jurisdictions including Nebraska, Poland, and the Czech Republic, and extensions in New York and Tennessee. We also signed a six-year primary instant ticket contract in Virginia, displacing the incumbent. Instant ticket extensions were awarded to us in Minnesota, Missouri, and Washington, D.C. IGT continues to lead the lottery industry through new retailer experiences such as our GameTouch™ 20 self-service vending machines or in-lane solutions; increased player engagement solutions such as mobile convenience apps; and gameplay mechanics such as IGT’s proprietary Cash Pop™ game or $2 lotto with the double play add-on feature. We have a steady long-term growth profile, and our Global Lottery outlook remains compelling. Global Gaming The Global Gaming business was significantly impacted by the pandemic as casinos throughout the world were forced to shut down. Despite these challenges, we successfully propelled our leadership in cashless gaming, introduced new hardware and game content, and expanded our PlayDigital and PlaySports footprint, positively positioning us for strong post-pandemic success. Our B2B digital and betting service revenue grew nearly 50% in 2020, led by iGaming and iLottery growth. new growth opportunities such as the launch of the Historical Horse Racing solutions, entry into Pennsylvania route market, and the debut of IGT’s Reel Poker™ games on VLTs in Louisiana. Channel expansion continues to be an area of focus, and we see significant opportunity for iLottery and iGaming. The pandemic heightened this area of opportunity as many jurisdictions were faced with stay-at-home orders. We expect to be a market leading provider of digital gaming technology and other solutions with 20%-30% of the North America iGaming market in the near-term as momentum grows. We are also well-positioned for further iLottery expansion given our dominant lottery technology presence in the U.S. in wagers IGT’s PlaySports sports betting platform continues to be one of the leading solutions in the U.S., with deployments in 16 of the 19 states that have regulated sports betting. Our systems processed $5 billion for approximately one-third of the U.S. market, driven by strategic partnerships with FanDuel Group, Boyd Gaming, and the National Basketball Association (“NBA”). Additionally, we enhanced our offering with an in-house trading team, providing customers with an “all-in-one” sports betting solution. in 2020, accounting We see tremendous opportunity in 2021 to expand and grow our Global Gaming businesses as casinos continue to reopen and capacity levels increase, and as more states plan to regulate digital gaming and sports betting. risen IGT cashless solution known as Resort Wallet™, have in prominence as casinos have implemented increased distancing and sanitization protocols. Resort Wallet is part of the award-winning IGT ADVANTAGE® casino management system solution and has been implemented at Resorts World IGTPay™, our proven Catskills proprietary external funding gateway, is also currently in operation at Svenska Spel venues throughout Sweden. in New York. Our Commitment to Corporate Social Responsibility IGT’s corporate social responsibility strategy is centered on four key priorities: valuing our people, advancing responsibility, supporting our communities, and operations. Our to employees’ well-being, high commitments standards of integrity and ethical conduct, diversity and inclusion, and professional development are constantly improving our Company from within. sustainable fostering We diversified our hardware portfolio in 2020. We expanded our Peak series cabinets with launches of the PeakBarTop™, PeakSlant32™, PeakSlant49™ and PeakSlant49™ Wheel gaming machines. IGT also won three awards, the most of any gaming supplier, as part of Casino Journal’s esteemed 2020 Innovative Gaming Technology “Top 20 Most game, 3 Awards.” Our Hexbreaker® PeakBarTop cabinet, and PlaySports Bank and PlaySports Pod were all winners. slots Our experience in developing the industry’s best specialty market innovations was highlighted with In 2020, we earned notable achievements such as the Sustainable Business Award in the Supplier category at the 2020 Industry Community Awards, and our 2018 Sustainability Report ranked in the top 10 worldwide in the Credibility Through Assurance category as part of the 2020 Corporate Register Reporting Awards. We were also recertified by the Global Gambling Guidance Group for our digital and gaming operations. In addition, IGT was rated as an “outperformer” in Sustainalytics’ 2020 Environmental, Social and Governance (“ESG”) report, and we received a strong 4.6 out of 5 ESG rating from FTSE Russell. Annual Report and Accounts 2020 Page | 5 Diversity and Inclusion In 2020, we demonstrated our commitment to diversity and inclusion at the highest level. We doubled the number of women reporting to the CEO and increased the number of females on our Board of Directors. recently launched We the Advancing Cultural Education (ACE) group at IGT, which is dedicated to advancing people of African descent within the gaming industry through professional development, networking, promoting inclusion and diversity, a sense of belonging, and creating positive connections within our communities. IGT showcased our diversity and inclusion leadership when we were invited to join the Global Workplace Code of Practice steering committee. Additionally, we were recognized as one of 325 global companies across 50 industries selected for the 2020 Bloomberg Gender-Equality Index. This honor distinguishes companies committed to advancing women’s equality and reporting gender data transparently. Looking Ahead Our 2020 results confirm the resiliency of IGT’s business and demonstrate the advantage of having a diverse mix of business across products and geographies. From the beginning of the pandemic, we have proved our ability to be very nimble in driving operational leverage, and we remain committed to doing so. We are well-positioned to benefit from a global recovery as we focus on bringing the richest player experiences and compelling solutions to market, while adhering to strict capital allocation disciplines. Once again, I want to thank our people for the dedication they have shown in the last year, despite the challenges at hand, and also thank our customers for I wish you all their continued partnership. continued health and well-being for 2021. Marco Sala Chief Executive Officer Annual Report and Accounts 2020 Page | 6 1. STRATEGIC REPORT The Board of Directors (the "Directors" or the "Board") present their Strategic Report on International Game Technology PLC (the "Parent") and its subsidiaries (together, the "Company" or "IGT") for the year ended December 31, 2020. The consolidated balance sheet on page 91 presents the Company's financial position at December 31, 2020 and December 31, 2019. 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 $1.2 billion and $2.2 billion at December 31, 2020 and 2019, respectively. Cash and cash equivalents were $0.9 billion and $0.7 billion at December 31, 2020 and 2019, respectively. OPERATIONAL HIGHLIGHTS • Focused on the COVID-19 pandemic by ensuring the health and safety of our employees, quickly implementing robust business continuity plans, taking swift action on cash preservation and cost structure, and increasing customer engagement to help them navigate the crisis Agreed to sell 100% of Italian B2C gaming machine, sports betting and digital gaming businesses to Gamenet Group S.p.A. • • Global Lottery demonstrated substantial resilience as revenue and operating income from the segment was $2.2 billion and $644.1 million, respectively • • • • Global Gaming revenue and operating loss of $953.2 million and $202.0 million, respectively • Won significant long-term lottery contracts in Virginia, Nebraska, Poland and Czech Republic Revolutionized cashless gaming through Resort Wallet in New York, Nevada and Sweden Expanded Peak series cabinets with launches of PeakBarTop™, PeakSlant32™, PeakSlant49™ and PeakSlant49™ Wheel The growing acceptance of digital across iGaming, sports betting, and iLottery propelled a nearly 50% increase in service revenue for our B2B digital and betting activities Signed strategic sports betting partnerships with FanDuel, Boyd Gaming, and the NBA IGT PlaySports is the leading sports betting solution in the U.S. and in 2020, it expanded sports betting operations to 16 states Introduced full-service in-house trading team to enhance the entire PlaySports offering enabling an for “all-in-one” sports betting solution operators • • • • • • • • • • CORPORATE HIGHLIGHTS • • Massimiliano Restructured the business into two business segments to enhance growth potential – Global Lottery, led by Fabio Cairoli and Global Gaming, led by Renato Ascoli Created a new business function, New Business and Strategic Initiatives, led by Walter Bugno, Executive Vice President Dorothy Costa, Global Head of People and Transformation, and Christopher Spears, Senior Vice President and General Counsel, were both appointed to IGT’s Senior Leadership Team joined (Max) Chiara IGT as Executive Vice President and Chief Financial Officer, and a member of the Board Beatrice Bassey was appointed as an Independent Director of the Board; Paget Alves stepped down Scott Gunn, Senior Vice President of Corporate Public Affairs, was inducted into Public Gaming Research Institute’s Lottery Industry Hall of Fame Selected as one of 325 companies across 50 industries the 2020 Bloomberg Gender- Equality Index, which highlights companies committed to advancing women’s equality and transparently reporting gender data Recognized as the only gaming company finalist in for the 2020 CR Reporting Awards Sustainability Reporting Excellence for • Won Sustainable Business Award in the inaugural Industry Community Awards Products honored with industry awards: ◦ Hexbreaker 3 slots game, PeakBarTop cabinet and PlaySports Bank, and PlaySports Pod were all winners of Casino Journal's 2020 "Top 20 Most Innovative Gaming Technology Products Awards" Ultimate X Poker™ won Top Performing Video Poker Game and IGT was named Most Improved Supplier-Core at the Eilers-Krejcik Slot Awards ◦ ◦ Won Slot Provider of the Year at the 13th Annual International Gaming Awards Annual Report and Accounts 2020 Page | 7 KEY PERFORMANCE INDICATORS $ millions (except per share amounts) Company Revenue by Segment * Represents net loss from continuing operations attributable to International Game Technology PLC per ordinary share Annual Report and Accounts 2020 Page | 8 Revenue3,1154,03020202019Diluted Loss Per Share*$(4.76)$(0.57)20202019Operating (Loss) Income(91)53420202019Dividends Per Share$0.20$0.8020202019202069%31%Global LotteryGlobal Gaming201957%43%Global LotteryGlobal Gamingcontent, BUSINESS OVERVIEW The Company is a global leader in gaming that responsible gaming delivers entertaining and experiences for players across all channels and regulated segments, from gaming machines and lotteries to sports betting and digital. Leveraging in compelling innovation, player insights, operational expertise, and leading-edge technology, the Company’s solutions deliver gaming experiences that responsibly engage players and drive sustainable growth. The Company local presence and has a well-established relationships with governments and regulators in more than 100 countries around the world, and creates value by adhering to the highest standards of service, integrity, and responsibility. investment substantial The Company operates and provides an integrated portfolio of innovative gaming technology products and services, including: lottery management services, instant lottery systems, gaming systems, instant ticket printing, electronic gaming machines, sports betting, digital gaming, and commercial services. The Company is headquartered in London, with principal operating facilities located in Providence, Rhode Island; Las Vegas, Nevada; and Rome, Italy. Research and development and product assembly in North America. The are mostly centralized Company had approximately 11,000 employees at December 31, 2020. Effective July 1, 2020, the Company adopted a new organizational structure focused on two business segments, Global Lottery and Global Gaming, along with a streamlined corporate support function. This resulted in a change in our operating segments and cash-generating units. Prior to this change, the Company had four cash-generating units: North America Gaming and Interactive, North America Lottery, International, and Italy. The key intended benefits of the new structure include: • • • • • • Enabling greater responsiveness to customers and players; Increasing effectiveness and competitiveness in each segment; Harmonizing best practices in each product category; Increasing organizational efficiency by leveraging economies of scale; Improving market understanding of segment performance by enhancing peer comparability; and Reducing complexity to support the Parent’s intrinsic value. The Company's operations for the periods presented herein are reported under this new organizational structure. On December 7, 2020, the Parent announced that its wholly-owned subsidiary, Lottomatica Holding S.r.l., had entered into a definitive agreement to sell one hundred percent of the share capital of Lottomatica Videolot Rete S.p.A. and Lottomatica Scommesse S.r.l., the members of the IGT group which conduct its Italian B2C gaming machine, sports betting, and digital gaming businesses, to Gamenet Group S.p.A. for a sale price of €950 million (the "Italy B2C Transaction"). This action stemmed from the Company's decision to monetize its leadership positions in the Italian B2C gaming machine, sports betting, and digital spaces at an attractive multiple to comparable Italian transactions, providing the Company with enhanced financial flexibility. The Italy B2C Transaction is expected to close in the first half of 2021, and is subject to customary closing conditions, including regulatory approvals. As a result, this disposition is accounted for as discontinued operations in our consolidated financial statements. Refer to Note 3, Discontinued Operations and Assets Held for Sale to the Consolidated Financial Statements for additional information. Annual Report and Accounts 2020 Page | 9 BUSINESS MODEL The Company's new organizational structure is focused on two business segments, Global Lottery and Global Gaming, which are supported by streamlined corporate functions and operating in support of the businesses as shared services centers. The segments have the key operating capabilities and autonomy necessary to manage the business, including product management, sales, technology, and research and development. A New Business and Strategic Initiatives group was also created to lead business development in jurisdictions where IGT is not present or where there is no defined product segment presence. The group will work in unison with the two global business segments in delivery of all initiatives, with financials rolling up to Global Lottery and Global Gaming. The global market for regulated gaming is characterized by two main dynamics: strong player demand and governments that look to regulated gaming as a way to fund good causes. In this context, IGT is uniquely positioned to provide responsible solutions by leveraging its global leadership position, long history of innovation, and the breadth and depth of its product offerings. The Company’s resilient business model is characterized by robust recurring revenues and a balanced geographic and product mix. Innovation is the key growth driver across all the Company’s activities in many different areas including content, technology, distribution, and marketing. Our goal is to create value for all our stakeholders and we are focused on supporting our industry, our community, and our world. Global Lottery IGT has a broad, global footprint in lottery and provides full coverage of the value chain for both B2B and B2C operations. The Company serves 37 of the 46 U.S. lotteries and is the dominant operator in Italy. This business is primarily comprised of multi-year, recurring revenue contracts. Initial terms are usually five to 10 years and there are typically multiple, multi-year extension periods that are almost always executed. The long-term nature of these contracts, in addition to the consistent growth profile of the global lottery business, results in a proven and predictable record of revenue and profit generation. Global Lottery sales have historically maintained a consistent low-single digit growth profile and have proved to be extraordinarily resilient in economic downturns. In fact, IGT’s global lottery same-store sales increased 0.1% in 2020 despite significant pandemic-related mobility restrictions that were in place in several markets around the world. Annual Report and Accounts 2020 Page | 10 The Company believes it can continue to grow its Global Lottery sales and profits through a continued focus on innovation in existing markets, entering new markets, and increasing acceptance of digital lottery solutions, especially in Italy and the U.S. Global Gaming The Company maintains significant, long-standing relationships with commercial casino and government sponsored Video Lottery Terminal customers around the world. IGT’s Global Gaming leadership is bolstered by its large portfolios of games and intellectual property, in addition to best-in-class central systems, for both land-based and digital gaming and sports betting activities. IGT’s gaming revenue is primarily comprised of recurring service revenue that comes from the leasing and operation of gaming machines. The Company also generates revenue through the outright sale of gaming machines and systems. Global Gaming activities were significantly impacted by the global pandemic throughout 2020. In most parts of the world, casinos and gaming halls were either closed or operated with significant restrictions for several months. While player demand trends were strong as venues reopened in the second half of 2020, the Company expects the operational landscape to remain challenging. Depending on the success of vaccine programs around the world, it may take a few years for customer demand to return to pre-pandemic levels. When overall market conditions improve, IGT believes it is well positioned to grow its Global Gaming revenue and profit, supported by the continued introduction of compelling new games and hardware, innovative systems solutions, and increased regulatory acceptance of digital and sports betting activities, especially in North America. STRATEGY The Company's vision is to consolidate its leading presence in the global gaming industry through sustained innovation, compelling product and service offerings, excellent customer and stakeholder relationships, and continued focus on operations excellence. The Company has the resources, content, technologies, market leading research and development capabilities to support this vision. The Company is focused on the following broad strategic initiatives: Continue to leverage a player-centric mentality, product innovation, and operational excellence to capture the post-pandemic market growth potential The Company currently enjoys a strong market position in the global gaming market and intends to further expand its competitive edge by maintaining a player-centric mentality and excellent relationships with its customers and all stakeholders, which should provide the Company with recurring and predictable revenue streams and give the Company valuable insight into its customers' needs. The new and simplified organization structure adopted in July 2020 is focused primarily on two global business segments - Global Lottery and Global Gaming - and will enable the Company to continue to capture market growth potential and to deliver stakeholders’ value by: • • • • Providing greater responsiveness to customers and players; Increasing IGT's effectiveness and competitiveness in providing products and solutions that address the opportunities of each market segment; Harmonizing best practices across both B2B and B2C channels in each product category; and Reducing complexity and increasing organizational efficiency to support IGT's intrinsic value. Additionally, the Company seeks to provide customized products and services to meet local market regulations and support player preferences. The Company’s sustained research and development investments strive to develop content and products which the Company can then distribute to its customers across all available platforms and technologies. The Company also plans to strengthen its role as one of the industry's leading innovator by introducing new platforms and point of access devices. Finally, the Company has also launched a multi-year global efficiency effort (OPtiMA program) focused on operational excellence, product simplification, and operating margin improvement. The Company is committed to achieve over $200 million in structural cost savings over the next two years (compared against 2019). These savings will free up resources that will be used to significantly reduce debt and leverage, as well as support the Company’s focus on sustained investment in product and services innovation. Annual Report and Accounts 2020 Page | 11 Grow Lottery worldwide while preserving leading positions in Italy and across the U.S. The global lottery industry has demonstrated remarkable resilience during the pandemic and is expected to continue growing at mid-single digit in the short to medium term. The Company seeks to maintain its market leader position in lotteries as it continues to operate in sophisticated lottery markets, while also driving growth in the overall market. The Company will provide and operate highly secure online lottery transaction processing systems to regulated markets and deliver technologically advanced instant game tickets and related services. More specifically, the Company is focused on continuing to drive same‑store sales growth and achieving growth in instant tickets and draw-based games in the U.S. by innovating game development, modernizing customer and retailer technology solutions, and driving customer engagement, loyalty, and performance. The Company will also seek to expand its instant ticket printing customer base and has invested in additional production capacity to do so. In Italy, the Company believes leveraging its digital product innovation and channel convergence will help drive long‑term wager stability and modest growth. The Company is also focused on securing several new contracts, rebids, and multiple contract extensions to strengthen its recurring revenue stream and leverage the wins on future competitive positioning for upcoming contract opportunities. Land-based gaming focused on sustained product investments and operation efficiencies to recover post pandemic and generate healthy cash flows The land-based casino industry has been heavily impacted by COVID-19 pandemic in 2020, and is not expected to fully recover before 2022 or 2023. The Company will seek to get back to pre-pandemic performance through sustained investment in product innovation, operational improvement initiatives and cost efficiencies. The Company will focus on supporting a reinvigoration in the premium recurring category. In particular, the Company will seek to take advantage of growth opportunities in specific high-potential product segments, such as Multi Level Progressive games. The Company aims to achieve this by focusing research and development investment on a wide‑scale hardware refresh, improved discipline in game development, and extensive player insight and customer engagement. Further, the Company seeks to increase market positioning in high-growth specialty product segments such as Electronic Table Games (ETGs), Class II and Historical Horse Racing (HHRs) as well as growing its gaming operations and product sales in international markets through an expansion of localized content. The Company strives to increase its casino management systems' market share with its innovative technology solutions. IGT will continue to invest in and deploy its cashless solutions, including Resort Wallet, a fully integrated, turnkey cashless solution. IGT’s cashless solutions allow its customers to boost player convenience, reduce contact, and increase liquidity. Along cashless solutions, the Company will also continue expanding its suite of compelling system modules, offering features and functionalities that will revolutionize the gaming experience, such as bonusing and Mobile responder. The recent sale of the Italy B2C gaming machine, sports betting and digital gaming business for €950 million, expected to close in the first half of 2021, also reinforced the Company’s focus in the B2B market segment. This transaction reframed and simplified the Company’s priorities, improved future profit margin, cash flow generation, and debt profile, while de-risking Italy’s portfolio by exiting the highest regulatory risk market segment. Expand digital gaming and sports betting businesses profiting from market trends and its unique competitive positioning The digital gaming industry experienced rapid, double-digit growth in 2020, also supported by the business and mobility restrictions imposed by governments to contain the COVID-19 pandemic. Shifts in players preferences are expected to be structural and will support solid market growth going forward. In the short-term, regulation is also expected to be a catalyst for growth, especially in the U.S. The Company is uniquely positioned to capitalize on these favorable market trends across all its main three verticals: PlayCasino, PlaySports, and PlayLottery. In iGaming, the Company offers slot and table games via Remote Gaming Server (RGS) to all North American and European most relevant Real Money Gaming (RMG) operators. It also offers Player Account Management (PAM), Poker & Bingo, to a limited number of operators. In iGaming, the Company is well positioned to maintain its significant market share in North America. To achieve this goal, the Company will leverage its excellent game quality and performance, as well as its strong and long-lasting relationship with operators. The Company also enjoys a Annual Report and Accounts 2020 Page | 12 unique position in Canada across all provincial markets thanks to a 20+ year commercial relationship with all five regional operators. In sports betting, the Company offers a turnkey solution to U.S. sports betting operators for both the mobile and retail channel. This offering includes software and hosting services as well as lines and odds setting and risk management, ensuring fast, successful start-up for its partners and continued growth for their sports betting operations. The Company’s platform is currently present in 16 U.S. states powering over 40 sportsbooks. The Company is very well positioned to build and maintain a strong market share in the B2B U.S. sports betting market. In iLottery, the Company offers a turnkey solution to lottery operators which includes traditional draw-based games, e-Instant games, website and mobile app solutions, a complete player management platform, and “managed services”. PlayLottery also provides a full spectrum of digital products and services to those operators that do not offer a full digital lottery wagering program but are looking for digital solutions such as loyalty and convenience apps. PlayLottery’s strategic ambition is to capture strong online growth through continued product innovation. PRODUCTS AND SERVICES 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 approximately 90 customers worldwide, including to 37 of the 46 U.S. lotteries through its Global Lottery 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 of funding for these programs. Lottery products and services are provided through operating contracts, facilities management contracts (“FMCs”), lottery management agreements (“LMAs”), and product sales contracts. In the majority of jurisdictions, lottery authorities award contracts through a competitive bidding process. Typical service contracts are five 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. Certain customers may require the Company to pay an upfront fee for the right to exclusively manage their lottery. The Company designs, sells, leases, 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 Scratch & Win instant lottery game and 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. The Company’s primary competitors in the Lottery business include Camelot, Intralot, La Francaise des Jeux, Neogames, Pollard, SAZKA, Scientific Games, Sisal, and Tabcorp. Annual Report and Accounts 2020 Page | 13 The primary types of lottery agreements are outlined below: Operating and Facilities Management Contracts The majority of the Company’s revenue in the Lottery business comes from operating contracts and FMCs. 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”), a joint venture company among Lottomatica Holding S.r.l. ("Lottomatica"), Italian Gaming Holding a.s., Arianna 2001 S.p.A. (an entity associated with the Federation of Italian Tobacconists), and Novomatic Italia S.p.A., is the exclusive manager of the Italian Lotto game. Lottoitalia is 61.5% owned by Lottomatica. 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 Lottomatica, with the remainder directly and indirectly owned by Scientific Games Corporation and Arianna 2001. As of December 31, 2020, the revenue weighted average remaining term of the Company's existing lottery contracts in Italy was 6.1 years. The Company’s FMCs 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 FMCs are granted on an exclusive basis, and 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 equipment, and is responsible for capital investments throughout the duration of the contract, although the investments are generally concentrated during the early years. The Company provides a wide range of services to lottery customers related to the technology, equipment, and facilities such as hosting, maintenance, marketing, and other support services. The Company generally provides its lottery customers retailer terminal and communication network equipment through operating leases. In return, the Company typically receives fees based upon a percentage of the sales of draw-based and/or instant ticket games, though under certain of its agreements, the Company may receive fixed fees for certain goods or services. In limited instances, the Company provides instant tickets and online lottery systems and services under the same FMC. As of February 24, 2021, the Company had FMCs with or for the benefit of 24 U.S. jurisdictions. As of December 31, 2020, the Company’s largest FMCs by annual revenue were Texas, California, Florida, New York, and Michigan, and the revenue weighted-average remaining term of the Company’s existing FMCs (excluding Italy) was 5.6 years (7.4 years including available extensions). Also, as of February 24, 2021, the Company operated under operating contracts or FMCs in 17 international jurisdictions, excluding Italy. Operating contracts and FMCs often require the Company to pay substantial monetary liquidated damages in the event of non-performance by the Company. The Company’s revenues from operating contracts and FMCs are generally service fees paid to the Company directly by the lottery authority based on a percentage of such lottery’s wagers or ticket sales. The Company categorizes revenue from operating contracts and FMCs as service revenue from “Operating and facilities management contracts” as described in Note 4, Revenue Recognition to the Consolidated Financial Statements. Another form of operating contract is our Lottery Management Agreements ("LMAs"). Under an LMA, the Company manages, within parameters determined by the lottery 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 centers, training staff, providing retailers with assistance, and supplying materials for the games. LMAs also include a separate FMC, pursuant to which the Company leases certain hardware and equipment, and provides access to software and support services. The Company provides lottery management services in New Jersey as part of a joint venture and in Indiana through a wholly-owned subsidiary of the Parent. The Company’s revenues from LMAs are based on achievement of contractual metrics and, with respect to the supply agreements are based generally on a percentage of wagers. The Company is also subject to penalties for failure to achieve contractual metrics under its LMAs. The Company categorizes revenue from LMAs as service revenue from “Operating and facilities management contracts” as described in Note 4, Revenue Recognition to the Consolidated Financial Statements. Annual Report and Accounts 2020 Page | 14 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. As of February 24, 2021, the Company provided instant ticket printing products and services to 31 customers in North America and 21 customers in international jurisdictions. The Company categorizes revenue from instant ticket printing contracts, that are not part of an operator or LMA contract, as product sales from “Lottery products” as described in Note 4, 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 assembles, sells, delivers, and installs turnkey lottery systems or lottery equipment, provides related services, and licenses related software. The lottery authority maintains, in most instances, 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 the systems, equipment sold, and software licensed. The Company categorizes revenue from product sales and services contracts on a case-by-case basis as either service revenue or product sales from “Systems, software, and other” or “Lottery products” respectively, as described in Note 4, Revenue Recognition to the Consolidated Financial Statements. Machine Gaming The Company designs, develops, assembles or orders the assembly of, 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 Global Gaming segment. The Company’s primary global competitors in Machine Gaming are American Gaming Systems, Aristocrat, Everi, Euro Games Technology, 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 provide 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; and • 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 Fortune Coin™ Boost. Annual Report and Accounts 2020 Page | 15 Core games, which include video reel, mechanical reel, and video poker, are typically sold and in some situations leased to customers. Some of the Company's most popular core games in 2020 included Hexbreaker 3, Wolf Run Gold and Treasure Box Kingdom, which are all video slot games. 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 on short duration leases to customers. The pricing of these arrangements is largely variable where the casino customer pays fees to the Company based on a percentage of amounts wagered, net win, or a daily fixed fee for use of the game content, cabinets, and related support services. 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 sales from “Gaming terminals” and revenue from game content as product sales from “Gaming other” as described in Note 4, Revenue Recognition to the Consolidated Financial Statements. Video Lottery Terminals ("VLT") and Amusement with Prize Machines ("AWP") The Company provides VLTs, VLT central systems, and VLT games worldwide. VLTs are gaming machines which are regulated by lotteries, and are usually connected to a central system. In addition, the Company provides AWPs and games to licensed operators in Europe. AWPs are typically low-denomination gaming machines installed in retail outlets. The Company 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. The Company categorizes revenue from VLTs as either service revenue from “Gaming terminal services” or product sales from “Gaming terminals”, depending on the nature of the transaction, as described in Note 4, 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 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 Resort Wallet™, which is a cardless, cashless loyalty solution for casino players. Resort Wallet™ includes IGTPay, a fully cashless land-based offering for casino operators which provides a direct link to external funding, allowing customers to sustain operations in a changing environment, including through the COVID-19 pandemic. 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 sales from “Gaming other” as described in Note 4, Revenue Recognition to the Consolidated Financial Statements. Annual Report and Accounts 2020 Page | 16 Sports Betting The Company provides sports betting technology and management services to licensed sports betting operators in 16 states in the U.S. through the Global Gaming segment. The Company does not operate direct to consumer sports betting in the U.S. The Company offers a combination of technology and services to U.S. licensed sports book operators in each state where sports betting is legal. The offering may be different in each market in order to comply with local regulations and market conditions. The Company currently packages services in two ways: • • "Sports betting platform" solutions offer modular services hosted and maintained in each U.S. state or tribal jurisdiction where Sports Betting is legal. These solutions provide certified and managed sports betting software made available for customers to operate retail and account-based interactive sports and pari- mutuel race wagering in a particular jurisdiction; and “Turnkey” managed service solutions combine the Company’s end-to-end sports betting management technology with a portfolio of value-added services including offer management, payments, fraud management, advisory functions, as well as retail components such as kiosks and betting terminals, interactive components such as mobile web and desktop applications, and trading support services, all of which support the operations of land-based, digital, and omni-channel sports betting operators. The Company also manufactures and sells a range of retail point-of-sale products for use by its sports betting customers in the U.S. which includes a variety of self-service kiosks and over the counter betting solutions. Sports betting operators who are customers of the Company in the U.S. include: FanDuel (Flutter plc), PointsBet, FoxBet (Stars Group), Delaware North, Boyd Gaming Corporation and the Rhode Island Lottery. The Company’s primary competitors in the U.S. sports betting market include Scientific Games and Kambi. The Company categorizes revenue from sports betting as service revenue from “Systems, software, and other” as described in Note 4, Revenue Recognition to the Consolidated Financial Statements. Digital Digital gaming enables game play via the internet for real money or for fun (social). The Company designs, assembles, and distributes a full suite of configurable products, systems, content, and services, and holds more than 30 licenses that authorize the provision of digital gaming products and services worldwide, including digital products such as slot games, poker, bingo, and online casino table 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, and its 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 e-Instant 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 e-Instant content, 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 Company’s diverse iGaming B2B customer base includes Caesar’s Entertainment, FanDuel, the Georgia Lottery, Loto-Quebec, Ontario Lottery and Gaming, Penn National Gaming and William Hill, among others. Digital and social gaming products and services are provided through the Global Gaming segment. 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 and GAN. The Company categorizes revenue from digital gaming products as product sales from “Gaming other”, revenue from digital gaming services as service revenue from “Systems, software, and other”, and revenue from PlayLottery services as service revenue from “Operating and facilities management contracts” as described in Note 4, Revenue Recognition to the Consolidated Financial Statements. Annual Report and Accounts 2020 Page | 17 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 comprises 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 “Systems, software, and other” as described in Note 4, Revenue Recognition to the Consolidated Financial Statements. RESEARCH AND DEVELOPMENT (R&D) 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 lottery, land-based, online social, and digital 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 to R&D and incurred $190.4 million and $265.8 million of related expenses in 2020 and 2019, respectively. Annual Report and Accounts 2020 Page | 18 FINANCIAL PERFORMANCE Results of Operations Comparison of the years ended December 31, 2020 and 2019 ($ thousands) Service revenue by segment Global Lottery Global Gaming Total service revenue Product sales by segment Global Lottery Global Gaming Total product sales Total revenue Cost of services Cost of product sales Selling, general and administrative Research and development Restructuring Goodwill impairment Other operating expense Other operating income Total operating expenses For the year ended December 31, 2020 December 31, 2019 Change $ % of Revenue $ % of Revenue $ % 2,040,971 598,614 2,639,585 121,346 354,552 475,898 65.5 19.2 84.7 3.9 11.4 15.3 2,181,321 917,895 3,099,216 109,884 821,005 930,889 54.1 22.8 76.9 2.7 20.4 23.1 (140,350) (319,281) (459,631) 11,462 (466,453) (454,991) 3,115,483 100.0 4,030,105 100.0 (914,622) 1,629,569 345,478 695,594 190,362 45,045 296,000 4,282 — 52.3 11.1 22.3 6.1 1.4 9.5 0.1 — 1,773,179 557,670 838,880 265,815 24,855 57,000 6,582 (27,694) 3,206,330 102.9 3,496,287 44.0 13.8 20.8 6.6 0.6 1.4 0.2 (0.7) 86.8 (143,610) (212,192) (143,286) (75,453) 20,190 239,000 (2,300) 27,694 (289,957) (6.4) (34.8) (14.8) 10.4 (56.8) (48.9) (22.7) (8.1) (38.0) (17.1) (28.4) 81.2 > 200.0 (34.9) 100.0 (8.3) Operating (loss) income (90,847) (2.9) 533,818 13.2 (624,665) (117.0) Interest expense, net Foreign exchange (loss) gain, net Other expense Other income Total non-operating expenses (Loss) income from continuing operations before provision for income taxes Provision for income taxes Loss from continuing operations Income from discontinued operations Income tax - discontinued operations Income from discontinued operations, net of tax Net (loss) income Less: Net income attributable to non- controlling interests from continuing operations Less: Net (loss) income attributable to non-controlling interest from discontinued operations Net loss attributable to IGT PLC (429,162) (309,689) (120,491) 4,775 (13.8) (9.9) (3.9) 0.2 (433,057) (10.7) 3,895 0.9 39,911 (116,305) 38,051 1.0 (2.9) 0.9 (4,186) (33,276) (349,600) > 200.0 (854,567) (27.4) (471,400) (11.7) (383,167) (945,414) 21,733 (967,147) 42,810 6,726 36,084 (931,063) (30.3) 0.7 (31.0) 1.4 0.2 1.2 (29.9) 62,418 131,636 (69,218) 154,106 41,847 112,259 43,041 1.5 3.3 (1.7) 3.8 1.0 2.8 1.1 (1,007,832) (109,903) (897,929) (111,296) (35,121) (76,175) (974,104) (3.6) (87.5) (81.3) > 200.0 (83.5) > 200.0 (72.2) (83.9) (67.9) > 200.0 6,373 0.2 48,233 1.2 (41,860) (86.8) (4,760) (932,676) (0.2) (29.9) 4,539 (9,731) 0.1 (0.2) (9,299) (922,945) > 200.0 > 200.0 Annual Report and Accounts 2020 Page | 19 Revenue Total revenue for the year ended December 31, 2020 decreased $914.6 million, or 22.7%, to $3,115.5 million from $4,030.1 million for the prior corresponding period. Total service revenues were adversely affected by mobility and social distancing restrictions imposed by governmental authorities in an effort to mitigate the spread of COVID-19. Total product sale declines were primarily caused by COVID-19 budgetary constraints and social distancing restrictions. See “Segment Revenues and Key Performance Indicators” section below for further discussion related to the principal drivers of these changes. Operating expenses Cost of services Cost of services for the year ended December 31, 2020 decreased $143.6 million, or 8.1%, to $1,629.6 million from $1,773.2 million for the prior corresponding period. This decrease is primarily attributable to a $109.5 million decrease within our Global Gaming segment primarily resulting from a $38.5 million decrease in licensing and royalty fees principally due to lower royalties on installed base and poker units due to inactive machines. Global Gaming expenses related to payroll, employee benefits and incentive compensation decreased $29.7 million due to temporary salary reductions, cancellation of the 2020 short-term incentive compensation program and employee furloughs. Cost of services for our Global Lottery segment decreased by $19.3 million primarily as a result of a $20.8 million decrease in marketing and advertising; a $19.8 million decrease in payroll, employee benefits and incentive compensation due to temporary salary reductions, cancellation of the 2020 short-term incentive compensation program, and employee furloughs; a $10.3 million decrease in communications, consumables, and travel; and a $7.1 million decrease in outside services, primarily consultants. These decreases were partially offset by a $55.6 million increase in point of sale (“POS”) and partner fees, primarily related to an increase in commercial service sales in Italy. Cost of product sales Cost of product sales for the year ended December 31, 2020 decreased $212.2 million, or 38.0%, to $345.5 million from $557.7 million for the prior corresponding period. This decrease is primarily attributable to a $200.2 million decrease within our Global Gaming segment primarily resulting from the $466.5 million decrease in product sales. Cost of product sales for our Global Lottery segment decreased $4.8 million primarily related to product mix. In addition, there was a $6.9 million decrease in Corporate and Other, principally associated with a decrease in amortization of acquired intangible assets. Selling, general and administrative Selling, general and administrative for the year ended December 31, 2020 decreased $143.3 million, or 17.1%, to $695.6 million from $838.9 million for the prior corresponding period. This decrease is primarily attributable to a $68.2 million decrease within our Global Gaming segment. This decrease was primarily due to a $59.7 million decrease in corporate allocations; a $28.3 million decrease in payroll, employee benefits, and incentive compensation principally due to temporary salary deductions, cancellation of the 2020 short-term incentive compensation program, and employee furloughs; a $12.5 million decrease in license and royalty fees; and an $8.6 million decrease in travel expenses. These decreases were partially offset by a $44.5 million increase in expected credit losses on long-term customer financing receivables resulting primarily from the impact of COVID-19 within Latin America and the Caribbean. Selling, general and administrative expense for our Global Lottery segment decreased $42.6 million primarily as a result of a decrease of $19.1 million in non-deductible value-added tax (“VAT”) driven by lower spending and the implementation of the Italy VAT group from January 1, 2020, a $14.3 million decrease in payroll, employee benefits, and incentive compensation principally due to temporary salary deductions, cancellation of the 2020 short-term incentive compensation program, and employee furloughs; and an $8.8 million reduction in corporate allocations. These decreases within our Global Lottery segment were partially offset by an $8.6 million increase in other expenses primarily relating to legal settlements. Selling, general and administrative expense for Corporate and Other decreased $31.9 million primarily as a result of a $52.1 million decrease in payroll, employee benefits, and incentive compensation principally due to temporary salary reductions, cancellation of the 2020 short-term incentive compensation program, and employee furloughs. Annual Report and Accounts 2020 Page | 20 Corporate and Other expenses also decreased related to an $18.6 million decrease in outside services, principally related to external consultants; a $10.6 million reduction in advertising; and a $6.0 million reduction in travel. These decreases were partially offset by a $55.8 million reduction of costs allocated to our business segments caused by an overall reduction of Corporate and Other costs. Research and development Research and development for the year ended December 31, 2020 decreased $75.5 million, or 28.4%, to $190.4 million from $265.8 million for the prior corresponding period. This decrease is primarily due to decreases of $46.3 million and $12.4 million in payroll, employee benefits, and incentive compensation in our Global Gaming and Global Lottery segments, respectively. These decreases were the result of temporary salary reductions, cancellation of the 2020 short-term incentive compensation program, and employee furloughs. Additionally, there were decreases related to outside services primarily due to a reduction in consulting services provided to the Company for the Global Gaming and Global Lottery segments of $9.2 million and $10.4 million, respectively. Restructuring Restructuring for the year ended December 31, 2020 increased $20.2 million, or 81.2%, to $45.0 million from $24.9 million for the prior corresponding period. This increase was primarily due to management initiating restructuring plans in 2020 to achieve long-term structural cost savings by simplifying our organizational structure, optimizing our global supply chain, and consolidating our global technology organization. Goodwill impairment Goodwill impairment for the year ended December 31, 2020 was $296.0 million compared to $57.0 million for the prior corresponding period. During the first quarter of 2020, we determined there was an interim goodwill triggering event caused by the COVID-19 pandemic. Based principally on management’s financial projections, which included the estimated impact of COVID-19, we recorded $193.0 million and $103.0 million non-cash impairment losses within the former International and North America Gaming and Interactive cash-generating units, respectively, to reduce the carrying amount of these cash-generating units to fair value. For the year ended December 31, 2019, we determined there was a goodwill impairment of $57.0 million within the former International cash-generating unit due to lower forecasted cash flows along with a higher weighted-average cost of capital. Other operating expense Other operating expense for the year ended December 31, 2020 decreased $2.3 million, or 34.9%, to $4.3 million from $6.6 million for the prior corresponding period. Other operating income There was no other operating income for the year ended December 31, 2020. For the year ended December 31, 2019, other operating income was $27.7 million which was primarily the result of a non-recurring gain on the sale of assets to a distributor. Interest expense, net Interest expense, net for the year ended December 31, 2020 decreased $3.9 million, or 0.9%, to $429.2 million from $433.1 million for the prior corresponding period. This decrease was primarily due to lower LIBOR interest rates on floating rate debt and a decrease in Senior Secured Notes, principally due to the following 2020 refinancing activities: redemption, upon maturity, of the remaining €387.9 million 4.75% Senior Secured Notes due March 2020; partial redemption, in June 2020, of the $1.5 billion 6.25% Senior Secured Notes due February 2022; issuance, in June 2020, of the $750.0 million 5.25% Senior Secured Notes due June 2029; and redemption, upon maturity, of the remaining $27.3 million 5.50% Senior Secured Notes due June 2020. Foreign exchange (loss) gain, net Foreign exchange (loss) gain, net for the year ended December 31, 2020 was $(309.7) million, compared to foreign exchange gain, net of $39.9 million for the prior corresponding period. Foreign exchange (loss) gain, net is principally related to fluctuations in the euro to U.S. dollar exchange rate on euro-denominated debt. Annual Report and Accounts 2020 Page | 21 Other expense Other expense for the year ended December 31, 2020 increased $4.2 million, or 3.6%, to $120.5 million from $116.3 million for the prior corresponding period. Other income Other income for the year ended December 31, 2020 decreased $33.3 million, or 87.5%, to $4.8 million from $38.1 million for the prior corresponding period. In 2019, the Company recorded gains of $33.9 million on the sale of investments, primarily related to the May 2019 sale of its ownership interest in Yeonama Holdings Co. Limited for a $29.1 million pre-tax gain. Provision for income taxes Provision for income taxes for the year ended December 31, 2020 decreased $109.9 million, or 83.5%, to $21.7 million from $131.6 million for the prior corresponding period. In 2020, the Company’s effective tax rate was higher than the U.K. statutory rate of 19.0% primarily due to increases in valuation allowances on deferred tax assets, the impact of the international provisions of the Tax Act (BEAT and GILTI), foreign rate differences, non-deductible expenses, and a goodwill impairment with no associated tax benefit. In 2019, the Company's effective tax rate was higher than the U.K. statutory rate of 19.0% primarily due to the impact of the international provisions of the Tax Act (BEAT and GILTI), foreign rate differences, non-deductible expenses and a goodwill impairment with no associated tax benefit. Income from discontinued operations, net of tax Income from discontinued operations, net of tax for the year ended December 31, 2020 decreased $76.2 million, or 67.9%, from $112.3 million for the prior corresponding period. Discontinued operations reflects the operating activities of our Italian B2C gaming machine, sports betting, and digital gaming businesses. The decline in income was primarily due to lower wagers caused by temporary casino and gaming hall closures required by the Italian government to mitigate the spread of COVID-19. Refer to Note 3 - Discontinued Operations and Assets Held for Sale for further information. Annual Report and Accounts 2020 Page | 22 Segment Revenues and Key Performance Indicators Global Lottery ($ thousands) Service revenue Operating and facilities management contracts Systems, software, and other Product sales Lottery products For the year ended December 31, Change 2020 2019 $ % 1,742,235 298,736 2,040,971 1,929,121 252,200 2,181,321 (186,886) 46,536 (140,350) 121,346 121,346 109,884 109,884 11,462 11,462 Global Lottery segment revenue 2,162,317 2,291,205 (128,888) (9.7) 18.5 (6.4) 10.4 10.4 (5.6) (% on a constant-currency basis) Global same-store sales growth (%) Instant ticket & draw games Multi-jurisdiction jackpots Total North America & Rest of world same-store sales growth (%) Instant ticket & draw games Multi-jurisdiction jackpots Total Italy same-store sales growth (%) Instant ticket & draw games Operating and facilities management contracts For the year ended December 31, 2020 2019 1.6 % (17.0) % 0.1 % 4.1 % (18.3) % 1.7 % 7.3 % (17.0) % 4.7 % 5.2 % (18.3) % 2.0 % (16.1) % 0.8 % Service revenue from Operating and facilities management contracts decreased $186.9 million, or 9.7%, from $1,929.1 million for the prior corresponding period. This decrease was primarily the result of lower same-store sales in Italy for draw-based and instant ticket games resulting from the impact of COVID-19 mobility restrictions, and lower incentives arising within our Lottery Management Agreements. These decreases were partially offset by increases in same-store sales primarily driven by customer demand in North America, and favorable foreign currency translation of $15.7 million. Systems, software, and other Service revenue from Systems, software, and other increased $46.5 million, or 18.5% from $252.2 million for the prior corresponding period. This increase was primarily the result of a $52.0 million increase from our commercial service offering in Italy due to expanded offerings which more than offset the reduction of revenue caused by the sale of the Company’s BillBird subsidiary in the fourth quarter of 2019. Annual Report and Accounts 2020 Page | 23 Lottery products Lottery products revenue increased $11.5 million, or 10.4% from $109.9 million for the prior corresponding period. This increase was primarily the result of an increase of $10.4 million in lottery terminal sales primarily related to a customer network refresh and an increase in lottery software sales of $11.3 million as a result of increased customer demand. These increases were partially offset by a decrease in other lottery sales of $11.2 million primarily due to lower sales of printed instant tickets. Global Gaming ($ thousands, except yields) Service revenue Gaming terminal services Systems, software, and other Product sales Gaming terminals Gaming other For the year ended December 31, Change 2020 2019 $ % 297,418 301,196 598,614 205,289 149,263 354,552 567,849 348,316 916,165 581,017 239,989 821,006 (270,431) (47,120) (317,551) (375,728) (90,726) (466,454) (785,746) (47.6) (13.5) (34.7) (64.7) (37.8) (56.8) (45.2) Global Gaming segment revenue 953,166 1,738,912 Installed base units Total installed base units For the year ended December 31, Change 2020 2019 Units / $ % 49,300 50,834 (1,534) (3.0) Total yields $18.06 $31.45 $(13.39) (42.6) Global machine units sold Total machine units sold Gaming terminal services 14,662 42,076 (27,414) (65.2) Service revenue from Gaming terminal services decreased $270.4 million, or 47.6%, to $297.4 million from $567.8 million for the prior corresponding period. This decrease was principally driven by social distancing measures implemented by government authorities to mitigate the spread of COVID-19. These measures resulted in the temporary closure of casinos and gaming halls and upon reopening, fewer active machines available for use by players driving lower wagers and yields. System, software, and other Service revenue from Systems, software, and other decreased $47.1 million, or 13.5%, to $301.2 million from $348.3 million for the prior corresponding period. The decline was primarily due to a $67.0 million decrease in software revenue primarily related to non-recurring multi-year poker site license contracts executed in the prior year, and lower recurring poker software license fees due to inactive machines resulting from COVID-19 social distancing requirements. Additionally, there was a $24.6 million decrease in system revenue primarily due to lower demand during the COVID-19 pandemic. These decreases were partially offset by an increase of $34.7 million in iGaming. Annual Report and Accounts 2020 Page | 24 Gaming terminals Product sales from Gaming terminals decreased $375.7 million, or 64.7%, to $205.3 million from $581.0 million for the prior corresponding period. This decrease was primarily associated with fewer machines sold during the year driven by lower demand due to customer capital constraints resulting from COVID-19. Gaming other Product sales from Gaming other decreased $90.7 million, or 37.8%, to $149.3 million from $240.0 million for the prior corresponding period primarily related to lower demand due to customer capital constraints resulting from COVID-19, and multi-year licenses of intellectual property. Operating results by segment ($ thousands) Operating (loss) income Global Lottery Global Gaming Corporate and Other Operating income For the year ended December 31, Change 2020 2019 $ % 644,078 (201,968) (532,957) 699,039 188,083 (353,304) (90,847) 533,818 (55,337) (385,205) (144,839) (585,381) (7.9) > 200.0 (36.3) (122.5) Operating margin - Global Lottery Operating margin - Global Gaming 29.8 % (21.2) % 30.5 % 10.8 % Global Lottery segment Segment operating margin decreased from 30.5% for the year ended December 31, 2019 to 29.8% for the year ended December 31, 2020, primarily due to a decrease in revenues of $128.9 million resulting from the global impacts of COVID-19. Despite a 5.6% decline in revenue, operating margins decreased by approximately 70 basis points due primarily to management’s cost saving initiatives developed in response to COVID-19, partially offsetting the decrease in revenue. Global Gaming segment Segment operating margin decreased from 10.8% for the year ended December 31, 2019 to (21.2)% for the year ended December 31, 2020, primarily due to a decrease in revenues of $785.7 million resulting from the global impacts of COVID-19, of which $466.5 million was related to product sales which were impacted at a greater rate than service revenue due to capital constraints within the market, thereby contributing a more significant negative impact to operating margin. The negative impacts on margin have been partially mitigated by management’s implementation of cost savings initiatives to decrease or eliminate fixed and discretionary costs amidst the global pandemic. Liquidity The Company’s business is capital intensive and requires liquidity to meet its obligations and fund growth. Historically, the Company’s primary sources of liquidity have been cash flows from operations and, to a lesser extent, cash proceeds from financing activities, including amounts available under the Revolving Credit Facilities due July 2024. In addition to general working capital and operational needs, the Company’s liquidity requirements arise primarily from its need to meet debt service requirements and to fund capital expenditures and upfront license fee payments. The Company also requires liquidity to fund any acquisitions and associated costs. The Company’s cash flows generated from operating activities together with cash flows generated from financing activities have historically been sufficient to meet the Company's liquidity requirements; however, the Company implemented robust business continuity plans with cost reduction and capital spending avoidance initiatives in anticipation of the impact on liquidity arising from COVID-19. Annual Report and Accounts 2020 Page | 25 The Company believes its ability to generate cash from operations to reinvest in its business, primarily due to the long-term nature of its contracts, is one of its fundamental financial strengths. Combined with funds currently available and committed borrowing capacity, the Company expects to have sufficient liquidity to meet its financial obligations and working capital requirements in the ordinary course of business for at least the next 12 months from the date of issuance of these consolidated financial statements. The cash management, funding of operations, and investment of excess liquidity are centrally coordinated by a dedicated treasury team with the objective of ensuring effective and efficient management of funds. At December 31, 2020 and 2019, Company’s total available liquidity was as follows: ($ thousands) Revolving Credit Facilities due July 2024 Cash and cash equivalents Total Liquidity December 31, 2020 2019 1,816,938 907,015 2,723,953 1,752,125 654,628 2,406,753 The Revolving Credit Facilities due July 2024 are subject to customary covenants (including maintaining a minimum ratio of EBITDA to net interest costs and a maximum ratio of total net debt to EBITDA) and events of default, none of which are expected to impact the Company’s liquidity or capital resources. During the COVID-19 pandemic, most casinos and gaming halls throughout the globe closed in the first half of 2020, and some casinos and gaming halls have yet to reopen. The closure of casinos and gaming halls has significantly disrupted the Company’s ability to generate revenues. In order to remain in compliance with the Company’s debt covenants and meet its payment obligations, the Company entered into amendments to the Revolving Credit Facilities due July 2024 (the “Amendments”) to provide temporary relief from its financial covenants. The Amendments, among other things, provide a waiver for the Company’s obligation to maintain a minimum ratio of EBITDA to net interest costs and a maximum ratio of total net debt to EBITDA from the fiscal quarter ending June 30, 2020 through the fiscal quarter ending June 30, 2021. During the period beginning on the date of the Amendments and ending on August 31, 2021, the Company will be subject to a minimum liquidity covenant that requires the Company to maintain liquidity of at least $500 million. The Company completed multiple debt transactions in 2020 and 2019. Refer to the “Notes to the Consolidated Financial Statements—17. Debt” included in “Item 18. Financial Statements” for further discussion of these transactions as well as information regarding the Company’s other debt obligations, including the maturity profile of borrowings and committed borrowing facilities, and further details regarding the Amendments. At December 31, 2020 and 2019, approximately 23% and 24% of the Company’s net debt portfolio was exposed to interest rate fluctuations, respectively. The Company’s exposure to floating rates of interest primarily relates to the Euro Term Loan Facility due January 2023 and Revolving Credit Facilities due July 2024. At December 31, 2020, the Company held $425.0 million (notional amount) in interest rate swaps that were no longer designated as hedging relationships and the fair value of the swaps is recognized in interest expense with no corresponding offset to debt. At December 31, 2019, the Company held $625.0 million (notional amount) in interest rate swaps that effectively convert $625.0 million of the 6.25% Notes from fixed interest rate debt to variable rate debt. Cash Flow Summary The following table summarizes the statements of cash flows from continuing operations. A complete statement of cash flows is provided in the Consolidated Financial Statements included herein. ($ thousands) Net cash provided by operating activities from continuing operations Net cash used in investing activities from continuing operations Net cash used in financing activities Net cash flows of continuing operations For the year ended December 31, Change 2020 2019 $ % 667,947 978,343 (310,396) (31.7) (227,834) (485,687) (45,574) (242,204) (425,274) 310,865 14,370 (60,413) (5.9) 14.2 Annual Report and Accounts 2020 Page | 26 Analysis of Cash Flows Net Cash Provided by Operating Activities from Continuing Operations During the year ended December 31, 2020, the Company generated $667.9 million of net cash provided by operating activities of continuing operations, a decrease of $310.4 million compared to the year ended December 31, 2019. The decrease was principally attributed to a decline in operating income of $585.4 million. Non-cash adjustments to net loss for the year ended December 31, 2020 were $1.48 billion, compared to $951.3 million for the prior corresponding period. The principal drivers of the increase in non-cash adjustments were a $347.2 million increase in unfavorable foreign exchange losses, and a $296.0 million goodwill impairment charge incurred during the year, compared to a $57.0 million goodwill impairment charge incurred in the prior corresponding period. Changes in operating assets and liabilities for the year ended December 31, 2020 increased to $157.6 million, from $96.2 million in the prior corresponding period. Net Cash Used in Investing Activities from Continuing Operations During the year ended December 31, 2020, the Company used $227.8 million of net cash for investing activities, a decrease of $14.4 million compared to the year ended December 31, 2019. The decrease in net cash used in investing activities was principally attributed to a reduction of capital expenditures of $122.6 million, primarily attributable to overall economic slowdown from COVID-19. Proceeds from the sale of assets for the year ended December 31, 2020 were $9.3 million, compared to $123.9 million from the prior corresponding period. During the prior year, the Company sold its investment in Yeonama, had sales of used, non-premium equipment, which were previously included within Systems & Equipment as part of a strategic agreement with a distributor in Oklahoma, and sold its BillBird subsidiary. Net Cash Used in Financing Activities During the year ended December 31, 2020, the Company used $485.7 million of net cash for financing activities, an increase of $60.4 million compared to the year ended December 31, 2019. During 2020, cash flows used in financing activities primarily included proceeds from long-term debt of $750.0 million, principal payments on long-term debt of $988.4 million, dividends paid to shareholders of $40.9 million, dividends paid to non-controlling interests of $136.4 million, and returned $32.3 million of capital to non-controlling shareholders. During 2019, cash flows used in financing activities primarily included proceeds from long-term debt of $1,397.0 million, principal payments on long-term debt of $1,264.6 million, dividends paid to shareholders of $163.5 million, dividends paid to non-controlling interests of $134.9 million, and returned $98.8 million of capital to non-controlling shareholders. 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 Strategic Report and the Directors' Report for further information on non- financial measures. Annual Report and Accounts 2020 Page | 27 MARKET TRENDS In general, the Company’s business is not materially affected by seasonal variation. In the lottery business, lottery consumption may decrease over the summer months due to the tendency of consumers to be on vacation during that time. Seasonal gaming trends generally show higher play levels in the spring and summer months and lower levels in the fall and winter months. Gaming product sales may be uneven throughout the year, and can be affected by factors including the timing of large transactions, new casino openings and trade shows. In any event, the Company’s worldwide operations can be affected by industrial, economic, and political factors on both a regional and global level. The following are the principal factors which have affected the Company’s results of operations and financial condition and/or which may affect results of operations and financial condition for future periods. COVID-19 to combat limitations on In January 2020, an outbreak of a new strain of identified and has coronavirus, COVID-19, was spread around the world, including in the Company’s core markets of the United States and Italy. The World Health Organization declared the outbreak to be a pandemic on March 11, 2020. The global spread of COVID-19 has been, and continues to be, complex rapidly evolving, with governments, public and imposing or institutions and other organizations recommending, and businesses and individuals implementing, restrictions on various activities or other actions its spread, such as restrictions and bans on travel or transportation, stay- at-home directives, the size of gatherings, closures of work facilities, schools, public buildings and businesses, cancellation of events, including sporting events, concerts, conferences and meetings, and quarantines and lock-downs. The the its consequences, pandemic and closure of almost all casinos and gaming halls globally in the second quarter of 2020, dramatically reduced demand for gaming products and services, which has had a negative impact on all aspects of the Company’s business. While many casinos and gaming halls have since reopened, some remain closed. The Company continues to take all prudent measures to protect the health and safety of our employees, such as practicing social distancing, performing deep cleaning facilities, and enabling our employees to work from home where possible. including in our to the timing of players, resulting in a lower level of lottery ticket purchases. During the first and second quarter, our Global Lottery segment was significantly impacted due the government-imposed quarantines and lockdowns to mitigate the spread of the virus. The scope and duration of these measures varied greatly by jurisdiction. The most significant impact on our results arose from measures imposed by the suspension of all lottery games under the Lotto license starting in April 2020 with a phased reopening strategy starting in early May. During the third quarter and fourth quarters of 2020 we saw an 8.7% and a 7.9% increase in same-store sales, respectively, in particular with the lotteries in North America and recovery within our Italian lottery businesses. Italian government which included the revenue and cash Our Global Gaming segment was significantly impacted due to the widespread temporary closures of a substantial number of gaming establishments coupled with the global economic uncertainty. Our service flows have been significantly affected, as they are largely driven by the level of gaming activity and players’ disposable incomes. As the level of play declined due to casino closures or quarantines, there was a directly in our gaming businesses. correlated decline Additionally, our product sales largely depend on our customers’ liquidity and operating results, which has begun to impact the replacement cycle and demand for products and opportunities from new or expanded markets. Further, we granted customer concessions for the portion of the time for which such customers’ operations were impacted by closures or quarantines. The temporary closure of gaming establishments, disruptions to lottery operations, travel restrictions, cancellation of sporting events, expected lower disposable incomes of consumers, and adverse impact on our casino and gaming customers’ liquidity and the COVID-19 pandemic, had, and continues to have, an adverse effect on our results of operations, cash flows, and financial condition. financial results caused by Product Sales Product sales fluctuate from year to year due to the mix, volume, and timing of the transactions. Product sales amounted to $475.9 million and $930.9 million, or approximately 15.3% and 23.1% of total revenues, for the years ended December 31, 2020 and 2019, respectively. Our Global Lottery segment was affected as certain lottery retail establishments were temporarily closed and others experienced the general slowdown due to lower foot traffic and reduced spending by end Annual Report and Accounts 2020 Page | 28 the functional currency of that subsidiary. In preparing consolidated financial statements, assets and liabilities measured in the functional currency of the subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date, while income and expenses are translated using the average exchange rates for the period covered. Accordingly, fluctuations in the exchange rate of the functional currencies of the Company’s subsidiaries against the U.S. dollar impacts the Company’s results of operations. The Company is particularly exposed to movements in the euro/U.S. dollar exchange rate. Although the fluctuations in exchange rates have had a significant impact on the Company’s revenues, net income, and net debt, the impact on operating income and cash flows is less significant as revenues are typically matched to costs denominated in the same currency. legal developments, and The U.S. Interstate Wire Act of 1961 ("Wire Act") The Company’s management is evaluating the Wire Act and related their implications to the Company, its customers, and the industries in which the Company operates. If the Wire Act is broadly interpreted and enforced to prohibit activities in which the Company and its customers are engaged, to investigations, criminal and civil penalties, sanctions and/or other remedial measures and/or the Company may be required to substantially change the way it conducts its business, any of which could have a material adverse effect on the Company’s results of or operations, prospects. the Company could be subject condition, business, financial Jackpots and Late Numbers The Company believes that the performance of lottery products is influenced by the size of available jackpots in jurisdictions that offer such jackpots. In general, when jackpots increase, sales of lottery tickets also increase, further increasing the jackpot. The Company also believes that consumers in Italy monitor “late numbers” (numbers that have not been drawn for more than 100 draws) and when there is a good pipeline of late numbers, wagers in Italy increase. Under both circumstances, the Company’s service revenues are positively impacted. Non-Cash Goodwill Impairments in the In 2019, the Company determined that there was an International cash- former impairment generating unit’s goodwill due to the results being lower than forecasted along with higher weighted average cost of capital. In 2019, a $57.0 million non- cash goodwill impairment loss with no income tax benefit was recorded to reduce the carrying amount of the former International cash-generating unit to fair value. During the first quarter of 2020, the Company determined that the expected impact of COVID-19 to the Company’s future operations indicated that it was more likely than not that an impairment loss had been incurred within certain cash-generating units. As a result of changes to the discount rates and changes to management’s forecasted results for the former International and North America Gaming and Interactive cash-generating units, the Company recorded non-cash goodwill impairments of $193.0 million and $103.0 million, respectively. As a result of the change in cash-generating units on July 1, 2020, and as discussed in Note 22, Segment Information to the Consolidated Financial Statements, we allocated goodwill to our new cash-generating units using a relative fair value approach. The goodwill allocated to the Global Lottery and Global Gaming cash- generating units was $3,071.6 million and $2,168.7 million, respectively. As of December 31, 2020, the excess of recoverable value over carrying value in the Global Lottery and Global Gaming cash-generating units was 63.4% and 10.8%, respectively. Effects of Foreign Exchange Rates The Company is affected by fluctuations in foreign exchange rates (i) through translation of foreign currency financial statements into U.S. dollars for consolidation, which is referred to as the translation impact, and (ii) through transactions by subsidiaries in currencies other than their own functional currencies, which is referred to as the transaction impact. Translation impacts arise in the preparation of the consolidated financial statements; in particular, the consolidated financial statements are prepared in U.S. dollars while the financial statements of each of the Company’s subsidiaries are generally prepared in Annual Report and Accounts 2020 Page | 29 SECTION 172 STATEMENT The Directors are accountable to shareholders and, in accordance with section 172 of the Companies Act 2006, must act in a way that is likely to promote the success of the Company for the benefit of its members as a whole. In doing so, the Directors must have regard, amongst other matters, to (a) the likely consequences of any decision in the long-term; (b) the interests of the Company’s employees; (c) the need to foster the Company’s business relationships with suppliers, customers and others; (d) the desirability of the Company maintaining a reputation for high standards of business conduct; and (e) the need to act fairly as between members of the Company, consistent with the Company’s core and sustainable business objectives. The Board has broad responsibilities to establish the Company’s structure, strategy, and risk profile. To this end, the Board holds an annual strategy session with management present to review and discuss the market trends and IGT’s strategic initiatives (including assumptions, projections and conclusions) which takes into account the longer- term value creation and business growth of the Company whilst honoring commitments to stakeholders. The Board is supported by an Audit Committee, a Nominating and Corporate Governance Committee and a Compensation Committee, with a clear framework of matters delegated to each committee. Material business decisions are reserved for the Board and certain strategic and financial thresholds have been determined to identify matters requiring Board consideration and approval. Specifically, the Nominating and Corporate Governance Committee reviews and approves the Company's annual Sustainability Report demonstrating to both internal and external stakeholders the organization’s commitment to sustainable development. The Audit Committee receives periodic reports and updates on the organization's systems and controls as well as risks and exposures, whilst the Compensation Committee receives reports and updates on employee-related activities. The Company's investor outreach program is reported to the Board directly. The day-to-day management of the business has been delegated to the Chief Executive Officer, and senior management have also been delegated authority to make decisions within specified parameters which the Nominating and Corporate Governance Committee reviews annually. The Board and its committees receive from management information, reports and proposals for Board approval relating to operations across IGT, including the interests and views of key stakeholders for consideration and discussion to help the Board in making specific decisions and in providing ongoing oversight at group level. Key decisions For each matter which comes before the Board and its committees, the likely consequences of any decision in the long-term were taken into consideration, including the stakeholders who may be affected, their interests and any potential impact as part of the decision making process. In 2020, in addition to the five scheduled meetings (six for the Audit Committee), the Board and its committees held several additional meetings to consider the fast-changing environment, including to address the impact arising from the COVID-19 pandemic. COVID-19 The COVID-19 pandemic brought significant impact on businesses and the economy worldwide. Responding to the crisis, a cross-functional crisis management team led by senior management was established to drive, coordinate and oversee various workstreams, identify actions and evaluate potential impacts, and report to the Audit Committee and the Board of various activities and outcome. The Board considered IGT’s employees, customers, and communities, whose safety and well-being remained IGT’s highest priority during the challenging time. The Board also approved the implementation of a host of measures to contain the impact of the outbreak including taking steps to stabilize the supply chain and build contingency operational plans for all geographies and all aspects of the business to ensure business continuity. Cost saving initiatives were also implemented, including cancelling or delaying non-essential capital expenditures and temporary company-wide salary reductions (including incentive compensation), furloughs and hiring freezes. In May 2020, the Board also approved amendments to IGT’s revolving credit facilities agreement and term loan facility agreement to provide IGT flexibility to navigate the near-term uncertainty caused by the pandemic. The amendments modify the agreements by, amongst other things, waiving the covenants requiring IGT to maintain a maximum ratio of total net debt to EBITDA and a minimum ratio of EBITDA to net interest costs from the fiscal quarter ending June 30, 2020 through the fiscal quarter ending June 30, 2021, and prohibiting dividends and share repurchases through June 30, 2021 and permitting dividends and share repurchases thereafter if the ratio of total net debt to EBITDA is below specified thresholds, which evidence the Board’s efforts in balancing the needs of different classes of stakeholders. Annual Report and Accounts 2020 Page | 30 Board and committee membership In light of Paget Alves’ decision to stand down from his position as a director of the Company at the conclusion of the 2020 annual general meeting (and consequently his retirement as a member of each of the Audit Committee and the Compensation Committee) and the desire to reinstate the 11-member Board composition, the Board with support from the Nominating and Corporate Governance Committee, considered the composition of, and evaluated the new appointments to be made to, the Board and each Board committee to ensure their effective functioning in supporting the Board in its decision making process, providing entrepreneurial leadership and meeting objectives of the Company with a view to enhancing shareholder value over the long-term. This led to the appointments of Beatrice Bassey and Max Chiara to the Board on March 20, 2020 and April 14, 2020, respectively, Alberto Dessy to the Audit Committee (having stepped down from the Nominating and Corporate Governance Committee, considering his other membership of the Compensation Committee), Samantha Ravich to the Compensation Committee, and Beatrice Bassey to the Nominating and Corporate Governance Committee each effective from the Company's 2020 annual general meeting. Global Supply Chain Optimization and Technology Organization Consolidation During the first quarter of 2020, IGT initiated a restructuring plan to optimize its global supply chain and footprint resulting in a significant reduction to its primary manufacturing operations. IGT will utilize contract manufacturers that are worldwide experts in manufacturing and which excel at sourcing and assembly activities, and intends to utilize these third-party contract manufacturers to reduce costs and achieve efficiencies in fulfilling future demand for our products. During the second quarter of 2020, the Company also initiated a restructuring plan to realign and consolidate operations, reduce costs, and improve operational efficiencies within its Technology group. The goal of the restructuring exercises is to increase value for all stakeholders in the long-term. The Company also launched its OPtiMa business efficiency program with an aim to achieve targeted savings in 2021. Financing In June 2020, the Board approved the issue of up to $750 million new senior secured notes and the use of a portion of the net proceeds to tender for up to $500 million existing senior secured notes due in 2022. A key driver of the decision was to extend the average life of the Company’s debt instruments and reduce the average cost of borrowing going forward. The decision helped strengthen the outlook for IGT’s liquidity position whilst management explored other sources of liquidity including government loan programs made available during the pandemic, and enabled IGT to support and preserve its operations, protect the long-term value of the business and further strengthen the Company’s financial resilience. In making decisions, the Board considered investor expectations, business needs of the Company, and the flexibility offered by the new issue and tender offer. New organization The Company announced a new organizational structure in July 2020 which focused primarily on two business segments - Global Lottery and Global Gaming - thus streamlining IGT’s business and leadership under the new structure. The new structure is designed, amongst other things, to provide greater responsiveness to customers and players, increase IGT's effectiveness and competitiveness in providing products and solutions that address the opportunities of each market segment, reduce complexity and increase organizational efficiency to support IGT's intrinsic value. The new organization is also aimed at easing analysts’ and investors’ comprehension of IGT’s business model and making IGT more comparable to peers. Potential organizational cultural differences as well as customer and other stakeholder relationships were considered in the planning for these changes which began well before the outbreak of COVID-19. Disposal of Italian B2C gaming business In December 2020, the Board approved the sale of IGT's interests in Lottomatica Videolot Rete S.p.A. and Lottomatica Scommesse S.r.l., the members of the IGT group which conduct its Italian B2C gaming machine, sports betting, and digital gaming businesses, to Gamenet Group S.p.A., subject to customary closing conditions including regulatory approvals. This action stemmed from IGT's decision to monetize its leadership positions in the Italian B2C gaming machine, sports betting, and digital spaces at an attractive multiple to comparable Italian transactions, providing IGT with enhanced financial flexibility. The Board believes the disposal would allow IGT to rebalance its business and geographic mix and further allow its Global Gaming segment to focus on core competency as a B2B service provider. Annual Report and Accounts 2020 Page | 31 Our stakeholders The processes and activities in respect of the Company’s key stakeholders as described below and in this Strategic Report demonstrate how the Directors have addressed their responsibility under section 172 of the Companies Act 2006. REGULATORS IGT’s activities are subject to extensive and complex governmental and regulatory requirements, which are constantly evolving and may vary from jurisdiction to jurisdiction. Regulators rely on IGT’s capabilities and experience in preventing and reacting to illegal and problem gambling. Approach, engagement and initiatives • IGT continues to build on its well-established local presence and relationships with regulators in the countries where it operates around the world. IGT’s top managers regularly attend meetings with public authorities and institutions at local and global levels to actively provide updates and share knowledge and expertise. During 2020: • Four regular and two special meetings of the Global Compliance Governance Committee (established in accordance with the Twelfth Revised Order of Registration issued by the Nevada Gaming Commission and Nevada Gaming Control Board, item 12, requirement to maintain a “gaming compliance program plan”), were held; Four regular meetings of the Government Affairs Committee, established by IGT to oversee, amongst other things, its government relation matters, were held; IGT cooperated with 14 regulatory authority investigations for the purposes of renewing its global regulatory licensing portfolio; 39 personal interviews and one corporate visit were conducted; IGT continued its efforts to work with gaming authorities and industry groups to expand IGT’s responsible gambling product offerings that go above and beyond jurisdictional regulations; and The Enterprise Risk Management team conducted a detailed assessment of IGT’s Compliance and Governance Program and subsequently suggested a series of continual improvement opportunities e.g. automation, to ensure best-in-class. Information on stakeholders • • • • • • • The Audit Committee receives quarterly updates on all cases of regulatory violations, citations and fines, as well as general regulatory compliance updates, which are reported by the Audit Committee chair to the Board. The Audit Committee receives quarterly risk management updates, which are reported by the Audit Committee chair to the Board, so that Directors are aware of risks, potential impact and mitigating actions. The Audit Committee receives an annual report on activities of the IGT Global Compliance Governance Committee (which in turn, receives reports on activities of the IGT Government Affairs Committee, including on new and amended government relations agreements and quarterly financial contributions made by IGT), with a year end presentation provided by the committee’s chair. Each Board committee also receives general regulatory and market practice updates, so that the Directors are kept informed of regulatory and market developments and can respond and take action accordingly. EMPLOYEES It is IGT's people who will enable us to continue to meet the business challenges posed in today’s gaming market. IGT’s overall goal is to increase the presence of underrepresented groups at all levels and create a more inclusive organizational culture. Approach, engagement and initiatives IGT is committed to creating an engaging employee experience. During 2020: • Several Company-wide meetings to provide employees with important information and field employee questions were held; Directors took part in internal initiatives such as meeting with members of a Diversity and Inclusion Group and participating in an International Women’s Day video distributed to employees throughout the Company; IGT conducted its biennial employee engagement survey, also referred to as MyVoice@IGT. As of 2020, IGT has a response rate of 77% and an engagement index of 79% favorable, which has continued to increase over time; IGT launched its exit survey globally in January, capturing the reasons for employees who voluntarily decide to leave, as well as information about the quality of the organization, in order to assess and improve the work environment, culture, processes and systems, and management and development; IGT launched many trainings for employees for ongoing growth and development, dedicated to various aspects including to develop core management capabilities, to improve communication and cross-cultural awareness, to • • • • Annual Report and Accounts 2020 Page | 32 provide employees with insights into bias and strategies to mitigate bias in the workplace, to support our employees in educating children at home and as they make the transition to remote work as a result of the global pandemic, to support employees during a significant organizational change, and as required by all regular, active employees covering topics consistent with our Code of Conduct policy and expectations; and There were ongoing development of employee diversity and inclusion groups, and employee networks structured around underrepresented dimensions of diversity. • Information on stakeholders • • • • The Nominating and Corporate Governance Committee receives annual updates on how IGT is ensuring fair labor and favorable working conditions and the respect of health and safety standards, and on IGT’s Global Strategic Plan for Diversity and Inclusion to create a more inclusive organizational culture. The Compensation Committee reviews management recommendations and advises management on broad compensation policies. The Compensation Committee receives updates from its People and Transformation department on talent management processes to ensure IGT attracts and retains talent, particularly to meet market expectations for senior management remuneration packages. Following the expansion of the committee's mission to human capital management, the Compensation Committee will also receive reports on human capital matters going forward. The Audit Committee reviews any cases of whistleblowing. COMMUNITY AND ENVIRONMENT IGT recognizes the importance of contributing to communities and reducing any damaging effects on the environment from business processes. Approach, engagement and initiatives IGT is committed to community involvement and supporting programs that enrich and strengthen the communities where IGT operates. During 2020: • IGT Community Ambassadors refocused community efforts dedicated to virtual volunteering and contact-less efforts; IGT also prioritized giving to basic needs organizations and causes. This effort aligns with IGT’s adopted Sustainability Development Goals; Increased efforts were made to encourage employees to engage with non-profit organizations independently when possible; The Virtual Volunteering Event which included events in areas across the globe was held in October. During this event, three lunch and learns were held to update IGT employees on the impact COVID-19 made on local food banks; and IGT also continued with the After School Advantage Program while adjusting its processes to ensure everyone’s health and safety. • • • • See CORPORATE SOCIAL RESPONSIBILITY - COMMUNITY AND RESPONSIBLE GAMING of this Strategic Report, for community activities carried out by the Company. IGT is committed to achieving environmental sustainability in its operations and strives for continuous improvement in its environmental management systems and reduction of its environmental impact. During 2020, IGT’s facilities located worldwide have carried out several activities, mainly focused on replacement of old lighting systems and on energy efficiency of heating, ventilation and air conditioning systems. See CORPORATE SOCIAL RESPONSIBILITY - ENVIRONMENT of this Strategic Report, for the Company’s environmental activities. Information on stakeholders • • • The Nominating and Corporate Governance Committee reviews management’s Corporate Social Responsibility program which gives due consideration to environmental and social matters that could impact IGT, the environment or the communities in which IGT operates, and receives updates on initiatives and programs carried out by Corporate Social Responsibility. The Nominating and Corporate Governance Committee receives IGT’s annual Sustainability Report to ensure it is consistent with IGT’s business strategy and core values. The Directors review the findings on greenhouse gas emissions and global energy produced by IGT activities as reported in the U.K. annual report and accounts and the annual Sustainability Report. Annual Report and Accounts 2020 Page | 33 SHAREHOLDERS Our retail and institutional shareholders are the owners of the Company, and they play an important role in monitoring the performance of the Company. Approach, engagement and initiatives As a publicly listed company, IGT maintains a regular dialogue with shareholders, institutional investors, and analysts through a combination of meetings, correspondence and reporting. During 2020: • IGT representatives participated in investor conferences e.g. Deutsche Bank Gaming, Lodging & Leisure Conference; Truist Gaming, Lodging, Leisure & Restaurants Conference; Bank of America Gaming & Lodging Conference; Goldman Sachs Gaming Conference; JP Morgan Gaming, Lodging, Restaurants & Leisure Conference; Jefferies Consumer Conference; JP Morgan European High Yield Conference; Bank of America Leveraged Finance Conference; Barclays Eat, Sleep, Play Consumer Conference; and A virtual roadshow in connection with the new senior secured notes offering in June was held. • Information on stakeholders • • • • The Audit Committee and the Directors receive updates and feedback from the continued dialogue between IGT and our institutional investors through meetings, calls, conferences and emails. The Directors review and approve IGT's investor outreach strategies. Each Board committee receives updates from management on IGT’s legal obligations, e.g. changes to law and regulations, including in the context of corporate governance. Each Board committee receives regular updates from management on market guidelines, recommendations and associated guidelines from advisors, professional bodies and proxy advisory firms or any notes analysts may have. PLAYERS AND CUSTOMERS IGT's business relies on players' discretionary income and their level of gaming activity. IGT works to attract and retain new players, and devotes significant resources to developing innovative services and products to enhance player experience and player safety. Customer relationships are the foundation of IGT’s leadership. Approach, engagement and initiatives IGT strives to deliver unrivalled gaming experiences that engage players and drive growth, whilst also maintaining a long-standing commitment to player protection through close relationships with customers, gaming regulators, research institutes, and advocacy groups that promote tools to prevent problem gambling and support responsible gaming. During 2020: • IGT achieved responsible gaming re-accreditation by the Global Gambling Guidance Group (G4) for its IGT Gaming and PlayDigital™ operations; Lottomatica in Italy provided a brand-new format for Live Lotto Draw to engage players and provide visibility to the transparency of drawing procedures; In November, Lottomatica accomplished the partial assessment stating its alignment to the European State Lottery and Toto Association (EL) Responsible Gaming Standard; and IGT participated in six industry association events; two in person (EL/WLA Marketing Seminar and PGRI Smart Tech) and four virtual (NASPL DeskCon, PGRI Lottery Expo, La Fleur's DC Conference and EL Innovation Seminar). • • • IGT operates as a trusted growth partner for both lottery and gaming customers, including government customers worldwide. Attention and dedication to IGT customers are integrated into the strategies IGT uses to provide them with prompt and complete assistance. During 2020: • IGT transformed its in-person Lottery Retail Workshop, to weekly virtual sessions held in October, where 17 international lotteries and two industry vendors used these weekly Teams video sessions to share challenges, best practices, and lessons learned throughout the pandemic and in the rapidly changing environment; IGT hosted its North America lottery customers in virtual customer meetings to present a global business update and to keep its customers informed on business continuity initiatives and engage customers in a live Q&A; IGT participated in the Global Gaming Expo (G2E) Virtual Experience 2020; IGT representatives participated in the virtual event series for EMEA and LAC including a live webinar; IGT participated in the ICE Totally Gaming event in February; IGT PlaySports Trading Team provided monthly newsletters and designed promotional materials for Sports Betting Customers; IGT, via its Roadshow Trailer initiative in North America, ensured customers who were unable to travel had access to the wider gaming portfolio and COVID-19 applicable products and services; • • • • • • Annual Report and Accounts 2020 Page | 34 • • • • • • • • IGT managed three customer forums in Australia to educate customers on IGT products as well as broader issues affecting our customers' businesses; IGT managed webinars in Australia and New Zealand to educate IGT customers on our products; IGT designed and delivered four customer-facing magazines in Asia Pacific; IGT designed and delivered customer-facing direct mail with product promotions and game performance information via email and post; IGT produced multiple videos featuring Gaming Chief Operating Officer Nick Khin, highlighting industry updates, resources, and helpful information to keep our operators informed and supported as they navigated the pandemic; IGT produced its own Virtual Gaming Showcase event to help supplement the American Gaming Association's (AGA) G2E, sharing product and solution updates relevant and supportive of player safety in a COVID-19 gaming environment; Lottomatica in Italy provided new services to educate and engage its retailers - Rivenditore 10eLode - a new way gamification inspired training; MyLotteries news; online onboarding Lotto training; retailer APP for Scratch Tickets Purchasing; and IGT produced multiple videos to help support the first virtual Video Lottery Customer Advisory Board; in attendance were all Canadian Video Lottery customers, as well as, Oregon State Lottery, Svenska Spel, OPAP and Lottomatica. Information on stakeholders • The Nominating and Corporate Governance Committee reviews management’s Corporate Social Responsibility program, which includes (i) updates on its main objectives pertaining to players such as (a) promoting protective tools to prevent problem gambling, (b) supporting responsible gaming organizations that address problem gambling, and (c) preventing underage gambling, and (ii) activities undertaken in connection with its customers. SUPPLIERS Suppliers play a key role in IGT’s ability to support its customers’ requirements. Approach, engagement and initiatives IGT works with suppliers that can ensure high quality goods and services and meet high economic, ethical, and socio-environmental standards. During 2020: • IGT initiated a restructuring plan to optimize its global supply chain and footprint resulting in a significant reduction to its primary manufacturing operations; Periodic business and quality reviews were undertaken on suppliers, which serve to review the performance and provide feedback to suppliers; Lottomatica in Italy worked to add the Supplier Code of Conduct in the Supplier Qualification Process in addition to the other requirements that the supplier must accept upon verification; and Sustainable Development Goals engagement questions were added to the Supplier Self-Assessment and the Supplier Quality Management Audit forms. • • • Information on stakeholders • • • The Audit Committee receives periodic risk management updates (including risks pertaining to the Company's supply chain), which are reported by the Audit Committee chair to the Board, so that Directors are aware of risks, potential impact and mitigating actions. The Directors receive periodic updates on compliance with IGT’s Code of Conduct which sets out the Company’s zero-tolerance approach to modern slavery and its commitment to implementing and enforcing effective systems and controls to promote an ethically sensitive business and reduce the risk of contracting with suppliers who are not aligned to these principles. The Directors receive information on the initiatives and activities undertaken in connection with the Company's supply chain as part of its review and approval of the UK Modern Slavery Act statement. Annual Report and Accounts 2020 Page | 35 CORPORATE SOCIAL RESPONSIBILITY APPROACH TO SUSTAINABILITY Perceptions and implications of Sustainability and Corporate Social Responsibility ("CSR") have changed year after year, and they continue to evolve as social awareness and public concerns are heightened. As a company operating on a global scale, IGT has embraced sustainability efforts since their introduction into the public debate. This is evident by how IGT has sustainability acknowledged principles needed the in to guide marketplace. From being a good corporate citizen to actively engaging at a local level, IGT contributes to international efforts aimed at operating in a more responsible world. fundamental its actions the being values: passionate, IGT’s internal corporate culture is guided by a set of five pioneering, responsible, authentic, and collaborative. When conducting business with local governments and organizations, IGT is committed to ensuring strict adherence to the principles of lawful conduct in every jurisdiction it serves. Integrity, in terms of behavior as well as business conduct, is the foremost prerequisite for creating value for all stakeholders. IGT has developed a solid approach to sustainability that includes key sustainability topics within the corporation’s scope of operations. IGT’s ongoing pledge to sustainable growth within the gaming industry includes the guiding principles set forth by the 2030 United Nations ("UN") Agenda for its Sustainable Sustainable Development and Development Goals ("SDGs"). This 2030 Agenda and its 17 SDGs form an action program for people, the planet, and prosperity and was signed in September 2015 by the governments of the 193 UN member countries to meet three key objectives by 2030: end extreme poverty, fight inequality and injustice, and limit climate change. Based on its business activities and its sustainability priorities, IGT has identified the relevant SDGs with which it could contribute the most (e.g. including no poverty, good health and wellbeing, quality education, gender equality, affordable and clean energy, decent work and economic growth, industry reduced inequalities, and climate action) and began an ongoing process to develop specific targets and initiatives that could effectively contribute to the achievement of the SDGs in the future. innovation and infrastructure, 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, labor, 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 by refocusing the sustainable development goals within the Company’s scope of operations according to four strategic pillars: to pursue its CSR initiatives • • • • Valuing and protecting people; Advancing responsibility; Supporting communities; and Fostering sustainable operations. to pursue By committing the UN’s Sustainable Development Goals and voluntarily disclosing information through the annual Sustainability Report, IGT is leveraging the long-standing results of its CSR strategy to strengthen its reputation, and improve customers’ confidence. COMMUNITY AND RESPONSIBLE GAMING IGT is a global leader in one of the most regulated industries. With operations than 100 countries, there are recognizable differences related not only to laws and regulations, but also to cultural and social attitudes. Through a solid commitment to corporate social responsibility, IGT strives to be a international responsible partner authorities, customers, and players in markets and jurisdictions where the Company operates. local and in more for IGT is determined to have a significant and positive impact on the communities in which the Company operates through community sponsorships and employee driven community programs. IGT has an that allows any non-profit online giving portal organizations to request funding or sponsorship. Community requests are reviewed by IGT’s Social Impact Committee to ensure that the organization and its mission aligns with IGT's adopted SDGs. In 2020, organizations that support no poverty and good health and wellbeing were prioritized. IGT also created a Community Ambassador program that fosters community efforts on the local site level. It is through the Community Ambassador program that we traditionally celebrate the Global Food Collection Challenge, the Global Giving Week and the Global Book Collection. With these local efforts, sites are Annual Report and Accounts 2020 Page | 36 donating or volunteering to causes within their local communities. Given pandemic the Community Ambassadors shifted to virtual and contactless efforts. Globally, a Virtual Volunteering Event was held in place of the three traditional events. restrictions, IGT’s employee-driven programs provide employees the opportunity to give back to their local communities by giving their time, talent, or money. Being part of a community at large also means a focus on player protection and engaging with key stakeholders for a well-rounded responsible gaming program. IGT maintains close relationships with customers, gaming regulators, and researchers to further its support of player protection. IGT also works closely with advocacy groups who promote tools to prevent problem gambling, support responsible gaming organizations, and work to prevent underage gambling. IGT’s commitment to responsible gaming starts with its own people and is woven into the fabric of product development, services, programs, and policies. With approximately 11,000 employees serving customers in over 100 countries, IGT ensures that employees at all levels and responsibilities are trained to support their daily and promote responsible gaming activities, with additional for employees in specific roles such as game designers and contact center associates. All products, games, systems, and portals include advanced responsible gaming tools that help safeguard players’ interests and address regulators’ concerns. in in-depth courses to to The certifications awarded to IGT by respected industry associations worldwide are a gaming testament responsible IGT’s commitment gaming. IGT has been the first lottery vendor to receive the World Lottery Association’s Responsible Gaming Standards for Associate Members, covering IGT’s lottery operations. IGT received G4 (Global Gambling Guidance Group) responsible gaming certification in 2017 and in 2019 for its land-based casino operations and digital services, respectively, making it the first supplier to be certified across both operations. In 2020, G4 re-evaluated IGT for both certifications simultaneously. These operations require renewal on a regular basis. Therefore, IGT continuously responsible gaming programming to fulfil recertification requirements. improves its the UN Global Compact network, HUMAN RIGHTS As a global leader in the gaming industry, IGT is to supporting and cooperating with committed international institutions and authorities to promote corporate actions that advance societal goals. By IGT joining rights strengthens principles, which international derive conventions such as the International Bill of Human Rights the United Nations Universal Declaration of Human Rights and the fundamental Conventions of the International Labour Organization (“ILO”). to human from its commitment including towards human to human rights and that businesses should The first two principles of the UN’s Global Compact they are directly related respectively state first, support and respect the protection of internationally proclaimed human rights and second, ensure that they are not complicit in human rights abuses. IGT identifies these two principles as a major guide for its action rights protection and promotion; nonetheless, in line with the third principle - relating to labor principles - which states that businesses should uphold the freedom of association and the effective recognition of the right to collective the value of using bargaining, to achieve positive dialogue and negotiation outcomes in employment practices. The Company abides by non-discriminatory policies and procedures with respect to trade unions, union memberships, and their activities. IGT provides workers’ representatives with appropriate services to assist in the development of effective collective agreements. IGT is involved in collective bargaining is committed to accommodating specific local laws and regulations, and is providing the tools needed for union representatives to perform their duties. in different countries, IGT recognizes composed of different As previously mentioned, in order to develop specific targets and initiatives to achieve the SDGs, in 2018 IGT began an ongoing process that involved seven working groups IGT departments. Among them, four working groups are focused, from an internal IGT point of view, on promoting measures forms of to discrimination, fostering a productive employment environment, guaranteeing fair and favorable working conditions, raising awareness about human rights practices and supporting vulnerable groups’ rights. Specifically, the Human Rights Respect working group is committed to protecting human rights within the Company boundaries, thus minimizing the risk of human rights violation. fight all Annual Report and Accounts 2020 Page | 37 From an external perspective, the Sustainable Procurement working group is the one focusing on the protection of human rights and environment along the entire supply chain of the organization. Tito Scalo (IT), and assembling, which primarily occurs in Reno (NV). The working groups cooperate to guarantee that there is a clear, aligned and consistent connection between the Company’s existing commitments, policies and actions, and the topic of human rights, also considering the best-practices available on a global scale. 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 the Company businesses and its supply chain. IGT’s Code of Conduct serves as a guide to the moral, legal, and ethical standards expected of employees and suppliers when doing business with IGT, and it sets parameters for acceptable behaviors of employees when liaising with suppliers. related In 2019, IGT also published its Supplier Code of Conduct and defined criteria to distribute it to its suppliers. The Supplier Code of Conduct includes to business ethics and requirements regulatory compliance, human rights and labor practices, environmental regulations and protection, responsible mineral sourcing, health and safety, and confidential and proprietary information. The code has been sent to selected existing suppliers and it forms part of the on-boarding process for new suppliers. environmental Responsibilities for health and safety are shared. IGT is committed to providing, maintaining and promoting a safe, healthy and productive work environment for all employees and ensuring compliance with all applicable safety regulations. The Safe and Healthy Work Environment policy covers topics such as Workplace Violence, Illegal Drug and Alcohol Use, Tobacco Use, Fitness for Duty and additionally covers the actions that should be taken if someone needs to report a violation. health and ENVIRONMENT As part of the Company's approach to sustainability, IGT is committed to ensuring that its operations interact with the environment in a socially responsible manner in order to reduce environmental impact. The Company's activities are primarily related to office work, implementation, research and development, and administrative work. The Company’s largest offices are in Providence (RI), Reno (NV), Las Vegas (NV) and Rome (IT). IGT's industrial activities are its printing processes, which take place in Lakeland (FL) and in encompassing software related to by implementing IGT is committed to improving its environmental performance Environmental Management Systems (“EMSs”) certified according to the ISO 14001 Standard, which are in place in the following company sites: Lakeland, Rome and Reno. In addition, Tito Scalo, in Italy, has an environmental policy inspired by principles of the ISO 14001 Standard. Moreover, since 2011, the Company has ISO 50001 certified Energy implemented an Management System (“EMS”) for the Rome site. In addition, the Reno facility has a LEED (Leadership in Energy and Environmental Design) gold certification awarded by the United States Green Building Council in 2015, valid until 2025. related activities Effective and reliable monitoring allows IGT to assess its progress reaching its environmental commitments. Over the years, the Company has gradually improved to Energy its monitoring Consumption and Greenhouse Gas (“GHG”) emissions data, through an internal web-based tool aimed at collecting data on a business-site basis. The GHG emissions data presented in this report contains the energy consumption and emissions data resulting from the Company’s activities as evidenced by the data collection process. • During the time period covered by this Annual Report and Accounts, the Company has been committed to reducing the environmental impact of the IGT’s facilities around the world. The initiatives carried out have primarily involved the replacement of old lighting systems and energy efficiency of heating, ventilation and air conditioning (“HVAC”) systems. Among them: The PCC site (Italy) has continued the substitution of the old lighting systems with LED installations. In 2020, the percentage of electric power from LED sources was equal to 15.6%, allowing a saving of 2,580 kWh during 2020; The Reno site (Nevada) has continued its LED lighting projects through which the site was able to convert the 90% of light sources to LED and has adopted an automated Building Management System (“BMS”) to increasing control environment conditions energy efficiency; and The Urquhart Avenue facility, Moncton (Canada), has adopted an energy saving program that rewards participants for making simple energy-saving changes. In 2020, this initiative resulted in the reduction of the power peak demand by 78 kW. • • Annual Report and Accounts 2020 Page | 38 Energy Consumption and Greenhouse Gas For the year ended December 31, 2020 For the year ended December 31, 20192 UK and offshore Global (excluding UK and offshore) UK and offshore Global (excluding UK and offshore) 59 75 134 26,215 35,272 61,487 85 147 232 32,134 46,231 78,365 592,425 195,489,970 1,011,496 246,110,726 Global GHG emissions and energy use data1 Combustion of fuel and operation of facilities - Scope I emissions (tCO2e)3 Electricity, heat, steam and cooling purchased for own use - Scope II emissions (tCO2e)4 Total gross Scope I and Scope II emissions (tCO2e)5 Energy consumption used to calculate above emissions (kWh)6 Notes: (1) Data related to the GHG emissions for 2020 could be updated based on data that will be available after the publication of this Annual Report and Accounts. The updated data will be published in the IGT Sustainability Report 2020. (2) 2019 GHG emissions data has been aligned to the data published in the IGT Sustainability Report 2019. (3) Scope I: fuel consumption (including: natural gas; diesel, propane and liquified petroleum gas (“LPG”) consumption for generators; diesel, gasoline and LPG for vehicles such as company cars, small trucks or forklifts) and fugitive emissions of refrigerants. Ton CO2eq = data (fuel consumption or refrigerants refill) * Emission Factor. Data has been mainly collected from invoices. In addition, in order to calculate Scope I GHG emissions with reference to 100% of IGT locations active in 2020, only with reference to those offices that were unable to provide natural gas data in 2020, they have been estimated based on an average emission per square meter, actual use of the asset due to the COVID-19 pandemic and natural gas consumption of the previous year. (4) Scope II: Electricity consumption only. Ton CO2eq = kWh * Emission Factor. The ratio of the annual emissions associated with the Company’s activities based on the quantity of tonnage per thousand dollars is equal to 0.0198 (Scope I and Scope II divided by total revenues in U.S. thousand dollars). Data has been mainly collected from invoices. In addition, in order to calculate Scope II GHG emissions with reference to 100% of IGT locations active in 2020, only with reference to those offices that were unable to provide electricity consumption data for 2020, they have been estimated based on an average emission per square meter, actual use of the asset due to the COVID-19 pandemic and electricity consumption of the previous year. (5) The decrease in CO2eq Scope I and Scope II emissions is mainly due to the COVID-19 pandemic, as some activities have stopped and offices were closed in certain months of 2020. With reference to Scope II emissions only, another cause of the decrease is due to the update of the emission factors. The methodology used is based on voluntary and mandatory GHG reporting guidance issued by the Department for Environment, Food and Rural Affairs (“DEFRA”). For GHG emissions related to electricity, we have used the emission factors (“EFs”) issued by the International Energy Agency (IEA), except for U.S. states for which we used state-based U.S. Environmental Protection Agency emission factors, and for countries for which the IEA EFs were not available, we used and the Institute for Global Environmental Strategies EFs. (6) For fuel and operations energy consumption, we have used DEFRA protocol conversion factors in order to obtain data expressed in kWh. EMPLOYEE Diversity and Inclusion; Equal Employment IGT is committed to providing equal employment opportunities for all applicants and employees on the basis of qualification. The Company will not permit discrimination on the basis of characteristics such as, race, color, 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, IGT will accommodate applicants and employees with disabilities, including those who acquire temporary or long-term disabilities during their employment with IGT. In addition, IGT may offer training and other professional development opportunities to employees with disabilities or those who become disabled during their employment. by set IGT values workplace diversity and respect for all employees. As reported, the Company follows the principles Labour the Organization 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. International its policies, outlining IGT regularly updates the to equal employment Company’s commitment opportunities and non-discrimination, thus fostering a work environment that reflects a fair and inclusive culture that values unity and diversity. The Company enforces compliance by implementing practices to Annual Report and Accounts 2020 Page | 39 in business conduct, execute policies training employees in the application of procedures, and taking appropriate disciplinary action up to and including termination of employment for violation of the Company’s policies except where prohibited by law or contrary local collective bargaining agreements. IGT has a specific anti-harassment policy, that reflects best practices and addresses company culture, designed to set the expectations and standards of behavior required for all IGT employees. to launched in the midst of global unrest in response to current and historic racial inequity most visible in police interactions with people of African descent in the United States. The Company reaffirmed its commitment to its values through a clear statement from the Company's Chief Executive Officer (“CEO”) and hosting a series of global conversations about race, racism and concrete actions we can take as a Company to open lines of communication on this important, yet difficult, topic. IGT is actively engaged At IGT, diversity and inclusion are critical to who we are. in building and sustaining a diverse and inclusive company that anticipates and meets the needs of the global customer base and the evolving demographics of the communities where our employees and customers are located. 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. In 2019, the Company formally launched its Diversity and Inclusion Groups (“DIGs"). DIGs are employee networks structured around dimensions of diversity and are open to all employees. DIGs provide engagement and development opportunities, help develop awareness of the unique issues faced by employees, and promote inclusion at every level of the company. By 2020, the Company launched six DIGs with including twelve chapters worldwide, for black employees; military veterans; groups persons with disabilities; employees who are 50 years of age and above; lesbian, gay, bisexual, transgender and queer employees and their supporters; and women. Over 10% of the Company’s employees belong to at least one Diversity and Inclusion Group and thousands more participate in programming and development opportunities hosted by our DIGs. To ensure the continued growth and expansion of our DIGs, the Company hosted a weeklong “boot camp” for DIG leaders and Company leaders who serve as Executive Sponsors to ensure the group’s purpose, direction, and vision is still meaningful, reflective of the needs of members, and supported by DIG leadership. This series of workshops also prepared group leaders for 2021 planning. DIGs are instrumental in addressing and articulating employee needs and concerns in response to the impact of COVID-19 on the Company’s business and the work and personal lives of all employees. In August 2020, ACE (Advancing Cultural Education) at IGT, focused on employees and communities of African descent, became the Company’s sixth DIG. While in the planning stages earlier, ACE at IGT The Company is the only member of the gaming industry to be invited by the British Standards Institution, the national standards body of the United Kingdom, and the All-in Diversity Project ("AIDP") to join the Workplace Code of Practice Steering Group. The group is committed to developing a global diversity, equality, and inclusion standard applicable to any organization, in any industry, across all organizational level. In addition, the Company is one of 325 companies across 50 industries selected for the 2020 Bloomberg Gender-Equality Index, which distinguishes companies committed to advancing women's equality and transparently reporting gender data. The Company was also recognized by the AIDP as one of the highest-ranking participants in AIDP’s 2019 All-Index™ report, an annually published benchmarking tool that measures the global gaming and betting industry’s progress toward inclusion in the workplace. Of the 26 entities from around the world that participated in the 2019 survey, the Company received the second-highest score out of 100, with only a five-point difference between it and the top- represents a ranked participant. significant its ninth-place results among 25 respondents in the AIDP’s inaugural 2018 report. increase compared ranking to IGT’s All 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 2020, the Company added additional education around actively and immediately challenging or “calling out” inappropriate behavior in a way that supports a culture of respect and safety for all employees. In 2020, the Company expanded its diversity and inclusion education program by rolling out global education on unconscious bias through a combination of videos, self-directed e-learnings and small group discussions. In addition, leaders, including members of Inclusion Council participated in “Fostering Diversity and Inclusion,” offered through Exec Online and the Yale University School of Management. the Global Diversity and Annual Report and Accounts 2020 Page | 40 The Company also hosted regular “Open Door Sessions” to give all employees the opportunity to to diversity, equity and explore inclusion in a welcoming and affirming environment. issues related Additionally, in 2020, IGT administered its biennial employee engagement survey, MyVoice@IGT. The survey - offered to all employees worldwide - allows every member of to express such as technology. The communication and access survey’s results shape Company-wide and business unit-specific action plans. the Company’s workforce their opinions on topics to Historically, as part of encouraging employee involvement in the performance of the Company, IGT has offered several performance-based programs, such as a share-award program for employees at a certain level. The share award is based on a three- year performance cycle, based on the achievement of several pre-determined financial metrics. Setting these thresholds and offering this share incentive accountability which helps significantly impacts the overall performance of the Company. The Company also offers a short-term incentive program based on achievement of pre- determined fiscal year financial results as well as pre- individual determined goals. performance leadership specific against drive time-based In addition, Further, IGT offers an employee recognition program, Spotlight, that provides monetary and non-monetary awards for employee contributions. However, due to the challenges experienced in 2020, the Company suspended the short-term incentive and Spotlight the Company programs until 2021. granted restricted stock unit share awards, for which vesting is based on continued to certain through service the in employees challenge of establishing long-term performance metrics during this continued time of uncertainty. The Company expects to reinstate performance-based programs for employees in 2021, including the short- term incentive program and performance-based share awards, consistent with historical practice. Additionally, the Spotlight program is expected to be reinstated in 2021. leadership positions, given the vesting dates, Communication The Company maintains communication tools and channels that facilitate the distribution of information to employees. Communication outlets include email, internal social networking, a file sharing and instant messaging platform, print materials and an internal website OneIGT. Across platforms, information distributed to employees touches on everything from financial and economic news to organizational updates, new product launches, policies, programs and stories about individual accomplishments, among other topics. As of January 2021, OneIGT has received more than 1 million site visits. facets of financial performance, IGT also regularly hosts Company-wide meetings to provide employees with important information and to field employee questions. In 2020, IGT hosted more than six such events, including sessions highlighting talent the Company’s development processes, diversity and inclusion initiatives and business-specific events highlighting core IGT’s operations. These events featured leaders including but not limited to the Company’s CEO, the Chief Financial Officer, the Global Head of People and Transformation, the CEO of Global Lottery and the CEO of Global Gaming. Directors engaged with employees in 2020 by taking part in internal initiatives such as meeting with in an members of a DIG and participating International Women’s Day video distributed to employees throughout the Company. Annual Report and Accounts 2020 Page | 41 PRINCIPAL RISKS AND UNCERTAINTIES The Company seeks to minimize, 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, which avails itself of its Audit Committee. 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 categorized into the following broad risk categories: Risks relating to the Company’s business and industry; Legal and compliance risks; • • • Operational risks; and • Financial risks. The potential impact of these risks, and the mitigating controls in place to manage their impact, are as follows: DESCRIPTION AND CONTEXT Business and Industry Termination of or failure to renew or extend existing contracts and win new contracts The Company derives a substantial portion of its revenues from its portfolio of long-term contracts in the Global Lottery segment awarded through competitive procurement processes. In addition, the Company’s U.S. lottery contracts typically permit a lottery authority to terminate the contract at any time for material, uncured breaches and for other specified reasons out of the Company's control. The termination of or failure to renew or extend one or more of the Company's lottery contracts, or the renewal or extension of one or more of the Company's lottery contracts on materially altered terms, could have a material adverse effect on the Company's results of the Company’s operations, business, financial conditions or prospects. The outbreak of the novel coronavirus COVID-19 The extent and duration of the COVID-19 pandemic and related government actions has impacted, and may continue to impact, many aspects of the Company's business, including through workforce limitations, travel restrictions, closure of public buildings and businesses, cancellation of events, supply chain disruptions, decreased customer demand for its products and services and decreased consumer demand for some of the products and services that the Company provides to its customers and, in some cases, directly to consumers. Further, the perception of risk of infection have contributed to consumer unease, decreased discretionary spending and consumer travel, which have had and will continue to have a negative effect on the Company. The unfavorable economic condition resulting from the outbreak of COVID-19 has impacted and could continue to impact the business of the Company's customers, including their ability to make timely payments. The current and uncertain future impact of the COVID-19 outbreak is expected to continue to impact the Company's results, operations, outlooks, plans, goals, growth, reputation, cash flows, and liquidity. Adverse changes in discretionary consumer spending and behavior, due to general social, economic and political conditions Socio-political and economic factors that impact consumer confidence may result in decreased discretionary spending by consumers and have a negative effect on the Company's business. Unfavorable changes in social, political and economic conditions and economic uncertainties, as well as decreased discretionary spending by consumers including as a result of the COVID-19 pandemic, may adversely impact customers, suppliers and business partners in a variety of ways. A decline in discretionary income over an extended period could cause some of the Company’s customers to close casinos or other gaming operations, which would adversely affect the Company's business. MITIGATION strong We maintain open and the regulators and relationships with 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 have implemented a cross-functional, company-wide COVID-19 response team focused on addressing the impact of the global pandemic on our employees, customers, liquidity, financial position and continuity of services. We continue to monitor the extent of the pandemic and its the Company's results, impact on operations, goals, plans, outlooks, growth, cash flows, and liquidity. 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. We implement pricing initiatives and prize to payout strategies, and continue improve our players experience. Annual Report and Accounts 2020 Page | 42 DESCRIPTION AND CONTEXT Penalties for failure to perform The Company's 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 its performance under such contracts and require the Company to pay substantial monetary liquidated damages in the event of non-performance by the Company. At December 31, 2020, the Company had outstanding performance bonds and letters of credit in an aggregate amount of approximately $1.7 billion. These instruments present a potential for expense for the Company 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 the Company's results of operations, business, financial condition, or prospects. Slow growth or declines (including as a result of COVID-19) and competition in the lottery and gaming markets, and lower cost of entry into the gaming industry The Company’s future success will depend, in part, on the success of the lottery industry and the gaming industry in attracting and retaining new players in the face of such increased competition in the entertainment and gaming markets. In addition, there is a risk that new products and services may replace existing products and services and the Company's customers might acquire or develop competencies that reduce their dependencies on the Company's product and services. As a result of developments in digital and internet gaming, the cost of entry to the gaming market has decreased significantly. This results in a highly competitive environment. Reduced demand for the Company's products and services and increased pricing pressures on a number of its products and services may impact the Company and its operations, business, financial condition or prospects. Uncertainty created by Brexit The U.K. exited the E.U. on January 31, 2020, and the transition period concluded on December 31, 2020. In December 2020, the U.K. and E.U. announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic and political issues. As the Company maintains significant operations in the E.U., the terms of the December 2020 post-Brexit deal could subject the Company to increased risk. Ability to develop and manage frequent introductions of innovative products and the ability to respond to technological changes If the Company's competitors develop new game content and technologically innovative products and the Company fails to keep pace, its business could be adversely affected. In addition, if the Company fails to accurately anticipate customer needs and end-user preferences through the development of new products and technologies, the Company could lose business to its competitors, which would adversely affect its results of operations, business, financial condition, or prospects. Intellectual property laws may afford differing and limited protection for our proprietary technology and intellectual property Competitors may duplicate the Company's products, design around its patented products, or gain access to its proprietary technology and intellectual property. The Company may not be able to prevent the unauthorized disclosure or use of its technical knowledge or trade secrets. The Company may not be able to detect the unauthorized use of its intellectual property, prevent breaches of its cybersecurity efforts, or take appropriate steps to enforce its intellectual property rights effectively. MITIGATION We strive to perform under each of our contracts. To date, we have not had to pay any substantial monetary liquidated result of our non- damages as a performance. We work with other participants in the lottery industry to attract and retain new players, and devote significant resources to services, products, and distribution methods/ systems. developing innovative We continue to evaluate the impact of the December 2020 post-Brexit deal on our business, future operations, operating results and cash flows. Our flexibility as a global organization enables us to timely react with structural and operational changes as may be appropriate. intend We invest heavily in product development in various disciplines and to continue investing resources in research and development. We continue to refine the design, development, and delivery capabilities of our products across all channels to ensure product innovation. We vigorously protect our proprietary technology and intellectual property to ensure that our competitors do not use such technology and intellectual property. trade We also prevent disclosure of secrets know-how through non-disclosure and confidentiality contractual agreements non-compete restrictions arrangements. and including proprietary other and Annual Report and Accounts 2020 Page | 43 DESCRIPTION AND CONTEXT Risks arising out of divestitures Divestitures involve risks, including difficulties in the separation of operations, services, products and personnel, the diversion of management's attention from other business concerns, the disruption of business, the potential loss of key employees and the retention of uncertain contingent liabilities related to the divested business. The Company may not be successful in managing these or any other significant risks that it encounters. Any such divestiture could materially and adversely affect the Company’s business, financial condition, results of operations and cash flows, and may also result in a diversion of management attention, operational difficulties and losses. Loyalty Voting Structure may limit other shareholders’ ability to influence corporate decisions As of March 11, 2021, De Agostini S.p.A. ("De Agostini") had an economic interest of approximately 50.49% in the Parent 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 65.05% of the total voting rights. This shareholder may make decisions with which other shareholders may disagree, including, among other things, delaying, discouraging, or preventing a change of control of the Company or a potential merger, consolidation, tender takeover, or other business combination and may also prevent or discourage offer, shareholders’ initiatives aimed at changes in the Parent’s management. Legal and Compliance Changing enforcement of the U.S. Interstate Wire Act of 1961 On January 14, 2019, the U.S. Department of Justice (the "DOJ") published an opinion (the "2019 Opinion") reversing its previously-issued opinion that the Wire Act, which prohibits several types of wager-related communications over a "wire communications facility", was applicable only to sports betting. The 2019 Opinion interprets the Wire Act as applying to other forms of gambling that cross state lines. On June 3, 2019, the U.S. District Court for the District of New Hampshire ruled that the Wire Act applies only to sports betting and related activities, and the decision was affirmed in part by the United States Court of Appeals for the First Circuit on January 20, 2021. It is unclear whether the DOJ will appeal the First Circuit decision to the Supreme Court of the United States. If the Wire Act is broadly interpreted and enforced to prohibit activities in which the Company and its customers are engaged, the Company could be subject to investigations, criminal and civil penalties, sanctions and/or other remedial measures and/or the Company may be required to substantially change the way it conducts its business, any of which could have a material adverse effect on the Company's results of operations, business, financial condition, or prospects. The extensive and complex laws and regulations applicable to our operations Regulatory requirements are constantly evolving and may vary from jurisdiction to jurisdiction. 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. Lower than anticipated sales due to regulatory constraints could have a materially adverse effect on the results of the Company’s operations, business, financial conditions or prospects. to its relevance MITIGATION review our business We constantly the portfolio and Company's long-term business strategy. We to take a systematic approach evaluating divestiture opportunities - from considering the complexity, viability, and the costs and benefits of separating a business unit in preparation for a sale, to establishing a project plan, timeline and deliverables and execution of such plan. Our Directors must, in good faith, act in a way that they consider most likely to promote the success of the Company for the benefit of its members as a whole. We robust Related Person enforce our Transactions Policy through ample of internal publicity and training, and rigorous controls implemented by our Internal Audit team. The Audit Committee conducts thorough reviews of key related party transactions, with all Independent Directors participating the decision making process and involvement from external legal and financial advisors, if necessary, the costs associated with such advisors being shared between the Company the related party in question. in We continue to monitor and evaluate the 2019 Opinion, the development of the legal challenge against the 2019 Opinion and the DOJ's position on the issues and the to us, our customers, and the industries in which we operate. implications thereof 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. Annual Report and Accounts 2020 Page | 44 DESCRIPTION AND CONTEXT Adverse changes in tax regulation and differing interpretations by authorities on taxation While the Company believes its tax positions are consistent with the tax laws in the jurisdictions in which it conducts business, it is possible that these positions may be overturned by tax authorities, which may have a significant impact on the Company’s global provision for income taxes. Furthermore, changes in tax laws or regulations may be proposed or enacted that could significantly affect the Company’s overall tax expense. Any increases in the levels of taxation or duties to which the Company is subject, or the implementation of any new taxes or levies to which the Company will be subject, could increase the Company's tax obligations in countries where it does business, which may adversely affect on the Company's results of operations, business, financial condition, or prospects. Operational Failure to attract, retain and motivate personnel The Company's success relies on the continued service of its senior management and technical personnel, and on its ability to continue to attract, motivate, and retain highly qualified employees and maintain a diverse workforce. Particularly in the lottery and gaming industries, the market for qualified executives and highly-skilled technical workers is intensely competitive, and the loss of key employees or an inability to hire a sufficient number of technical staff could limit the Company's ability to develop successful products and could cause delays in getting new products to market. Lack of integrity of our employees, directors and agents The Company strives to set exacting standards of personal integrity for its employees and directors and its reputation in this regard is an important factor in its business dealings with lottery, gaming, and other governmental agencies. An allegation or a finding of improper conduct on the Company's part, or on the part of one or more of its current or former employees, directors or agents, or the failure to detect fraudulent activity by employees in a timely manner, could have a material adverse effect upon the Company's results of operations, business, financial condition, or prospects, including its ability to retain or renew existing contracts or obtain new contracts. For example, in October 2020, the Italian Tax Police announced that it is investigating alleged misconduct by a small number of the Company's former employees which involved unauthorized access to the Company's lottery system in Italy in order to identify and redeem winning scratch-off lottery tickets. The Company is fully cooperating with the Italian Tax Police in order to facilitate its investigation into the alleged misconduct and has taken proactive steps to ensure the integrity of the Company's games and to protect the interests of the Company's customers. Lack of integrity of our products and systems The real and perceived integrity and security of the Company's products and systems are critical to its ability to attract customers and players. In the event of an actual or alleged defect in a Company product or unauthorized access of a Company system, the Company's existing and prospective customers may lose confidence in the integrity and security of the Company's products and systems. Such a failure could have a material adverse effect upon the Company's results of operations, business, financial condition or prospects, including its ability to attract new customers and retain its existing customers. MITIGATION tax We maintain a well qualified department as well as good relationships with third party tax experts, helping to achieve risks assess tax the compliance with legislation. We strive to maintain a consultative and collaborative relationship with the tax authorities. and relevant these in them to support to attract and retain We put in place and improve on our succession plans for key roles. We provide well-structured and competitive reward and benefit packages that ensure our ability the employees we need. We invest in training and career development opportunities for our people their careers. We strive to create a fair and inclusive culture that values unity, diversity, and belonging in our people, players, customers, and communities. We strive to set exacting standards of personal integrity for our employees and directors as part of our process to maintain the highest levels of integrity in our operations and fulfil regulatory and licensing processes. We have a robust global compliance program that requires they to acknowledge employees understand and comply with company policies. The Audit Committee reviews the Company's procedures for its systems the prevention of and controls corruption and bribery, including the Anti- Corruption Compliance and Ethics Policy, and receive periodic compliance reports. review our We operational systems and processes designed to prevent fraudulent activities. take measures that for to to improving We are committed the technologically advanced design of systems intended to increase products’ security and maintaining integrity and we strive to set exacting standards of integrity and security for our products and systems. Annual Report and Accounts 2020 Page | 45 DESCRIPTION AND CONTEXT Cyber-attacks and cyber-security risks Theft and security breaches may expose the Company to a risk of loss of, or improper use and disclosure of, confidential business and personal information, which may result in significant litigation expenses and liability exposure, seriously harm the Company's reputation, and have a material adverse effect on the Company's results of operations, business, financial condition, or prospects. Additionally, cyber-attacks could also compromise trade secrets and other sensitive information and result in such information being disclosed to others and becoming less valuable, which could have a material adverse effect upon the Company's results of operations, business, financial condition, or prospects. Decreased operational efficiency and productivity due to measures taken to reduce the impact of the COVID-19 pandemic The outbreak of COVID-19 has caused, and may continue to cause us and certain of the Company’s suppliers, to implement temporary measures mandating employees to work from home and collaborate remotely where possible. Furthermore, the COVID-19 pandemic has changed the way the Company connects with customers. The extent to which this outbreak impacts the Company’s results of operations, cash flows, and financial condition will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity and duration of this outbreak and the actions taken by governmental authorities and us to contain it or treat its impact. Systems, network or telecommunications failures Any disruption in the Company's network or telecommunications services, or those of third parties that the Company uses in its operations, could affect the Company’s ability to operate its systems, which could result in reduced revenues and customer downtime. Disruptions with Company's network and databases of business and customer information and those of third parties the Company uses could result in a wide range of negative outcomes, including devaluation of the Company's intellectual property, increased expenditures on data security, and costly litigation and potential payment of liquidated damages, each of which could have a material adverse effect on the Company's results of operations, business, financial condition, or prospects. Financial Covenants in the Company’s debt agreements may limit its ability to operate its business Certain of the Company's debt agreements require it to comply with covenants that may limit the Company's ability to, amongst other things, pay dividends and repurchase shares, dispose assets and incur indebtedness. For example, in May 2020, the Company entered into agreements to amend its senior debt arrangements which, among other things, prohibit the Company from making restricted payments (including dividends, ordinary share repurchases) during the period commencing on April 1, 2020 and expiring on June 30, 2021. A breach of such covenants could, if not cured or waived, result in acceleration of its indebtedness, result in the enforcement of security interests or force the Company into liquidation. Such a breach or any failure to otherwise timely repay outstanding indebtedness could have a material adverse effect on the Company's results of operations, business, financial condition, or prospects. The Company may incur additional impairment charges The Company may be required to record a significant charge in its consolidated financial statement during the period in which any impairment of goodwill or intangible assets is determined, which would negatively affect the Company’s results of operations. In light of the COVID-19 pandemic and the resulting unfavorable social, political, economic, and financial conditions, the Company performed an interim goodwill impairment assessment under IFRS in the three months ended March 31, 2020, which resulted in a $296.0 million goodwill impairment charge reducing the value of its former International and North America Gaming and Interactive segments. MITIGATION We continuously implement and improve network security measures and data protection safeguards to prevent or detect cyber-attacks. We put in place and improve our internal policies and insurance procedures, and also hold policies that can mitigate losses incurred due to cyber-attacks. the and enhanced We have taken measures to monitor and reduce the outbreak, impact of including establishing a cross-functional global crisis management team, protocols for responding when employees are cleaning infected, procedures at all sites. We have also taken measures to reduce operating costs and ensure liquidity given the uncertain impact of COVID-19 on revenue, deferred all non-critical capital expenditures, have implemented a number of employee- related actions, and may in the future implement further actions. safeguards, We continuously implement and improve network security measures and data protection a disaster recovery strategy for back office systems. We also hold insurance policies that can mitigate losses incurred due to cyber-attacks. including We maintain long debt maturities and reasonable net debt to EBITDA leverage to help minimize our refinancing risk. We meticulously monitor and forecast the leverage threshold and other ratio financial covenant measures. in We monitor events and changes the impact circumstances which may carrying value of our amortizable intangible assets. We continue to review our amortizable for impairment, and tests goodwill and other indefinite-lived for impairment at least annually. intangible assets intangible assets Annual Report and Accounts 2020 Page | 46 The impact of COVID-19 Please refer to the CEO statement and the Section 172 Statement for the impact of COVID-19 on operations and actions taken by the Company. Given the uncertainty associated with pandemic-related restrictions, mainly on the Global Gaming segment, the Company is not providing a full-year outlook at this time. Approval This Strategic Report has been approved by the Directors on March 11, 2021 and signed on its behalf on March 16, 2021. Signed on behalf of the Directors by: Marco Sala Chief Executive Officer Annual Report and Accounts 2020 Page | 47 2. DIRECTORS' REMUNERATION REPORT ANNUAL STATEMENT Dear Recipient, As the chairperson of the Compensation Committee (the "Committee"), I am pleased to present the Directors' Remuneration Report for the financial year ended December 31, 2020. This report is split into three sections: • • • the the activities of year, and explains how This Annual Statement summarizing the work of the Committee, our approach to Directors’ remuneration, and the Committee in the year; The Remuneration Report, which sets out the payments and awards made to Directors, the Parent’s link between details performance and remuneration for the 2020 financial the Remuneration Policy was implemented in the financial year under review. The Remuneration Report is designed to demonstrate the link between its performance and the remuneration outcomes of our Directors and particularly those of our Executive Director and Chief Executive Officer ("CEO"), Marco Sala, and our Executive Director and Executive Vice President and Chief Financial Officer ("CFO"), Max Chiara; and The Remuneration Policy, which presents our proposed Directors’ Remuneration Policy to be put before shareholders for approval at the forthcoming annual general meeting (“AGM”). The current Remuneration Policy was approved at the May 2019 AGM. the Company's strategy, Following the appointment of new Directors, including an additional Executive Director, to the Board during 2020, the Committee commenced a detailed review of the Remuneration Policy to identify areas of change, if any. The key policy changes are summarized in the proposed Remuneration Policy contained in this Directors’ Remuneration Report. The proposed Remuneration Policy, subject to approval by shareholders (binding vote), will last for three years from the forthcoming AGM or until another remuneration policy is approved in a general meeting. Remuneration program is a common component of Director Equity remuneration within our remuneration peer group and it is common and appropriately competitive within our market to use non-performance based equity for compensating Directors. The Committee regularly reviews IGT's remuneration structures, taking into account external emerging in corporate governance developments. trends responsibilities Our remuneration arrangements take into account the additional director 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. We are sensitive to U.K. corporate governance practices and remuneration policies, and recognize that some aspects of our current remuneration arrangements may not be consistent with these practices and policies. The Committee aims to balance any conflict between those practices and policies and the need to effectively compete for talent in a complex, global marketplace. While the U.K. Corporate Governance Code does not apply to the Company, we nevertheless seek to apply its provisions where consistent with Company’s needs and operating environment. The Directors’ Remuneration Report has been prepared in accordance with all applicable U.K. legislation while taking account of applicable corporate governance and proxy guidelines. The Committee continues to the Company’s look for opportunities latest proxy remuneration structures with guidelines and shareholder expectations. to align the is subject The Remuneration Report, together with this Annual to an annual advisory Statement, shareholder vote at the forthcoming AGM and does not affect to an individual Director. the actual remuneration paid Overall, the Committee has concluded that our current remuneration program is competitive and appropriate within the market where we primarily compete for directors and executive talent. Annual Report and Accounts 2020 Page | 48 Changes to the Board Paget Alves did not stand for re-election to the Board at the 2020 AGM thus his term ended on June 25, 2020. He was also a member of the Committee during 2020 until his Board term ended. Beatrice Bassey was appointed to the Board on March 20, 2020. She received pro-rated remuneration for service during the year and an award of pro-rated restricted share units (“RSUs”) which vested on June 25, 2020. Beatrice Bassey was appointed to the Nominating and Corporate Governance Committee on June 25, 2020. On April 14, 2020, Max Chiara joined the Board as an the Executive Director, after having Company on April 6, 2020 as Executive Vice President and Chief Financial Officer. joined first 2020 Remuneration highlights Executive Directors Below are the highlights of the remuneration-related circumstances that impacted our Executive Directors during 2020: • • • • for cancelled annual the same six-month period. the Committee 2020 Key remuneration decisions related to COVID-19: As a result of the global onset of COVID-19, the Committee approved six-month salary reductions of 50% and 30% for Marco Sala and Max Chiara, respectively, effective April 1, 2020 through September 30, 2020. This salary reduction further impacted certain global leadership roles on a declining percentage In scale the addition, performance-based bonus program for all eligible employees, including the Executive Directors. The Committee Performance metrics: reviewed performance achievement of the 2018-2020 LTIP (as defined below) against metrics at the February 2021 Committee meeting and determined them to be appropriate in light of business performance across the the relevant performance periods despite impact of COVID-19 on operations. Performance achievements: The performance metrics of the 2018-2020 LTIP (as defined below) performance shares units ("PSUs") did not meet threshold achievement and, therefore, no awards under the 2018-2020 LTIP vested for Executive Directors or other eligible employees. 2020 Long-Term Incentive Plan ("LTIP"): Historically, IGT has awarded equity in the form of PSUs, which vest based on achievement against predetermined company financial performance targets. This practice, however, proved challenging in 2020 amid the COVID-19 Establishing pandemic. forward-looking performance metrics during this continued time of uncertainty led us to consider alternatives for this year’s process. Consistent with the 2015 Equity Incentive Plan, the Committee modified its typical practices of awarding only PSUs and, instead approved a one-time award of RSUs. The Committee determined that time-based RSUs was the most effective way to reward Executive Directors eligible employees for their extraordinary efforts and IGT’s results during this unprecedented year. other and Non-Executive Directors There were no substantial changes to the Non- Executive Directors' remuneration during 2020. Use of discretion during 2020 During 2020, and as a result of COVID-19's impact on business operations, the Committee: • • in the section headed Cancelled the performance-based 2020 annual bonus program and approved salary reductions for the Executive Directors, as more fully "2020 described Remuneration Highlights" of this Annual Statement; and Altered the practice governing the LTIP by granting a one-time time-based awards, with vesting based on continued service through each of the vesting dates - December 31, 2021 and December 31, 2022. Other than as disclosed above, the Committee did not exercise its discretion when awarding Directors’ remuneration during 2020. In conclusion I would like to thank our shareholders for their continued support during the year. We continue to 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 Chairperson of the Compensation Committee Annual Report and Accounts 2020 Page | 49 REMUNERATION REPORT This Remuneration Report, prepared in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended, explains how the Remuneration Policy was implemented in 2020 and the resulting payments each of the Directors received. The information in this report has been audited where required under the Regulations, which is indicated for the applicable sections. This report is subject to an advisory vote by shareholders at the forthcoming AGM. Executive Directors’ remuneration as a single figure - audited The remuneration of the Executive Directors for the financial years ended December 31, 2020 and 2019 is set out below and relates to the performance of their roles as the Executive Directors of the Parent or in connection with the management of the affairs of any subsidiary of the Parent. ($) Salary(1) Benefits(2) Pension(3) Other(4) Total Fixed Pay Annual Bonus(5) LTIP(6) Total Variable Pay Total(7) Marco Sala 2020 2019 979,998 280,988 1,195,884 1,277,768 265,452 500,343 — — 2,456,870 — 3,368,947 2,043,563 3,797,237 657,840 3,368,947 4,455,077 5,825,817 6,498,640 Max Chiara 2020 453,846 294,711 754 500,000 1,249,311 — 1,054,735 1,054,735 2,304,046 (1) Marco Sala’s annual salary is $1,000,000 paid monthly, of which 70% is paid in GBP and 30% in Euros, both of which are converted using fiscal year-to-date exchange rates. In addition to base salary, the amount includes true-up payments related to foreign currency fluctuations and tax equalization, per his employment contract. Marco Sala's 2020 salary also reflects a 50% reduction for the April 2020 to September 2020 period. Max Chiara’s annual salary is $800,000 paid bi-weekly. He joined the Company in April 2020; therefore, his salary reflects a pro-rated annual amount as well as a 30% reduction for the April 2020 to September 2020 period. (2) Taxable benefits include the following: ($) Housing Car Benefit Meals & Travel Allowances Insurance(a) Tax(b) Other (c) Total Taxable Benefits Marco Sala 2020 2019 Max Chiara 2020 17,762 18,624 22,959 22,207 7,335 9,326 4,569 4,459 228,363 210,836 — — 280,988 265,452 — — — 5,529 — 289,182 294,711 (a) Includes health and life insurance. (b) Represents tax equalization related to LTIP and allowances as well as tax preparation services. (c) Includes benefits paid to Max Chiara for costs incurred to re-locate from his prior residence to Rhode Island as required for his employment, as well as his pro-rated perquisite. (3) Marco Sala's pension includes base pension contributions, severance and employer social tax contributions in respect of his Italian service agreement. Marco Sala’s 2020 pension includes a $766,717 pension contribution related to his 2019 annual bonus which was paid in 2020. In March 2019, the HMRC granted a formal Section 690 Payroll Directive for Marco Sala (under U.K. Legislation Section 690 ITEPA 2003). This applied for the 2018 to 2019 UK tax year on a cumulative basis resulting in a one-time large payroll credit of income tax for Marco Sala in March 2019 and corresponding reduction to employer pension contributions, the impact of which is included in 2019 pension. Max Chiara's pension includes employer contributions to his United States defined contribution 401(k) plan. (4) The amount relates to the first installment of a $2.0 million bonus as part of Max Chiara's offer of employment to compensate for his forfeited remuneration at his previous employer, which is to be paid in four equal installments as follows: (1) within 30-days of his employment start date; and (2) on each of the first, second and third anniversaries of his employment start date. He must remain employed with the Company through the applicable payment date to receive each installment. (5) The Committee cancelled the annual performance-based bonus program in 2020; therefore, no bonus was earned in 2020. Marco Sala's 2019 amount represents annual bonus earned for the annual performance period ended 2019 paid in 2020. This amount also includes the estimated true-up payments related to foreign currency fluctuations and tax equalization, per Marco Sala's employment contract. (6) Total LTIP is as follows: Marco Sala 2020 2019 Max Chiara 2020 Performance Units(a) ($) Shares Restricted Share Units(b) ($) Shares Total LTIP Shares ($) — 70,508 — 657,840 277,508 3,368,947 — — 277,508 70,508 3,368,947 657,840 — — 86,881 1,054,735 86,881 1,054,735 (a) The 2020 amount reflects 0% performance achievement subject to the 2018 through 2020 performance period, therefore no shares will vest under this plan. The 2019 amount represents 38.2% of target PSUs subject to the 2017 through 2019 performance period, of which 50% vested on April 1, 2020, multiplied by $6.52, the share price on the date of vesting, and the remaining 50% of which will vest on April 1, 2021. The 2019 amount has been updated to reflect the number of units scheduled to vest in April 2021 multiplied by $12.14, the three-month ending share price as of December 31, 2020. Annual Report and Accounts 2020 Page | 50 (b) The amount reflects the number of RSUs granted on November 6, 2020 multiplied by $12.14, the three-month ending share price as of December 31, 2020. 50% of the RSUs vest on December 31, 2021 and the remaining 50% vest on December 31, 2022, subject to continued service through the applicable vesting dates. (c) Details on share price appreciation is included in “Interests and vesting criteria shares awarded during the financial year - audited” below. (7) Marco Sala's total remuneration reflects all remuneration related to his 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. Performance against performance conditions for the annual bonus program - audited Annual bonuses under the annual bonus program were cancelled for all eligible participants in 2020 due to the impact of COVID-19 on business operations. Performance against performance conditions for the LTIP vesting - audited The LTIP amount included in performance units of the 2020 single-figure table of remuneration reflects the performance share units granted in 2018. Vesting was dependent on performance over three financial years ended on December 31, 2020 and continued service until April 1, 2021 for 50% of the units earned and April 1, 2022 for the remaining 50% of units earned. The vesting of the 2018 PSUs were tied to first achieving a three-year Cumulative Consolidated Adjusted EBITDA of at least 92.5% of target adjusted by an Adjusted Net Debt scoring factor measured on the Adjusted EBITDA/Adjusted Net Debt Scoring Matrix that positively or negatively adjusts the Adjusted Cumulative EBITDA payout based on Adjusted Net Debt results versus the plan target. The performance of these awards is further modified by the Company’s relative Total Shareholder Return performance against the Russell Midcap Index. Given the impact of COVID-19 on the Company’s financial results, threshold Adjusted Cumulative EBITDA performance for vesting was not achieved and the Committee did not use discretion to vest any portion of the 2018 PSUs. No shares were earned in respect of this performance period; therefore, no value has been realized related to share price appreciation. The performance achieved against the performance targets is shown below. ($ in millions) 2018 - 2020 Adjusted Cumulative EBITDA Adjusted Net Debt EBITDA/Net Debt Matrix Result Relative TSR(1) Modifier Performance results (% of target)(2) Total units earned (% of maximum)(3) Threshold Target Maximum 2020 Performance Performance % of Target Payout % 4,867 7,681 5,262 7,381 5,525 7,081 4,565 6,968 87% 106% <25th 60th >75th 7.8% 13% —% —% —% 75.0% —% —% (1) Total Shareholder Return. (2) EBITDA/Net Debt Matrix Result payout (0.0%) multiplied by relative Total Shareholder Return Percentile payout (75.0%). (3) The maximum number of shares to be earned under the plan is 145% of target. Interests and vesting criteria shares awarded during the financial year - audited Historically, the Parent has granted awards under the LTIP which are subject to conditions based on the achievement of predetermined company financial performance, modified by the company's relative Total Shareholder Return (“TSR”) compared to the Russell Midcap Index, over a three-year period. Given the challenges in setting long-term financial performance targets amid the COVID-19 pandemic, in 2020 the Committee altered the practice governing the LTIP to grant time-based RSUs to the Executive Directors, for which vesting is based on continued service through the applicable vesting dates, upon which 50% of units vest on December 31, 2021 and the remaining 50% vest on December 31, 2022. Annual Report and Accounts 2020 Page | 51 The long-term incentive plan amount included in the RSUs of the 2020 single-figure table of remuneration reflects the RSUs granted in 2020. The details of these RSUs are included in the table below: Executive Director Marco Sala Max Chiara Type of Award RSU RSU Maximum Units 277,508 86,881 Price on Grant Date ($) 9.08 9.08 Face Value on Grant Date(1) ($) 2,519,773 788,879 Share Price Appreciation(2) ($) 849,174 265,856 (1) The face value on grant date is calculated as the maximum number of units which could be earned under the award times the Price on Grant Date. The maximum number of units which could be earned is equal to the number of shares granted. (2) Share price appreciation is calculated as the three-month ending share price as of December 31, 2020, $12.14, less the Price on Grant Date, $9.08, multiplied by the number of shares granted. The Committee has not exercised discretion related to share price appreciation. Pensions - audited Marco Sala Marco Sala participates in the Company’s Italian pension funds at the same rates eligible employees participate, the rate of which may be different by entry date into the plan and job level. The amount in the single-figure table reflects Marco 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, and the Italian integrative pension fund, both of which are structured as a contribution scheme. Under the pension fund subject to his service agreement, the employee contribution rate is equal to 10.19% and the employer quota is approximately 27% of base salary, allowances and annual bonus. Marco Sala’s contributions subject to the Italian integrative pension fund (PREVIP) are levied at a rate of 3.45% and employer contributions are 8.55% of base salary. Both pension funds’ contribution rates are applied to Marco Sala’s remuneration earned under both of his service agreements with the Parent and Lottomatica as disclosed in the single figure table. Employer contributions are allocated to the Parent and Lottomatica based on remuneration earned under such agreement. In addition, the Company makes mandatory contributions to PREVIP for TFR (Italy’s severance program) at a 6.90% rate of Marco Sala’s base salary, allowances and annual bonus earned under both of his service agreements. At the time Marco Sala’s employment ends with the Company, he may receive this benefit as a lump sum payment or keep the balance in PREVIP. As of December 31, 2020, there was no accrual for an Italian severance payment for Marco Sala. The estimated retirement date for Marco Sala is in January 2027, which, in accordance with Italian regulations, could be postponed to March 2027. Max Chiara Max Chiara is eligible to participate in the Company's U.S. defined contribution 401(k) plan, which is offered to all U.S. employees. IGT provides a 3.5% company match on the first 6% of employee contributions as follows: 100% match on the first 1% of employee contributions and 50% match on the next 5% of employee contributions, subject to the U.S. Internal Revenue Services (IRS) limits then in effect, which is $19,500 in 2020 with an additional "catch- up" contribution of $6,500 for employees age 50 or older as of December 31, 2020. Annual Report and Accounts 2020 Page | 52 Non-Executive Directors' remuneration as a single figure - audited The remuneration of the Non-Executive Directors for the financial years ended December 31, 2020 and 2019 is set out below and relates to his or her performance of his or her role as a Non-Executive Director of the Parent. Retainers Other Fees(1) RSUs(2) Total(3) ($) Lorenzo Pellicioli (Chairperson) 2020 2019 James McCann (Vice Chairperson and Lead Independent Director) Paget Alves(4) Beatrice Bassey(5) Alberto Dessy(6) Marco Drago Patti Hart(7) Heather McGregor Samantha Ravich(8) Vincent Sadusky 2020 2019 2020 2019 2020 2020 2019 2020 2019 2019 2020 2019 2020 2019 2020 2019 Gianmario Tondato Da Ruos 2020 2019 150,000 150,000 140,000 140,000 48,974 100,000 78,077 104,000 103,000 100,000 100,000 — — 20,478 54,053 9,441 26,993 345,662 155,898 304,180 137,188 — 124,720 495,662 305,898 464,658 331,241 58,415 251,713 — 330,552 408,629 5,377 3,722 — — 276,537 124,720 276,537 124,720 385,914 231,442 376,537 224,720 75,000 5,969 — 80,969 100,000 100,000 100,000 42,436 140,000 140,000 130,000 130,000 — — — — 6,720 13,720 — — 276,537 124,720 276,537 100,074 276,537 124,720 276,537 124,720 376,537 224,720 376,537 142,510 423,257 278,440 406,537 254,720 (1) These figures primarily relate to reimbursable meal and travel expenses for attending Board meetings in the U.K. (2) Amounts for 2020 reflect the number of RSUs granted at the 2020 AGM multiplied by $12.14, the three-month ending share price as of December 31, 2020. The RSUs vest on the date of the 2021 AGM. Beatrice Bassey’s 2020 RSU also includes a pro-rated award for her services from March 20, 2020 to June 25, 2020, the amount of which is equal to the number of shares granted times the share price on the vesting date, $8.78. Amounts for 2019 have been updated to reflect the number of RSUs granted at the 2019 AGM times the share price on the vesting date, $8.78. Samantha Ravich’s 2019 RSU is pro-rated for her services from when she was appointed to the Board on July 31, 2019. (3) (4) (5) (6) Non-Executive Directors are not eligible to receive variable remuneration; therefore, Total remuneration equals fixed remuneration. Paget Alves did not stand for re-election at the 2020 AGM and his term ended on June 25, 2020. He received a pro-rated amount of compensation for his services during the year. Beatrice Bassey was appointed to the Board on March 20, 2020 and received a pro-rated amount of compensation for her services during the year. Alberto Dessy's fees include a 4% stipend related to Italian regulatory requirements. (7) Patti Hart did not stand for re-election at the 2019 AGM and her term ended on May 17, 2019. She received pro-rated compensation for her services during the year. (8) Samantha Ravich was appointed to the Board on July 31, 2019 and received a pro-rated amount of compensation for her services during the year. Annual Report and Accounts 2020 Page | 53 Payments to past Directors and payments for loss of office - audited Paget Alves retired as a member of the Board of the Parent on June 25, 2020. His fees and RSU awards have been included in the Non-Executive Directors' remuneration as a single figure table and share interests table of this report. There have been no other payments of money or other assets made to any director of the Parent or for loss of office, in each case, at any time during the financial year ended December 31, 2020. Statement of Director's shareholding and share interests - audited Share Ownership Guidelines Executive Directors are required to acquire and maintain shares with a fair market value equal to at least three times base salary (which is the case for the current CFO, Max Chiara) and a maximum of at least five times base salary (which is the case for the current CEO, Marco Sala). Shares included in the ownership criteria include shares which are beneficially owned regardless of whether the shares were 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 Executive Director has a co-investment agreement, 50% of shares committed to the co-investment will not be taken into account for purposes of the guidelines. Executive Directors must hold all of the net settled shares they receive under the LTIP and the co-investment plan for a period of at least five years from the date of grant. The period expires on the fifth anniversary of the date of grant, provided the relevant director meets his or her holding requirements under the Share Ownership Guidelines. Executive Directors are required to hold (i) during the first year post departure, the lower of their respective shareholding guideline and the actual shareholding immediately prior to departure, and (ii) during the second year post departure, the lower of 50% of their respective shareholding guideline and the actual shareholding at the start of the second year post departure. 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 he or she remains on the Board, ordinary shares of the Parent that have a fair market value equal 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. The Committee has the discretion to amend the shareholding guidelines at any time. Each of the Directors are on track to meet the requirements of the share ownership guidelines and their respective share interests at December 31, 2020 (including shares held by connected persons) are as disclosed in this Remuneration Report. Annual Report and Accounts 2020 Page | 54 Executive Directors’ interests in performance share awards - audited The table below sets out details of the interests of the Executive Directors in share awards for the year ended December 31, 2020: Awards Held at January 1, 2020 Granted/ Performance Adjustments During the Year(1) Shares Vested During the Year Awards Held at December 31, 2020 Market Price at Grant Date End of Performance Period 44,829 70,508 157,084 172,500 212,927 — — — (157,084) — — 277,508 (44,829) (35,254) — — — — — 35,254 — 172,500 212,927 277,508 $21.11 $20.63 $30.12 $30.12 $13.86 $9.08 2018 2019 2020 2021 2021 Not Applicable Vesting Date 2019 & 2020 2020 & 2021 2021 & 2022 2021 2022 & 2023 2021 & 2022 — 86,881 — 86,881 $9.08 Not Applicable 2021 & 2022 Date of Grant Marco Sala Jul 26, 2016 May 23, 2017 May 15, 2018 May 15, 2018 Jul 29, 2019 Nov 06, 2020 Max Chiara Nov 06, 2020 (1) Prior year decreases relate to adjustments for actual performance achieved. Executive Directors’ interests in share options - audited The table below sets out details of the interests of the Marco Sala in share options which are outstanding as of December 31, 2020: Date of Grant Jul 31, 2014 Nov 30, 2015 May 15, 2018 Awards Held at January 1, 2020 328,124 250,000 172,500 Granted During the Year — — — Exercised During the Year — — — Expired During the Year (328,124) — — Awards Held at December 31, 2020 — 250,000 172,500 (1) The market price at grant date is equal to the exercise price of the stock option. Exercise Price(1) $20.29 $15.53 $30.12 End of Performance Period 2016 2017 2021 Vesting Date 2017 2018 2021 Expires On 2020 2022 2024 Max Chiara does not have any interests in share options as of December 31, 2020. Executive Directors’ total share interests - audited The table below shows the Executive Directors’ share interests as of December 31, 2020, including shares held by connected persons. Executive Director Marco Sala Max Chiara RSUs 277,508 86,881 PSUs 420,681 — Share Options 422,500 — (1) All shareholding ownership guideline requirements have been complied with to the extent applicable. Total of Outstanding Options and Shares 1,120,689 86,881 Shares Beneficially Owned Outright(1) 1,151,491 — Annual Report and Accounts 2020 Page | 55 Non-Executive Directors’ share interests - audited The table below shows the Non-Executive Directors’ share interests as of December 31, 2020, unless otherwise noted, including shares held by connected persons. Name Lorenzo Pellicioli James McCann Paget Alves(3) Beatrice Bassey Alberto Dessy Marco Drago Heather McGregor Samantha Ravich Vincent Sadusky Gianmario Tondato Da Ruos RSUs(1) 28,473 26,056 — 28,931 22,779 22,779 22,779 22,779 22,779 22,779 Shares Beneficially Owned Outright(2) 117,325 113,029 33,310 6,081 41,088 44,367 16,936 9,802 51,035 40,117 (1) (2) (3) Non-Executive Directors do not have options outstanding. All shareholding ownership guideline requirements have been complied with to the extent applicable. Paget Alves’ Board service ended on June 25, 2020 and does not have any outstanding equity subject to the Parent's incentive plans. His beneficial ownership is as of his service end date. 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. Performance graph and table Total shareholder return (TSR) The chart below shows the TSR index for the Company as against the Russell Midcap Index. The Company considers it appropriate to benchmark its performance to the Russell Midcap Index due to the Company's nature and size. (1) TSR calculation utilizes the 60-day average price for the period 60 days before the start dates and end dates of each period for the Parent's ordinary shares and the Russell Midcap Index; TSR includes impact of dividend payments. Annual Report and Accounts 2020 Page | 56 Period EndedIndex ValueTSR PerformanceCompanyRussell Midcap Index29 June201531 Dec201531 Dec201631 Dec201731 Dec201831 Dec201931 Dec20206080100120140160180200Total remuneration of the Chief Executive Officer The table below sets out the total remuneration of the CEO for the financial years ended December 31, 2011 to 2020, inclusive. Please note that Marco Sala was CEO of the Parent from April 7, 2015 to the year ended December 31, 2020 and remains CEO as of the date of this Remuneration Report. Prior to this time, he was a director of the Parent's predecessor entities. 2020 ($) 2019 ($) 2018 ($) (1) 2017 ($) 2016 ($) 2015 ($) (1) 2014 (€) 2013 (€) 2012 (€) 2011 (€) Total Remuneration 5,825,817 6,498,640 19,487,373 9,238,964 7,553,912 9,646,006 7,155,968 6,884,167 6,428,145 6,167,166 Annual bonus paid as % of maximum —% 83% 78% 61% 82% 75% 96% 93% 96% 85% LTIP vested as a % of maximum (awards actually vested in year) —% 26% 37% 86% 72% 78% 100% 92% 66% 0% - 2008 LTI (1) Total remuneration includes a housing allowance paid once every three years subject to his Lottomatica contract. Percentage change in Director and Employee remuneration The following table compares the annual percentage change, year over year, of each Director's remuneration to the Company's employees as a whole, in all jurisdictions, calculated on a full-time equivalent basis. Employees(2) Directors Marco Sala (CEO) Max Chiara (CFO)(3) Lorenzo Pellicioli James McCann Beatrice Bassey(4) Alberto Dessy Marco Drago Heather McGregor Samantha Ravich(5) Vincent Sadusky Gianmario Tondato Da Ruos Salary and Fees (8)% 2020 Benefits(1) (1)% Annual Bonus(1) (100)% (23)% —% —% (17)% —% 2% —% —% 136% (5)% —% 9% —% —% —% —% —% —% —% —% —% —% (100)% —% —% —% —% —% —% —% —% —% —% (1) (2) Non-Executive Directors do not receive benefits or annual bonuses. Employee percentages exclude payments made to Directors. (3) Max Chiara joined the Company in April 2020, therefore no change between 2020 and 2019 is reflected in the table above. (4) (5) Beatrice Bassey was appointed to the Board on March 20, 2020, therefore no change between 2020 and 2019 is reflected in the table above. Samantha Ravich was appointed to the Board on July 31, 2019 and received a pro-rated amount of compensation for her services in 2019. CEO Pay Ratios The average number of U.K. employees for the financial years ended December 31, 2019 and 2020 was no more than 250; the Company was therefore exempt from reporting pay ratios in relation to the total remuneration of the CEO. Annual Report and Accounts 2020 Page | 57 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, 2019 and 2020: (1) The total pay decreased 16% in 2020 when compared to 2019, based on constant 2019 foreign currency rates. The Parent is not aware of any other extraordinary payments utilizing cash flow or profit. Total Pay includes wages, benefits, annual bonus, LTIP and training and other personnel costs. Total Pay in 2020 is calculated at the prior year's foreign exchange rate to 2019 actual Total Pay. (2) Following amendments to IGT’s revolving credit facilities agreement and term loan facility agreement in May 2020, dividends and share repurchases are prohibited, at least, through June 30, 2021. Therefore, dividends decreased 75% in 2020 when compared to 2019. (3) There were no share buy-backs for the financial years ended December 31, 2020 and 2019. Compensation Committee meetings and consideration of matters relating to Directors' remuneration The Committee is responsible for setting the remuneration packages for the Chairperson, the Executive Directors and each Non-Executive Director and for recommending to the Board the remuneration policy for Directors. 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 of the date of this Remuneration Report, the Committee is chaired by Gianmario Tondato Da Ruos, and its other members are Alberto Dessy and Samantha Ravich. The Committee held six meetings during the year. Attendance at the meetings is shown in the table below. Director Gianmario Tondato Da Ruos (Chairman) Paget Alves(1) Alberto Dessy Samantha Ravich(2) Attendance Percentage 100% 100% 100% 100% (1) Paget Alves’ service ended on June 25, 2020 and attended all four meetings in 2020 during the term of his appointment. (2) Samantha Ravich’s service commenced on June 25, 2020 and attended all two meetings in 2020 during the term of her appointment. The CEO does not usually attend the meetings of the Committee. However, certain officers and employees, such as the Senior Vice President, Global Head of People and Transformation, the CFO, the General Counsel and the Company Secretary of the Parent, usually attend meetings of the Committee, except if that person is the subject of the meeting. The principal activities undertaken by the Committee for the year ended December 31, 2020 consisted of: • • Reviewing and benchmarking the remuneration of the Executive Directors and Non-Executive Directors, and recommending the CFO’s remuneration arrangements; Reviewing and approving compensation and incentive compensation plans with respect to senior management; • Monitoring business conditions as a result of the global onset of the COVID-19 pandemic and approving adjustments to the remuneration programs for the year 2020; Annual Report and Accounts 2020 Page | 58 Millions$931.9$40.9$1,110.8$163.520202019Total Pay(1)Dividends(2)$0$200$400$600$800$1,000$1,200$1,400$1,600• 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.; Reviewing and approving long term incentive (“LTI”) / annual bonus scoring projections and results, LTI/ annual bonus awards, LTI/annual bonus plan design, employee historical payment trends; and Reviewing the Committee charter, executive compensation recoupment (clawback) policy, board expense reimbursement policy and 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. The Committee has been advised by Mercer for the financial year ended December 31, 2020 in its consideration of matters in relation to executive remuneration. Mercer is part of the Marsh & McLennan Companies, Inc., a global professional services firm and a third party unconnected with the Parent. Mercer has been acting as independent adviser to the Committee since 2015 and the Committee has renewed Mercer’s appointment for the financial year 2021. The Committee has 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 $204,944. Mercer also assists the Company in providing general consulting services, salary surveys, and advice on its 401(k) plans in the U.S. Statement of voting The outcome of the votes in respect of the Remuneration Report and the Remuneration Policy for 2020 and 2019 are shown below. There was no binding vote in respect of the Remuneration Policy at the 2020 AGM as the policy remained unchanged from 2019. Remuneration Report (advisory vote) Remuneration policy (binding vote) AGM 2020 2019 Votes for 367,012,306 (99.71%) 329,208,187 (89.60%) Votes against 1,078,897 (0.29%) 38,193,915 (10.40%) Total votes cast 368,091,203 Votes withheld 194,289 Votes for Votes against Total votes cast Votes withheld - - - - 367,402,102 925,614 328,620,852 (89.28%) 39,442,871 (10.72%) 368,063,723 263,993 Implementation of the Remuneration Policy for the year ending December 31, 2021 This section sets out how the Company intends to implement the approved Remuneration Policy (see the Remuneration Policy section of this Directors' Remuneration Report) for the financial year ending December 31, 2021. Executive Director Elements Salary Implementation The Committee has determined not to increase the salary of the Chief Executive Officer, Marco Sala. His annual salary is equal to $1,000,000, which is paid 70% in the U.K. in pounds sterling (£512,070) and 30% in Italy in Euros (€244,479). This payment arrangement requires periodic true-ups for currency fluctuations to ensure he is paid $1,000,000 annually. Salary amounts disclosed in the single-figure table include the impact of foreign exchange rate fluctuations and tax equalization which will therefore vary from the annual salary above. Max Chiara, who was appointed Executive Vice President and Chief Financial Officer effective April 6, 2020, and as Executive Director effective April 14, 2020, will receive an annual salary of $800,000. Annual Report and Accounts 2020 Page | 59 Elements Implementation The results of the salary review are set out in the table below: Benefits Pension Annual Salary 2021 $1,000,000 $800,000 Annual Salary 2020(1) $1,000,000 $800,000 Percentage Change —% —% Marco Sala Max Chiara (1) For comparative purposes, the 2020 annual salaries for both Marco Sala and Max Chiara exclude the impact of the six-month salary reductions of 50% and 30%, respectively, in 2020 due to COVID-19. Additionally, Max Chiara's 2020 annual salary excludes the effect of pro-ration due to his April 6, 2020 employment start date. The Executive Directors will continue to be eligible to receive selected benefits including life insurance, private medical insurance, private dental insurance, income protection, and critical illness insurance, travel indemnity, tax preparation services, tax equalization, and housing and car allowances or a cash perquisite allowance in lieu of housing, car or other allowances. Marco Sala will continue to participate in the Company’s Italian pension under his service agreement with Lottomatica and the Italian integrative pension fund, both of which are structured as a contribution scheme. Under the pension fund subject to his service agreement, the employee contribution rate is equal to 10.19% and the employer quota is approximately 27% of base salary, allowances and annual bonus. Marco Sala’s contributions subject to the Italian integrative pension fund are levied at a rate of 3.45% and employer contributions are 8.55% of base salary. Both pension funds’ contribution rates are applied to Marco Sala’s remuneration earned under both of his service agreements with the Parent and Lottomatica. In addition, the Company makes mandatory contributions to PREVIP for TFR (Italy’s severance program) at a 6.90% rate of Marco Sala’s base salary, allowances and annual bonus earned under both of his service agreements. Employer contributions are allocated to the Parent and Lottomatica based on remuneration earned under such agreement. Max Chiara will continue to participate in the Company’s defined contribution 401(k) plan. IGT provides a 3.5% company match on the first 6% of employee contributions as follows: 100% match on the first 1% of employee contributions and 50% match on the next 5% of employee contributions, subject to the U.S. Internal Revenue Services (IRS) employee contribution limits then in effect, which is $19,500 in 2021 with an additional "catch-up" contribution of $6,500 for employees age 50 or older as of December 31, 2021. The Company expects to reinstate the annual bonus for fiscal year 2021 based on a mix of predetermined company financial and individual performance metrics. Marco Sala’s and Max Chiara's maximum annual bonus award opportunity will be 300% and 175% of base salary, respectively. The Committee approved the annual performance measures, weighting and targets to ensure they appropriately align to the overall business strategy. The annual bonus will continue to be weighted 80% on the Company’s financial performance and 20% on individual performance, the metrics of which will be disclosed retrospectively. In 2021, the Committee expects to award performance-based shares subject to two separate fiscal period performance cycles: (i) 2021 - 2022; and (ii) 2021 - 2023, both of which will be 100% based on predetermined financial performance targets aligned with the Company's long- term strategy and modified by the Company's relative TSR performance compared to the Russell Midcap Index. Actual payout opportunity will be based on performance achievement against the targets and will range between 0% to 145% of target shares. The value of each award subject to the individual performance periods will be weighted based on the years in each cycle (i.e. 40% and 60% of total award value allocated to the two year and three year performance plans, respectively). The financial metrics and achievement will be disclosed retrospectively. The Committee will determine whether co-investment arrangements will be entered into with the Executive Directors, and if so, the terms of such arrangements. Annual Bonus LTIP Co-investment plan Annual Report and Accounts 2020 Page | 60 Non-Executive Directors Elements Fees Implementation As of the date of this Directors' Remuneration Report, the fees of Chairperson and other Non- Executive Directors remain unchanged from the year ended December 31, 2020, as set out below. The Committee retains discretion to review the fees of the Non-Executive Directors for the remainder of the financial year ending December 31, 2021, and any changes to fees will be in line with the Remuneration Policy. Non-Executive Director with additional fees related to service for Chairperson Lead Independent Director Chair of Audit Committee Chair of Compensation Committee Chair of Nominating and Corporate Governance Committee Retainers 2021 $100,000 Retainers 2020 $100,000 $50,000 $20,000 $40,000 $30,000 $20,000 $50,000 $20,000 $40,000 $30,000 $20,000 RSU The Committee has reviewed the terms of the Non-Executive Directors’ RSU agreement and has determined that RSU agreement will operate in a broadly similar manner to the year ended December 31, 2020. Non-Executive Director with additional RSU related to service for Chairperson Lead Independent Director RSU 2021 $200,000 RSU 2020 $200,000 $50,000 $20,000 $50,000 $20,000 Annual Report and Accounts 2020 Page | 61 REMUNERATION POLICY In this part of the Director’s Remuneration Report, prepared in accordance with Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended, we set out the proposed Remuneration Policy for 2021 and subsequent years. The current Remuneration Policy (which can be found in the 2019 Annual Report and Accounts) was approved by shareholders at the annual general meeting on 17 May 2019 and is therefore not required to be put to shareholders for approval until the 2022 AGM. Following the Committee’s periodic review of the Remuneration Policy, the Committee believes setting forth a new policy to clarify and modernize its philosophy and remuneration elements both to support the Company's strategy and growth and to align with peer company practice, allowing the Company to compete effectively for talent on a global basis. We will therefore present this policy to shareholders at the 2021 AGM and, if approved, it will remain in effect until shareholders approve changes to the policy or until a new policy is put before shareholders for approval at the 2024 AGM, whichever is sooner. The Remuneration Policy begins with the Executive Director and Non-Executive Director Remuneration Policy tables and narrative, and is followed by an outline of remuneration structures. Setting the Remuneration Policy The Committee is constituted to assist the Board of Directors of the Parent (the "Board") in discharging its responsibilities relating to the compensation of the Company’s CEO and other executive officers and Directors. The Committee, which is made up of independent Non-Executive Directors, was mindful in its deliberations on the Remuneration Policy of any potential conflicts of interest (e.g. in accordance with the Committee’s charter, no member of the Committee shall act to fix his or her own compensation except for uniform compensation to directors for their service as directors), and sought to minimize them through an open and transparent internal discussion process and by seeking independent advice from its external advisors where necessary. The Committee undertakes a review of the Remuneration Policy periodically, taking into account all elements of remuneration together to ensure the Remuneration Policy, as a whole, continues to position the Company to be able to provide competitive compensation to existing and prospective directors which is aligned to market practice, while ensuring the appropriate balance of fixed remuneration with variable remuneration tied to the achievement of the Company's strategic goals and growth objectives. In preparation for the review of our Remuneration Policy, the Committee: • • • • • • Considered how the current Remuneration Policy related to and supported the Company’s strategy, and formed its own views on the changes required to the current Remuneration Policy to align with the strategy and to be consistent with the Company’s desired level of business risk; Considered the impact of applicable law and regulations, corporate governance standards, best practice and guidance issued by regulators and other interested parties, including proxy advisors; Considered views from shareholders on past Remuneration Reports; Considered the remuneration practices found in other companies of comparable size and industries, and markets in which IGT competes for talent at the senior executive level, particularly in the United States and Italy; Considered the wider workforce remuneration structure to ensure the approach to executive remuneration is consistent; and Consulted with legal and compensation advisors and relevant members of the Company’s senior management on the proposed changes to the current Remuneration Policy. The structure of the Company’s remuneration program is outlined in the Annual Statement of this Directors’ Remuneration Report. The Committee, when determining the Remuneration Policy, strives to ensure that the Company’s remuneration structures: • • • • • • • Attract, retain, and motivate high caliber directors globally; Support the delivery of the Company’s strategic and business objectives; Reflect the global operating model of the Company whilst taking account of governance best practices; Promote a strong and sustainable performance culture; Align the interests of directors with those of the shareholders; Are transparent and easily understood; and Are flexible and accommodating to attract and retain talent in different geographies. Annual Report and Accounts 2020 Page | 62 Consideration of employment conditions When determining remuneration arrangements for the Directors, the Committee takes into account compensation and employment conditions throughout the Company, those of our global peer companies, performance and market trends and practices to evaluate whether the structure and quantum of the Directors’ pay opportunities remain appropriate in this context. The Committee receives periodic updates from the People and Transformation (HR) department on the overall remuneration structures and policies for senior executives with support from compensation advisors, including benchmarking the Company's senior executive remuneration with peer companies. We do not consult with employees on the Remuneration Policy. At other levels of the Company, employees 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. Consideration of shareholder views The Committee values shareholder feedback when forming the Remuneration Policy. There are established processes in place whereby our management and our investor relations team meet periodically with investors and shareholders either at their request or at industry events to discuss and gather feedback, which is formally presented to the Committee and Board for ongoing evaluation of the Company's strategy and governance practices, including remuneration practices. To date, remuneration has not been a significant topic raised by shareholders as a part of this process and, therefore, no specific views have been taken into account. The Committee also reviews shareholder views and votes received in relation to resolutions brought forward at the AGM each year and takes these into account when developing remuneration and related policy. Summary of key changes from the previous policy While the structure of the 2019 Remuneration Policy has been retained, the Committee has updated and clarified a number of elements of the Remuneration Policy to better enable the Company to compete for, attract and retain executive talent to support the long-term interests of the Company and its stakeholders and further align to U.K. best practices. Key changes include the following: • • • • • • • • Clarifying the broad, global nature of the market in which the Company competes for executive talent, particularly in the United States and Italy, to tailor the remuneration to meet these needs; Defining the benefits and pension programs, which are tailored to the market in which the executive is employed or resides; Clarifying the different levels at which bonus may be paid; Setting out the process for considering shareholder views; Clarifying the factors taken into consideration when setting remuneration for new recruits; Clarifying the awards typically granted under the Long Term Incentive Plan and increasing the maximum values associated with such awards aimed to provide the Committee with added flexibility to align our compensation opportunity with market practice; Clarifying the purpose of the different components of remuneration; and Identifying the typical division of performance targets between financial and non-financial targets. Annual Report and Accounts 2020 Page | 63 Future Policy Table The table on the following pages sets out the proposed Remuneration Policy for Executive Directors and Non- Executive Directors, explaining how each element operates and how each part links to the corporate strategy. Executive Directors An Executive Director plays a key role in the management and success of a company. The Remuneration Policy and structures are designed to promote these combined roles, to incentivize the delivery of sustained performance consistent with the Company's strategic goals and appropriate risk management, and to reward success in doing so. Fixed Pay: Base Salary Purpose and Link Strategy to Operation To pay a salary that (1) reflects the role, responsibilities, experience and knowledge of the individual; (2) is competitive with other employers with whom the Company competes for talent, including companies in our industry, other complex industries, companies of comparable size, and in the geographies in which the Company operates; and (3) allows the Company to attract and retain appropriate Executive Directors to support the long-term interests of the Company. Base salaries are set taking into account: • • • • The individual’s skills, experience and current remuneration package; The size and scope of the role; Salary and total remuneration levels at similar sized companies; and Remuneration of other executives and group employees. Salaries are reviewed annually by the Committee. Performance Conditions There are no performance conditions. Maximum Opportunity There is no set maximum salary given the global market in which the Company competes for talent; however, the Company annually reviews salaries of global companies in similar industries, of similar size and with similar complexities to ensure Executive Director salaries are within a market competitive range. The maximum opportunity for an increase in base salary on an annual basis is 10% of that year's annual base salary. Increases may be made above this level up to 20% of that base salary in exceptional circumstances, such as: • Where an individual is brought in on a lower salary with the intention of increasing the salary level gradually dependent on performance in the role; There is a material increase in the size and scope of the role; and • • Market practice has evolved to mean that the salary is no longer considered to be competitive. Personal performance is taken into account when considering base salary increases. Recovery or Withholding There is no provision for recovery. Fixed Pay: Benefits Purpose and Link Strategy to Operation To provide market competitive benefits to enable Executive Directors to undertake their role through ensuring well-being, security and access to the support and resources necessary or appropriate to perform their role as expected by the Company. Executive Directors receive a range of benefits, which may vary by location and be tailored to reflect market practice. These may include, but are not limited to, private medical insurance, private dental insurance, life and permanent disability insurance, travel indemnity, tax preparation services, tax equalization, housing and car allowances or a cash perquisite allowance in lieu of housing, car or other allowances. In line with the policy for other employees, Executive Directors may be eligible to receive relocation allowances and transfer-related benefits as appropriate. Where an Executive Director incurs expenses in the ordinary conduct of business and such expenses give rise to tax, the Company may reimburse the director for any tax for which the director may be liable. Benefits are reviewed regularly but not on a pre-determined schedule. Annual Report and Accounts 2020 Page | 64 Performance Conditions There are no performance conditions. Maximum Opportunity There is no maximum level of benefits. However, Executive Directors generally participate in the same level of medical, dental and other health and welfare programs of the workforce in the jurisdiction, adjusted to accommodate statutory requirements, market practice and/or job level. Life insurance of up to 4 times base salary, payable on death in service. Cash perquisite allowances may be offered to Executive Directors in lieu of other allowances. Such allowances do not exceed $100,000 on an annual basis. Recovery or Withholding There is no provision for recovery. Fixed Pay: Pension Purpose and Link Strategy Operation to To provide Executive Directors an appropriate level of savings for their retirement which is motivating and appropriately competitive within the relevant labor market. Executive Directors are offered the same or similar pension schemes which are offered to the workforce in the jurisdiction in which they are employed or likely to retire. All pension schemes are defined contribution and no defined benefit arrangements are offered to Executive Directors. Contribution levels may vary by jurisdiction to accommodate statutory requirements, market practice and/or job level of the individuals. Performance Conditions There are no performance conditions. Maximum Opportunity Maximum opportunities vary by jurisdiction and job level; however, the Company provides pension schemes which are aligned with market practice of the employing jurisdiction. Subject to compliance with specific jurisdictional requirements which may change from time to time, annual employer contributions are no higher than 42.5% of base salary or a combination of fixed remuneration and annual bonus. Recovery or Withholding There is no provision for recovery. Variable Pay: Annual Bonus Purpose and Link to Strategy Operation the Committee determines To align a component of remuneration with the achievement of Company performance measured against predetermined annual financial and strategic objectives. The annual bonus is performance-based, and performance is assessed over one year. individual Annually performance metrics utilized in the program based on the Company's short-term objectives. The Committee approves the threshold, target and maximum performance measures for these metrics, which will generally align with the Company's annual financial and strategic plan, as well as the coinciding payouts at each level of achievement. Upon completion of the fiscal year, the Committee reviews and certifies the performance achievement against each of the performance measures and resulting payments under the plan. The annual bonus does not generally have any additional vesting or deferral period. the appropriate financial and Performance Conditions Performance measures, weightings and targets will be set annually based on the Company's short-term objectives. Generally 80% of the bonus will be based on financial performance measures which may include, but are not limited to, profitability, cash flow, liquidity or balance sheet metrics. Details of the measures, weightings and targets applicable to the annual incentive bonus for each year, including a description of how they were chosen and whether they were met, will be disclosed retrospectively in the annual report on Directors' remuneration for the relevant financial year (subject to commercial sensitivity). The ongoing maximum annual bonus target opportunity will be limited to 300% of base salary. Maximum Opportunity Annual Report and Accounts 2020 Page | 65 Threshold performance will result in a pay out of up to 25% of maximum and on-target bonus will pay out up to 50% of maximum. Payouts under the plan will not exceed the following: Below threshold: 0% of target • Threshold: 50% of target • • Target: 100% of target • Maximum: 200% of target The Committee retains discretion to increase or reduce pay-outs (including to nil) based on an assessment of regulatory conduct and general Company performance over the performance period, subject always to the maximum payout and to ensure that the rewards properly reflect business performance. Recovery or Withholding The Company has implemented an executive compensation recoupment policy pursuant to which incentive compensation may be recouped in certain instances, such as a material restatement of the Company’s financial statements resulting from material noncompliance with financial reporting requirements under applicable law 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. Variable Pay: Long-Term Incentive Plan (“LTIP”) Purpose and Link to Strategy Operation Long-term incentive compensation is designed to: (1) balance and align the interests of Executive Directors and shareholders; (2) reward Executive Directors for demonstrated leadership and performance aimed towards the creation of shareholder value; (3) increase equity holding levels; (4) align with competitive levels of compensation opportunity within our peer group; and (5) support in attracting, retaining and motivating Executive Directors. Annual LTIP awards are usually granted in the form of performance-based restricted share units (“PSUs”), but time-based restricted share units, restricted stock, stock options, performance-based stock options, share appreciation rights or any combination thereof may also be granted. Awards granted under the LTIP have a vesting period of at least one year. Performance-based awards normally have a three-year performance-period aligned with the fiscal year and vest in two equal tranches approximately three- and four- years after the grant date, subject to achievement of pre-established performance conditions. Award levels and the framework for determining vesting are reviewed annually. Executive Directors must hold all of the net settled shares they receive under the LTIP for a period of at least five years from the date of grant. The period expires on the fifth anniversary of the date of grant, provided that the relevant director meets his or her holding requirements under the Share Ownership Guidelines, a summary of which is included in the Directors' remuneration report. Separately, the Share Ownership Guidelines require Executive Directors to hold a certain amount of shares for a period of up to two years after cessation of service. The Committee has discretion to amend the terms and conditions of any award within the limits of this policy and the terms of the award agreement. Performance Conditions Performance measures, weightings and targets for the entire performance period of the LTIP awards are set annually prior to the award date, align with the Company's operating and strategic priorities for the upcoming performance period. Typically, all of the performance measurements are financial or market-based in nature including, but not limited to profitability, cash flow, liquidity, other balance sheet or shareholder return measures. Annual Report and Accounts 2020 Page | 66 Maximum Opportunity Details of the measures, weightings and targets applicable to the annual LTIP program for each year will be disclosed retrospectively in the annual report on Directors' remuneration in the year following the completion of the performance period (subject to commercial sensitivity). The maximum target is 800% of base salary measured at the award's grant date. Payouts under each LTIP will not exceed the following: Below threshold: 0% of target • Threshold: 50% of target • • Target: 100% of target • Maximum: 200% of target The Committee retains discretion to increase or reduce pay-outs (including to nil) based on an assessment of regulatory conduct and general Company performance over the performance period, subject always to the maximum payout and to ensure that the rewards properly reflect business performance, as adjusted to reflect fluctuations in the applicable currency exchange rate, non-recurring items such as acquisitions and disposals and other extraordinary circumstances. Recovery or Withholding The Company has implemented an executive compensation recoupment policy pursuant to which incentive compensation may be recouped in certain instances, such as a material restatement of the Company’s financial statements resulting from material noncompliance with financial reporting requirements under applicable law 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. Variable Pay: Co-investment plan Purpose and Link to Strategy Operation Co-investment plans are designed to: (1) balance and align the interests of Executive Directors and shareholders; (2) reward for demonstrated leadership and performance aimed towards the creation of shareholder value; (3) as an incentive for Executive Directors to achieve one or more specified performance targets; (4) increase equity holding levels; and (5) provide Executive Directors with a commitment to hold a minimum number of shares in the Company for a period as determined by the Committee. A co-investment plan is performance-based and is generally granted once every three years. Typically, a co-investment plan award coincides with an Executive Director's reappointment to the Board. Under a co-investment plan, the Company may issue and/or grant options over shares, share appreciation restricted share units, performance units, performance shares or other share-based awards or any combination thereof. Typically, the Company matches the co-investment plan participant's commitment to hold shares on a 1:1 ratio. Awards vest after the performance period, typically subject to: (1) achievement of pre- established performance metrics; (2) the Executive Director continuing to hold the specified number of shares during the performance period; (3) the Executive Director reinvesting up to 50% of net shares received subject to the plan in the next cycle of co-investment plan, if requested to do so; and (4) the Executive Director continuing to serve as a Director on the Board during the performance period. Options vested under a co-investment plan generally expire four years after the vesting date. restricted shares, rights, Annual Report and Accounts 2020 Page | 67 Executive Directors must hold all of the net settled shares they receive under a co- investment plan for a period of at least five years from the date of grant. The period expires on the fifth anniversary of the date of grant, provided that the relevant director meets his or her holding requirements under the Share Ownership Guidelines, a summary of which is included in the Directors' remuneration report. Separately, the Share Ownership Guidelines require Executive Directors to hold a certain amount of shares for a period of up to two years after cessation of service. The Committee has discretion to amend the terms and conditions of any co- investment plan within the limits of this policy and the terms of the relevant agreement. Performance Conditions Performance measures, weightings and targets for the entire performance period of a co-investment plan are set at the time of grant. Typically, at least 80% of the performance measurements are financial or market-based in nature including, but not limited to profitability, cash flow, liquidity, other balance sheet or shareholder return measures. Details of the measures, weightings and targets applicable to a co-investment plan will be disclosed retrospectively in the annual report on Directors' remuneration in the year following the completion of the performance period (subject to commercial sensitivity). There is no over-riding maximum opportunity for the co-investment plans. The Committee sets a target (which may include different levels of achievement) for each co-investment plan in its discretion on grant, and awards vest if the applicable performance conditions are met. Maximum Opportunity Recovery or Withholding The Company has implemented an executive compensation recoupment policy pursuant to which incentive compensation may be recouped in certain instances, such as a material restatement of the Company’s financial statements resulting from material noncompliance with financial reporting requirements under applicable law 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. Non-Executive Directors Fixed pay: Fees Purpose and Link to Strategy Operation To attract and retain high-calibre individuals, with appropriate experience or industry- related skills, by offering market competitive fee levels. Non-Executive Directors receive a basic fee for their Board services. Additional fees may be paid in relation to additional responsibilities including: • • • • The role of the Chairperson; The role of Lead Independent Director; Chairing the Audit, Compensation and Nominating and Corporate Governance Committees and any other Board committees as may be established from time to time; and Carrying out specific and/or ad hoc projects or tasks. The fee of the Chairperson is set taking into account the individual’s circumstances, skills and experience, the scope of the role and the needs and circumstances of the Company. Non-Executive Director fees are set taking into account market practice levels and commitment required of the Directors in connection with, but not limited to, regulatory and licensing procedures. Fees are reviewed annually by the Committee. Expenses incurred in the course of duties may be reimbursed by the Company. Certain benefits, including statutory pension contributions, may be payable by virtue of the payment of fees and the grant of equity awards, depending on the location of the Non-Executive Director. Performance Conditions There are no performance conditions. Annual Report and Accounts 2020 Page | 68 Maximum Opportunity There are no set maximum fees; however, fee levels of peer companies will be taken into account when considering increases. 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. Current fee levels are set out in the annual report on Directors' remuneration. Recovery or Withholding There is no provision for recovery. Fixed pay: Equity Awards Purpose and Link to Strategy Operation To reward Non-Executive Directors for continued service, whilst aligning Non- Executive Directors with shareholders through linking an element of compensation to share performance. Typically, each Non-Executive Director is granted a time-vesting restricted share unit ("RSU") award, generally unconnected to the performance of such Non-Executive Director. The Committee retains the discretion to grant equity awards to Non- Executive Directors as permitted under the Company's Long Term Incentive Plan. An RSU award is normally granted to each existing Non-Executive Director annually and to a new Non-Executive Director at the time of appointment. The number of RSUs covered by each award is generally determined by dividing (i) the Annual Grant Value (the current level of which is set out in the annual report on Directors' remuneration) by (2) the closing price of an ordinary share as of the date of grant, prorated accordingly in respect of grants made to new Non-Executive Directors. There is no set maximum for the Annual Grant Value, but the Committee determines the amount based on its periodic benchmarking of compensation for the Non- Executive Directors. Awarded units normally vest at the next annual general meeting of the Parent after grant date, subject to continued service of the Non-Executive Director as a Director on the Board. Equity awards do not have a post-vest holding or deferral requirement. Instead, the Company maintains Share Ownership Guidelines, which require the Non-Executive Director to maintain a level of share ownership measured as a multiple of base fee. A summary of the Directors' remuneration report. Award levels and the framework for determining vesting are reviewed periodically, generally every one or two years. The Committee has discretion to amend the terms and conditions of any award within the limits of this policy and the terms of the award agreement. the Share Ownership Guidelines included in is Performance Conditions There are no performance conditions. Maximum Opportunity The maximum target is 100% of the grant value. The maximum increase of the Annual Grant Value on an annual basis is 10% of that year's Annual Grant Value, rising to a maximum of 20% of that year's Annual Grant Value in exceptional circumstances, as determined by the Committee in its sole discretion. Recovery or Withholding Awards made to Non-Executive Directors may be recouped in certain instances, such as error in calculation 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. Annual Report and Accounts 2020 Page | 69 Notes to the Future Policy Table Performance measures and targets Each year, the Committee gives careful consideration to the performance measures that should apply to incentives. • • For the annual bonus, the Committee considers that a combination of financial measures relating to the Company's strategic objectives and business strategy and individual financial measures, is most appropriate for assessing performance over the short to medium term. Other non-financial measures, including customer, people, and culture, and encompassing environmental, social and governance aspects, may be used in combination with the aforementioned measures. For the LTIP and the co-investment plan, the Committee considers that financial or market performance metrics, including shareholder return, profitability, cash flow and certain balance sheet metrics, provide the optimum balance to assess the long-term financial performance of the Company and growth in shareholder returns on an absolute and relative basis. Non-financial measures, including customer, people and culture, and encompassing environmental, social and governance aspects, may be used in combination with financial measures. The Committee reserves the right to amend, introduce and/or remove performance measures and targets for awards as it considers appropriate, subject to the rules of the relevant plan and any legal or regulatory restrictions. Remuneration policy for other employees While our Remuneration Policy follows the same fundamental principles across the Company, packages offered to employees reflect differences in market practice in the different countries, role and seniority. Like the Executive Directors, employees at management level and above receive a fixed salary and may receive a variable annual bonus. The annual bonus differs between employee levels of seniority: the Executive Directors and senior management employees are generally subject to an 80% bonus weighting as to financial results and a bonus weighting of 20% based on personal performance. The annual bonus is paid out on an annual basis subject to the financial results of the Parent and the personal performance of each employee. Manager and above level employees in general also participate in the same annual bonus plan. 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. Eligible employees participate in the same LTIP as the Executive Directors or such other long-term incentive plans as may be adopted by the Committee from time to time. Employees, other than the Executive Directors, are not eligible to participate in the co-investment plan, which is specifically aimed at Executive Directors. Approach to recruitment remuneration The Company operates in a complex, global and specialized sector and competes for talent on a global basis and, in many instances, outside of the U.K. and across industries. The Committee’s approach to recruitment remuneration is to develop remuneration packages that put the Company in a position to effectively attract and retain executive talent based on competitive pay, benefits and practices in relevant markets, sectors and geographies. Although the remuneration package for a newly appointed Non-Executive Director would normally be in line with the structure set out in the Remuneration Policy table, the Committee determines the remuneration of new Executive Directors on a case-by-case basis. Generally, 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 and the remuneration needed to attract talent under the circumstances. It is expected that for new Executive Directors: • • • • Base salary will be set in line with the Remuneration Policy. Benefits will be in line with the Remuneration Policy. Additional benefits may be offered for new Executive Directors, such as relocation benefits. Pensions will be in line with the Remuneration Policy. The annual bonus quantum and performance measures will generally be in line with the ongoing Remuneration Policy as implemented for other Executive Directors during the year. However, the Committee reserves the right to vary the performance measures and targets for the year of recruitment if it Annual Report and Accounts 2020 Page | 70 considers appropriate (e.g. where a large portion of the year has already elapsed). The annual bonus maximum will generally reflect the ongoing policy for current Executive Directors, pro-rated as relevant. The LTIP quantum, performance measures and targets will be line with the ongoing Remuneration Policy as implemented for other Executive Directors during the year. The LTIP award maximum for new Executive Directors will generally reflect the ongoing policy for current Executive Directors. The co-investment quantum, performance measures and targets will be line with the ongoing Remuneration Policy as implemented for other Executive Directors during the year. • • The Company may also pay reasonable fees and expenses for a new Executive Director in relation to their appointment. The Committee recognizes 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 buy-out awards in addition to the remuneration outlined above. In making buy-out awards, 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, the proportion of the performance period remaining and the form of award. Where possible, buy-out awards will be made using existing incentive plans and may be settled in cash or shares and in one payment or over a period of years. The Committee retains discretion to offer other payments, whether in cash or in shares, which reflect market conditions or practice by location when it considers these to be in the best interests of the Company and, therefore, shareholders. The Committee does not intend to use this discretion to make a non-performance related incentive payment but considers it important to retain the ability to do so in order to attract and retain executive talent. In any case, the Committee may consult with its external, independent compensation consultant to confirm the package provided at recruitment is market competitive and aligned with the standard remuneration elements for the role and location. Directors' contractual arrangements Executive Directors' service contracts The Company does not have a policy of fixed term contracts for Executive Directors. Generally, contracts include a notice period of no more than 12 months. An Executive Director, following cessation of his or her service, is subject to confidentiality undertaking and 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 company, among others, for a period of time after such cessation. Marco Sala The current CEO and Executive Director, Marco Sala, has a service agreement with the Parent (70% of employment) and a service agreement with its wholly owned subsidiary, Lottomatica (30% of employment). There is no fixed term for the service agreement with the Parent and the Lottomatica service agreement; however, as a matter of best practice, Marco Sala’s appointment as a director of the Parent will be made subject to reappointment by shareholders at the Parent’s annual general meeting. Marco Sala’s service agreement can be terminated by either party on the giving of six months’ notice, if not, immediately for cause. He cannot resign without prior approval from the Board. Max Chiara The current CFO and Executive Director, Max Chiara, has a service agreement with the Parent. There is no fixed term for the service agreement with the Parent; however, as a matter of best practice, it is expected that Max Chiara’s appointment as a director of the Parent will be made subject to annual reappointment by shareholders at the Parent’s AGM. Max Chiara’s service agreement with the Parent can be terminated by the Parent if Max Chiara fails to cure the grounds for such termination as specified in the agreement within a 60-day notice period, or immediately in any other cases. Max Chiara may terminate the service agreement on the giving of 60 days’ notice, following which the Board may elect to have such termination become effective immediately or on such later date (but no later than the date specified in the notice). Annual Report and Accounts 2020 Page | 71 Non-Executive Directors' appointment agreements All Non-Executive Directors’ services are provided for in accordance with the prior appointment of the Directors and their individual appointment agreements. Non-Executive Directors are generally expected to be re-appointed annually on each AGM date, unless his/her appointment is terminated earlier by either party on the giving of one month's notice. Details of the terms of the appointment of the current Non-Executive Directors are as follows: Non-Executive Director Lorenzo Pellicioli (Chairperson) James McCann (Vice Chairperson and Lead Independent Director) Beatrice Bassey Alberto Dessy Marco Drago Heather McGregor Samantha Ravich Vincent Sadusky Gianmario Tondato Da Ruos Start of Current Term June 25, 2020 June 25, 2020 June 25, 2020 June 25, 2020 June 25, 2020 June 25, 2020 June 25, 2020 June 25, 2020 June 25, 2020 Expected Expiry of Current Term May 11, 2021 May 11, 2021 May 11, 2021 May 11, 2021 May 11, 2021 May 11, 2021 May 11, 2021 May 11, 2021 May 11, 2021 Loss of office When a Director leaves the Company, the Committee will review the circumstances and apply the appropriate treatment having regard to the practice for other senior employees of the Company which may vary by location, and in accordance with the Director’s contractual entitlements established and as may be amended by the Committee specifically to facilitate the exit of a particular individual. Where applicable, the Committee aims to avoid rewarding poor performance and to recoup undue or excessive pay. When determining the treatment of the various elements of compensation upon cessation of service, the Committee will give regard to the rationale for the departure. An individual may be treated as a ‘good leaver’ for these purposes if they leave by way of the following circumstances – (i) death, (ii) injury, ill-health or disability, (iii) redundancy, (iv) retirement, and/or (v) any other circumstances as determined by the Committee or the Board. The Company’s equity incentive plan(s) contains provisions relating to a change in control which provides for full accelerated vesting of all outstanding share options, share appreciation rights and full value awards (other than performance-based awards), when a replacement award is not provided. In addition, any performance-based award for which a replacement award is not issued, will be deemed to be earned and payable with all applicable performance metrics deemed achieved at the greater of: (a) the applicable target level; or (b) the level of achievement as determined by the Committee not later than the date of the change in control, taking into account performance through the latest date preceding the change in control as to which performance can practically be determined, but in no case, later than the end of the applicable performance period. In the event of a reorganization or other transactions which would affect the current or future value of any award, an adjustment may be made to the number of shares if considered appropriate. The Committee also retains discretion to make additional payments in respect of (i) settling any statutory claims which the Committee considers, in its reasonable judgment, may arise in respect of the termination (whilst seeking to ensure that there is no reward for failure), and (ii) reasonable legal costs and other expenses reasonably incurred by the Director in respect of the termination and any settlement arrangements; provided in all cases that the Committee considers that it would be in the best interests of the Company to do so. Annual Report and Accounts 2020 Page | 72 Executive Directors The table below summarizes the policies which will apply in respect of the various elements of compensation in the event of cessation of an Executive Director’s service with the Company, unless determined otherwise at the discretion of the Committee: Element of remuneration Loss of office payment policy Base Salary Benefits Pension Annual Bonus LTIP Co-investment Salary will continue to be paid throughout the notice period although the Committee has the discretion to make a payment in lieu of notice. A good leaver may be entitled to receive up to 24 months of base salary. Benefits will continue to be paid throughout the notice period although the Committee has the discretion to make a payment in lieu of notice. A good leaver may continue to receive a range of benefits, including without limitation, health and welfare benefits, tax preparation and perquisites, following cessation for up to 24 months. Pensions will continue to be paid throughout the notice period although the Committee has the discretion to make a payment in lieu of notice. Any accrued but unpaid annual bonuses for the prior fiscal year will be paid. A director may be entitled to an annual bonus, pro-rated if applicable and subject to performance assessment, in respect of the financial year in which the cessation occurs. A good leaver may be entitled up to 18 months annual bonus (based upon a three-year average). Share awards and options will be treated in accordance with the relevant plan rules. The Committee would consider whether outstanding and unvested awards and/or options should lapse on leaving or should, at the Committee’s discretion, be preserved. If awards and/or options are preserved, they would continue until the vesting date or be accelerated, and they would be pro-rated based on service over the performance period or vest in full. A good leaver may exercise vested stock options up until the original expiration date under the original terms and conditions of the award, generally a three-year period after the vest date. All outstanding and unvested awards and/or options will be automatically and immediately forfeited for no consideration as of cessation of service. A Director may also be entitled to additional payments, including but not limited to certain payments or benefits which are in line with and which reflect market practice, including the provision of outplacement support, reasonable costs associated with relocation back to an individual’s home country, and tax preparation. In some countries, it may be a legal requirement to provide on-going consideration for post-termination restrictive covenants. The Committee may impose post-termination restrictive covenants on Directors which continue for up to two years after cessation of service and which may require payment of appropriate consideration. Marco Sala As consideration for compliance with the post-employment restrictive covenants, Marco Sala is entitled to a lump sum payment equal to two years’ base salary and any annual bonus payments for the two financial years prior to the date of termination. According to a severance agreement entered into between the Company and Marco Sala (which supersedes a stability agreement originally entered into on February 20, 2012 between him and legacy GTECH S.p.A. and then assigned to Lottomatica S.p.A. as part of the merger), subject to Marco Sala working his notice period, he is entitled to a severance payment equal to one year’s base salary (plus any amounts owed to him) and a pro-rated short term incentive bonus payment as of the date of termination based on the projection of the Company's full year business and financial results. The severance payment is subject to the Company determining that he 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 Marco Sala’s employment is terminated for cause. Annual Report and Accounts 2020 Page | 73 Non-Executive Directors No remuneration is payable upon a Non-Executive Director's termination, other than accrued fees and expenses, subject to the discretion of the Committee. RSU awards will be treated in accordance with the relevant plan rules and the terms and conditions of the award agreement. The Committee would consider whether outstanding and unvested awards should lapse on leaving or should, at the Committee’s discretion, be preserved. If awards are preserved, they would continue until the vesting date or be accelerated, and they would be pro-rated based on service over the period or vest in full. Remuneration illustrations The chart below gives an indication of what could be received by an Executive Director in the first year of implementation after the Remuneration Policy is approved at the 2021 AGM. The bar chart shows: (1) the minimum remuneration receivable; (2) the remuneration receivable for performance in line with the Company’s expectations; (3) the maximum remuneration receivable, each as a percentage of the total comprised by each of the parts; and (4) the maximum remuneration receivable with share price appreciation of 50%. 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 annual bonus plan, the LTIP and the co- investment plan. Future remuneration will be determined based on profitability and performance as described in the proposed Remuneration Policy. Marco Sala’s minimum compensation includes annual base salary plus estimated foreign currency fluctuations and tax equalization and pension and benefits that approximate the value in the 2020 single figure table plus an additional $1 million related to his housing allowance paid one time every three years and is payable in 2021. Max Chiara’s minimum compensation is estimated based on his annual base salary plus his pension and benefits included in the 2020 single figure table. Both Marco Sala’s and Max Chiara’s target annual bonus amounts are based on their applicable annual bonus target amounts, 150% and 87.5%, respectively, of annual base salary. Maximum annual bonus amounts reflect target annual bonus multiplied by the current annual bonus plan maximum payout (200%). Annual Report and Accounts 2020 Page | 74 $ in MillionsCEO100%23%18%14%10%16%12%40%46%34%26%20%15%25%Fixed PayAnnual BonusPSUCo-Investment AwardShare Price Appreciation$3.5Minimum$14.9Target$19.1Maximum$25.4Maximumwith 50%SharePriceGrowth0%25%50%75%100%$ in MillionsCFO100%23%16%12%11%16%12%66%67%50%25%Fixed PayAnnual BonusPSUShare Price Appreciation$1.4Minimum$6.1Target$8.6Maximum$11.5Maximumwith 50%SharePriceAppreciation0%25%50%75%100% Typically, the Company grants one PSU award annually; however, in 2021 the Company expects to grant two performance-based awards under the LTIP, one with a two-year performance period (2021 - 2022) and one with a three-year performance period (2021 - 2023). The target PSU award values take into account the extraordinary circumstance of awarding two cycles in one year and are within the maximum program limits indicated in the proposed Remuneration Policy. The maximums reflects their respective target PSU multiplied by the maximum payout under the LTIP, 145%. Marco Sala’s co-investment award is granted once every three years and is expected to be granted in 2021. The value approximates 172,500 performance-based options multiplied by a $16.94 share price divided by three; plus 172,500 PSUs multiplied by a $16.94 share price. The estimated number of performance-based options and PSUs awarded is consistent with the options and shares awarded under the 2018 co-investment plan. The estimated share price is based on the Company’s December 31, 2020 closing share price. Marco Sala’s share price appreciation reflects the maximum PSU value plus the co-investment award multiplied by 50%. Max Chiara’s share price appreciation reflects a 50% increase to his maximum PSU value. Approval This Directors’ Remuneration Report, including both the Remuneration Report and the Remuneration Policy, has been approved by the Directors on March 11, 2021 and signed on its behalf on March 16, 2021. Signed on behalf of the Directors by: Gianmario Tondato Da Ruos Chairperson of the Compensation Committee Annual Report and Accounts 2020 Page | 75 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, 2020 to December 31, 2020. The Strategic Report sets out those matters required to be disclosed in the Directors’ Report which are considered to be of strategic importance: Likely future developments of the Company (see “BUSINESS MODEL” and “STRATEGY”) Research and development (see “RESEARCH AND DEVELOPMENT (R&D)”) Employee: Inclusion and diversity (see “CORPORATE SOCIAL RESPONSIBILITY”) Employee: Communication and Engagement (see “CORPORATE SOCIAL RESPONSIBILITY”) Engagement with suppliers, customers and others (see “SECTION 172 STATEMENT”) • • • • • • Greenhouse gas emissions and energy consumption (see “CORPORATE SOCIAL RESPONSIBILITY”) The Directors’ Report should be read in conjunction with the Strategic Report, the Directors’ Remuneration Report and other sections of this Annual Report and Accounts, all of which are incorporated into this Directors’ Report by reference. General information The Parent is a public company limited by shares, incorporated in the United Kingdom and is registered in England and Wales with registered number 09127533. The address of the Parent's registered office is 2nd Floor Marble Arch House, 66 Seymour Street, London, England, W1H 5BT. Dividends There are no recommended dividend payments for approval by shareholders for the period January 1, 2020 to December 31, 2020. The Company paid dividends of $40.9 million to shareholders and $136.4 million to non-controlling shareholders for the year ended December 31, 2020. reporting of these contributions and such contributions are permissible under the relevant countries' laws. It is the Company's policy not to make political donations or incur political expenditure outside the U.S. or Canada. Other than as set forth above, neither the Parent nor any of its subsidiaries for the year ended December 31, 2020: • Made any donations to a registered political party or other political or any independent election candidate or organization in or outside the E.U.; or Incurred any political expenditure in or outside the E.U. • 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 financial statements. Accordingly, related party transactions are set out in Note 25, Related Party Transactions to the Consolidated Financial Statements and form part of this Directors’ Report. the in Political donations and political expenditure During the year ended December 31, 2020 subsidiaries of the Parent made various forms of (where permissible), contributions charitable dues, membership sponsorships) to entities in the U.S. that have political, charitable, social welfare, trade and business sector affiliations and missions. Some of these organizations and entities have affiliations with government officials. These contributions totaled $1.7 million in the U.S. The Company has fully complied with jurisdictional (i.e. political donations, Financial risk management objectives and policies The Company's activities expose it to a variety of market risks including interest rate risk and foreign currency exchange rate risk. The Company's overall the strategy risk management 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. focuses on Depending upon the risk assessment, the Company instruments, uses selected derivative hedging including principally interest rate swaps and foreign currency the purposes of managing interest rate risk and currency risks arising from its operations and sources of financing. The forward contracts, for Annual Report and Accounts 2020 Page | 76 Company's policy is not to enter into such contracts for speculative purposes. to financial foreign currency exchange risk relating Further disclosures management objectives and policies, as well as disclosures relating to exposure to interest rate risk and risk, are described in Note 10, Financial Risk Management to the Consolidated Financial Statements. The Company's accounting policies regarding derivatives and hedging are described in Note 2, Summary of Significant Accounting Policies to the Consolidated Financial Statements. rate Branches As the Company is a global business, there are activities operated through many jurisdictions. In 2020, the Company was active in over 100 countries and had 29 branches. Share capital The issued share capital of the Parent as of March 11, 2021 is $20,485,861 and £50,000, consisting of 204,856,564 ordinary shares of $0.10 each, 204,856,564 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. to a The Directors were authorized, at the 2020 AGM, to allot ordinary shares in the capital of the Company up to a maximum nominal amount of $6,824,827.70 and up further maximum nominal amount of $6,824,827.70 where the allotment is in connection with an offer by way of a rights issue, in each case representing approximately one third of the nominal value of the ordinary shares in issue on May 14, 2020, for a period expiring at the end of the next AGM (or if sooner, September 24, 2021). The Directors are requesting a new authority for the Parent to allot ordinary shares in the capital of the Company at the forthcoming AGM Investment Association Share Capital Management Guidelines. line with the in The Parent currently has the authority to purchase a maximum of 10% of the aggregate issued ordinary shares in the Parent as of May 14, 2020. This authority will expire at the end of the next AGM (or if sooner, on December 24, 2021). The Parent did not purchase any of its own share capital during the year ended December 31, 2020. The Directors are requesting a new authority at the forthcoming AGM in line with the Investment Association Share Capital Management Guidelines. Directors and their interests The Directors of the Parent for the year ended December 31, 2020 are set out below: (Chairperson), James McCann (Chief Executive Officer), Lorenzo Marco Sala Pellicioli (Vice Chairperson and Lead Independent Director), Beatrice Bassey, Max Chiara (Executive Vice President and Chief Financial Officer), Alberto Dessy, Marco Drago, Heather McGregor, Samantha Ravich, Vincent Sadusky and Gianmario Tondato Da Ruos. Paget Alves was previously a director of the Parent whose term of office ended on June 25, 2020. As stated in the Company’s Corporate Governance Guidelines, directors should be selected such that the Board represents a diversity of background and experience. Three of our eleven directors are women. The Directors have interests in the Parent’s ordinary shares, namely share based plans, detailed in the Directors’ Remuneration Report set out in Section 2 of this Annual Report and Accounts. Directors’ indemnities In accordance with the Parent's articles of association and to the extent permitted by law, the Directors and officers of the Company shall be indemnified out of the assets of 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 year to cover against certain legal liabilities and costs for Annual Report and Accounts 2020 Page | 77 Director Tenure470-4 years5 years andoverclaims incurred in respect of any act or omission in the execution of their duties. Board practices and governance The Directors are responsible for the management of the Company’s business, for which purpose they may exercise all of the powers of the Parent whether relating to the management of the business or not. The Board is comprised of (i) seven independent directors the Vice including James F. McCann, Chairperson of the Board and Lead Independent Director, and (ii) four non-independent directors - Marco Sala (CEO), Max Chiara (CFO), Lorenzo Pellicioli (the Board’s Chairperson), and Marco Drago. Messrs. Pellicioli and Drago are the chief executive officer and chairperson of the board, respectively, of De Agostini S.p.A., controlling shareholder. the Parent's The Board has the following committees: (1) an Audit Committee, (2) a Nominating and Corporate Governance Committee, and (3) a Compensation Committee. The membership of each committee meets the independence and eligibility requirements of the New York Stock Exchange and applicable law. The members of each committee are appointed by and serve at the discretion of the Board until such member’s successor is duly elected and qualified or until such member’s earlier resignation or removal. The chairperson of each committee is appointed by the Board. Audit Committee The Audit Committee is responsible for, among other things, assisting the Board's oversight of: integrity of the Parent’s • • • • • financial legal and The statements; The Parent’s compliance with regulatory requirements; The independent registered public accounting firm’s qualifications and independence; The performance of the Parent’s internal audit function and independent registered public accounting firm; and The Parent’s internal controls over financial reporting and systems of disclosure controls and procedures. The Audit Committee pre-approves engagements of registered public independent the Company’s before approval engaging accounting firm to audit the Company’s consolidated financial statements. The Audit Committee has a policy requiring management to obtain the Audit the Committee’s Company’s independent registered public accounting firm to provide any other audit or permitted non-audit services to the Company. Pursuant to this policy, which is designed to ensure that such engagements do not impair the independence of the Company’s independent registered public accounting firm, the Audit Committee if appropriate, specific audit and non-audit services in the categories audit services, tax services, audit- related services, and any other services that may be performed by the Company’s independent registered public accounting firm. reviews and pre-approves, the financial As of March 11, 2021, the Audit Committee consists of Vincent L. Sadusky (chairperson), Alberto Dessy, and Heather J. McGregor. Each member of the Audit Committee must meet literacy requirement, as such qualification is interpreted by the Board in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the Audit Committee. In addition, at least one member of the Audit Committee must financial management expertise, as the Board interprets such qualification in its business judgment. accounting related have or Compensation Committee The purpose of the Compensation Committee is to discharge the responsibilities of the Board relating to the Parent’s executives and compensation of directors. is responsible for, among other things: The Compensation Committee • • • • on goals approving and relevant advising management recommendations Reviewing management and broad compensation policies such as salary ranges, deferred compensation, incentive programs, pension, and executive stock plans; and Reviewing the CEO’s to objectives compensation, the CEO’s evaluating performance in light of those goals and objectives, the CEO’s compensation level based on this evaluation; Reviewing compensation; and Creating, modifying, amending, terminating, and monitoring compliance with share ownership guidelines for executives and directors. recommending director setting and and As of March 11, 2021, the Compensation Committee consists of Gianmario Tondato da Ruos (chairperson), Alberto Dessy, and Samantha Ravich. Annual Report and Accounts 2020 Page | 78 Director Independence74IndependentNon-IndepedentNominating and Corporate Governance Committee The Nominating Committee is responsible for, among other things: and Corporate Governance • • • Recommending to the Board, consistent with criteria approved by the Board, the names of qualified persons to be nominated for election or re-election as directors and the membership and chairperson of each Board committee; Reviewing and reassessing from time to time the Company’s Corporate Governance Guidelines and recommending any changes to the Board; the Determining, independence of each director under the independence requirements of the NYSE and any other regulatory requirements and report such findings to the Board; and annually, least at and program to diversity and • Overseeing management's corporate social due responsibility consideration inclusion, sustainability, environmental and social matters that the environment or the communities in which the Company operates. the Company, impact giving could As of March 11, 2021, the Nominating and Corporate Governance Committee consists of James McCann (chairperson), Beatrice Bassey and Samantha Ravich. The charters for each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are available at www.igt.com. Board and committee meetings and attendance There are at least five scheduled meetings for the Board and each committee each year (six for the Audit Committee), and additional meetings are called as necessary. The attendance at Board and committee meetings during 2020 is shown below, expressed as the number of meetings attended out of the number that each Director was eligible to attend. Where a Director is unable to attend a Board or committee meeting, copies of all papers are still received in advance. The Chairpersons of the Board and each committee, as well as the Lead Independent Director, are available individual consultation between meetings and to provide briefing on any relevant outcomes from a Board or committee meeting should a Director be unable to attend. Executive sessions for all Directors or committee members (as the case may be) with no management in attendance, as well as Independent Director sessions, are regularly held at the end of each meeting to, among other things, summarize the outcome of the meeting and plan actions for the next one, which can be easily shared with absent participants. for Board and committee attendance in 2020 Number of meetings held Board 9 Audit Committee 11 Compensation Committee 6 Nominating and Corporate Governance Committee 6 Directors Beatrice Bassey1 Max Chiara2 Alberto Dessy3 Marco Drago James McCann Heather McGregor Lorenzo Pellicioli Samantha Ravich4 Vincent Sadusky Marco Sala Gianmario Tondato Da Ruos Former Directors who served for part of that year Paget Alves5 6/7 7/7 9/9 7/9 9/9 9/9 9/9 9/9 9/9 9/9 9/9 5/6 - - 5/5 - - 11/11 - - 11/11 - - 6/6 - - 6/6 - - - - 2/2 - - 6/6 4/4 3/3 - 3/3 - 6/6 - - 6/6 - - - - (1) Beatrice Bassey joined the Board and the Nominating and Corporate Governance Committee on March 20, 2020 and June 25, 2020, respectively. (2) Max Chiara joined the Board on April 14, 2020. (3) Alberto Dessy joined the Audit Committee and stepped down from the Nominating and Corporate Governance Committee on 25 June 2020. (4) Samantha Ravich was appointed to the Compensation Committee on June 25, 2020. (5) Paget Alves did not stand for re-election to the Board at the 2020 AGM and his term ended on June 25, 2020. Annual Report and Accounts 2020 Page | 79 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 and Corporate Governance the Nominating Committee, the Independent Directors and the full Board. Any the questionnaire or subsequent discussions are followed up on by the Board or relevant committee. items of note that result from The Board and committee self-evaluation for 2020 revealed that the Board is generally satisfied with the size and individual director performance, composition of the Board, Board’s culture and ethics, the number and type of committees to assist with performance of the Board’s obligations, and the amount of information noting also improvement as regards to timing of delivery of Board materials, and access to management for its decision-making. The Directors are also satisfied that the Board received from management adequate information and early- warning signals of issues that may adversely affect key outcomes, targets or financial performance of the Company as a result of the COVID-19 pandemic, noting a general though still ongoing improvement from in crisis management. More than half of the Board considered that challenges arising from the pandemic remain amongst the Board’s top priorities for the upcoming year. the Board’s last year role in Whilst there is general but not absolute satisfaction surrounding director succession, Directors have expressed the need to improve Board and key executives succession and selection process, and to improve the CEO’s performance evaluation process. The Directors are generally satisfied with the annual evaluation process and raised following the annual directors’ evaluation conducted in 2019 were adequately addressed. issues that the Statement of corporate governance arrangements The Parent is a U.K. public limited company that has its ordinary shares listed on the New York Stock Exchange ("NYSE"). The Parent's articles of association provide that, for as long as its ordinary shares are listed on the NYSE, the Parent shall comply with all NYSE corporate governance standards set forth in Section 3 of the NYSE Listed Company Manual applicable to non-controlled domestic U.S. issuers, regardless of whether the Parent is a foreign private issuer. reflect this end, To the Corporate the Board adopted Governance Guidelines (a copy of which is available at www.IGT.com) which the Board’s commitment to monitor the effectiveness of policy and decision making both at the Board and management level, with a view to enhancing shareholder value over the long-term. In this regard, the Board periodically reviews its size and composition ensuring that a majority of the Directors shall be independent, and the Nominating and Corporate Governance Committee reviewed each Director’s character and integrity prior to appointment and in connection with re-nomination the Corporate Governance decisions. While Guidelines do not cover each and every issue that may surface, the Board is of the view that the Guidelines set the proper tone for the operation of the Board and will assist the Board in fulfilling its obligations to the diverse group of owners and other stakeholders of the Company. The Nominating and Corporate Governance Committee the Guidelines from time to time to ensure that they remain suitable for the needs of the Company and in accordance with applicable law and regulations. reviews The Parent also voluntarily applies a selected number of provisions of the U.K. Corporate Governance Code which (i) are not inconsistent with the above said NYSE corporate governance standards, and (ii) would generally be expected by the market to be voluntarily applied by a company like the Parent. For example, all Directors (other than the CEO whose appointment as a director of the Parent is normally renewed for a three-year term) are subject to annual re-election by shareholders, and each committee of the Board is composed of independent non-executive directors. Going concern The current activities of the Company and those factors likely to affect its future development, together with a description of financial position, are its 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 forecasted operating results, forecasted cash flows, forecasted net debt, and forecasted funds available on the Revolving Credit Facilities, the Directors have a reasonable the Company has adequate expectation resources to continue in operational existence for the foreseeable future and therefore will be well placed to manage its business risks successfully. that Annual Report and Accounts 2020 Page | 80 explain the Parent's and the Company’s transactions and disclose with reasonable accuracy the financial position of the Parent and the Company at any time financial to ensure and enable statements comply with the Act. them that the responsible The Directors are also the maintenance and integrity of the Parent’s website. Legislation in the U.K. governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. for The auditor and disclosure of information to the auditor In accordance with section 418 of the Act, each of the Directors confirms that: • • information of which So far as such Director is aware, there is no relevant audit 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 forthcoming AGM. There are no significant post-balance sheet events. Approval This Directors’ Report has been approved by the Directors on March 11, 2021 and signed on its behalf on March 16, 2021. Signed on behalf of the Directors by: Marco Sala Chief Executive Officer Accordingly, the Directors consider it appropriate to the going concern basis of continue accounting financial statements contained in this Annual Report and Accounts. in preparing to adopt the Subsequent events There are no important events affecting the Company which have occurred since December 31, 2020. Statement of Directors’ responsibilities the for preparing The Directors are responsible Strategic Report, Directors’ Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. (the "Act") and in conformity with The Companies Act 2006 its associated regulations require directors to prepare financial statements for each financial year. Under the Act, the Directors have prepared the consolidated financial statements in accordance with international accounting standards the requirements of the Companies Act 2006 and the Parent financial statements in accordance with the U.K. Generally Accepted Accounting Practice (U.K. Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law). 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: • • applicable Select suitable accounting policies and then apply them consistently; international State whether accounting standards in conformity with the requirements of the Companies Act 2006 have been the consolidated financial statements and U.K. Accounting Standards, comprising FRS 101, has been followed for the Parent financial statements, subject to any material departures disclosed and explained in the financial statements; • Make judgments and accounting estimates followed for • that are reasonable and prudent; 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 also responsible for safeguarding the assets of the Parent and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for keeping adequate accounting records that are sufficient to show and Annual Report and Accounts 2020 Page | 81 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 financial statements (the “financial statements”) give a true and fair view of the state of the group’s and of the parent’s affairs as at 31 December 2020 and of the group’s loss and cash flows for the year then ended; the group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; the parent financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the Consolidated Balance Sheet as at 31 December 2020; the Parent Balance Sheet as at 31 December 2020; the Consolidated Statement of Operations, the Consolidated Statement of Comprehensive Loss, the Consolidated Statement of Cash Flows, the Consolidated Statement of Shareholders' Equity, and 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, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Annual Report and Accounts 2020 Page | 82 Our audit approach Overview Audit scope • We conducted full scope audit work over three components in which the group has significant operations (Rome, Italy and Reno, Nevada and Providence, Rhode Island, USA) and a full scope audit of the parent. In addition, we performed procedures on specific balances at six non-significant components. • • During the year, the group engagement team had virtual meetings with the significant components in Italy and the USA. Key audit matters • • Identifying and evaluating the contractual terms and conditions of revenue transactions (group) Testing management’s goodwill impairment assessments prior to the reorganisation of the group for the North America Gaming and Interactive (‘NAGI’) and International cash generating units and the Global Gaming cash generating unit as at 31 December 2020 (group) • Evaluating the allocation of goodwill to discontinued operations (group) • Assessing management’s consideration of the impact of COVID-19 (group and parent) Materiality • Overall group materiality: $30 million based on approximately 0.97% of total revenue (2019: $35 million based on approximately 2.1% of adjusted EBITDA). • Overall parent materiality: $78 million based on approximately 0.87% of total liabilities (2019: $70 million based on approximately 0.8% of total liabilities). • Performance materiality: $22.5 million (group) and $58.5 million (parent). 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. Capability of the audit in detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to gaming laws, tax regulations and bribery and anti-corruption legislation, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to manipulate financial results and potential management bias in the selection and application of significant accounting judgements and estimates. The group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors included: • Evaluation and testing of the operating effectiveness of management’s controls designed to prevent and detect irregularities. • Discussions with the Vice President of Internal Audit, the Senior Vice President and Chief Accounting Officer, the Vice President and Corporate Controller, the Senior Vice President of Chief Compliance and Risk Management Officer and General Counsel, including consideration of known or suspected instances of non-compliance with laws and regulations and fraud. • Assessment of matters reported on the group’s whistleblowing helpline and the results of management’s investigation of such matters. • Challenging assumptions made by management in the selection and application of significant accounting judgments and estimates, in particular in relation to testing management’s goodwill impairment assessments prior to the reorganisation of the group for the North America Gaming and Interactive (‘NAGI’) and International cash generating units and the Global Gaming cash generating unit as at 31 December 2020 and evaluating the allocation of goodwill to discontinued operations (see related key audit matters below). Identifying and testing the validity of journal entries, in particular any journal entries posted with unusual account combinations, journals posted by senior management and consolidation journals. • Annual Report and Accounts 2020 Page | 83 There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non- compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. 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. Evaluating the allocation of goodwill to discontinued operations is a new key audit matter this year. Otherwise, the key audit matters below are consistent with last year. Key audit matter Identifying and evaluating the contractual terms and conditions of revenue transactions (group) As described in Note 4 to the consolidated financial statements, the group generated service and product revenues of $2,640 million and $476 million, respectively, for the year ended 31 December 2020. The group’s revenue transactions include contracts with customers that consist of a combination of services and products that are accounted for as one or more distinct performance obligations. Management applies judgment in identifying and evaluating contractual terms and conditions that impact the identification of performance obligations and the associated pattern of revenue recognition. We considered this a key audit matter given the level of complexity and judgment involved in understanding the revenue affecting terms and conditions in the group’s revenue contracts. Under IFRS 15, Revenue from Contracts with Customers, the identification of different performance obligations, and the allocation of arrangement consideration to each of those obligations in a contract, can require significant management judgment. 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 IFRS 15 by performing a combination of controls testing and substantive procedures. Assessing the controls in place over revenue recognition, including controls related to the identification and evaluation of contractual terms and conditions impacting the identification of performance obligations and the pattern of revenue recognition. Testing the completeness and accuracy of the contractual terms and conditions identified in contracts with customers. Testing a sample of revenue recognised on contracts and orders by validation against source documentation and assessing compliance with the provisions of IFRS 15. Based on the procedures performed, we noted no material issues from our work. Annual Report and Accounts 2020 Page | 84 Key audit matter Testing management’s goodwill impairment assessments prior to the reorganisation of the group for the North America Gaming and Interactive (‘NAGI’) and International cash generating units and the Global Gaming cash generating unit as at 31 December 2020 (group) As described in Notes 2 and 14 to the consolidated financial statements, the group’s consolidated goodwill balance was $4,827 million as of 31 December 2020. During the first quarter of 2020, management determined there was an interim goodwill impairment triggering event caused by COVID-19. As a result of the identified triggering event, the group recorded a $296 million impairment loss, of which $193 million and $103 million was recorded within the former International and North America Gaming and Interactive (“NAGI”) cash generating units, respectively. From 1 July 2020, the group adopted a new organization structure. This resulted in a change of the group's cash generating units and management has allocated goodwill to the new cash generating units using a relative fair market value approach. The goodwill allocated to the Global Gaming and Global Lottery cash generating units was $2,169 million and $3,072 million, respectively. We considered this a key audit matter given the sensitivity of the impairment tests for the NAGI and International cash generating units and the Global Gaming cash generating unit to changes in estimates that were subject to a high degree of estimation uncertainty. Evaluating the allocation of goodwill to discontinued operations (group) As described in Notes 2 and 3 to the consolidated financial statements, during the fourth quarter of 2020, the group announced that its wholly-owned subsidiary, Lottomatica Holding S.r.l, had entered into a definitive agreement to sell one hundred percent of the share capital of Lottomatica Videolot Rete S.p.A. and Lottomatica Scommesse S.r.l., the members of the group which conduct its Italian business-to- consumer (“B2C”) gaming machine, sports betting, and digital gaming businesses, to Gamenet Group S.p.A. Management determined that the sale met the criteria to be reported as a discontinued operation and, as a result, the Italian Gaming B2C historical financial results are reflected in the group's consolidated financial statements as a discontinued operation, and assets and liabilities were retrospectively reclassified as assets and liabilities held for sale for all periods presented. The group’s assets held for sale were $820 million as of 31 December 2020, including $511 million of goodwill allocated to discontinued operations using a relative fair value approach. Prior to the allocation to discontinued operations, this goodwill was included within the Global Gaming cash generating unit. We considered this a key audit matter given the sensitivity of the goodwill allocation to changes in estimates that were subject to a high degree of estimation uncertainty. How our audit addressed the key audit matter Our procedures included the following: • • • • • Evaluating the appropriateness of management’s identification of the group’s cash generating units. Assessing the business processes and controls related to the impairment assessments of 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, which included forecast revenues, forecast operating profits, terminal growth rates and weighted- average costs of capital, and the valuation report from management’s expert. 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. • • • • Our procedures included the following: • • • Assessing the business processes and controls related to management’s goodwill allocation to discontinued operations, including controls over the valuation of the group’s Global Gaming cash generating unit. Testing management’s process for developing an estimate of the relative fair values of the group’s cash generating units. Using PwC valuation specialists to review significant assumptions, which included forecast revenues, forecast operating profits, terminal growth rates and weighted- average costs of capital, and the valuation report from management’s expert. 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. • • • • Annual Report and Accounts 2020 Page | 85 How our audit addressed the key audit matter Our procedures included the following: • • • • • • Reviewing management’s assessment of the impact of the COVID-19 pandemic. Considering the adequacy of the disclosures in the Annual Report, particularly in the Strategic Report. Assessing the risk of impairment as documented in the key audit matter entitled “Testing management’s goodwill impairment assessments prior to the reorganisation of the group for the North America Gaming and Interactive (‘NAGI’) and International cash generating units and the Global Gaming cash generating unit as at 31 December 2020 (group)”. Testing the recoverability of the parent’s investments in subsidiaries. Performing procedures to assess any control implications arising from the change in management’s ways of working. Increasing the oversight of our component teams, using video conferencing and remote workpaper reviews to satisfy ourselves as to the sufficiency of audit work performed. Based on the procedures performed, we noted no material issues from our work. Key audit matter Assessing management’s consideration of the impact of COVID-19 (group and parent) The directors have considered the impact of COVID-19 on the group’s operations and mitigations to the risks identified. As part of the mitigation process, management has obtained a waiver on all debt covenants tied to adjusted EBITDA metrics through to the third quarter of fiscal 2021 (as disclosed in note 17 of the consolidated financial statements). As with regards to the financial statements, we consider the key estimate impacted by COVID-19 to be the group’s goodwill impairment assessment, as discussed in the key audit matter entitled ‘Testing management’s goodwill impairment assessments prior to the reorganisation of the group for the North America Gaming and Interactive (‘NAGI’) and International cash generating units and the Global Gaming cash generating unit as at 31 December 2020’. As described in note 3 of the parent financial statements, the parent’s investment in subsidiaries is $4,786 million as of 31 December 2020. Any adverse performance by the group companies due to Covid-19 could impact the recoverability of this investment. In addition, management’s way of working, including the operation of controls, has been impacted by COVID-19 as a result of a large number of employees working remotely and using technology enabled working practices. For example, this has meant virtual review meetings and electronic review processes (in place of hardcopy reviews). As a result of the adverse impact on the group and the parent, we have determined management's consideration of COVID-19 to be a key audit matter. 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, 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 Reno, Nevada and Providence, Rhode Island, USA. The worldwide engagement team is aligned to IGT PLC’s geographical organization and broadly mirrors the group’s 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. 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 appropriate 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 and Boston, holding regular video and conference calls, as well as reviewing work papers and assessing matters reported. We performed certain specified audit procedures across six 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, product revenue, cost of services, cost of sales, accounts receivable, other assets, deferred revenue, accounts payable and systems and equipment. Annual Report and Accounts 2020 Page | 86 In total, the audit work performed accounted for approximately 89% of consolidated net revenue and approximately 90% of consolidated total assets. At the group level, we also carried out other risk assessment 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 Rationale for benchmark applied Financial statements - group $30 million (2019: $35 million). Financial statements - parent $78 million (2019: $70 million). Approximately 0.97% of total revenue (2019: Approximately 2.1% of earnings before interest, tax, depreciation and amortisation (EBITDA); adjusted to remove the impact of impairment losses and foreign exchange gains and losses). We consider adjusted EBITDA and revenue to be the key metrics used by analysts, investors and other key stakeholders for assessing the group’s performance. In May 2020, the group obtained a waiver on all debt covenants tied to adjusted EBITDA through Q3 2021. As a result, we consider the revenue benchmark to have more significance for 2020. Approximately 0.87% of total liabilities (2019: Approximately 0.8% of total liabilities). We consider total liabilities to be one of the principal considerations for the members of International Game Technology PLC in assessing the parent’s financial position. 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 $28.5 million (with $8 million being used for the parent for the purpose of the group audit). Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to $22.5 million for the group financial statements and $58.5 million for the parent financial statements. In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $2.5 million (group audit) (2019: $2.5 million) and $3.5 million (parent audit) (2019: $3.5 million) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern Our evaluation of the directors’ assessment of the group's and the parent ’s ability to continue to adopt the going concern basis of accounting included: • • • • • • assessing the business processes and controls related to the going concern assessment, including the suitability of the model used and the selection of estimates and assumptions; agreeing the underlying cash flow projections to approved forecasts; evaluating the key assumptions and estimates within the forecasts; considering liquidity and available financial resources; assessing whether the stress testing performed appropriately considered the principal risks facing the business; evaluating the feasibility of mitigating actions identified in the stress testing scenarios; and Annual Report and Accounts 2020 Page | 87 • reviewing debt agreements and assessing the group's ability to comply with the financial covenants associated with its various debt facilities. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and the parent’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's and the parent 's ability to continue as a going concern. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 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. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires 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 2020 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 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 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 the Directors’ responsibilities, 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’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 or to cease operations, or have no realistic alternative but to do so. Annual Report and Accounts 2020 Page | 88 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. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. 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/auditorsresponsibilities. 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 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 obtained all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the 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 company financial statements and the part of the 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 Watford 16 March 2021 Annual Report and Accounts 2020 Page | 89 5. FINANCIAL STATEMENTS INTERNATIONAL GAME TECHNOLOGY PLC INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheet at December 31, 2020 and 2019..................................................................... Consolidated Statement of Operations for the years ended December 31, 2020 and 2019.......................... Consolidated Statement of Comprehensive Loss for the years ended December 31, 2020 and 2019......... Consolidated Statement of Cash Flows for the years ended December 31, 2020 and 2019........................ Consolidated Statement of Shareholders' Equity for the years ended December 31, 2020 and 2019.......... Notes to the Consolidated Financial Statements........................................................................................... 91 92 93 94 96 97 Annual Report and Accounts 2020 Page | 90 International Game Technology PLC Consolidated Balance Sheet ($ thousands) Notes 2020 2019 December 31, Assets Current assets: Cash and cash equivalents Restricted cash and cash equivalents Trade and other receivables, net Inventories Other current assets Assets held for sale Total current assets Systems, equipment and other assets related to contracts, net Property, plant and equipment, net Right-of-use assets Goodwill Intangible assets, net Other non-current assets Assets held for sale Total non-current assets Total assets Liabilities and shareholders' equity Current liabilities: Accounts payable Current portion of long-term debt Short-term borrowings Other current liabilities Liabilities held for sale Total current liabilities Long-term debt, less current portion Deferred income taxes Lease liabilities Other non-current liabilities Liabilities held for sale Total non-current liabilities Total liabilities Shareholders’ equity Share capital Share premium Retained deficit Other reserves Total IGT PLC’s shareholders’ equity Non-controlling interests Total shareholders’ equity Total liabilities and shareholders’ equity 5 6 7 3 11 11 12 14 15 7 3 17 17 16 3 17 18 12 16 3 20 907,015 127,245 846,128 169,207 479,550 825,797 3,354,942 1,068,121 132,168 304,189 4,826,949 1,572,446 1,740,127 — 9,644,000 12,998,942 1,054,043 392,672 480 1,023,163 248,413 2,718,771 7,869,268 322,780 289,572 573,719 — 9,055,339 11,774,110 654,628 140,004 875,263 161,790 507,510 205,577 2,544,772 1,205,592 146,847 324,358 5,030,027 1,743,954 1,892,049 753,904 11,096,731 13,641,503 978,076 462,155 3,193 920,210 184,124 2,547,758 7,600,169 386,451 304,247 598,736 29,454 8,919,057 11,466,815 20,485 2,870,541 20,443 2,879,625 (2,472,914) (1,497,003) 279,878 697,990 526,842 1,224,832 12,998,942 231,866 1,634,931 539,757 2,174,688 13,641,503 The accompanying notes are an integral part of these consolidated financial statements. The consolidated financial statements were approved by the Board of Directors on March 11, 2021 and signed on its behalf on March 16, 2021 by: Marco Sala Chief Executive Officer Company registration number: 09127533 Annual Report and Accounts 2020 Page | 91 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 Goodwill impairment Other operating expense Other operating income Total operating expenses Operating (loss) income Interest expense, net Foreign exchange (loss) gain, net Other expense Other income Total non-operating expenses (Loss) income from continuing operations before provision for income taxes Provision for income taxes Loss from continuing operations Income from discontinued operations, net of tax Net (loss) income Less: Net income attributable to non-controlling interests from continuing operations Less: Net (loss) income attributable to non-controlling interest from discontinued operations Net loss attributable to IGT PLC Net loss from continuing operations attributable to IGT PLC per common share - basic and diluted Net loss attributable to IGT PLC per common share - basic and diluted Weighted-average shares - basic and diluted Notes 4, 22 4, 22 4, 22 For the year ended December 31, 2020 2019 2,639,585 3,099,216 475,898 930,889 3,115,483 4,030,105 1,629,569 1,773,179 345,478 695,594 190,362 45,045 296,000 4,282 — 557,670 838,880 265,815 24,855 57,000 6,582 (27,694) 3,206,330 3,496,287 (90,847) 533,818 (429,162) (433,057) (309,689) 39,911 (120,491) (116,305) 4,775 38,051 (854,567) (471,400) (945,414) 21,733 62,418 131,636 (967,147) (69,218) 36,084 (931,063) 112,259 43,041 6,373 48,233 (4,760) (932,676) 4,539 (9,731) (4.76) (4.56) (0.57) (0.05) 204,725 204,373 13 14 11 22 17 18 18 3 3 24 24 24 The accompanying notes are an integral part of these consolidated financial statements. Annual Report and Accounts 2020 Page | 92 International Game Technology PLC Consolidated Statement of Comprehensive Loss ($ thousands) Net (loss) income Foreign currency translation adjustments, net of tax Unrealized loss on hedges, net of tax Unrealized (loss) gain on other, net of tax Other comprehensive income (loss), net of tax Comprehensive (loss) income Less: Comprehensive income attributable to non-controlling interests For the year ended December 31, Notes 2020 2019 20 20 20 20 (931,063) 43,041 108,274 (11,859) (537) (270) (1,451) 3,059 107,467 (10,251) (823,596) 61,068 32,790 36,866 Comprehensive loss attributable to IGT PLC (4,076) (1) All items in other comprehensive income (loss), net of tax will be reclassified subsequently to profit or loss when specific conditions are met, with the exception of unrealized loss on defined benefit plans of $0.2 million and $1.0 million for the years ended December 31, 2020 and 2019, respectively, which is included in unrealized gain on other, net of tax (884,664) The accompanying notes are an integral part of these consolidated financial statements. Annual Report and Accounts 2020 Page | 93 International Game Technology PLC Consolidated Statement of Cash Flows ($ thousands) Cash flows from operating activities Net (loss) income Less: Income from discontinued operations, net of tax Adjustments to reconcile net (loss) income from continuing operations to net cash provided by operating activities from continuing operations: Depreciation Foreign exchange loss (gain), net Goodwill impairment Amortization of upfront license fees Amortization Redeemable non-controlling interest Loss on extinguishment of debt Debt issuance cost amortization Gain on sale of assets Stock-based compensation Deferred income taxes Other non-cash costs, net Changes in operating assets and liabilities, excluding the effects of dispositions and acquisitions: Trade and other receivables Inventories Accounts payable Other assets and liabilities Net cash provided by operating activities from continuing operations Net cash provided by operating activities from discontinued operations Net cash provided by operating activities Cash flows from investing activities Capital expenditures Proceeds from sale of assets Other Net cash used in investing activities from continuing operations Net cash used in investing activities from discontinued operations Net cash used in investing activities Cash flows from financing activities Principal payments on long-term debt Payments in connection with the extinguishment of debt Debt issuance costs paid Net payments of short-term borrowings Net receipts from (payments of) financial liabilities Proceeds from long-term debt Dividends paid Dividends paid - non-controlling interests Return of capital - non-controlling interests Capital increase - non-controlling interests Other Net cash used in financing activities Net 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 Less: Cash and cash equivalents of discontinued operations Cash and cash equivalents at the end of the period of continuing operations For the year ended December 31, Notes 2020 2019 (931,063) 36,084 43,041 112,259 14 23 423,093 309,689 296,000 212,113 201,694 71,876 38,766 19,175 (80) (8,315) (84,119) (2,410) 73,578 16,628 14,363 53,043 667,947 277,843 945,790 (254,689) 9,251 17,604 (227,834) (35,284) (263,118) (988,379) (25,000) (21,584) (7,135) 67,138 750,000 (40,887) (136,389) (32,309) 8,112 (66,292) (492,725) 189,947 61,188 662,934 914,069 7,054 907,015 455,347 (39,911) 57,000 207,379 219,186 99,362 11,964 22,854 (64,714) 25,270 (61,540) 19,146 (49,267) 84,472 22,818 38,194 978,342 191,898 1,170,240 (377,248) 123,855 11,189 (242,204) (64,648) (306,852) (1,264,647) (8,689) (25,930) (32,067) (34,324) 1,397,025 (163,503) (136,655) (98,788) 1,499 (67,033) (433,112) 430,276 (18,011) 250,669 662,934 8,306 654,628 Annual Report and Accounts 2020 Page | 94 International Game Technology PLC Consolidated Statement of Cash Flows ($ thousands) Supplemental disclosures of cash flow information Cash paid during the period for: Interest Income taxes Non-cash investing and financing activities: Capital expenditures The accompanying notes are an integral part of these consolidated financial statements. For the year ended December 31, 2020 2019 (430,780) (89,006) (421,339) (196,831) (24,152) (34,878) Annual Report and Accounts 2020 Page | 95 International Game Technology PLC Consolidated Statement of Shareholders’ Equity ($ thousands) Share Capital Share Premium Retained Deficit Other Reserves (Note 20) Total IGT PLC Equity Non- Controlling Interests (Note 21) Total Equity Balance at December 31, 2018 20,421 2,856,487 (1,330,669) 226,211 1,772,450 607,135 2,379,585 Net (loss) income Other comprehensive income (loss), net of tax Total comprehensive (loss) income Stock-based compensation (Note 23) Capital increase Tax benefit on stock-based compensation Shares issued under stock award plans Return of capital Dividends paid Other — — — — — — 22 — — — — — — 25,270 — (519) (1,613) — — — (9,731) — (9,731) 52,772 43,041 — 5,655 5,655 (15,906) (10,251) (9,731) 5,655 (4,076) 36,866 32,790 — — — — — (163,503) 6,900 — — — — — — — 25,270 — — 1,499 25,270 1,499 (519) — (519) (1,591) — (163,503) 6,900 — (45,339) (62,522) 2,118 (1,591) (45,339) (226,025) 9,018 Balance at December 31, 2019 20,443 2,879,625 (1,497,003) 231,866 1,634,931 539,757 2,174,688 Net (loss) income Other comprehensive income, net of tax Total comprehensive (loss) income Capital increase Tax benefit on stock-based compensation Shares issued under stock award plans Stock-based compensation (Note 23) Return of capital Dividends paid Other — — — — — 42 — — — — — — — — 78 (1,237) (8,315) — — 390 (932,676) — (932,676) 1,613 (931,063) — 48,012 48,012 59,455 107,467 (932,676) 48,012 (884,664) 61,068 (823,596) — — — — — (40,887) (2,348) — — — — — — — — 78 (1,195) (8,315) — (40,887) (1,958) 8,414 8,414 — — — (22,944) (59,976) 523 78 (1,195) (8,315) (22,944) (100,863) (1,435) Balance at December 31, 2020 20,485 2,870,541 (2,472,914) 279,878 697,990 526,842 1,224,832 The accompanying notes are an integral part of these consolidated financial statements. Annual Report and Accounts 2020 Page | 96 International Game Technology PLC Notes to the Consolidated Financial Statements 1. Description of Business International Game Technology PLC (the “Parent”), together with its consolidated subsidiaries (collectively referred to as “IGT PLC,” the “Company,” “we,” “our,” or “us”), is a global leader in gaming that delivers entertaining and responsible gaming experiences for players across all channels and regulated segments, from gaming machines and lotteries to sports betting and digital. We operate and provide an integrated portfolio of innovative gaming technology products and services, including: lottery management services, online and instant lottery systems, gaming systems, instant ticket printing, electronic gaming machines, sports betting, digital gaming, and commercial services. We have a local presence and relationships with governments and regulators in more than 100 countries around the world. 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 S.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. 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 accounting standards in conformity with the requirements of the Companies Act 2006 (“IFRS”). The consolidated financial statements have been prepared on a historical cost basis unless otherwise stated. The consolidated financial statements are stated in thousands of U.S. dollars (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. During the fourth quarter of fiscal 2020, the Company announced that its wholly-owned subsidiary, Lottomatica, had entered into a definitive agreement to sell one hundred percent of the share capital of Lottomatica Videolot Rete S.p.A. and Lottomatica Scommesse S.r.l., the members of the IGT group which conduct its Italian B2C gaming machine, sports betting, and digital gaming businesses, to Gamenet Group S.p.A The Company’s Italian Gaming B2C business met the criteria to be reported as a discontinued operation and, as a result, the Italian Gaming B2C historical financial results are reflected in the Company's consolidated financial statements as a discontinued operation, and assets and liabilities were retrospectively reclassified as assets and liabilities held for sale for all periods presented. Refer to Note 3 - Discontinued Operations and Assets Held for Sale for further information. Going Concern The Directors have considered the impact of COVID-19 on the Company’s operations (including the effects of any governmental or regulatory response to the pandemic), and mitigations to these risks. Overall, the impact of these items would heighten certain risks, such as the execution of the Company’s commercial strategies. The Company is continuously monitoring, and mitigating where possible, impacts of these risks. Additionally, the Company has a wide diversity of customers and suppliers across different geographic areas. The Directors believe that, overall, the Company is well placed to manage its business risks successfully. The Company’s cash flows generated from operating activities together with cash flows generated from financing activities have historically been sufficient to meet the Company's liquidity requirements; however, the Company Annual Report and Accounts 2020 Page | 97 implemented robust business continuity plans with cost reduction and capital spending avoidance initiatives in anticipation of the impact on liquidity arising from COVID-19. The Company believes its ability to generate cash from operations to reinvest in its business, primarily due to the long-term nature of its contracts, is one of its fundamental financial strengths. Combined with funds currently available and committed borrowing capacity, the Company expects to have sufficient liquidity to meet its financial obligations and working capital requirements in the ordinary course of business for at least the next 12 months from the date of issuance of these consolidated financial statements and the ability to maintain compliance with covenants under our borrowing facilities over the same period. Consequently, the Directors believe that the Company is well placed to manage its business risks successfully. Accordingly, we continue to adopt the going concern basis in preparing these consolidated financial statements. Principles of Consolidation The consolidated financial statements include the accounts of the Parent and our majority-owned or controlled subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Earnings or losses attributable to non-controlling interests in a subsidiary are included in net (loss) income in the consolidated statement of operations. Investments in which we have the ability to exercise significant influence, but do not control, and with respect to which we are not the primary beneficiary, are accounted for using the equity method of accounting. Equity investments in which we have no ability to exercise significant influence that do not have a readily determinable fair value and do not have a Net Asset Value per share are measured at cost, less impairment, which approximates fair value. Equity method investments are included within other non-current assets on the consolidated balance sheet. Recasting of Certain Prior Period Information On July 1, 2020, we adopted a new organizational structure focused on two business segments: Global Lottery and Global Gaming, along with a streamlined corporate support function. During the third quarter of 2020, our chief operating decision maker, who is also our Chief Executive Officer, requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. As a result, we report our financial performance based on our new business segments described in Note 22 – Segment Information. We have recast our historically presented comparative segment information to conform to the way we internally manage and monitor segment performance as of the third quarter of 2020. This realignment of our operating segments has a pervasive impact on the presentation of our comparative period data. This change primarily impacted Note 4 - Revenue Recognition, Note 5 - Trade and Other Receivables, net, Note 7 - Other Assets, Note 13 - Restructuring, Note 14 - Goodwill, and Note 22 – Segment Information, with no impact on consolidated revenue, net income, or cash flows. Assets and Liabilities Held for Sale The Company classifies assets and liabilities (disposal groups) to be sold as held for sale in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the disposal group; the disposal group is available for immediate sale in its present condition subject to terms customary for sales of such disposal groups; an active program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale within one year; the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the carrying value of the disposal group at the time it was initially classified as held for sale. Annual Report and Accounts 2020 Page | 98 Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group, if material, in the line items assets held for sale and liabilities held for sale in the consolidated statements of financial position in each period presented. Refer to Note 3 - Discontinued Operations and Assets Held for Sale, for further information. Critical Estimates, Judgments, and Assumptions The preparation of financial statements in conformity with IFRS requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments, and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenues and expenses. These estimates, judgments, and assumptions are used for, but not limited to, revenue recognition, allowance for credit losses, evaluation of long- lived assets for impairment, legal and other contingencies, and income taxes. Detailed information about each of these estimates, judgments, and assumptions is included in their respective notes, together with information about the basis of calculation for each affected line item in the financial statements. The full extent to which the outbreak of a new strain of coronavirus, COVID-19 (“COVID-19”), will directly or indirectly impact our business, results of operations, and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs, and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, as well as the economic impact on local, regional, national, and international customers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates. Given the anticipated continued impact of COVID-19 and the resulting extended economic slowdown, we have revised our forecast, evaluated our liquidity position, and evaluated our ability to comply with the amended financial covenants in our debt agreements as of the date of issuance of these consolidated financial statements. Based on the revised forecast, management believes that our financial position, forecasted net cash provided by operations, available cash and cash equivalents at December 31, 2020, and borrowing capacity under our amended Revolving Credit Facilities due July 2024 as described in Note 17 - Debt, will be sufficient to fund our current obligations, capital spending, debt service requirements, and working capital requirements over at least the next twelve months. The accounting policy descriptions set out the areas where judgments and estimates need exercising, the most significant of which include the following Key Judgments (♣) and Significant Estimates (♦): • Revenue Recognition, refer to accounting policy, page 100 (♣) • Goodwill, refer to accounting policy, page 106 (♦) and Note 14, page 129 and 130 (♦) • Income Taxes, refer to accounting policy, page 109 (♣) and Note 18, page 143 (♣) • Discontinued Operations and Held for Sale Assets, refer to Note 3, page 111 (♣), (♦) Revenue Recognition We account for a contract with a customer when: i. we have written approval; the contract is committed; ii. the rights of the parties, including payment terms, are identified; iii. the contract has commercial substance; and iv. collectability of consideration is probable. v. 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: Annual Report and Accounts 2020 Page | 99 • 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. (♣) The Company often enters into contracts with customers that consist of a combination of services and products that are accounted for as one or more distinct performance obligations. Management applies judgment in identifying and evaluating the contractual terms and conditions that impact the identification of performance obligations and the pattern of revenue recognition. 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 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; • Gaming terminal services; and System, software and other. • Operating and Facilities Management Contracts Our revenue from operating contracts is derived primarily from long-term exclusive operating licenses in Italy. Under operating contracts, we manage all the activities along the lottery value chain including collecting wagers, paying out prizes, managing all accounting and other back-office functions, running advertising and promotions, operating data transmission networks and processing centers, training staff, providing retailers with assistance, and supplying materials for the game. In most cases, the arrangement is accounted for as a single performance obligation composed of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e., distinct days of service). Under operating contracts, we typically satisfy the performance obligation and recognize revenue over time because the customer simultaneously receives and consumes the benefits provided as we perform the services. The amount of consideration to which we are typically entitled is variable based on a percentage of sales. Revenue is typically recognized in the amount that we have the right to invoice the customer as this corresponds directly with the value to the customer of our performance completed to date. In arrangements where we are performing services on behalf of the government and the government is considered our customer, revenue is recognized net of prize Annual Report and Accounts 2020 Page | 100 payments, taxes, retailer commissions, and remittances to state authorities. Under operating contracts, we are generally required to pay an upfront license fee. Refer to the Upfront License Fee policy below for further details. Our revenue from facilities management contracts (“FMC”) is generated by assembling, installing, and operating the online lottery system and related point-of-sale equipment. Under a typical FMC, we maintain ownership of the technology and are responsible for capital investments throughout the duration of the contract. FMCs typically include a wide range of support services that are provided throughout the contract and are part of the integrated solution that the customer has contracted to obtain. In most cases, the arrangement is accounted for as a single performance obligation composed of a series of distinct services that are substantially the same and that have the same pattern of transfer. Under FMCs, we typically satisfy the performance obligation and recognize revenue over time because the customer simultaneously receives and consumes the benefits provided as we perform the services. The amount of transaction price to which we are entitled is typically variable based on a percentage of sales, although under certain of its agreements, the Company receives fees based on a fixed fee arrangement. Revenue is typically recognized in the amount that we have the right to invoice the customer, as this corresponds directly with the value to the customer of our completed performance. Gaming terminal services Our revenue from gaming terminal services is generated by providing customers with proprietary land-based gaming systems and equipment under a variety of recurring revenue or lease arrangements, including a percentage of amounts wagered, a percentage of net win, or a fixed daily/monthly fee. Included in gaming terminal services are wide area progressive (“WAP”) systems. WAP systems consist of linked slot machines located in multiple casino properties, connected to a central computer system. WAP systems include a Company-sponsored progressive jackpot that increases with every wager until a player wins the top award combination. Casinos with WAP machines pay a percentage of amounts wagered for services related to the design, assembly, installation, operation, maintenance, and marketing of the WAP systems, as well as funding and administration of Company-sponsored progressive jackpots. A portion of the total fee collected is allocated to the WAP jackpot. Since the jackpot is a payment to the customer, the portion allocated to the jackpot is classified as a reduction of revenue. In some arrangements, there is a single performance obligation composed of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The amount of transaction price to which we are entitled typically is variable based on a percentage of wagers. This results in revenue recognition that corresponds with the value to the customer for the services transferred in the amount that we have the right to invoice. In other arrangements where the end customer is the player, we record revenue net of prize payouts once the wagering outcome has been determined. Systems, software, and other – Global Lottery Our lottery contracts generally include other services, including telephone support, software maintenance, hardware maintenance, and the right to receive unspecified upgrades or enhancements on a when-and-if-available basis, and other professional services including software development. Fees earned for other services are generally recognized as service revenue in the period the service is performed (i.e., over the support period). We also develop technology to enable lotteries to offer commercial services over their existing lottery infrastructure or over standalone networks separate from the lottery. Leveraging our distribution network and secure transaction processing, we offer high-volume processing of commercial transactions including: prepaid cellular telephone recharges, bill payments, e-vouchers and retail-based programs, electronic tax payments, stamp duty services, prepaid card recharges, and money transfers. These services are primarily offered outside of North America. In most cases, these arrangements are considered to be short in duration. The amount of transaction price that we are typically entitled to is variable based on the number of transactions processed. Revenue is typically recognized in the amount that we have the right to invoice the customer as this corresponds directly with the value to the customer of our completed performance. Systems, software, and other – Global Gaming We also generate revenue from other services, including video central system monitoring, system support, licensing of IP, and sports betting. Annual Report and Accounts 2020 Page | 101 Our contracts generally include other services, including telephone support, software maintenance, content licensing, royalty fees, hardware maintenance, and the right to receive unspecified updates or enhancements on a when-and-if-available basis, and other professional services. Fees earned for other services are generally recognized as service revenue in the period the service is performed (i.e., over the support period). We provide sports betting technology and services to commercial and tribal operators and lotteries in regulated markets, primarily in the U.S. In the service contracts to our U.S. licensed sports book operators, we provide the sports betting platform and a variety of services including installation, configuration and integration services. For customers who want to have an outsourcing model, we also offer trading services with the inclusion of odds setting and risk management. Under these contracts, we generally record a percentage of net sports revenue over the contractual term. Product Sales Product sales are derived from the following sources: Lottery products • • Gaming terminals • Gaming other Lottery products Lottery product revenue primarily includes the sale of lottery equipment, lottery systems and printed products. Our revenue from the sale of lottery systems and equipment typically includes multiple performance obligations, where we assemble, sell, deliver, and install a turnkey system (inclusive of point-of-sale terminals, if applicable) or deliver equipment and license the computer software for a fixed price, and the customer subsequently operates the system or equipment. Our credit terms are predominantly short-term in nature. We also grant extended payment terms under contracts where the sale is typically secured by the related equipment sold. Revenue from the sale of lottery systems and equipment is recognized based upon the contractual terms of each arrangement. These arrangements generally include customer acceptance provisions and general rights to terminate the contract if we are in breach of the contract or at the convenience of the customer. In 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 generally recognized upon transfer of physical possession of the goods or the satisfaction of customer acceptance provisions. If the transaction includes multiple performance obligations, it is accounted for under arrangements with multiple performance obligations, discussed below. Our other lottery product sales are primarily derived from the production and sales of instant ticket games under multi-year contracts. In these arrangements, the performance obligation is generally satisfied at a point in time (i.e., upon transfer of control of the game tickets to the customer) based on the contractual terms of each arrangement. Gaming terminals Our revenue from the sale or sales-type lease of gaming terminals includes embedded game content, machine related equipment, licensing and royalty fees, and component parts. Our credit terms are predominantly short-term in nature. We also grant extended payment terms under contracts where the sale is typically secured by the related equipment sold. Revenue from the sale of gaming machines is recognized based upon the contractual terms of each arrangement, but predominantly upon transfer of physical possession of the goods or the lapse of customer acceptance provisions. If the sale of gaming machines includes multiple performance obligations, these arrangements are accounted for under arrangements with multiple performance obligations, discussed below. Annual Report and Accounts 2020 Page | 102 Gaming other Other gaming product revenue is primarily comprised of gaming system sales, content licensing, software sales, non-machine related equipment and component parts (including game themes and electronic conversion kits). Our revenue from the sale of gaming systems typically includes multiple performance obligations, where we sell, deliver, and install a turnkey system or deliver equipment and license the computer software for a fixed price, and the customer subsequently operates the system. These arrangements generally include customer acceptance provisions and general rights to terminate the contract if we are in breach of the contract. Such arrangements include hardware, software, and professional services. In these arrangements, the performance obligation is generally satisfied upon transfer of physical possession of the goods or the satisfaction of customer acceptance provisions. Arrangements with Multiple Performance Obligations (♣) We often enter into contracts that consist of a combination of services and products based on the needs of our customers, which may include post-contract support for the software and a contract for post-warranty maintenance service for the hardware. These contracts consist of multiple services and products, whereby the hardware and software may be delivered in one period and the software support and hardware maintenance services are delivered over time. To the extent that a service or product in an arrangement with multiple performance obligations is subject to other specific accounting guidance, that service or product is accounted for in accordance with such specific guidance. For all other distinct services and products in these arrangements, the arrangement transaction price is allocated to each performance obligation on a relative standalone selling price basis or another method that depicts 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 significant discount incremental to the range of discounts typically given for the service or product), in which case the customer in effect pays in advance for the option to purchase future services or products. We allocate a portion of the transaction price to the material right and recognize revenue when those future services or products are transferred or when the option expires. Standalone Selling Price (♣) We allocate the transaction price to each performance obligation on a relative standalone selling price (“SSP”) basis. The SSP is the price at which we would sell a promised service or product separately to a customer. In some instances, we are able to establish SSP based on the observable prices of services or products sold separately in comparable circumstances to a similar customer. We typically establish an SSP range for our services and products that are reassessed on a periodic basis or when facts and circumstances change. In other instances, we may not be able to establish an SSP range based on observable prices, and we estimate the SSP by considering multiple factors including, but not limited to, overall market conditions, including geographic or regional specific factors, competitive positioning, competitor actions, internal costs, profit objectives, and pricing practices. Estimating SSP is a formal process that includes review and approval by management. Contract Costs Certain eligible, non-recurring costs incurred in the initial phases of service contracts are deferred and amortized ratably over the expected period of benefit, which includes anticipated contract renewals or extensions. Recurring operating costs in these contracts are recognized as incurred. Practical Expedients and Exemptions We report revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions. Annual Report and Accounts 2020 Page | 103 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, (ii) performance obligations for which we recognize revenue at the amount that we have the right to invoice for services performed, (iii) contracts for which variable consideration is accounted for in accordance with sales-based or usage-based royalty guidance, and (iv) wholly unperformed contracts. 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. Stock-Based Compensation Stock-based compensation represents the cost related to stock-based awards granted to directors and employees. Stock-based compensation cost is measured at the grant date or modification date, based on the estimated fair value of the award and recognized as expense, net of estimated forfeitures, over the vesting period(s). For awards subject to cliff vesting, compensation cost is recognized by way of a straight-line method over the award’s expected vesting period. For awards subject to graded vesting, compensation cost is recognized by way of an accelerated attribution method over the entire awards’ expected vesting periods. Advertising Advertising costs are expensed as incurred. Advertising expense was $25.0 million and $34.2 million for the years ended December 31, 2020 and 2019, respectively. Research and Development Costs Research and development costs (“R&D”), which include salaries and benefits, stock-based compensation, consultants’ fees, facilities-related costs, material costs, depreciation, and travel, are expensed as incurred, as the criteria to capitalize development costs have not been met. Cash and Cash Equivalents Cash and cash equivalents consist primarily of highly liquid investments purchased with an original maturity of three months or less at the date of acquisition, such as bank deposits, money market funds, and interest bearing bank accounts with insignificant interest rate risk. The fair value of cash and cash equivalents approximates the carrying amount. Restricted Cash and Cash Equivalents We are required by gaming regulation to maintain sufficient reserves in restricted cash accounts to be used for the purpose of funding payments to WAP jackpot winners. These restricted cash balances are based primarily on the jackpot meters displayed to slot players, or for previously won jackpots, and vary by jurisdiction. Under our Italian Lotto contract, we deposit wagers, net of prizes paid and retailer commissions retained by the retailer at point of sale, into bank accounts, the use of which is restricted based on the contract with our customer. Restricted cash is also maintained for interactive digital player deposits, collections on factored and serviced receivables not yet paid through to the third-party owner, and for customer funds received in relation to the provision of our commercial services. These amounts are restricted based on the contracts with our customers or local regulations. Annual Report and Accounts 2020 Page | 104 Allowance for Credit Losses We maintain an allowance for expected credit losses on receivables measured as the difference between the cash flows due in accordance with the contract and the cash flows we expect to receive. The allowance is regularly reviewed by considering factors such as the creditworthiness of our customers, historical experience, aging of receivables, and current market and economic conditions, as well as management’s expectations of future conditions when appropriate. The allowance is deducted from the amortized cost basis of the receivable to present the net amount expected to be collected. We estimate expected credit losses on receivables on a collective (pool) basis when similar risk characteristics exist. Trade and other receivables and customer financing receivables represent the initial pools which are segregated further by business segment, geography, internal risk rating, and aging. The risk of loss is assessed over the contractual life of the receivables and we adjust historical loss rates for current and future conditions based on qualitative considerations. The expected loss rate for each receivable pool is applied to the aggregate receivable balance to determine the allowance requirement. We assess the probability of default on receivables at initial recognition and then whether there has been a significant increase in credit risk on an ongoing basis. Receivables are written off against the allowance when there is no reasonable expectation of recovery, for example where all legal avenues for collection of amounts due have been exhausted, the receivable (or relevant portion) is written off. We determine delinquency based on the contractual payment terms. An account may be considered delinquent if there are unpaid balances remaining on the account the day after the contractual due date. For amounts due from certain government customers in the Global Lottery business segment, we have not established an allowance as we have no expectation of loss based on a long history of no credit losses and the explicit guarantee of a sovereign entity. Inventories Inventories are stated at the lower of cost (applying the first in, first out method) and net realizable value. Allowances are made for defective, obsolete, or excess inventory. Systems, Equipment and Other Assets Related to Contracts, Net and Property, Plant and Equipment, Net We have two categories of fixed assets: systems, equipment and other assets related to contracts (“Systems & Equipment”); and property, plant and equipment (“PPE”). Systems & Equipment are assets that primarily support our operating contracts, FMCs, and WAP systems (collectively, the “Contracts”) and are principally composed of lottery and gaming assets. PPE are assets we use internally, not associated with Contracts, primarily related to production and assembly, selling, general and administration, and R&D. Systems & Equipment and PPE are stated at cost, net of accumulated depreciation and accumulated impairment loss, if any. Depreciation commences when the asset is placed in service and is recognized on a straight-line basis over the estimated useful lives of the assets. Repair and maintenance costs are expensed as incurred, whereas major improvements that increase asset values and extend useful lives are capitalized. Annual Report and Accounts 2020 Page | 105 The estimated useful lives for Systems & Equipment depends on the type of asset. Lottery assets (such as terminals, mainframe computers, communications equipment, and software development costs) have estimated useful lives that generally do not exceed 10 years and commercial gaming machines have estimated useful lives of three to five years. The estimated useful lives for PPE are 40 years for buildings and five to 10 years for furniture and equipment. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life. Systems & Equipment and PPE are tested for impairment whenever events or changes in circumstances indicate the carrying amount of those assets may not be recoverable. 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. Goodwill The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses, and is stated at cost less accumulated impairment losses. Effective July 1, 2020 the Company adopted a new organizational structure focused on two business segments, Global Lottery and Global Gaming, along with a streamlined corporate support function. This resulted in a change in our operating segments and cash-generating units. Prior to this change, we had four cash-generating units: North America Gaming and Interactive, North America Lottery, International, and Italy. Goodwill has been allocated to and is tested for impairment at the cash-generating unit level, which is the same level as our operating segments. We evaluate our cash-generating units annually and if necessary, reassign goodwill using a relative fair value approach. As of December 31, 2020 we have identified two cash-generating units - Global Lottery and Global Gaming. (♦) Goodwill is tested for impairment annually, in the fourth quarter, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. We either first perform a qualitative assessment to determine whether it is more likely than not that the recoverable value of goodwill is less than its carrying amount and whether the quantitative analysis is necessary, or elect to perform a quantitative one-step process. The goodwill impairment test compares the recoverable value of a cash-generating unit with its carrying amount and an impairment loss is recognized for the amount by which the carrying amount exceeds the cash- generating unit’s recoverable value. In performing the goodwill impairment test, we estimate the recoverable value of the cash-generating units using an income approach based on projected discounted cash flows. Other Intangible Assets Other intangible assets, which include indefinite-lived and definite-lived intangible assets, are stated at cost, less accumulated amortization and accumulated impairment losses. Indefinite-lived intangible assets are composed of trademarks for which there is no foreseeable limit of the period over which they are expected to generate net cash inflows. Definite-lived intangible assets, which are primarily composed of customer relationships and computer software and game library, 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. Annual Report and Accounts 2020 Page | 106 Estimated useful lives are determined considering the period the assets are expected to contribute to future cash flows. The estimated economic lives of our definite-lived intangible assets are as follows: Category Trademarks Developed technologies Customer relationships Computer software and game library Licenses Other Estimated economic life 1 - 20 years 2 - 15 years 2 - 20 years 3 - 14 years 3 - 23 years 4 - 17 years Indefinite-lived intangible assets other than goodwill are tested for impairment annually, in the fourth quarter, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. We 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 recoverable value. More detail surrounding intangible assets is discussed in Note 15 - Intangible Assets, net. Capitalized Software Development Costs Costs incurred in the development of our externally-sold software products are expensed as incurred, except certain software development costs eligible for capitalization. Software development costs incurred subsequent to establishing technological feasibility and through the general release of the software products are capitalized. Capitalized costs are amortized over the products’ estimated economic life to cost of product sales in the consolidated statement of operations. Costs incurred during the application development phase of software for services provided to customers are capitalized as internal-use software and amortized over the useful life to cost of services. Costs incurred during the application of software for internal use are capitalized and amortized over the useful life to selling, general and administrative expenses in the consolidated statement of operations. 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 sheet. 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 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. Annual Report and Accounts 2020 Page | 107 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. 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. Fair Value Measurements We account for certain financial assets and liabilities at fair value. Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the use of observable inputs and the lowest priority to the use of unobservable inputs. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. These levels are as follows: • • • Level 1 - inputs are based upon unadjusted quoted prices for identical instruments in active markets. Level 2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the instruments. Level 3 - inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Derivative Financial Instruments We use derivative financial instruments for the management of foreign currency risks and interest rate risks. We do not enter into derivatives for speculative purposes. Derivatives are recognized as either assets or liabilities in the consolidated balance sheet at fair value. All derivatives are recorded gross, except netting of foreign exchange contracts and counterparty netting of interest receivable and payable related to interest rate swaps, as applicable. The accounting for changes in the fair value of a derivative depends 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 (loss) and are subsequently reclassified when the hedged item affects earnings. At that time, the amount is reclassified from other comprehensive income (loss) to the same income statement line as the earnings effect of the hedged item. 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. In the event the derivative instruments are subsequently de-designated as hedges, the change in fair value is recognized in interest expense, net in the consolidated statement of operations with no corresponding offset to debt. For derivative instruments designated as net investment hedges, the spot portion of the derivative gain or loss is reported in foreign currency translation within other comprehensive income (loss) to offset any gains or losses on Annual Report and Accounts 2020 Page | 108 translation of the net investment in the subsidiary. All other components of the derivative fair value will be reported in income, as either interest income or interest expense, on an amortized basis. Derivative instruments not designated as hedges are recognized in the consolidated balance sheet at fair value with the changes in fair value recorded in foreign exchange (loss) gain, net in the consolidated statement of operations. Leases We determine whether a contract is or contains a lease at inception. As a lessee, we recognize right-of-use (“ROU”) assets and lease liabilities on the lease commencement date based on the present value of lease payments over the lease term. ROU assets also include any upfront lease payments or initial direct costs and are adjusted for lease incentives received. We consider renewal and termination options, including whether they are reasonably certain to be exercised, in determining the lease term and establishing the ROU assets and lease liabilities. ROU assets and lease liabilities are calculated using our incremental borrowing rate, which is based on the lease currency and length of the lease, unless the implicit rate is determinable. Most of our lease contracts contain both lease and non-lease components. As a lessee, we combine lease and non- lease components into a single lease component for all classes of underlying assets except certain communication equipment. For certain communication equipment, we allocate the consideration between lease and non-lease components based on relative standalone price. Variable lease payments are generally expensed as incurred except for certain rent payments that depend on an index, which are included in lease payments using the index rate in effect as of the lease commencement date. When the lease payments are adjusted for changes in the index, we will remeasure the ROU asset and lease liability. Short-term leases, which are leases with an initial term of 12 months or less with no purchase options, are not recognized on the balance sheet. The rental payments are recognized as lease expense on a straight-line basis over the lease term. Certain of our long-term lottery and commercial gaming service arrangements include leases for equipment installed at customer locations. As the lessor, we evaluate whether the leases are classified as finance or operating leases and recognize revenue based on that evaluation. Finance leases are recognized as product sale revenue while operating leases are recognized as service revenue. 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. 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 sheet. Annual Report and Accounts 2020 Page | 109 We use the period cost method for global intangible low-taxed income (“GILTI”) provisions and therefore have not recorded deferred taxes for basis differences expected to reverse in future periods. Foreign Currency Translation The financial statements of subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars, with the resulting translation adjustments recorded as a component of other reserves within shareholders’ equity. Assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date, while income and expense items are translated using the average exchange rates during the period. New Accounting Standards - Recently Adopted In May 2020, the International Accounting Standards Board ("IASB") issued an amendment to International Financial Reporting Standard 16 Leases ("IFRS 16"), COVID-19-Related Rent Concessions. As a result of COVID-19, rent concessions may have been granted to lessees and could take various forms such as, payment holidays, rent waivers or deferrals of lease payments. The amendment provides an optional practical expedient for lessees from assessing whether eligible COVID-19 related rent concessions are lease modifications, and account for them as if they were not lease modifications. The amendment is effective for periods beginning on or after June 1, 2020 with earlier application permitted. We elected to apply this expedient to not reassess whether a COVID-19 rent concession is a lease modification as of January 1, 2020, and the election did not result in a material impact on our consolidated financial statements. In September 2019, the IASB issued Interest Rate Benchmark Reform, Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures (the “Phase 1” amendments). Interest rate benchmarks including London Interbank Offered Rate (“LIBOR”), the Euro Interbank Offered Rate (“EURIBOR”), and certain other Interbank Offered Rates (“IBOR”s) are being reformed. The Phase 1 amendments provide temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by IBOR reform. The Phase 1 amendments are mandatory and effective January 1, 2020. The application of the amendments did not have a material impact to our derivative instruments in our consolidated financial statements. All other standards or amendments to standards that have been issued by the IASB and are effective from January 1, 2020 onwards are not applicable nor had a significant effect on the consolidated financial statements. New Accounting Standards - Not Yet Adopted In August 2020, the IASB issued Interest Rate Benchmark Reform—Phase 2, which amends IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases (the “Phase 2” amendments). The Phase 2 amendments focused on relief when an existing interest rate is replaced with an alternative interest rate. The Phase 2 amendments are effective January 1, 2021 with earlier application permitted. We will not early adopt and do not expect the Phase 2 amendments to have a material impact upon adoption. We do not currently expect that any other recently issued accounting guidance will have a significant effect on the consolidated financial statements. 3. Discontinued Operations and Assets Held for Sale On December 7, 2020, the Parent announced that its wholly-owned subsidiary, Lottomatica, had entered into a definitive agreement to sell one hundred percent of the share capital of Lottomatica Videolot Rete S.p.A. and Lottomatica Scommesse S.r.l., the members of the IGT group which conduct its Italian B2C gaming machine, sports betting, and digital gaming businesses, to Gamenet Group S.p.A. for a sale price of €950 million. The businesses to be sold are within the Company’s Global Gaming segment. The Company will receive €725 million at closing, €100 million on December 31, 2021, and €125 million on September 30, 2022. The sale price is subject to certain adjustments specified in the agreement. Closing of the transaction is subject to Italian regulatory approvals and specified representations, warranties, covenants and conditions customary in agreements of this kind and scope. The Company expects the transaction to close in the first half of 2021. Annual Report and Accounts 2020 Page | 110 Aligning with our segment reorganization, the sale represents a strategic shift to reframe and simplify the priorities of our Global Gaming segment to focus on its core competencies as a B2B product and service provider. The Company determined that the sale met the criteria to be classified as a discontinued operation and, as a result, its historical financial results are reflected in the Company's consolidated financial statements as a discontinued operation, and assets and liabilities were classified as assets and liabilities held for sale. The Company did not allocate any general corporate overhead to discontinued operations. Summarized financial information for discontinued operations is shown below: ($ thousands) Total revenue Operating income (1) Income from discontinued operations before provision for income taxes Provision for income taxes Income from discontinued operations, net of tax Less: Net (loss) income attributable to non-controlling interests from discontinued operations Income from discontinued operations attributable to IGT PLC Foreign currency translation adjustments Other comprehensive income from discontinued operations attributable to IGT PLC For the year ended December 31, 2020 2019 413,841 752,319 52,138 42,810 6,726 36,084 (4,760) 40,844 48,205 158,665 154,106 41,847 112,259 4,539 107,720 (9,290) 89,049 98,430 (1) Includes depreciation and amortization of $101.7 million and $106.9 million for the years ended 2020 and 2019, respectively Net cash used in financing activities from discontinued operations was $7.0 million and $7.8 million for the years ended December 31, 2020 and 2019, respectively. The Company expects to have continuing involvement with the businesses via a transition services agreement (“TSA”). As part of the expected TSA, the Company will provide various telecommunications, information technology, and back-office services for which the Company will receive compensation. These services generally expire after no more than three years. (♣) The following represents the major classes of assets and liabilities held for sale as part of our discontinued operations: ($ thousands) Assets: Trade and other receivables, net Other current assets Systems, equipment and other assets related to contracts, net Goodwill Intangible assets, net Other non-current assets Assets held for sale Liabilities: Accounts payable Other current liabilities Other non-current liabilities Liabilities held for sale December 31, 2020 2019 62,110 55,011 86,230 511,371 54,711 50,947 820,380 62,691 163,031 22,691 248,413 130,864 74,713 102,347 511,371 86,388 53,798 959,481 61,889 122,236 29,455 213,580 (♦) The Company allocated $511.4 million of goodwill to discontinued operations using a relative fair value approach. Prior to the allocation to discontinued operations, the goodwill was included within our Global Gaming segment. Annual Report and Accounts 2020 Page | 111 The cumulative foreign currency translation adjustments losses in other comprehensive income in relation to the discontinued operations were $16.1 million and $64.3 million as of December 31, 2020 and 2019, respectively. In addition to the sale of certain entities in our Global Gaming segment classified as discontinued operations as described above, we have other disposal groups that meet the requirements to be classified as held for sale in our consolidated balance sheet at December 31, 2020. The following represents total assets and liabilities held for sale classified between the current and non-current categories: ($ thousands) Assets: Current assets held for sale - discontinued operations Current assets held for sale - other Total current assets held for sale Total non-current assets held for sale Assets held for sale Liabilities: Total current liabilities held for sale Total non-current liabilities held for sale Liabilities held for sale 4. Revenue Recognition Disaggregation of Revenue December 31, 2020 2019 820,380 5,417 825,797 — 825,797 248,413 — 248,413 205,577 — 205,577 753,904 959,481 184,124 29,454 213,578 The following tables summarize revenue disaggregated by business segment and the source of the revenue for the years ended December 31, 2020 and 2019: ($ thousands) Operating and facilities management contracts Gaming terminal services Systems, software, and other Service revenue Lottery products Gaming terminals Gaming other Product sales Total revenue For the year ended December 31, 2020 Global Global Lottery Gaming 1,742,235 — 298,736 2,040,971 — 297,418 301,196 598,614 1,742,235 297,418 599,932 2,639,585 Total 121,346 — — 121,346 2,162,317 — 205,289 149,263 354,552 953,166 121,346 205,289 149,263 475,898 3,115,483 Annual Report and Accounts 2020 Page | 112 ($ thousands) Operating and facilities management contracts Gaming terminal services Systems, software, and other Service revenue Lottery products Gaming terminals Gaming other Product sales Total revenue Contract Balances For the year ended December 31, 2019 Global Global Gaming Lottery 1,929,121 — 252,200 2,181,321 — 567,849 350,046 917,895 1,929,121 567,849 602,246 3,099,216 Total 109,884 — — 109,884 2,291,205 — 581,017 239,988 821,005 1,738,900 109,884 581,017 239,988 930,889 4,030,105 Information about receivables, contract assets, and contract liabilities is as follows: ($ thousands) Receivables, net Contract assets: Current Non-current Contract liabilities: Current Non-current December 31, 2020 December 31, 2019 846,128 875,263 Balance Sheet Classification Trade and other receivables, net 53,491 75,000 128,491 47,499 Other current assets 76,188 Other non-current assets 123,687 (108,707) (62,175) (170,882) (66,749) Other current liabilities (65,855) Other non-current liabilities (132,604) The amount of revenue recognized during the year ended December 31, 2020 that was included in the contract liabilities balance at December 31, 2019 was $54.9 million. The amount of revenue recognized during the year ended December 31, 2019 that was included in the contract liabilities balance at December 31, 2018 was $50.7 million. Transaction Price Allocated to Remaining Performance Obligations At December 31, 2020, the transaction price allocated to unsatisfied performance obligations for contracts expected to be greater than one year, or performance obligations for which we do not have a right to consideration from the customer in the amount that corresponds to the value to the customer for our performance completed to date, variable consideration which is not accounted for in accordance with the sales-based or usage-based royalties guidance, or contracts which are not wholly unperformed, is approximately $867.8 million. Of this amount, we expect to recognize as revenue approximately 20% within the next 12 months, approximately 30% between 13 and 36 months, approximately 26% between 37 and 60 months, and the remaining balance through December 31, 2031. Annual Report and Accounts 2020 Page | 113 5. Trade and Other Receivables, net Trade and other receivables are recorded at amortized cost, net of allowance for credit losses, and represent a contractual right to receive money on demand or on fixed or determinable dates that are typically short-term with payment due within 90 days or less. ($ thousands) Trade and other receivables, gross Allowance for credit losses Trade and other receivables, net The following table presents the activity in the allowance for credit losses: ($ thousands) Balance at beginning of year (Provisions) recoveries, net Amounts written off as uncollectible Foreign currency translation Other Balance at end of year December 31, 2020 2019 861,772 897,329 (15,644) (22,066) 846,128 875,263 December 31, 2020 (22,066) (6,096) 9,660 (551) 3,409 (15,644) 2019 (29,407) 3,480 3,405 162 294 (22,066) We enter into various factoring agreements with third-party financial institutions to sell certain of our trade receivables. We factored trade receivables of $1,531.6 million and $2,629.4 million during the years ended December 31, 2020 and 2019, respectively, under these factoring arrangements, which reduced trade receivables. The cash received from these arrangements is reflected as cash provided by operating activities in the consolidated statement of cash flows. In certain of these factoring arrangements, for ease of administration, we will collect customer payments related to the factored trade receivables, which we then remit to the financial institutions. At December 31, 2020 and 2019, we had $110.1 million and $50.2 million, respectively, that was collected on behalf of the financial institutions and recorded as other current liabilities in the consolidated balance sheet. The net cash flows relating to these collections are reported as financing activities in the consolidated statement of cash flows. The following table presents an analysis of our past due trade and other receivables, gross of allowance for credit losses: ($ thousands) Current Past due 6. Inventories ($ thousands) Raw materials Work in progress Finished goods Inventories, gross Obsolescence reserve Inventories, net For the year ended December 31, 2020 For the year ended December 31, 2019 $ 732,327 129,445 861,772 % 85.0 % 15.0 % 100.0 % $ 779,135 118,194 897,329 % 86.8 % 13.2 % 100.0 % December 31, 2020 2019 86,089 23,211 102,674 211,974 86,877 11,663 96,895 195,435 (42,767) (33,645) 169,207 161,790 Annual Report and Accounts 2020 Page | 114 The following table presents the activity in the obsolescence reserve: ($ thousands) Balance at beginning of year Provisions, net Amounts written off Foreign currency translation Other Balance at end of year December 31, 2020 (33,645) (33,554) 23,535 (2,041) 2,938 (42,767) 2019 (39,885) (28,970) 23,375 (130) 11,965 (33,645) The cost of inventories related to product sales that were recognized as an expense during 2020 and 2019 was $254.4 million and $472.5 million, respectively. 7. Other Assets Other Current Assets ($ thousands) Customer financing receivables, net Contract assets Value-added tax receivable Income taxes receivable Prepaid expenses Other receivables Prepaid royalties Other Other Non-Current Assets ($ thousands) Upfront license fees, net: Italian Scratch & Win Italian Lotto New Jersey Indiana Customer financing receivables, net Contract assets Deferred income taxes Debt issuance costs Prepaid royalties Other Notes 4 December 31, 2020 231,873 53,491 46,466 45,203 39,439 11,209 8,701 43,168 479,550 2019 226,979 47,499 51,405 56,857 41,366 10,673 24,999 47,732 507,510 Notes 2020 2019 December 31, 845,336 525,017 74,449 10,458 1,455,260 873,756 578,408 83,209 11,853 1,547,226 83,638 75,000 33,117 14,322 13,987 64,803 122,124 76,188 27,108 20,464 25,092 73,847 1,740,127 1,892,049 4 18 17 Annual Report and Accounts 2020 Page | 115 Upfront License Fees The upfront license fees are being amortized on a straight-line basis as follows: Upfront License Fee Italian Scratch & Win Italian Lotto New Jersey Indiana License Term 9 years 9 years 15 years, 9 months 15 years Amortization Start Date October 2019 December 2016 October 2013 July 2013 Yeonama Holdings Co. Limited (“Yeonama”) In May 2019, we sold our ownership interest in Yeonama, an investment previously included within other non- current assets on the consolidated balance sheet. The sale resulted in a pre-tax gain of €26.1 million ($29.1 million at the May 31, 2019 exchange rate). Customer Financing Receivables Customers' payment terms for customer financing receivables are confirmed with a written financing contract, lease contract, or promissory note and a security agreement is typically signed by the parties granting the Company a security interest in the related products sold or leased. Customer financing interest income is recognized based on market rates prevailing at issuance. Customer financing receivables are recorded at amortized cost, net of any allowance for credit losses, and are classified in the consolidated balance sheet as follows: ($ thousands) Customer financing receivables, gross Allowance for credit losses Customer financing receivables, net ($ thousands) Customer financing receivables, gross Allowance for credit losses Customer financing receivables, net Current Assets December 31, 2020 Non-Current Assets 274,650 (42,777) 231,873 90,780 (7,142) 83,638 Current Assets December 31, 2019 Non-Current Assets 255,221 (28,242) 226,979 125,542 (3,418) 122,124 Total 365,430 (49,919) 315,511 Total 380,763 (31,660) 349,103 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, 2020 (31,660) (37,191) 23,525 1,820 (6,413) 2019 (29,209) (2,477) 11 15 — (49,919) (31,660) Annual Report and Accounts 2020 Page | 116 The Company’s customer financing receivable portfolio is composed of customers within the Global Gaming business segment. We internally assess the credit quality of customer financing receivables using a number of factors, including, but not limited to, credit scores obtained from external providers, trade references, bank references, and historical experience. Risk profiles differ based on customer location and are pooled as North America, Latin America and the Caribbean (“LAC”), Europe, Middle East and Africa (“EMEA”), and Asia Pacific (“APAC”). During 2020, $23.5 million of customer financing receivables, primarily within LAC, were written off as uncollectible due to the impacts of COVID-19. Additionally, due to the duration of the COVID-19 induced shutdowns in LAC and potential future impacts on our customers caused by COVID-19, we increased our allowance for credit losses during the year ended December 31, 2020. At December 31, 2020 the Company had $43.3 million of credit loss allowances associated with the LAC customer financing receivables. The past due balances, which represent installments that are one day or more past their contractual due date, of customer financing receivables at amortized cost and the geography credit quality indicator at December 31, 2020 and 2019 are as follows: ($ thousands) Past due Short-term portion not yet due Long-term portion not yet due ($ thousands) Past due Short-term portion not yet due Long-term portion not yet due North America 6,062 37,728 30,960 74,750 North America 4,522 63,529 12,380 80,431 December 31, 2020 EMEA LAC 106,011 67,634 31,562 205,207 12,585 32,488 26,558 71,631 APAC 3,839 8,303 1,700 13,842 Total 128,497 146,153 90,780 365,430 December 31, 2019 EMEA LAC APAC Total 47,729 97,965 87,879 233,573 13,266 26,045 23,454 62,765 188 1,977 1,829 3,994 65,705 189,516 125,542 380,763 Annual Report and Accounts 2020 Page | 117 8. Fair Value Measurements Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis Our significant financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019 are as follows: Balance Sheet Location Level 1 Level 2 Level 3 Total Fair Value December 31, 2020 Other current and other non-current assets Other non-current assets Other current and other non-current liabilities — 10,738 6,026 — — — 10,738 6,026 — 10,113 — 10,113 December 31, 2019 Balance Sheet Location Level 1 Level 2 Level 3 Total Fair Value Other current and other non-current assets Other non-current assets Other current and other non-current liabilities — 7,769 8,317 — — — 8,317 7,769 — 6,425 — 6,425 ($ thousands) Assets: Derivative assets Equity investments Liabilities: Derivative liabilities ($ thousands) Assets: Derivative assets Equity investments Liabilities: Derivative liabilities Valuation Techniques Derivative assets and liabilities classified as Level 2 were derived from quoted market prices for similar instruments or by discounting the future cash flows with adjustments for credit risk as appropriate. All significant inputs were derived from or corroborated by observable market data including current forward exchange rates and LIBOR rates, among others. At December 31, 2020 and 2019, the carrying amounts for cash and cash equivalents, restricted cash, trade and other receivables, other current assets, accounts payable, and other current liabilities approximated their estimated fair values because of their short-term nature. Financial Assets Measured at Fair Value on a Nonrecurring Basis Our assessment of goodwill for impairment includes various inputs, including forecasted revenue, forecasted operating profits, terminal growth rates, and weighted-average costs of capital. The projected cash flows used in calculating the fair value of our cash-generating units, using the income approach, considered historical and estimated future results and general economic and market conditions, as well as the impact of planned business and operational strategies. As a result, as of December 31, 2019, the Company classified the former International cash-generating unit measured at fair value on a nonrecurring basis within Level 3 of the fair value hierarchy. Annual Report and Accounts 2020 Page | 118 Financial Assets and Liabilities Not Carried at Fair Value The carrying amounts and fair value hierarchy classification of our significant financial assets and liabilities not carried at fair value as of December 31, 2020 and 2019 are as follows: ($ thousands) Assets: Customer financing receivables, net Equity investments Liabilities: Jackpot liabilities Debt (1) ($ thousands) Assets: Customer financing receivables, net Equity investments Liabilities: Jackpot liabilities Debt (1) Carrying Amount 315,511 12,375 218,943 8,242,898 Carrying Amount 349,103 11,482 234,771 8,062,816 (1) Debt excludes short-term borrowings and swap adjustments December 31, 2020 Level 1 Level 2 Level 3 Total Fair Value — — — — — — 312,690 12,375 312,690 12,375 — 8,701,509 210,516 — 210,516 8,701,509 December 31, 2019 Level 1 Level 2 Level 3 Total Fair Value — — — — — — 349,686 11,482 349,686 11,482 — 8,589,939 230,307 — 230,307 8,589,939 Level 3 equity investments are measured at cost, less impairment, plus or minus changes resulting from observable price changes, which approximates fair value. 9. Derivative Financial Instruments We use selected derivative hedging instruments, principally foreign currency forward contracts and interest rate swaps, for the purpose of managing currency risks and interest rate risk arising from our operations and sources of financing. Cash Flow Hedges The notional amount of foreign currency forward contracts, designated as cash flow hedges, outstanding at December 31, 2020 and 2019 were $61.5 million and $56.8 million, respectively. The amount recorded within other comprehensive income (loss) at December 31, 2020 is expected to impact the consolidated statement of operations in 2021. Fair Value Hedges In September 2015, we executed $625.0 million notional amount of interest rate swaps that effectively convert $625.0 million of the 6.25% Senior Secured U.S. Dollar Notes from fixed interest rate debt to variable rate debt. The terms of the swap require periodic net settlement payments and expire in February 2022. In August 2020, $200.0 million notional amount of the interest rate swaps were terminated early. At December 31, 2020, the remaining notional amount of $425.0 million in interest rate swaps were no longer designated as hedging Annual Report and Accounts 2020 Page | 119 relationships and the fair value of the swaps is recognized in interest expense on the consolidated statement of operations with no corresponding offset to debt. Net Investment Hedges In October 2018, we executed $200.0 million notional amount of cross-currency swaps that are a hedge of foreign exchange risk associated with a net investment in foreign operations. The terms of the swap require periodic net settlement payments and a final notional exchange will occur on settlement. The swaps expire in August 2021. In March 2020, $100.0 million notional amount in cross-currency swaps were early terminated and the remaining notional amount at December 31, 2020 was $100.0 million. Derivatives Not Designated as Hedging Instruments The notional amount of foreign currency forward contracts, not designated as hedging instruments, outstanding at December 31, 2020 and 2019 was $295.4 million and $550.0 million, respectively. Refer to Note 20, Shareholders’ Equity - Other Reserves for further information. 10. Financial Risk Management Our activities expose us to a variety of market risks including interest rate risk and foreign currency exchange rate 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. 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. At December 31, 2020 and 2019, approximately 23% and 24% of our debt portfolio was exposed to interest rate fluctuations, respectively. Our exposure to floating rates of interest primarily relates to the Euro Term Loan Facility due January 2023 and Revolving Credit Facilities due July 2024. At December 31, 2019, we held $625.0 million (notional amount) in interest rate swaps that effectively convert $625.0 million of the 6.250% Senior Secured U.S. Dollar Notes due February 2022 from fixed interest rate debt to variable rate debt. At December 31, 2020, we held $425.0 million (notional amount) in interest rate swaps that were no longer designated as hedging relationships and the fair value of the swaps is recognized in interest expense with no corresponding offset to debt. A hypothetical 10 basis points increase in interest rates for 2020 and 2019, with all other variables held constant, would have resulted in lower income from continuing operations before provision for income taxes of approximately $1.9 million and $2.0 million, respectively. Annual Report and Accounts 2020 Page | 120 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 $7.3 million and $5.6 million in 2020 and 2019, 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 lower income from continuing operations before provision for income taxes of approximately $363.3 million and $331.2 million for 2020 and 2019, 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. At December 31, 2020, we had forward contracts for the sale of approximately $169.6 million of foreign currency (primarily South African rand, Canadian dollars, Australian dollars, and British pounds) and the purchase of approximately $187.3 million of foreign currency (primarily euro and Polish zlotys). At December 31, 2019, we had forward contracts for the sale of approximately $187.6 million of foreign currency (primarily Colombian peso, Canadian dollars, South African rand, and Australian dollars) and the purchase of approximately $419.2 million of foreign currency (primarily euro and Canadian dollars). 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 shareholders' equity within other reserves. Our foreign currency exposure primarily arises from changes between the U.S. dollar and the euro. A hypothetical 10% decrease in the U.S. dollar to euro exchange rate, with all other variables held constant, would have reduced equity by $118.3 million and $120.4 million for 2020 and 2019, respectively. Annual Report and Accounts 2020 Page | 121 Capital Management The primary goal of our capital management strategy is to ensure strong credit ratings and healthy financial ratios in order to support our business while maximizing corporate value and reducing our financial risks. We consider all equity and debt to be managed capital of the Company. We manage our capital structure and make adjustments based on long-term strategy decisions in light of changes in economic conditions. Additionally, we seek to preserve an optimal weighted average cost of capital and maintain sufficient financial flexibility to pursue growth opportunities. Our capital structure is as follows: ($ thousands, except ratios) Total Debt (Note 17) Less: Cash and cash equivalents Less: Debt issuance costs - Revolving Credit Facilities due July 2024 (Note 7) Total Net Debt Total Equity Net Debt to Equity Ratio December 31, 2020 2019 8,262,420 8,065,517 907,015 14,322 654,628 20,464 7,341,083 7,390,425 1,224,832 2,174,688 6.0x 3.4x Annual Report and Accounts 2020 Page | 122 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 Land Buildings Terminals and Systems Furniture and Equipment Construction in Progress Total Balance at December 31, 2018 297 Additions Depreciation Impairment Disposals Foreign currency translation Transfers Other Balance at December 31, 2019 Additions Depreciation Disposals Foreign currency translation Transfers Other Balance at December 31, 2020 Balance at December 31, 2019 Cost Accumulated depreciation Net book value Balance at December 31, 2020 Cost Accumulated depreciation Net book value — — — — — — — 297 — — (297) — — — — 297 — 297 — — — 6,383 1,138 — — — 1,941 (9,462) — — 291 (560) — 361 778 — 870 748 (748) — 1,188,092 28,938 (342,028) (432) (66,844) 26,723 278,219 (407) 1,112,261 29,115 (311,965) (5,422) 24,397 101,246 — 949,632 44,739 2,402 (11,765) — (678) 5,745 5,110 (1,859) 43,694 2,130 (12,620) (225) 511 7,337 210 41,037 67,266 155,587 — — (137) 6,208 (179,384) (200) 49,340 141,774 — (593) 4,359 (118,298) — 1,306,777 188,065 (353,793) (432) (67,659) 40,617 94,483 (2,466) 1,205,592 173,310 (325,145) (6,537) 29,628 (8,937) 210 76,582 1,068,121 2,610,417 (1,498,156) 1,112,261 138,591 (94,897) 43,694 49,340 2,799,393 — (1,593,801) 49,340 1,205,592 2,257 2,614,869 (1,387) (1,665,237) 870 949,632 150,419 (109,382) 41,037 76,582 2,844,127 — (1,776,006) 76,582 1,068,121 Gain on Sale of Assets to Distributor During 2019, we entered into a long-term strategic agreement with a distributor in Oklahoma that included the sale of used, non-premium equipment, which was previously included within Systems & Equipment, net within the consolidated balance sheet. This sale resulted in a gain of $27.7 million which is classified in other operating income on the consolidated statement of operations for the year ended December 31, 2019. Annual Report and Accounts 2020 Page | 123 PPE, net consists of the following: ($ thousands) Net book value Land Buildings Furniture and Equipment Construction in Progress Total Balance at December 31, 2018 2,462 21,765 Additions Depreciation Impairment Disposals Foreign currency translation Transfers Other Balance at December 31, 2019 Additions Depreciation Impairment Disposals Foreign currency translation Transfers Other Balance at December 31, 2020 Balance at December 31, 2019 Cost Accumulated depreciation Net book value Balance at December 31, 2020 Cost Accumulated depreciation Net book value 12. Leases Lessee — — — (143) (2) — — 2,317 — — — (1,438) 85 — — 964 2,317 — 2,317 964 — 964 14 — — (7,967) (800) 7,856 225 21,093 1,642 (1,455) (896) (3,979) 716 — — 17,121 70,473 (49,380) 21,093 68,847 (51,726) 17,121 117,535 4,275 (32,448) — (2,722) 2,207 19,338 (372) 107,813 3,582 (28,481) — (417) 907 15,676 18 99,098 244,109 (136,296) 107,813 262,501 (163,403) 99,098 12,777 32,685 — (562) — (1) (29,275) — 15,624 19,238 — — — (226) (19,651) — 14,985 15,624 — 15,624 14,985 — 14,985 154,539 36,974 (32,448) (562) (10,832) 1,404 (2,081) (147) 146,847 24,462 (29,936) (896) (5,834) 1,482 (3,975) 18 132,168 332,523 (185,676) 146,847 347,297 (215,129) 132,168 We have leases for real estate (warehouses, office space, data centers), vehicles, communication equipment, and other equipment. Many of our real estate leases include one or more options to renew, while some include termination options. Certain vehicle and equipment leases include residual value guarantees and options to purchase the leased asset. Many of our real estate leases include variable payments for maintenance, real estate taxes, and insurance that are determined based on the actual costs incurred by the landlord. The classification of our leases in the consolidated balance sheet is as follows: ($ thousands) Assets: ROU asset, net (1) Total lease assets Liabilities: Lease liability, current Lease liability, non-current Balance Sheet Classification Right-of-use assets December 31, 2020 2019 304,189 304,189 324,358 324,358 Other current liabilities Lease liabilities 58,516 289,572 55,451 304,247 Total lease liabilities 359,698 (1) ROU assets are recorded net of accumulated amortization of $38.2 million and $65.9 million at December 31, 2020 and December 31, 2019, respectively 348,088 Annual Report and Accounts 2020 Page | 124 ROU asset, net, by class of underlying assets is as follows: ($ thousands) Real estate Vehicles Other equipment Total ROU asset, net Components of expense related to leases are as follows: ($ thousands) Real estate Vehicles Other equipment Total depreciation expense Interest expense Variable lease costs (1) (1) Variable lease costs include immaterial amounts related to short-term leases and sublease income Maturities of lease liabilities at December 31, 2020 are as follows ($ thousands): Year 2021 2022 2023 2024 2025 Thereafter Total lease payments Less: Imputed interest Present value of lease liabilities December 31, 2020 December 31, 2019 272,356 17,610 14,223 304,189 285,102 21,966 17,290 324,358 For the year ended December 31, 2020 2019 51,461 10,831 5,720 68,012 23,007 20,879 52,338 10,603 6,313 69,254 24,313 23,582 Total (1) 79,767 66,686 58,136 46,103 39,845 173,347 463,884 (115,796) 348,088 (1) The maturities above exclude leases that have not yet commenced and such leases are not material in the aggregate Cash flow information and non-cash activity related to leases is as follows: ($ thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows Finance cash flows For the year ended December 31 2020 2019 23,007 60,650 24,313 58,367 Non-cash activity: ROU assets obtained in exchange for lease obligations (net of early terminations) 41,711 21,845 Annual Report and Accounts 2020 Page | 125 Lessor We have various arrangements for lottery and commercial gaming equipment under which we are the lessor. These leases generally meet the criteria for operating lease classification. Lease income for operating leases is included within service revenue, while lease income for sales type leases is included predominately within product sales, in the consolidated statement of operations. Total lease income was approximately 9% of total revenue for each of the years ended December 31, 2020 and 2019. 13. Restructuring During 2020, we initiated three restructuring plans as described below and during 2019, we expanded existing restructuring plans initiated in the prior year. As of December 31, 2019 these plans were substantially completed. Restructuring expense incurred under these plans was previously included in corporate support expenses, which were not allocated to the business segments. In conjunction with the Company’s segment reorganization as disclosed in Note 22 – Segment Information, restructuring expenses are now included in the business segments carrying out the restructuring activity. 2020 Segment Reorganization During the first quarter of 2020, we initiated a restructuring plan associated with our global initiative to simplify our organizational structure and increase efficiency and effectiveness. We expect to incur approximately $17 million in severance and related employee costs under this plan, which is expected to be substantially completed by the end of the first quarter of 2021. We incurred $16.3 million in severance and related employee costs for the year ended December 31, 2020, which impacted our two segments and corporate support function. Rollforward of Restructuring Liability The following table presents the activity in the restructuring liability under this plan for the year ended December 31, 2020: ($ thousands) Balance at beginning of period Restructuring expense, net Cash payments Other adjustments, net Balance at end of period 2020 Global Supply Chain Optimization Severance and Related Employee Costs — 16,310 (9,132) 544 7,722 During the first quarter of 2020, we initiated a restructuring plan to optimize our global supply chain and footprint resulting in a significant reduction to our primary manufacturing operations. We will utilize contract manufacturers that are worldwide experts in manufacturing and excel at sourcing and assembly activities. We intend to utilize these third-party contract manufacturers to reduce costs and achieve efficiencies in fulfilling future demand for our products. Annual Report and Accounts 2020 Page | 126 We expect to incur up to $9 million in total costs under this plan, comprised of approximately $5 million in severance and related employee costs and approximately $4 million in other costs. The plan is expected to be substantially completed by the end of the first quarter of 2021. The following table summarizes restructuring expense for the year ended December 31, 2020 under this plan by type of cost, primarily in the Global Gaming segment: ($ thousands) Severance and related employee costs 5,123 Other (1) 3,576 Total 8,699 (1) This expense includes approximately $460 thousand of asset impairments. The offset for these charges is Property, plant and equipment, net in the consolidated balance sheet at December 31, 2020 For the year ended December 31, 2020 Rollforward of Restructuring Liability The following table presents the activity in the restructuring liability under this plan for the year ended December 31, 2020: ($ thousands) Balance at beginning of period Restructuring expense, net Cash payments Balance at end of period Severance and Related Employee Costs Other Costs Total — 5,123 (3,630) 1,493 — 3,116 (1,916) 1,200 — 8,239 (5,546) 2,693 2020 Technology Organization Consolidation During the second quarter of 2020, we initiated a restructuring plan to realign and consolidate operations, reduce costs, and improve operational efficiencies within our Technology group. We expect to incur approximately $18 million primarily in severance and related employee costs under this plan, which is expected to be substantially completed by the end of the fourth quarter of 2021. We incurred $17.5 million in severance and related employee costs for the year ended December 31, 2020, primarily in the Global Gaming segment. Rollforward of Restructuring Liability The following table presents the activity in the restructuring liability under this plan for the year ended December 31, 2020: ($ thousands) Balance at beginning of period Restructuring expense, net Cash payments Balance at end of period Severance and Related Employee Costs — 17,499 (3,506) 13,993 Annual Report and Accounts 2020 Page | 127 Restructuring Expense The following table summarizes consolidated restructuring expense by segment and type of cost: ($ thousands) Global Lottery Global Gaming Corporate and Other Total ($ thousands) Global Lottery Global Gaming Corporate and Other Total 14. Goodwill For the year ended December 31, 2020 Severance and Related Employee Costs Asset Impairment Costs 5,399 29,936 6,068 41,403 — 460 — 460 Other Total — 3,216 (34) 3,182 5,399 33,612 6,034 45,045 For the year ended December 31, 2019 Severance and Related Employee Costs Asset Impairment Costs 2,164 3,173 1,737 7,074 — 15,500 — 15,500 Other Total 6 (311) 2,586 2,281 2,170 18,362 4,323 24,855 As discussed in Note 22 – Segment Information, on July 1, 2020, we adopted a new organizational structure focused on two business segments: Global Lottery and Global Gaming. This resulted in a change in our operating segments and cash-generating units. Prior to this change, we had four cash-generating units: North America Gaming and Interactive, North America Lottery, International, and Italy. As a result of the change in cash-generating units, at July 1, 2020, we allocated goodwill to our new cash- generating units using a relative fair value approach. The goodwill allocated to the new Global Lottery and Global Gaming cash-generating units was $3,071.6 million and $2,168.7 million, respectively, and the estimated fair values were determined to exceed the carrying values, which indicated no impairment existed. In addition, we completed an assessment for any potential goodwill impairment for all the former cash-generating units immediately prior to the reallocation and determined that no impairment existed. Annual Report and Accounts 2020 Page | 128 (511,370) 5,119,816 — — — (57,000) (13,201) (19,588) (511,370) 5,030,027 — — — — (296,000) (5,071) — 97,993 Changes in the carrying amount of goodwill consist of the following: Cash-Generating Units Prior to July 1, 2020 Cash-Generating Units After July 1, 2020 North America Gaming and Interactive North America Lottery International Italy Global Lottery Global Gaming Discontinued Operations Total ($ thousands) Balance at December 31, 2018 Impairment Disposal Foreign currency translation Balance at December 31, 2019 Impairment Foreign currency translation 1,394,867 1,221,589 1,356,848 1,657,882 — — — — — — (57,000) (13,201) — — (2,677) (16,911) 1,394,867 1,221,589 1,283,970 1,640,971 (103,000) — — — (193,000) — (2,136) (2,935) — — — — — — — — — — — — — — Segment realignment (1,291,867) (1,221,589) (1,088,834) (1,638,036) 3,071,589 2,168,737 Foreign currency translation Discontinued operations Balance at December 31, 2020 Balance at December 31, 2019 Cost — — — — — — — — — — — — 2,153,867 1,225,682 1,641,187 1,642,656 Accumulated impairment (759,000) (4,093) (357,217) (1,685) 1,394,867 1,221,589 1,283,970 1,640,971 68,075 29,918 — (511,370) 511,370 — 3,139,664 1,687,285 — 4,826,949 — — — — — — (511,370) 6,152,022 — (1,121,995) (511,370) 5,030,027 Balance at December 31, 2020 Cost Goodwill Impairment — — — — — — — — 3,139,664 3,139,664 1,687,285 1,687,285 — — 4,826,949 4,826,949 The process of evaluating potential impairments related to goodwill requires the application of significant judgment. 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. If an event occurs that would cause revisions to the estimates and assumptions used in analyzing the fair value of goodwill, the revision could result in a non-cash impairment loss that could have a material impact on financial results. The goodwill impairment test compares the recoverable value of our two cash-generating units (which are the same as our reportable segments) with its carrying amount and an impairment loss is recognized for the amount by which the carrying amount exceeds the cash-generating unit's recoverable value. (♦) In performing the goodwill impairment test, we estimate the recoverable value of the cash-generating units using an income approach based on projected discounted cash flows. The procedures we follow includes, but are not limited to, the following: • • • • • • Analysis of the conditions in, and the economic outlook for, the cash-generating units; Analysis of general market data, including economic, governmental, and environmental factors; Review of the history, current state, and future operations of the cash-generating 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 our market capitalization, total invested capital, the implied market participant acquisition premium, and supporting qualitative and quantitative analysis. Annual Report and Accounts 2020 Page | 129 (♦) Under the income approach, the recoverable value of the cash-generating unit is determined based on the present value of each unit's estimated future cash flows, discounted at a risk-adjusted rate. We use internal forecasts for a five-year period to estimate future cash flows and estimate long-term future growth rates based on internal projections of the long-term outlook for each cash-generating unit. We use discount rates that are commensurate with the risks and uncertainty inherent in each cash-generating unit and in internally developed forecasts. Discount rates used in the cash-generating unit valuations in 2020 were 9.60% for Global Lottery and 11.00% for Global Gaming. An increase of approximately 70 basis points in the Global Gaming cash-generating unit’s discount rate would lead to an impairment. Discount rates used in the cash-generating unit valuations in 2019 were 9.10% North America Gaming and Interactive, 7.40% for North America Lottery, 10.60% for International, and 10.55% for Italy. Estimating the recoverable value of cash-generating units requires management to use its judgment in making estimates and making forecasts that are based on a number of factors including forecasted revenue, forecasted operating profits, terminal growth rates, and weighted-average costs of capital. Actual results may differ from those assumed in forecasts. During the first quarter of 2020, we determined there was an interim goodwill impairment triggering event caused by COVID-19. As a result of the identified triggering event, we estimated the fair value of each of our former cash- generating units using an income approach based on projected discounted cash flows. Based principally on lower forecasted revenue and operating profits caused by lower demand for our commercial gaming products, we recorded a $296.0 million non-cash impairment loss with no income tax benefit, of which $193.0 million and $103.0 million was recorded within our former International and North America Gaming cash-generating units, respectively, to reduce the carrying amount of the cash-generating units to fair value. During the fourth quarter of 2019, we recorded $57.0 million in non-cash impairment loss with no income tax benefit and reduced the carrying amount of our former International cash-generating unit to fair value. We determined there was an impairment in the former International cash-generating unit’s goodwill due to lower forecasted cash flows along with a higher weighted-average cost of capital. Annual Report and Accounts 2020 Page | 130 15. Intangible Assets, net ($ thousands) Balance at December 31, 2018 Acquisitions Additions Amortization Foreign currency translation Write-off and other Balance at December 31, 2019 Additions Amortization Foreign currency translation Write-off and other Balance at December 31, 2020 December 31, 2019 Cost Accumulated amortization Accumulated impairment loss Weighted average life (in years) December 31, 2020 Cost Accumulated amortization Accumulated impairment loss Weighted average life (in years) Customer relationships Trademarks (indefinite- lived) 1,316,340 — 305 (127,571) 20 — 1,189,094 — (123,237) 1,203 (1,873) 1,065,187 246,913 — — — — (1,913) 245,000 — — — — 245,000 Trademarks (definite-lived) 123,783 — — (14,695) — — 109,088 — (14,678) — — 94,410 Net Book Value Computer software and game library Licenses Developed technologies Other 180,778 — 23,634 (45,570) (561) — 158,281 17,677 (45,136) 3,661 (204) 134,279 17,183 — 2,995 (4,883) (577) (2,144) 12,574 6,751 (5,363) 960 (4,324) 10,598 40,905 — — (23,954) — (625) 16,326 5,543 (9,323) — — 12,546 8,150 7,725 433 (2,644) (73) — 13,591 373 (4,168) 640 (10) 10,426 Total 1,934,052 7,725 27,367 (219,317) (1,191) (4,682) 1,743,954 30,344 (201,905) 6,464 (6,411) 1,572,446 2,329,916 (1,092,280) (48,542) 1,189,094 15.5 254,689 — (9,689) 245,000 — 224,730 (76,196) (39,446) 109,088 14.1 888,911 (723,768) (6,862) 158,281 5.7 60,763 (48,189) — 12,574 3.3 219,638 (203,121) (191) 16,326 5.4 53,755 (21,012) (19,152) 13,591 9.1 4,032,402 (2,164,566) (123,882) 1,743,954 2,330,006 (1,214,103) (50,716) 1,065,187 15.5 254,689 — (9,689) 245,000 — 227,316 (91,808) (41,098) 94,410 14.1 925,026 (783,671) (7,076) 134,279 5.6 69,148 (58,550) — 10,598 3.5 225,317 (212,562) (209) 12,546 5.6 58,208 (26,957) (20,825) 10,426 8.9 4,089,710 (2,387,651) (129,613) 1,572,446 Annual Report and Accounts 2020 Page | 131 Trademarks with indefinite lives have been allocated to the Corporate and Other support function for impairment testing at December 31, 2020 and 2019. Intangible asset amortization expense of $201.9 million and $219.3 million, which includes computer software amortization expense of $25.7 million and $29.4 million) was recorded in 2020 and 2019, respectively. Amortization expense on intangible assets for the next five years is expected to be as follows ($ thousands): Year 2021 2022 2023 2024 2025 Total 16. Other Liabilities Other Current Liabilities ($ thousands) Accrued interest payable Current financial liabilities Redeemable non-controlling interest Accrued expenses Contract liabilities Taxes other than income taxes Employee compensation Income taxes payable Jackpot liabilities Finance lease liabilities Other Other Non-Current Liabilities ($ thousands) Redeemable non-controlling interest Jackpot liabilities Contract liabilities Income taxes payable Royalties payable Other Amount 188,614 179,341 156,126 140,756 119,384 784,221 Notes 4 19 12 Notes 19 4 December 31, 2020 138,184 128,330 124,790 118,037 108,707 96,346 89,832 73,741 71,290 58,516 15,390 1,023,163 2019 141,485 62,806 110,999 99,700 66,749 67,309 155,962 64,721 74,670 55,451 20,358 920,210 December 31, 2020 292,237 147,654 62,175 15,594 14,091 41,968 573,719 2019 286,634 160,101 65,855 26,493 18,918 40,735 598,736 Annual Report and Accounts 2020 Page | 132 Redeemable Non-controlling Interest In 2016, the Parent, through its subsidiary Lottomatica S.p.A. ("Lottomatica"), entered into a consortium (Lottoitalia S.r.l. or "Lottoitalia") to bid on the Italian Gioco del Lotto service license (the "Lotto License"). Lottoitalia was awarded management of the Lotto License for a nine-year term, and under the terms of the consortium agreement, Lottomatica is the principal operating partner fulfilling the requirements of the Lotto License. We consolidate Lottoitalia due to the Company's risks and rewards of the investment and Lottoitalia's need for funding to finance planned operations. We classify the non-controlling interest in Lottoitalia as a financial liability recorded at amortized cost. Changes in the financial liability are recorded within other expense on the consolidated statement of operations. In connection with the formation of Lottoitalia in 2016, Lottomatica entered into an agreement with Italian Gaming Holding a.s. ("IGH"), one of the consortium members, 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. 17. Debt The Company’s long-term debt obligations consist of the following: ($ thousands) 6.250% Senior Secured U.S. Dollar Notes due February 2022 4.750% Senior Secured Euro Notes due February 2023 5.350% Senior Secured U.S. Dollar Notes due October 2023 3.500% Senior Secured Euro Notes due July 2024 6.500% Senior Secured U.S. Dollar Notes due February 2025 3.500% Senior Secured Euro Notes due June 2026 6.250% Senior Secured U.S. Dollar Notes due January 2027 2.375% Senior Secured Euro Notes due April 2028 5.250% Senior Secured U.S. Dollar Notes due January 2029 Senior Secured Notes Euro Term Loan Facility due January 2023 Euro Revolving Credit Facility B due July 2024 (1) U.S. Dollar Revolving Credit Facility A due July 2024 (1) Long-term debt, less current portion Euro Term Loan Facility due January 2023 Current portion of long-term debt Short-term borrowings Total debt Principal 1,000,001 1,043,035 60,567 613,550 1,100,000 920,325 750,000 613,550 750,000 6,851,028 1,055,306 — — 7,906,334 392,672 392,672 480 December 31, 2020 Debt issuance cost, net Premium Swap and other (3,039) (4,983) — (3,808) (8,359) (6,995) (5,845) (5,150) (6,875) (45,054) (7,439) — — (52,493) — — — — — 224 — — — — — — 224 — — — 224 — — — Total 1,003,822 1,038,052 60,791 609,742 1,091,641 913,330 744,155 608,400 743,125 6,813,058 6,860 — — — — — — — — 6,860 8,343 — 1,056,210 — — 15,203 — 7,869,268 — — — 392,672 392,672 480 8,299,486 (52,493) 224 15,203 8,262,420 (1) As of December 31, 2020, $14.3 million of debt issuance costs, net and other are presented in other non-current assets for debt instruments with no outstanding borrowings Annual Report and Accounts 2020 Page | 133 December 31, 2019 Debt issuance cost, net Premium Swap and other Total ($ thousands) 6.250% Senior Secured U.S. Dollar Notes due February 2022 4.750% Senior Secured Euro Notes due February 2023 5.350% Senior Secured U.S. Dollar Notes due October 2023 3.500% Senior Secured Euro Notes due July 2024 6.500% Senior Secured U.S. Dollar Notes due February 2025 3.500% Senior Secured Euro Notes due June 2026 6.250% Senior Secured U.S. Dollar Notes due January 2027 2.375% Senior Secured Euro Notes due April 2028 Senior Secured Notes Euro Term Loan Facility due January 2023 Euro Revolving Credit Facility B due July 2024 (1) U.S. Dollar Revolving Credit Facility A due July 2024 (1) Long-term debt, less current portion 4.750% Senior Secured Euro Notes due March 2020 5.500% Senior Secured U.S. Dollar Notes due June 2020 Current portion of long-term debt Principal 1,500,000 954,890 60,567 561,700 1,100,000 842,550 750,000 561,700 6,331,407 1,325,612 — — 7,657,019 435,767 27,311 463,078 (8,199) (6,508) — (4,369) (10,041) (7,445) (6,613) (5,297) (48,472) (8,223) — — (56,695) (978) — (978) Short-term borrowings 3,193 — — — 318 — — — — — 318 — — — 318 — 74 74 — (473) 1,491,328 948,382 60,885 557,331 1,089,959 835,105 743,387 556,403 (473) 6,282,780 — — — — — — — — — 1,317,389 — — — (473) 7,600,169 — (19) 434,789 27,366 (19) 462,155 — 3,193 Total debt 8,123,290 (57,673) 392 (492) 8,065,517 (1) As of December 31, 2019, $20.5 million of debt issuance costs, net are presented in other non-current assets for debt instruments with no outstanding borrowings The principal amount of long-term debt maturing over the next five years and thereafter as of December 31, 2020 is as follows ($ thousands): Year 2021 2022 2023 2024 2025 2026 and thereafter Total principal payments U.S. Dollar Denominated Euro Denominated — 1,000,001 60,567 — 1,100,000 1,500,000 3,660,568 392,672 392,672 1,705,669 613,550 — 1,533,875 4,638,438 Total 392,672 1,392,673 1,766,236 613,550 1,100,000 3,033,875 8,299,006 Annual Report and Accounts 2020 Page | 134 Senior Secured Notes The key terms of our senior secured notes (the “Notes”), which are rated Ba3 and BB by Moody’s Investor Service (“Moody’s”) and Standard & Poor’s Ratings Services (“S&P”), respectively, are as follows: Description 6.250% Senior Secured U.S. Dollar Notes due February 2022 4.750% Senior Secured Euro Notes due February 2023 5.350% Senior Secured U.S. Dollar Notes due October 2023 3.500% Senior Secured Euro Notes due July 2024 6.500% Senior Secured U.S. Dollar Notes due February 2025 3.500% Senior Secured Euro Notes due June 2026 6.250% Senior Secured U.S. Dollar Notes due January 2027 2.375% Senior Secured Euro Notes due April 2028 5.250% Senior Secured U.S. Dollar Notes due January 2029 Principal (thousands) $1,000,001 Effective Interest Rate 6.52% Issuer Parent Guarantors * Collateral † Redemption ++ €850,000 4.98% Parent $60,567 5.47% IGT €500,000 3.68% Parent $1,100,000 6.71% Parent €750,000 3.65% Parent $750,000 6.41% Parent €500,000 2.50% Parent $750,000 5.39% Parent * ** * * * * * * † †† † † † † † † ++ + ++ ++ +++ ++ +++ +++ Interest payments 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 Semi-annually in arrears Semi-annually in arrears * 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. + ++ International Game Technology (“IGT”) may redeem in whole or in part at any time prior to maturity at 100% of their principal amount together with accrued and unpaid interest and a make-whole premium. IGT may also redeem in whole or in part at 100% of their principal amount together with accrued and unpaid interest in connection with certain gaming regulatory events. Upon the occurrence of certain events, IGT will be required to offer to repurchase all of the notes at a price equal to 101% of their principal amount together with accrued and unpaid interest. The Parent may redeem in whole or in part at any time prior to the date which is six months prior to maturity at 100% of their principal amount together with accrued and unpaid interest and a make-whole premium. After such date, the Parent may redeem in whole or in part at 100% of 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 or in part at any time prior to the first date set forth in the redemption price schedule at 100% of their principal amount together with accrued and unpaid interest and a make-whole premium. After such date, the Parent may redeem in whole or in part at a redemption price set forth in the redemption price schedule in the indenture, 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. Annual Report and Accounts 2020 Page | 135 The Notes contain customary covenants and events of default. At December 31, 2020, the issuers were in compliance with the covenants. 3.500% Senior Secured Euro Notes due June 2026 On June 20, 2019, the Parent issued €750 million of 3.500% Senior Secured Euro Notes due June 2026 (the “3.500% Notes due 2026”) at par. The Parent used the net proceeds from the 3.500% Notes due 2026 to repurchase €437.6 million ($497.5 million) of the 4.125% Senior Secured Euro Notes due February 2020 (the “4.125% Notes”) and pay down $339.3 million of the Revolving Credit Facilities due July 2024, for total consideration, excluding interest, of $845.3 million. The Company recorded an €8.5 million ($9.6 million) loss on extinguishment of debt in connection with the repurchase, which is classified in other (expense) income, net on the consolidated statement of operations for the year ended December 31, 2019. 2.375% Senior Secured Euro Notes due April 2028 On September 16, 2019, the Parent issued €500 million of 2.375% Senior Secured Euro Notes due April 2028 (the “2.375% Notes”) at par. The Parent used the net proceeds from the 2.375% Notes to pay the €320.0 million ($350.2 million) first installment on the Euro Term Loan Facility due January 25, 2020 on September 27, 2019 and to pay down $192.3 million of the Revolving Credit Facilities due July 2024, for total consideration, excluding interest, of $542.5 million. The Company recorded a €2.1 million ($2.3 million) loss on extinguishment of debt in connection with the Term Loan repayment, which is classified in other (expense) income, net on the consolidated statement of operations for the year ended December 31, 2019. 5.250% Senior Secured U.S. Dollar Notes due January 2029 On June 19, 2020, the Parent issued $750.0 million of 5.250% Senior Secured U.S. Dollar Notes due January 2029 (the “5.250% Notes”) at par. The Parent used the net proceeds from the 5.250% Notes to repurchase $500.0 million of the 6.250% Senior Secured U.S. Dollar Notes due February 2022 for total consideration, excluding interest, of $525.0 million. The Company recorded a $23.3 million loss on extinguishment of debt in connection with the repurchase, of which a $28.3 million loss is classified in other expense, net and an offsetting gain of $5.0 million is classified in interest expense, net in the consolidated statement of operations for the year ended December 31, 2020. Interest on the 5.250% Notes is payable semi-annually in arrears. The 5.250% Notes are guaranteed by certain subsidiaries of the Parent and are secured by ownership interests of the Parent in certain of its direct subsidiaries and certain intercompany loans with principal balances in excess of $10.0 million. Prior to January 15, 2024, the Parent may redeem the 5.250% Notes in whole or in part at 100% of their principal amount together with accrued and unpaid interest and a make-whole premium. From January 15, 2024 to January 14, 2025, the Parent may redeem the 5.250% Notes in whole or in part at 102.625% of their principal amount together with accrued and unpaid interest. From January 15, 2025 to January 14, 2026, the Parent may redeem the 5.250% Notes in whole or in part at 101.313% of their principal amount together with accrued and unpaid interest. On or after January 15, 2026, the Parent may redeem the 5.250% Notes in whole or in part at 100% of their principal amount together with accrued and unpaid interest. The Parent may also redeem the 5.250% Notes in whole but not in part at 100% of their principal amount together with accrued and unpaid interest in connection with certain tax events. Upon the occurrence of certain events, the Parent will be required to offer to repurchase all of the 5.250% Notes at a price equal to 101% of their principal amount together with accrued and unpaid interest. In certain events of default, the 5.250% Notes outstanding may become due and payable immediately. Annual Report and Accounts 2020 Page | 136 4.750% Senior Secured Euro Notes due March 2020 On March 5, 2020, the Parent redeemed the €387.9 million ($432.0 million) 5.500% Senior Secured Euro Notes due March 2020 when they matured. 5.500% Senior Secured U.S. Dollar Notes due June 2020 On June 15, 2020, the Parent redeemed the $27.3 million 5.500% Senior Secured U.S. Dollar Notes due June 2020 when they matured. Revolving Credit Facilities and Term Loan Facility On May 7, 2020, the Company entered into an amendment to the Senior Facilities Agreement for the Revolving Credit Facilities due July 2024 (the “RCF Agreement”), and on May 8, 2020, the Company entered into an amendment to the Senior Facility Agreement for the Euro Term Loan Facility due January 2023 (the “TLF Agreement”). The amendments modified the RCF Agreement and the TLF Agreement by, among other things: • • • Providing a waiver of the covenants requiring the Company to maintain a minimum ratio of EBITDA to net interest costs and a maximum ratio of total net debt to EBITDA from the fiscal quarter ending June 30, 2020 through the fiscal quarter ending June 30, 2021 and establishing new thresholds for these financial covenants starting with the fiscal quarter ending September 30, 2021 as described in the amendments; Providing that for the period commencing on January 30, 2020 and expiring on August 31, 2021 (the “Relief Period Expiration Date”), a material adverse effect arising from the COVID-19 pandemic shall not constitute a material adverse effect under the agreements and any cessation or suspension of business arising from the COVID-19 pandemic shall not constitute an event of default under the agreements; Providing that the obligation to grant security over additional collateral be waived provided that the public debt ratings of the Company are not less than BB- or Ba3; • Obligating the Company to maintain “Liquidity” (as defined in the amendments) of at least $500 million for the period commencing on the date of the amendments and expiring on the Relief Period Expiration Date (the “Relief Period”), with such financial covenant being tested quarterly or, if any monthly trading update or quarterly compliance certificate evidences that Liquidity is less than $750 million, monthly; • • • Increasing the margin from 2.75% to 3.25% if the public debt ratings of the Company are B+ or B1 (or lower); Prohibiting restricted payments (including dividends and ordinary share repurchases) during the period commencing on April 1, 2020 and expiring on June 30, 2021, and permitting restricted payments during the period commencing on July 1, 2021 and expiring on the maturity date of the respective agreements provided that the ratio of total net debt to EBITDA as adjusted to reflect the restricted payment is less than specified thresholds; and Decreasing the maximum annual amount that the Company can spend on acquisitions during the Relief Period to $100 million. In addition, the amendment to the RCF Agreement provided that the margin applicable to all loans under the RCF Agreement outstanding as of April 11, 2020 was increased to 2.475%, and the amendment to the TLF Agreement provided that the margin applicable to all loans under the TLF Agreement outstanding as of April 11, 2020 was increased to 2.50%. In connection with the modification, the Company recognized $10.5 million of debt issuance costs within Other expense and upfront interest expense of $15.7 million within Interest expense, net. Annual Report and Accounts 2020 Page | 137 Term Loan Facility The Parent is party to a senior facility agreement (the “Term Loan Facility Agreement”) for a €1.5 billion term loan facility maturing in January 2023 (the “Term Loan Facility”), which must be repaid in the following installments, as detailed below: Due Date January 25, 2020 January 25, 2021 January 25, 2022 January 25, 2023 Amount (€ thousands) 320,000 320,000 320,000 540,000 On September 27, 2019, the Parent repaid the first €320 million installment due January 25, 2020 (resulting in €1.2 billion principal remaining) from the proceeds of the 2.375% Notes issued on September 16, 2019. 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, 2020 and 2019, the effective interest rate on the Term Loan Facility was 2.50% and 2.05%, respectively. 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, 2020, the Parent was in compliance with the 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) $1,050,000 €625,000 Facility Borrowers Revolving Credit Facility A Parent, IGT, and IGT Global Solutions Corporation Revolving Credit Facility B Parent and Lottomatica Holding S.r.l. On July 24, 2019, the Company entered into an amendment to the Revolving Credit Facilities due July 2021. The amendment extended the final maturity date of the Revolving Credit Facilities from July 26, 2021 to July 31, 2024 and established the minimum ratio of EBITDA to total net interest costs and the maximum ratio of total net debt to EBITDA for the extended term of the revolving credit facilities. In addition, the amendment reduced the aggregate revolving facilities commitments of the lenders from $1.20 billion and €725 million to $1.05 billion and €625 million and amended the definition of “Permitted Restricted Payment” to eliminate the leverage ratio threshold condition to the payment of dividends and other restricted payments. The amendment also allowed IGT-Europe B.V. to be added as a borrower under Revolving Credit Facility B and modified certain other non-material provisions. 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, 2020 and December 31, 2019, there was no balance for the Revolving Credit Facilities. Annual Report and Accounts 2020 Page | 138 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 0.928% at December 31, 2020. Utilization fees - payable on the aggregate drawn amount of the Revolving Credit Facilities at a rate ranging from 0.15% to 0.60% dependent on the percentage of the Revolving Credit Facilities utilized. There was no balance as of December 31, 2020. 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, 2020 the available liquidity under the Revolving Credit Facilities was $1.817 billion. The RCF Agreement contains customary covenants (including maintaining a minimum ratio of EBITDA to net interest costs and a maximum ratio of total net debt to EBITDA) and events of default. At December 31, 2020, the borrowers were in compliance with the covenants. Other Credit Facilities The Parent and certain of its subsidiaries may borrow under senior unsecured uncommitted demand credit facilities made available by several financial institutions. At December 31, 2020 and December 31, 2019, there were no borrowings under these facilities. Letters of Credit The Parent and certain of its subsidiaries may obtain letters of credit under the Revolving Credit Facilities and under senior unsecured uncommitted demand credit facilities. The letters of credit secure various obligations, including obligations arising under customer contracts and real estate leases. The following table summarizes the letters of credit outstanding at December 31, 2020 and 2019 and the weighted-average annual cost of such letters of credit: ($ thousands) December 31, 2020 December 31, 2019 Interest Expense, Net ($ thousands) Senior Secured Notes Term Loan Facilities Revolving Credit Facilities Other Interest expense Interest income Interest expense, net Letters of Credit Outstanding Under the Revolving Credit Facilities Not under the Revolving Credit Facilities 426,740 402,300 — — Weighted- Average Annual Cost 1.06 % 1.02 % Total 426,740 402,300 For the year ended December 31, 2020 2019 (344,286) (351,495) (43,834) (34,342) (21,656) (36,138) (28,160) (29,681) (444,118) (445,474) 14,956 12,417 (429,162) (433,057) Annual Report and Accounts 2020 Page | 139 18. Income Taxes The components of (loss) income from continuing operations before provision for income taxes, determined by tax jurisdiction, are as follows: ($ thousands) United Kingdom United States Italy Other The provision for income taxes consists of: ($ thousands) Current: United Kingdom United States Italy Other Deferred: United Kingdom United States Italy Other For the year ended December 31, 2020 (375,274) (780,535) 156,639 53,756 (945,414) 2019 34,974 (306,772) 249,638 84,578 62,418 For the year ended December 31, 2020 2019 (819) 10,045 66,018 30,866 106,110 (4,125) (64,233) (323) (15,696) (84,377) 21,733 1,803 40,416 104,365 49,330 195,914 (151) (61,880) 914 (3,161) (64,278) 131,636 Income taxes paid, net of refunds, were $89.0 million and $196.8 million in 2020 and 2019, respectively. Deferred tax related to items recognized in other comprehensive income ("OCI") during the year: ($ thousands) Foreign currency translation Unrealized (gain) loss on other Unrealized loss on hedges Deferred tax charged to OCI December 31, 2020 2019 (217) (10) 194 (33) 22 183 495 700 Annual Report and Accounts 2020 Page | 140 The Parent is a tax resident in the United Kingdom (the “U.K.”). A reconciliation of the provision for income taxes, with the amount computed by applying the U.K. statutory main corporation tax rates enacted in each of the Parent’s calendar year reporting periods to (loss) income from continuing operations before provision for income taxes is as follows: ($ thousands) (Loss) income from continuing operations before provision for income taxes United Kingdom statutory tax rate Statutory tax (benefit) expense For the year ended December 31, 2020 (945,414) 19.00 % (179,629) 2019 62,418 19.00 % 11,859 Change in valuation allowances Non-deductible goodwill impairment Non-deductible expenses Base erosion and anti-abuse (“BEAT”) tax Foreign tax expense, net of U.S. federal benefit IRAP and state taxes GILTI tax Change in unrecognized tax benefits Italian allowance for corporate equity Foreign tax and statutory rate differential (1) Tax Law Changes Non-taxable foreign exchange gain Non-taxable gains on investments Other 127,955 56,240 19,232 12,926 9,754 9,275 2,517 1,295 (3,841) (18,838) (19,627) — — 4,474 21,733 507 10,830 22,111 31,340 13,585 22,946 4,575 6,637 (2,380) 3,100 — (3,744) (6,225) 16,495 131,636 Effective tax rate (1) Includes the effects of foreign subsidiaries' earnings taxed at rates other than the U.K. statutory rate (2.3) % 210.9 % In 2020, our effective tax rate differed from the expected UK statutory rate of 19.00%, primarily due to increases in valuation allowances on deferred tax assets, the impact of the international provisions of the Tax Act (BEAT and GILTI), foreign rate differences,non-deductible expenses and a goodwill impairment with no associated tax benefit. In 2019, our effective tax rate differed from the expected U.K. statutory rate of 19.00% primarily due to the impact of the international provisions of the Tax Act (BEAT and GILTI), foreign rate differences, non-deductible expenses and a goodwill impairment with no associated tax benefit. On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide certain relief as a result of the COVID-19 outbreak. Some of the key tax-related provisions of the CARES Act benefiting the Company include temporary five-year net operating loss carryback provisions, modifications to the 30% limitation on the deductibility of business interest, and payroll tax deferral. In the quarter ended September 30, 2020, the U.S. Treasury Department issued final regulations regarding Global Intangible Low-Taxed Income (“GILTI”). The Company will elect the GILTI high tax exception as allowed by the final regulations and will amend its 2018 and 2019 income tax returns. The benefit of the GILTI high tax exception as well as the NOL carryback provisions provided in the CARES Act resulted in a tax benefit of $12.1 million. Annual Report and Accounts 2020 Page | 141 The components of deferred tax assets and liabilities are as follows: ($ thousands) Deferred tax assets: Net operating losses Section 163(j) interest limitation Lease liabilities Provisions not currently deductible for tax purposes Jackpot timing differences Depreciation and amortization Inventory reserves Other Gross deferred tax assets Deferred tax liabilities: Acquired intangible assets Depreciation and amortization Lease right-of-use assets Other Total deferred tax liabilities Net deferred income tax liability December 31, 2020 2019 108,216 96,949 70,565 61,117 38,724 23,496 2,438 49,946 451,451 506,238 160,436 62,799 11,641 741,114 33,684 93,522 76,838 122,884 40,550 28,306 3,437 40,293 439,514 533,732 171,500 71,817 21,808 798,857 (289,663) (359,343) 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 Notes 7 December 31, 2020 2019 33,117 (322,780) (289,663) 27,108 (386,451) (359,343) As of December 31, 2020, we had recognized deferred tax assets of $451.5 million. We also have $284.1 million of unrecognized deferred tax assets primarily related to net operating losses. These deferred tax assets were not recorded because the realization of these assets is not probable. Reconciliation of deferred tax liabilities, net ($ thousands) Balance at beginning of year Tax expense during the period recognized in income or loss Adoption of new accounting standards Translation/other Balance at end of year Net Operating Loss Carryforwards December 31, 2020 (359,343) 84,377 1,015 (15,712) (289,663) 2019 (422,592) 64,278 (1,445) 416 (359,343) We have a $410.8 gross tax loss carryforward, of which $331.2 million relates to U.S. Federal tax and $79.6 million relates to other foreign tax jurisdictions. Carryforwards in certain tax jurisdictions begin to expire in 2031, 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, 2020, we had U.S. state tax net operating loss carryforwards, resulting in a deferred tax asset (net of U.S. federal tax benefit) of approximately $18.3 million. U.S. state tax net operating loss carryforwards generally expire in the years 2021 through 2040. Annual Report and Accounts 2020 Page | 142 Additionally, at December 31, 2020 and 2019, we had gross tax loss carryforwards of $929.5 million and $703.3 million that relate primarily to the U.K. No deferred tax assets were recorded for these tax loss carryforwards as realization is not probable. Accounting for Uncertainty in Income Taxes A reconciliation of the unrecognized tax benefits is as follows: ($ thousands) Balance at beginning of year Additions to tax positions - current year Additions to tax positions - prior years Reductions to tax positions - prior years Lapses in statutes of limitations Balance at end of year December 31, 2020 2019 29,175 498 335 (2,259) (525) 27,224 26,635 717 2,358 — (535) 29,175 (♣) At December 31, 2020 and 2019, $27.2 million and $29.2 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 2020 and 2019, we recognized $(0.2) million and $4.7 million, respectively, in interest expense, penalties, and inflationary adjustments. At December 31, 2020 and 2019, the gross balance of accrued interest and penalties was $20.9 million and $21.2 million, respectively. We file income tax returns in various jurisdictions of which the United Kingdom, United States, and Italy represent the major tax jurisdictions. All years prior to 2017 are closed with the Internal Revenue Service. As of December 31, 2020, we are subject to income tax audits in various tax jurisdictions globally, most significantly in Mexico and Italy. Mexico Tax Audit Based on a 2006 tax examination, the Company’s Mexican subsidiary, GTECH Mexico S.A. de C.V., was issued an income tax assessment of approximately Mexican peso (“MXN”) 425.0 million. The assessment relates to the denial of a deduction for cost of goods sold and the taxation of intercompany loan proceeds. The Company has unsuccessfully contested the two issues in the Mexican court system receiving unfavorable decisions by the Mexican Supreme Court in June 2017 and October 2019, respectively. As of December 31, 2020, based on the unfavorable decisions received, the Company has recorded a liability of MXN 478.5 million (approximately $24.0 million), which includes additional interest, penalties, and inflationary adjustments. Italy Tax Audit The Company’s Italian corporate income tax returns for the calendar years ended December 31, 2015 through December 31, 2019 are currently under examination. On October 19, 2020, the Italian tax authorities issued a final tax audit report for calendar year 2015 questioning the process the Company undertook to establish the interest rate on an intercompany debt agreement (“the 2015 loan”), between Lottomatica S.r.l. (the borrower) and its parent company, IGT PLC (the lender). Similar findings are expected for the 2015 loan for calendar years 2016 through 2019 as the intercompany debt remains outstanding and the Company applied the same interest rate. The Company expects that Lottomatica S.r.l will receive an assessment of taxes, interest, and potentially penalties sometime in the first half of calendar year 2021. The Company believes the interest rate applied to the intercompany debt was calculated on an arm’s length basis consistent with established transfer pricing policies and procedures. The Company is currently evaluating the options for responding to the October 19, 2020 tax audit report upon receipt of the tax assessment. Annual Report and Accounts 2020 Page | 143 19. Commitments and Contingencies Commitments Jackpot Commitments Jackpot liabilities are recorded as current and non-current liabilities as follows: ($ thousands) Current liabilities Non-current liabilities Future jackpot liabilities are due as follows: ($ thousands) 2021 2022 2023 2024 2025 Thereafter Future jackpot payments due Unamortized discounts Total jackpot liabilities Performance and other bonds December 31, 2020 71,290 147,654 218,944 Total 71,143 30,955 21,091 18,514 15,679 94,313 251,695 (32,751) 218,944 Previous Winners Future Winners 35,967 22,705 20,440 17,863 15,028 84,552 196,555 35,176 8,250 651 651 651 9,761 55,140 Certain contracts require us to provide a surety bond as a guarantee of performance for the benefit of customers; bid and litigation bonds for the benefit of potential customers; and WAP bonds that are used to secure our financial liability when a player elects to have their WAP jackpot winnings paid over an extended period of time. These bonds give beneficiaries the right to obtain payment and/or performance from the issuer of the bond if certain specified events occur. In the case of performance bonds, which generally have a term of one year, such events include our failure to perform our obligations under the applicable contracts. In general, we would only be liable for these guarantees in the event of default in our performance of our obligations under each contract, the probability of which we believe is remote. Accordingly, no liability has been recorded as of December 31, 2020 and 2019 related to these bonds. Legal Proceedings From time to time, the Parent and/or one or more of its subsidiaries are party to legal, regulatory, or administrative proceedings regarding, among other matters, claims by and against us, and injunctions by third parties arising out of the ordinary course of business. Licenses are also subject to legal challenges by competitors seeking to annul awards made to the Company. The Parent and/or one or more of its subsidiaries are also, from time to time, subjects of, or parties to, ethics and compliance inquiries and investigations related to the Company’s ongoing operations. At December 31, 2020, provisions for litigation matters amounted to $7.9 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. Annual Report and Accounts 2020 Page | 144 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) (c) (d) (e) 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. Nettles, Dawn v. GTECH Corp. et al., filed on January 7, 2015 in Dallas County (No. 051501559CV). Plaintiff claims damages in excess of $4.0 million. GTECH Corporation and the TLC won pleas to the jurisdiction for dismissal based on sovereign immunity. Plaintiff lost her appeal and petitioned for Texas Supreme Court review. On April 27, 2018, IGT Global Solutions Corporation petitioned for Texas Supreme Court review and the Texas Supreme Court heard arguments on December 3, 2019 in both the Nettles and Steele cases. On June 12, 2020, the Texas Supreme Court ruled that Plaintiffs in the Nettles and Steele cases could proceed with their fraud allegations in the lower courts; all other claims were dismissed. The Nettles case was dismissed on December 16, 2020 after summary judgment was awarded in favor of IGT Global Solutions Corporation. 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. Disposition of Previously Disclosed Matters Illinois State Lottery On February 6, 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 included tortious interference with contract, violations of Illinois Consumer Fraud and Deceptive Practices Act, and unjust enrichment. The lawsuit was removed to the U.S. 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. The parties have settled the case for an amount that is not material to the Company's consolidated financial statements, and the case was dismissed in September 2020. Annual Report and Accounts 2020 Page | 145 20. 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 shares of the Parent consist of 1.850 billion ordinary shares with a $0.10 per share par value. Ordinary shares 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, 2020 204,435,333 421,231 — 204,856,564 2019 204,210,731 224,602 — 204,435,333 The Parent has the authority to repurchase, subject to a maximum repurchase price, a maximum of 20,474,483 ordinary shares of the Company. This authority remains valid until December 24, 2021, unless previously revoked, varied, or renewed at the 2021 annual general meeting. The Parent did not repurchase any of its ordinary shares in 2020 or 2019. Dividends We declared a $0.20 cash dividend per share during the first quarter of 2020 and all four quarters of 2019. Future dividends are subject to Board approval. The RCF Agreement and TLF Agreement limit the aggregate amount of dividends and repurchases of the Parent’s ordinary shares in each year to $300 million based on ratings by Moody’s and S&P. As discussed in Note 17 - Debt, in May 2020, the Company entered into amendments to these agreements which include terms that prohibit restricted payments, including dividends and ordinary share repurchases, through June 30, 2021. For the years ended December 31, 2020 and 2019, cash dividends declared were paid by our Parent and were in accordance with legal and compliance regulations. Annual Report and Accounts 2020 Page | 146 Other Reserves The following table details the changes in other reserves: Unrealized Gain (Loss) on: Other Reserves Foreign Currency Translation Hedges Other ($ thousands) Balance at December 31, 2018 Change during period Reclassified to operations (1) Tax effect Other comprehensive (loss) income Balance at December 31, 2019 Change during period Reclassified to operations (1) Tax effect Other comprehensive income (loss) 212,078 (13,504) 1,623 22 (11,859) 200,219 107,984 507 (217) (6,800) 237 (2,183) 495 (1,451) (8,251) (768) 47 184 108,274 308,493 (537) (8,788) Attributable to non- controlling interests Attributable to IGT PLC 19,940 15,906 — — 15,906 35,846 (59,455) — — 226,211 5,515 (560) 700 5,655 231,866 47,491 554 (33) Total 206,271 (10,391) (560) 700 (10,251) 196,020 106,946 554 (33) 107,467 303,487 (59,455) (23,609) 48,012 279,878 993 2,876 — 183 3,059 4,052 (270) — — (270) Balance at December 31, 2020 (1) Foreign currency translation adjustments related to liquidated subsidiaries were reclassified into foreign exchange (loss) gain, net on the consolidated statement of operations for the years ended December 31, 2020 and 2019. Unrealized gain (loss) on hedges were reclassified into service revenue in the consolidated statement of operations for the years ended December 31, 2020 and, 2019, respectively 3,782 21. Non-Controlling Interests At December 31, 2020, our material non-controlling interests ("NCIs") were as follows: Name of subsidiary Lotterie Nazionali S.r.l. ("LN") Northstar New Jersey Lottery Group, LLC ("Northstar NJ") (1) % Ownership held by the Company 64.00 % 82.31 % (1) Northstar New Jersey Holding Company LLC, of which we are a 50.15% shareholder, holds the 82.31% ownership in Northstar NJ LN holds a license to operate the Scratch & Win instant lottery game in Italy through September 2028. Northstar NJ manages a wide range of the lottery’s day-to-day operations in the State of New Jersey, as well as provides marketing and sales services under a license valid through June 2029. We are the principal operating partner fulfilling the requirements under the licenses held by the NCIs. As such, we have the power to direct the activities that significantly affect the NCIs' economic performance, along with the right to receive benefits or the obligation to absorb losses that could potentially be significant to the NCIs. As a result, we concluded we have control over the NCIs and they have been consolidated. Accordingly, the balance sheet and operating activity of the NCIs are included in our consolidated financial statements and we adjust the net income (loss) in our consolidated statement of operations to exclude the NCIs' proportionate share of results. We present the proportionate share of NCIs as equity in the consolidated balance sheet. Annual Report and Accounts 2020 Page | 147 Activity within NCIs were as follows: ($ thousands) Balance at December 31, 2018 Net income Other comprehensive loss Total comprehensive income Capital increase Return of capital Dividends paid Other Balance at December 31, 2019 Net income (loss) Other comprehensive income Total comprehensive income (loss) Capital increase Return of capital Dividends paid Other Balance at December 31, 2020 Northstar NJ All Other LN 423,274 28,434 (7,594) 20,840 — (34,424) (25,616) — 384,074 19,048 31,629 50,677 — — 68,695 1,996 — 1,996 — — (18,786) — 51,905 (36,917) — (36,917) — — (28,798) (15,558) — 405,953 — (570) 115,166 22,342 (8,312) 14,030 1,499 (10,915) (18,120) 2,118 103,778 19,482 27,826 47,308 8,414 (22,944) (15,620) 523 121,459 Total 607,135 52,772 (15,906) 36,866 1,499 (45,339) (62,522) 2,118 539,757 1,613 59,455 61,068 8,414 (22,944) (59,976) 523 526,842 Summarized financial information for our material NCIs 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, Northstar NJ December 31, 2020 723,692 858,197 1,581,889 2019 531,850 883,747 1,415,597 557,837 12,538 570,375 1,011,514 1,581,889 407,317 374 407,691 1,007,906 1,415,597 2020 56,893 78,128 135,021 75,274 2,427 77,701 57,320 135,021 2019 75,014 87,112 162,126 59,435 2,489 61,924 100,202 162,126 Summarized Income Statements LN Northstar NJ ($ thousands) Total revenue Total operating expenses Operating income (loss) Total non-operating (expenses) income Income (loss) before benefit from income taxes Benefit from income taxes Net income (loss) For the year ended December 31, For the year ended December 31, 2020 257,331 (182,914) 74,417 (41) 74,376 (21,728) 52,648 2019 303,891 (192,760) 111,131 85 111,216 (32,317) 78,899 2020 70,445 (107,385) (36,940) 23 (36,917) — (36,917) 2019 114,791 (112,795) 1,996 — 1,996 — 1,996 Annual Report and Accounts 2020 Page | 148 Summarized Cash Flow Statements LN Northstar NJ ($ thousands) Net cash flows provided by operating activities Net cash flows used in investing activities Net cash flows used in financing activities 22. Segment Information For the year ended December 31, For the year ended December 31, 2020 257,534 2019 245,336 (7,532) (136,585) (4,498) (241,106) 2020 2019 1,507 — (5,820) 26,048 — (30,581) On July 1, 2020, we adopted a new organizational structure focused on two business segments: Global Lottery and Global Gaming, along with a streamlined corporate support function. During the third quarter of 2020, our chief operating decision maker requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. This resulted in a change in our operating segments and cash-generating units. As a result, beginning in the third quarter of 2020, we report our financial performance based on our July 1, 2020 new business segments, and analyze revenue and operating income as measures of segment profitability. We have recast our historically presented comparative segment information to conform to the way we internally manage and monitor segment performance. The Global Lottery segment has full responsibility for the worldwide traditional lottery and iLottery business, including sales, operations, product development, technology, and support. The Global Gaming segment has full responsibility for the worldwide gaming business, including iGaming, sports betting, sales, product management, studios, global manufacturing, operations, and technology. Our two business segments are supported by central corporate support functions, including a business and strategic initiatives function, finance, people and transformation, legal, marketing and communications, corporate public affairs, and strategy and corporate development. Certain support costs that are identifiable and that benefit our business segments are allocated to them. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Corporate support function expenses that are not allocated to the business segments, which are principally composed of selling, general and administrative expenses, are reported as Corporate and Other expenses, along with goodwill impairment and the depreciation and amortization of acquired tangible and intangible assets in connection with acquired companies. Through our two business segments, we operate and provide an integrated portfolio of innovative gaming technology products and services including online and instant lottery systems, gaming systems, instant ticket printing, electronic gaming machines, iLottery, sports betting, iGaming, commercial services, and lottery management services. Global Lottery Our Global Lottery segment provides lottery products and services primarily to governmental organizations through operating contracts, facilities management contracts (“FMCs”), lottery management agreements (“LMAs”), and product sales contracts. As part of our lottery product and services, we provide instant and draw-based lottery products, point-of-sale machines, central processing systems, software, commercial services, instant ticket printing services, and other related equipment and support services. We categorize revenue from operating contracts, FMCs, and LMAs as “Operating and facilities management contracts” and revenue from commercial services, software hosting, software maintenance, and other services not included within operating contracts, FMCs, or LMAs as service revenue from “Systems, software, and other”. Revenue included within “Operating and facilities management contracts” include all services required by the contract, including iLottery and instant ticket printing. We categorize sales or sales-type leases of lottery terminals, lottery systems, software licenses, and instant tickets not part of “Operating and facilities management contracts” as product sales from “Lottery products”. Annual Report and Accounts 2020 Page | 149 Global Gaming Our Global Gaming segment provides gaming products and services including software and game content, casino gaming management systems, video lottery terminals (“VLTs”), amusement with prize machines (“AWPs”), VLT central systems, sports betting, iGaming, and other related equipment and support services to commercial and tribal casino operators. We categorize revenue from Wide Area Progressive services, and operating leases for VLTs, AWPs, and other gaming machines as service revenue from “Gaming terminal services.” We categorize revenue from iGaming services, sports betting, software intellectual property licenses, and systems as service revenue from “Systems, software, and other”. Revenue from the sale or sales-type lease of gaming machines, systems, component parts, and other miscellaneous equipment and services are categorized as product sales from “Gaming terminals” and revenue from systems, software, casino gaming management systems, game content, iGaming products, and spare parts as product sales from “Gaming other”. Segment information is as follows: ($ thousands) Service revenue Product sales Total revenue For the year ended December 31, 2020 Global Lottery 2,040,971 121,346 2,162,317 Global Gaming 598,614 354,552 953,166 Business Segment Total 2,639,585 475,898 3,115,483 Corporate and Other — — — Total IGT PLC 2,639,585 475,898 3,115,483 Operating income (loss) Depreciation and amortization Expenditures for long-lived assets 644,078 261,446 (148,679) (201,968) 172,391 (74,877) 442,110 433,837 (223,556) (532,957) 190,950 (2,190) (90,847) 624,787 (225,746) ($ thousands) Service revenue Product sales Total revenue For the year ended December 31, 2019 Global Lottery 2,181,321 109,884 2,291,205 Global Gaming 917,895 821,005 1,738,900 Business Segment Total 3,099,216 930,889 4,030,105 Corporate and Other — — — Total IGT PLC 3,099,216 930,889 4,030,105 Operating income (loss) Depreciation and amortization Expenditures for long-lived assets 699,039 257,453 (167,349) 188,083 212,673 (166,932) 887,122 470,126 (334,281) (353,304) 204,407 (8,216) 533,818 674,533 (342,497) Annual Report and Accounts 2020 Page | 150 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, 2020 1,666,241 895,969 63,874 209,080 280,319 3,115,483 2019 2,115,791 988,144 73,541 322,654 529,975 4,030,105 Revenue from one customer in the Global Lottery segment represented approximately 19% and 16% of consolidated revenue in 2020 and 2019, respectively. Long-lived assets, which are comprised of Systems & Equipment and PPE, are based on the geographical location of the assets as follows: ($ thousands) United States Italy United Kingdom Rest of Europe All other Total 23. Stock-Based Compensation Incentive Awards December 31, 2020 842,005 176,341 13,871 90,646 77,426 1,200,289 2019 929,649 187,169 17,687 102,874 115,060 1,352,439 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 new 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. 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. No stock options were granted in 2020 or 2019. Stock Awards Stock awards are principally made in the form of performance share units (“PSUs”) and restricted share units (“RSUs”). PSUs are stock awards where the number of shares ultimately received by the employee depends on the Company’s performance against specified targets, which may include Adjusted EBITDA, Adjusted Net Debt and Total Shareholder Return (“TSR”) relative to the Russell Mid Cap Market Index. PSUs typically vest 50% over an approximate three-year period and 50% over an approximate four-year period (i.e. four years to vest both tranches). Dividend equivalents are not paid under the Plan. The fair value of each PSU is determined on the grant date or modification date, based on the Company’s stock price, adjusted for the exclusion of dividend equivalents, and assumes that performance targets will be achieved. Over the performance period, the number of shares of stock that will be issued is adjusted based upon the probability of achievement of performance targets. The ultimate Annual Report and Accounts 2020 Page | 151 number of shares issued and the related compensation cost recognized as expense is based on a comparison of the final performance metrics to the specified targets. In 2020, no PSUs were granted. RSUs are stock awards granted to directors that entitle the holder to shares of common stock as the award vests, typically over a one-year period, and have a contractual term of 10 years. Dividend equivalents are not paid under the Plan. In 2020, RSUs were also granted to employees, which will vest in approximately one- and two-year vesting periods. Stock Option Activity A summary of our stock option activity and related information is as follows: Outstanding at January 1, 2020 Granted Exercised Expired Outstanding at December 31, 2020 At December 31, 2020: Vested and expected to vest Exercisable Weighted-Average Exercise Price Per Share ($) Remaining Contractual Term (in years) Aggregate Intrinsic Value ($ thousands) 20.73 — — 20.29 21.49 15.53 15.53 2.19 1.37 1.37 352 352 Stock Options 1,140,566 — — (718,066) 422,500 250,000 250,000 No stock options were exercised in 2020 and 2019. Stock Award Activity A summary of our stock award activity and related information is as follows: Nonvested at January 1, 2020 Granted Vested Forfeited Nonvested at December 31, 2020 Weighted- Average Grant Date Fair Value ($) 19.41 — 19.26 17.78 18.17 PSUs 5,060,951 — (474,399) (1,229,586) 3,356,966 At December 31, 2020: Unrecognized cost for nonvested awards ($ thousands) Weighted-average future recognition period (in years) 990 0.24 Weighted- Average Grant Date Fair Value ($) 14.07 9.04 13.64 9.08 9.05 RSUs 130,009 2,375,141 (136,161) (2,606) 2,366,383 17,827 1.93 The total vest-date fair value of PSUs vested was $2.7 million and $3.7 million in 2020 and 2019, respectively. The total vest-date fair value of RSUs vested was $1.2 million and $0.9 million for 2020 and 2019, respectively. Annual Report and Accounts 2020 Page | 152 Fair Value of Stock Awards Granted We estimated the fair value of PSUs at the date of grant using a Monte Carlo simulation valuation model, as the awards include a market condition. The market condition is based on the Company’s TSR relative to the Russell Midcap Market Index. During 2020 and 2019, we estimated the fair value of RSUs at the date of grant based on our stock price. Details of the grants are as follows: PSUs granted during the year Weighted-average grant date fair value ($) RSUs granted during the year Weighted-average grant date fair value ($) Stock-Based Compensation Expense 2020 — — 2019 2,133,512 11.10 2,375,141 9.04 131,676 14.10 Total compensation cost (recovery) for our stock-based compensation plans is recorded based on the employees’ respective functions as detailed below. ($ thousands) Cost of services Cost of product sales Selling, general and administrative Research and development Stock-based compensation expense before income taxes Income tax (provision) benefit Total stock-based compensation, net of tax 24. Earnings Per Share For the year ended December 31, 2020 2019 (1,188) (290) (5,382) (1,455) (8,315) (2,184) (6,131) 1,920 393 20,379 2,578 25,270 5,896 19,374 The following table presents the computation of basic and diluted loss per share of common stock: ($ and shares in thousands, except per share amounts) Numerator: Net loss from continuing operations attributable to IGT PLC Net income from discontinued operations attributable to IGT PLC Net loss attributable to IGT PLC Denominator: Weighted-average shares - basic and diluted Net loss from continuing operations attributable to IGT PLC per common share - basic and diluted Net income from discontinued operations attributable to IGT PLC per common share - basic and diluted Net loss attributable to IGT PLC per common share - basic and diluted For the year ended December 31, 2020 2019 (973,520) 40,844 (932,676) (117,451) 107,720 (9,731) 204,725 204,373 (4.76) (0.57) 0.20 (4.56) 0.53 (0.05) Annual Report and Accounts 2020 Page | 153 Certain stock options to purchase common shares were outstanding, but were excluded from the computation of diluted earnings per share, because the exercise price of the options was greater than the average market price of the common shares for the full year, and therefore, the effect would have been antidilutive. During years when we are in a net loss position, certain outstanding stock options and unvested restricted stock awards are excluded from the computation of diluted earnings per share because including them would have had an antidilutive effect. For the years ended December 31, 2020 and 2019, stock options and unvested restricted stock awards totaling 0.9 million shares and 1.2 million shares, respectively, were excluded from the computation of diluted earnings per share because including them would have had an antidilutive effect. 25. Related Party Transactions We engage in business transactions with certain related parties which include (i) De Agostini entities directly or indirectly controlled by De Agostini, (ii) other entities and individuals capable of exercising control, joint control, or significant influence over us, and (iii) our unconsolidated subsidiaries or joint ventures. Members of the Board, executives with authority for planning, directing, and controlling the activities of the Company and such Directors’ and executives’ close family members are also considered related parties. We may make investments in such entities, enter into transactions with such entities, or both. De Agostini Group We are majority-owned by De Agostini. 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, and in some cases, a value- added tax 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. Related party transactions with the De Agostini Group are as follows: ($ thousands) Trade receivables Tax-related receivables Trade payables Tax-related payables December 31, 2020 2019 — — 5,096 18,706 2 2,031 3,180 17,004 Unconsolidated Subsidiaries and Joint Ventures From time to time, we make strategic investments in publicly traded and privately held companies that develop software, hardware, and other technologies or provide services supporting its technologies. We may also purchase from or make sales to these organizations. Ringmaster S.r.l. (“Ringmaster”) We have a 50% interest in Ringmaster, an Italian joint venture, that is accounted for using the equity method of accounting. Ringmaster provides software development services for our interactive gaming business pursuant to an agreement dated December 7, 2011. Our investment in Ringmaster was $0.8 million and $0.7 million at December 31, 2020 and 2019, respectively. We incurred $6.6 million and $6.1 million in expenses to Ringmaster for the years ended December 31, 2020 and 2019, respectively. Annual Report and Accounts 2020 Page | 154 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 equity 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, and is a non-executive member of, Connect Ventures LLP, the fund that manages the Connect Ventures. The Connect Ventures are venture capital funds that target “early stage” investment operations. Our investment in Connect Ventures One LP was $5.1 million and $4.9 million at December 31, 2020 and 2019, respectively. Our investment in Connect Ventures Two LP was $7.3 million and $6.2 million at December 31, 2020 and 2019, respectively. Key Management Personnel - Officer Compensation Key management personnel are those persons with authority and responsibility for planning, directing and controlling the activities of the Company. In 2020 and 2019, key management personnel was composed of 14 and 10 executive officers, respectively, including our Chief Executive Officer and Chief Financial Officer. Officer compensation for key management personnel for the years ended December 31, 2020 and 2019 is as follows: ($ thousands) Short-term employee benefits Stock-based compensation Post-employment benefits 26. Employee Information Employee Benefit Expense ($ thousands) Wages and salaries Social security and other benefits Incentive compensation Stock-based compensation Post-employment benefits Average Number of Employees by Segment Global Lottery Global Gaming Corporate and Other For the year ended December 31, 2020 2019 14,036 9,491 2,885 26,412 19,287 1,745 2,105 23,137 For the year ended December 31, 2020 2019 743,269 161,292 14,923 (8,315) 19,363 754,733 203,901 103,834 25,270 21,317 930,532 1,109,055 For the year ended December 31, 2020 2019 4,249 5,677 1,525 4,435 6,000 1,585 11,451 12,020 Annual Report and Accounts 2020 Page | 155 27. 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 2020 and 2019 were as follows: ($ thousands) Audit services - Parent company and consolidated financial statements Audit services - Subsidiaries' financial statements Audit-related services Tax services All other services For the year ended December 31, 2020 2019 9,672 1,257 357 335 112 9,525 1,565 660 1,294 147 11,733 13,191 28. The Parent's Directly and Indirectly Owned Subsidiaries The Parent had the following subsidiaries for the year ended December 31, 2020: Name of entity Acres Gaming Incorporated Anguilla Lottery and Gaming Company Limited Antigua Lottery Company Limited Atronic Australien GmbH Beijing GTECH Computer Technology Company Limited Big Easy S.r.l. BringIt, Inc. Caribbean Lottery Services, Inc. CartaLis Istituto di Moneta Elettronica S.p.A. (also known as CartaLis IMEL S.p.A.) CLS-GTECH Technology (Beijing) Co., Ltd. Consorzio Lotterie Nazionali Cyberview International, Inc. Data Transfer System Inc. 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 Simon, Rogers Murdoch, Chancellor Chambers, Island House, Newgate Street, St. John’s, Antigua 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 6355 South Buffalo Drive, Las Vegas, Nevada 89113, United States c/o Moore Dodson & Russell P.C., 14A Norte Gade, Charlotte Amalie, St. Thomas USVI 00802 Ownership % 100 Shareholder International Game Technology 100 100 100 100 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 100 Leeward Islands Lottery Holding Company, Inc. Via Pordenone, 8, Milano, Italy 100 Lottomatica Italia Servizi S.p.A. 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 1209 Orange Street, Wilmington, DE 19801, United States 100 CLS-GTECH Company Limited 63 100 Lottomatica Holding S.r.l. IGT 100 IGT Global Solutions Corporation Annual Report and Accounts 2020 Page | 156 Name of entity DoubleDown Interactive B.V. Dreamport do Brasil Ltda. Dreamport Suffolk Corporation Dreamport, Inc. Eagle Ice AB Estrela Instantânea Loteria Spe S.A Europrint Holdings Limited GTECH (Gibraltar) Holdings Limited f/k/a St. Enodoc Holdings Limited GTECH Asia Corporation GTECH Brasil Ltda. GTECH German Holdings Corporation GmbH GTECH Management P.I. Corporation GTECH Mexico S.A. de C.V. Address of registered office Galwin 2, 1046 AW Amsterdam, Netherlands Rua Barao do Triunfo, 88 room 1210, Brooklin Paulista, 04602-000, Sao Paulo, Brazil 1209 Orange Street, Wilmington, DE 19801, United States 1209 Orange Street, Wilmington, DE 19801, United States Gernandt & Danielson, Box 5747, Stockholm 11487 City of Barueri, State of São Paulo, at Calçada das Margaridas, No. 163, Room 02, Centro Comercial, Zip Code 06453-038 in Brazil 1st Floor, Building 3 Croxley Green Business Park, Hatters Lane, Watford, Hertfordshire, England WD18 8YG 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 1209 Orange Street, Wilmington, DE 19801, United States Av. Constituyentes 635, Colonia 16 de Septiembre,Mexico City, 11810, Mexico GTECH Southern Africa (Pty) Ltd. GTECH Ukraine GTECH WaterPlace Park Company, LLC Hydragraphix LLC Hudson Alley Software, Inc. I.G.T. - Argentina S.A. I.G.T. (Australia) Pty Limited Ground Floor, Orbach Place, 261 Oxford Road, Illovo 2196, South Africa 3-A Leiptsygska Street, Kyiv, Ukraine 1209 Orange Street, Wilmington, DE 19801, United States 1209 Orange Street, Wilmington, DE 19801, United States 28 Liberty Street, New York, NY 10005 Hipolito Alferez Bouchard 4191, Optima Park Tower, 5to piso - Munro, Argentina Level 5, 11 Talavera Road, Macquarie Park, NSW 2113 Australia Ownership % 100 Shareholder IGT Interactive C.V. 100 100 100 100 50 Dreamport, Inc. (>99.99%); IGT Foreign Holdings Corporation (<0.01%) IGT Global Solutions Corporation IGT Global Solutions Corporation International Game Technology IGT Global Services Limited 100 IGT Global Solutions Corporation 100 IGT Global Services Limited 100 100 100 100 100 100 100 100 100 100 100 IGT Global Solutions Corporation IGT Global Solutions Corporation (>99.99%); IGT Foreign Holdings Corporation (<0.01%) International Game Technology PLC IGT Global Solutions Corporation IGT Global Solutions Corporation (99.700258% - 100% of Class II); IGT Foreign Holdings Corporation (0.343297% - 99.998% of Common); IGT Latin America Corporation (0.000006% - .002% of Common) IGT Global Solutions Corporation GTECH Asia Corporation (99%); GTECH Management P.I. Corporation (1%) IGT Global Solutions Corporation IGT Global Solutions Corporation IGT Global Solutions Corporation International Game Technology (96.67%); International Game Technology S.R.L. (3.33%) 100 International Game Technology Annual Report and Accounts 2020 Page | 157 Name of entity IGT 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 IGT (Gibraltar) Limited IGT (Gibraltar) Solutions Limited f/k/a GTECH (Gibraltar) Limited IGT (UK1) Limited IGT (UK2) Limited IGT (UK 3) Limited IGT Asia - Macau, S.A. IGT ASIA PTE. LTD. IGT Asiatic Development Limited IGT Australasia Corporation f/k/ a GTECH Australasia Corporation IGT Austria GmbH f/k/a GTECH Austria GmbH IGT Canada Solutions ULC f/k/ a GTECH Canada ULC Address of registered office 701 South Carson Street, Suite 200, Carson City, Nevada 89701, United States 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 57 - 63 Line Wall Road, Gibraltar 23 Portland House, Glacis Road, GX11 1AA, Gibraltar Quay West Trafford Wharf Road, Trafford Park, Manchester, M17 1HH, United Kingdom Quay West Trafford Wharf Road, Trafford Park, Manchester, M17 1HH, United Kingdom 3rd Floor, 10 Finsbury Square, London, England EC2A 1AF. 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 1209 Orange Street, Wilmington, DE 19801, United States Seering 13-14, 8141 Unterpremstatten, Austria Queen's Marque, 600 - 1741 Lower Water Street, Halifax, Nova Scotia, Canada IGT Colombia Ltda. f/k/a GTECH Colombia Ltda. Carrera 45, #108A-50, Piso 5, Bogata, Colombia 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 Ownership % 100 Shareholder International Game Technology 100 International Game Technology 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 100 IGT Interactive, Inc. 100 IGT – UK Group Limited 100 100 100 100 100 100 100 99.99 100 100 International Game Technology PLC 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%) Annual Report and Accounts 2020 Page | 158 Name of entity 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. IGT Dutch Interactive LLC IGT EMEA B.V. IGT Empowerment Trust 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 Carrera 45, #108A-50, Piso 5, Bogata, Colombia 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 160 Greentree Drive, Suite 101, Dover, DE 19904, United States Galwin 2, 1046 AW Amsterdam, Netherlands 2 Brands Hatch Close, Corner Indianapolis St, Kyalami Business Park, Midrand 1685, South Africa 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 Ownership % 99.99 Shareholder IGT Foreign Holdings Corporation (>99.99%); Claudia Mendoza (<0.01%) (Nominee share) 37 IGT Global Solutions Corporation 100 IGT Global Solutions Corporation 100 100 100 100 IGT International Treasury B.V. (99.99%); IGT International Treasury Holding LLC (0.01%) IGT Interactive Holdings 2 C.V. IGT-Europe B.V. IGT International Treasury B.V. (74.9%); International Game Technology Afrida (Pty) Ltd. (25.1%) 100 IGT Global Services Limited 100 IGT Global Solutions Corporation 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 Germany Gaming GmbH f/ k/a GTECH Germany GmbH IGT Germany GmbH f/k/a GTECH GmbH IGT Global Services Limited f/k/ a GTECH Global Services Corporation Limited IGT Global Solutions Corporation f/k/a GTECH Corporation IGT Hong Kong Limited IGT India Private Limited f/k/a GTECH India Private Limited IGT Indiana, LLC f/k/a GTECH Indiana, LLC IGT Interactive C.V. Weseler Straß 253, Mûnster,48151, Germany Weseler Straß 253, Mûnster,48151, Germany Grigori Afxentiou, 27, 6021, Larnaca, Cyprus 1209 Orange Street, Wilmington, DE 19801, United States 100 IGT 26th Floor, No. 8 Queen's Road Central. Hong Kong, China 2nd Floor, NCC House, Sy. No. 64, Madhapur, Hyderabad, Kurnool, Telangana 500081, India 334 North Senate Avenue, Indianapolis, IN 46204 Galwin 2, 1046 AW Amsterdam, Netherlands 100 100 100 100 IGT Interactive Holdings 2 C.V. Galwin 2, 1046 AW, Amsterdam, 100 Netherlands IGT Asiatic Development Limited IGT Global Services Limited (99.99%); IGT Far East Pte Ltd. (0.01%) IGT Global Solutions Corporation 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%) Annual Report and Accounts 2020 Page | 159 Name of entity IGT Interactive, Inc. Address of registered office 160 Greentree Drive, Suite 101, Dover, DE 19904, United States 160 Greentree Drive, Suite 101, IGT International Holdings 1 LLC Dover, DE 19904, United States IGT International Treasury B.V. Galwin 2, 1046 AW, Amsterdam, IGT International Treasury Holding LLC 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. 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 Lottery Holdings B.V. IGT Malta Casino Holdings Limited f/k/a GTECH Malta Holdings Limited IGT Malta Casino Limited f/k/a GTECH Malta Casino Limited IGT Malta Interactive Limited f/ k/a GTECH Malta Poker Limited f/k/a Boss Media Malta Poker Ltd. IGT Mexico Lottery S. de R.L. de C.V. f/k/a GTECH Servicios de México, S. de R.L. de C.V. Netherlands 1209 Orange Street, Wilmington, DE 19801 Riverside One, Sir John Rogerson's Quay, Dublin 2, Ireland Viale del Campo Boario, 56/d Roma, Italy Oak Minami-Azabu Building 2F, 3-19-23 Minami-Azabu, Minato-ku, Tokyo, 106-0047, Japan 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 Galwin 2, 1046 AW Amsterdam, Netherlands 2, Belvedere Court, Triq Il- Qaliet, St. Julians STJ 3255, Malta 2, Belvedere Court, Triq Il- Qaliet, St. Julians STJ 3255, Malta 2, Belvedere Court, Triq Il- Qaliet, St. Julians STJ 3255, Malta 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/ka GTECH Peru S.A. Av. El Derby Nro.254, Oficina 606 - Surco, Lima – Peru IGT Poland Sp. z.o.o. f/k/a GTECH Poland Sp. z o.o. 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. AL. JEROZOLIMSKIE, nr 92, 00-807, Warsaw, Poland 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 Ownership % 100 Shareholder International Game Technology 100 100 100 100 International Game Technology International Game Technology IGT International Treasury B.V. IGT Global Services Limited 100 Lottomatica Holding S.r.l. 100 IGT International Treasury B.V. 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%) 100 International Game Technology PLC 99.99 IGT Sweden Interactive AB 99.99 IGT Malta Casino Holdings Limited 99.99 IGT Malta Casino Holdings Limited 100 95 100 100 100 100 100 IGT Global Solutions Corporation (99.9%); IGT Foreign Holdings Corporation Holdings Corporation (0.1%) IGT Austria GmbH (95%); Walter Bugno (1%), Katarzyna Szorc (1%); Abdelhalim Stri (1%) IGT Germany Gaming GmbH (99.999971%); GTECH German Holdings Corporation GmbH (0.000029%) IGT Global Solutions Corporation IGT Global Solutions Corporation International Game Technology PLC IGT Global Services Limited Annual Report and Accounts 2020 Page | 160 Name of entity 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 IGT Worldwide Services Corporation f/k/a GTECH Worldwide Services 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 Address of registered office Edificio Avant, Parque de Negocios Mas Blau, Calle Selva 12, planta 1a, Modulo A2, El Prat de Llobregat, 08820, Barcelona, Spain Hälsingegatan 40 12tr, 113 43 Stockholm, Sweden Honnorsgatan 2, Vaxjo 35053, 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 1 Bridgewater Place Water Lane, Leeds, West Yorkshire LS11 5QR 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 1209 Orange Street, Wilmington, DE 19801, United States 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 Ownership % 100 Shareholder IGT Spain Lottery S.L.U. 100 100 IGT Global Services Limited IGT-Europe B.V. 100 IGT Sweden Interactive AB 100 IGT Hong Kong Limited 100 IGT Global Solutions Corporation 100 IGT Global Solutions Corporation 100 100 IGT Sweden Interactive AB International Game Technology PLC 100 IGT UK Interactive Holdings Limited 100 IGT Global Services Limited (99.9666%); IGT Ireland Operations Limited (0.0333%) 100 IGT Global Solutions Corporation 100 International Game Technology 100 100 100 100 100 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 Annual Report and Accounts 2020 Page | 161 Name of entity IMA S.r.l. Innoka Oy International Game Technology International Game Technology (NZ) Limited International Gaming Technology Brasil Servicos de Dados Ltda 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. Leeward Islands Lottery Holding Company, Inc. Lotterie Nazionali S.r.l. Lottery Equipment Company LOTTOITALIA S.r.l. Lottomatica Giochi e Partecipazioni S.r.l. Lottomatica Holding S.r.l. Address of registered office Viale del Campo Boario, 56/d Roma, Italy Aku Korhosen tie 4, 00440 Helsinki, Finland 701 South Carson Strret, Suite 200, Carson City, Nevada 89701 Birchwood Park, Unit 4, 483 Hutt Road, Lower Hutt, New Zeland Calcada Das Margaridas, 163, Sala 02, Barueri, Sao Paulo, 06453-038, Brazil Pza de Pablo Ruiz Picasso 1, Torre Picasso, 5, 28020 Madrid 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 C18, The Sands Complex, Bay Road, Basseterre, St. Christopher, St. Kitts 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 Lottomatica Italia Servizi S.p.A. Via Pordenone, 8, Milano, Italy Viale del Campo Boario, 56/d Lottomatica Scommesse S.r.l. Roma, Italy Viale del Campo Boario, 56/d Roma, Italy 102 Na Ranong Road, Klongtoey, Bangkok Metropolis, Thailand Lottomatica Videolot Rete S.p.A. Loxley GTECH Technology Co., Ltd. Northstar Lottery Group, LLC 208 South LaSalle Street, Suite 814, Chicago, IL 60601, United States Ownership % 51 Shareholder IGT EUROPE BV 81 100 100 100 100 100 100 100 100 100 IGT Global Services Limited International Game Technology PLC I.G.T. (Australia) Pty Limited IGT Global Solutions Corporation 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%) Lottomatica Giochi e Partecipazioni (>99.99%); International Game Technology PLC (<0.01%) LB Participacões E Loterias Ltda. (>99.99%); International Game Technology PLC (<0.01%) 100 IGT Global Services Limited 64 100 Lottomatica Holding S.r.l. GTECH Asia Corporation (99.994%); GTECH Management P.I. Corporation (0.006%) 61.5 Lottomatica Holding S.r.l. 100 100 100 100 100 49 80 International Game Technology PLC International Game Technology PLC Lottomatica Holding S.r.l. Lottomatica Holding S.r.l. Lottomatica Holding S.r.l. IGT Global Services Limited (10%); IGT Global Solutions Corporation (39%) IGT Global Solutions Corporation Northstar New Jersey Holding Company, LLC 820 Bear Tavern Road, West Trenton, NJ 08628, United States 50.15 IGT Global Solutions Corporation Annual Report and Accounts 2020 Page | 162 Name of entity Northstar New Jersey Lottery Group, LLC Northstar SupplyCo New Jersey, LLC Online Transaction Technologies S.à.r.l. à Associé Unique 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 Powerhouse Technologies, Inc. Probability (Gibraltar) Limited Prodigal Lottery Services, N.V. Retail Display and Service Handlers, LLC Ringmaster S.r.l. SB Industria E Comercio Ltda. SED Multitel S.r.l. Servicios Corporativos y de Administracion, S. de R.L. de C.V. St. Kitts and Nevis Lottery Company, Ltd. Technology Risk Management Services, Inc. UTE LOGISTA IGT f/k/a UTE Logista-GTECH, Law 18/1982, No. 1 VIA TECH Servicios SpA VLC, Inc. Your Sales S.r.L. ZEST GAMING MEXICO, S.A. DE C.V. Address of registered office 820 Bear Tavern Road, West Trenton, NJ 08628, United States 820 Bear Tavern Road, West Trenton, NJ 08628, United States Twin Center West, Angle Bd Zerktouni et Al Massira El Khadra, Casablanca, Morocco Aleje Jerozolimskie 92, 00-807 Warsaw, Poland c/o Veikkaus Oy, Aku Korhosen tie 2-4, 00440 Veikkaus, Vantaa, Finland Viale del Campo Boario, 56/d Roma, Italy Via Cantonale 19, Lugano 6900, Switzerland 6355 South Buffalo Drive, Las Vegas, Nevada, 89113, United States Suite 23, Portland House Glacis Road, GX11 1AA, Gibraltar 63A Walter J.A. Nisbeth Road, Pondfill Philipsburg, St. Maarten 1209 Orange Street, Wilmington, DE 19801, United States Corso Francia, 110 - Torino, Italy 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 C18, The Sands Complex, Bay Road, Basseterre, St. Kitts 1209 Orange Street, Wilmington, DE 19801, United States Trigo n° 39, Polfgono Industrial Polvoranca, Madrid, 18104 Spain Isadora Goyenechea, 3447 Piso 19, 2215-21, Las Condes, Santiago, Chile 6355 South Buffalo Drive, Las Vegas, Nevada, 89113, United States Viale del Campo Boario, 56/d Roma, Italy Campos Eliseos169, Col. Polanco, Mexico City, 11560, Mexico Ownership % 82.31 70 Shareholder Northstar New Jersey Holding Company, LLC IGT Global Solutions Corporation 100 IGT Foreign Holdings Corporation 100 100 100 100 100 100 100 100 50 100 100 100 100 100 50 IGT Global Solutions Corporation IGT Global Solutions Corporation Lottomatica Holding S.r.l. IGT UK Interactive Limited International Game Technology IGT UK Interactive Limited Leeward Islands Lottery Holding Company, Inc. IGT Global Solutions Corporation Lottomatica Holding S.r.l. IGT Global Solutions Corporation (˃99.99%); IGT Foreign Holdings Corporation (˂0.01%) Lottomatica Holding S.r.l. International Game Technology (99.97%); IGT (0.03%) Leeward Islands Lottery Holding Company, Inc. IGT Global Solutions Corporation IGT Spain Lottery S.L.U. 100 IGT Global Services Limited 100 Powerhouse Technologies, Inc. 100 100 Lottomatica Holding S.r.l. International Game Technology PLC (99%); IGT Spain Lottery S.L.U. (1%) Annual Report and Accounts 2020 Page | 163 Name of entity Joint Ventures CLS-GTECH Company Limited PO Box 957, Offshore Address of registered office Telling IGT Information Technology (Shenzhen) Co., Ltd. Ringmaster S.r.l. Incorporations Centre, Road Town, Tortola, British Virgin Islands 503D, Tian An Chuangxin Keji Square (Phase II) East Block, the Interchange of Binhe Road and Xiangmihu Road, Shatou Street, Futian District, Shenzhen, China Corso Francia, 110 - Torino, Italy Ownership % Shareholder 50 49 IGT Global Services Limited IGT Global Services Limited 50 Lottomatica Holding S.r.l. Annual Report and Accounts 2020 Page | 164 FINANCIAL STATEMENTS INTERNATIONAL GAME TECHNOLOGY PLC INDEX TO PARENT COMPANY FINANCIAL STATEMENTS Parent Balance Sheet at December 31, 2020 and 2019.................................................................................. Parent Statement of Shareholders' Equity for the years ended December 31, 2020 and 2019....................... Notes to the Parent Financial Statements........................................................................................................ 166 167 168 Annual Report and Accounts 2020 Page | 165  International Game Technology PLC Parent Balance Sheet ($ thousands) Notes 2020 2019 December 31, 6 3 4 4 4 6 124,675 76,758 12,642 5,635 219,710 766 9,300 4,786,024 7,673,136 37,401 12,506,627 12,726,337 6,713 392,672 — 103,761 247,929 55,505 806,580 7,808,477 9,133 353,402 1,763 8,172,775 8,979,355 20,485 21,002 3,566,621 138,874 3,746,982 12,726,337 289,595 476,446 97,879 11,297 875,217 1,034 10,952 4,659,174 7,435,151 39,703 12,146,014 13,021,231 1,186 434,789 — 124,082 533,834 153,245 1,247,136 7,539,284 11,173 74,406 2,835 7,627,698 8,874,834 20,443 21,002 3,960,373 144,579 4,146,397 13,021,231 Assets Current assets: Cash and cash equivalents Intercompany loans receivable Receivables from related parties Other current assets Total current assets Property, plant and equipment, net Right-of-use assets Investments in subsidiaries Intercompany loans receivable Other non-current assets Total non-current assets Total assets Liabilities and shareholders' equity Current liabilities: Accounts payable Current portion of long-term debt Short-term borrowings Loans payable to related parties Payables to related parties Other current liabilities Total current liabilities Long-term debt, less current portion Lease liabilities Loans payable to related parties Other non-current 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 Net (loss) income was $(344.8) million and $379.9 million for the years ended December 31, 2020 and 2019, respectively. As permitted by section 408 of the Companies Act 2006, no statement of comprehensive income for International Game Technology PLC is shown. The Parent financial statements were approved by the Board of Directors on March 11, 2021 and signed on its behalf on March 16, 2021 by: Marco Sala Chief Executive Officer Company registration number: 09127533 The accompanying notes are an integral part of these Parent financial statements. Annual Report and Accounts 2020 Page | 166 International Game Technology PLC Parent Statement of Shareholders' Equity ($ thousands) Balance at December 31, 2018 20,421 21,002 3,715,278 142,977 3,899,678 Share Capital Share Premium Retained Earnings Other Reserves Total Equity Net income Other comprehensive income Total comprehensive income Dividends paid Shares issued under stock award plans Stock-based compensation Non-cash investment in subsidiaries Other — — — — 22 — — — — — — — — — — — 379,911 — 379,911 (163,503) (1,603) 6,905 18,527 4,858 — 1,602 1,602 — — — — — 379,911 1,602 381,513 (163,503) (1,581) 6,905 18,527 4,858 Balance at December 31, 2019 20,443 21,002 3,960,373 144,579 4,146,397 Net loss Other comprehensive loss Total comprehensive loss Dividends paid Shares issued under stock award plans Stock-based compensation Non-cash investment in subsidiaries Balance at December 31, 2020 — — — — 42 — — — — — — — — — (344,777) — (344,777) (40,887) (1,211) 1,817 (8,694) — (5,705) (5,705) — — — — (344,777) (5,705) (350,482) (40,887) (1,169) 1,817 (8,694) 20,485 21,002 3,566,621 138,874 3,746,982 For further information related to shareholders' equity, refer to Note 20, Shareholders' Equity, in the notes to the consolidated financial statements included herein. The accompanying notes are an integral part of these Parent financial statements. Annual Report and Accounts 2020 Page | 167 International Game Technology PLC Notes to the Parent Financial Statements 1. Description of Business The principal activities of International Game Technology PLC (the "Parent") are to make investments and provide loans to its consolidated subsidiaries. All references to the "Company" refer to the business and operations of the Parent and its consolidated subsidiaries. 2. Summary of Significant Accounting Policies Basis of Preparation The accompanying financial statements and notes of the Parent have been prepared in accordance with Financial Reporting Standard 101 "Reduced Disclosure Framework ("FRS 101") and the Companies Act 2006 applicable to companies reporting under FRS 101. The amendments to FRS 101 issued in March 2018 and effective immediately have been applied. The Parent financial statements are stated in thousands of U.S. dollars unless otherwise indicated. In the transition from IFRS, the Company has made no measurement and recognition adjustments. In applying FRS 101, various disclosure amendments to the financial statements have been applied from Adopted IFRS disclosure requirements. The results of the Company herein have not been impacted due to the adoption FRS 101. The comparative information has been amended where necessary to reflect the disclosure requirements of FRS 101. In preparing these financial statements, the Company applies the recognition, measurement, and disclosure requirements of Adopted IFRSs, but makes amendments where necessary in order to comply with the Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions have been taken. The accounting policies set out below have been applied consistently to all periods presented in these financial statements. The following exemptions available under FRS 101 have been applied: • The following paragraphs of IAS 1 "Presentation of financial statements": ▪ ▪ ▪ ▪ ▪ ▪ ▪ 10(d) (statement of cash flows); 16 (statement of compliance with all IFRS); 38 (comparative information requirements in respect of Paragraph 79(a)(iv) of IAS 1) 38A (requirement for minimum of two primary statements, including cash flow statements); 38B-D (additional comparative information); 111 (cash flow statement information); 134-136 (capital management disclosures); • • • • • • • IAS 7 "Statement of Cash Flows" Paragraphs 30 and 31 of IAS 8 "Accounting policies, changes in estimates and errors" (requirement for the disclosure of information when an entity has not applied a new IFRS that has been issued and is not yet effective); IFRS 7 "Financial Instruments: Disclosures"; Paragraphs 91 to 99 of IFRS 13 "Fair value measurement" (disclosure of valuation techniques and inputs used for fair value measurement of assets and liabilities); The requirements of IAS 24 "Related party disclosures" to disclose related party transactions entered into between two or more members of a group; Paragraph 17 of IAS 24 "Related party disclosures" (key management compensation); and Paragraphs 45(b) and 46 to 52 of IFRS 2, "Share-based payment" (details of the number and weighted- average exercise prices of stock options and stock awards, and how the fair value of stock options and stock awards was determined). Annual Report and Accounts 2020 Page | 168 Going Concern The Directors have considered the impact of COVID-19 on the Company’s operations (including the effects of any governmental or regulatory response to the pandemic), and mitigations to these risks. Overall, the impact of these items would heighten certain risks, such as the execution of the Company’s commercial strategies. The Company is continuously monitoring, and mitigating where possible, impacts of these risks. Additionally, the Company has a wide diversity of customers and suppliers across different geographic areas. The Directors believe that, overall, the Company is well placed to manage its business risks successfully. The Company’s cash flows generated from operating activities together with cash flows generated from financing activities have historically been sufficient to meet the Company's liquidity requirements; however, the Company implemented robust business continuity plans with cost reduction and capital spending avoidance initiatives in anticipation of the impact on liquidity arising from COVID-19. The Company believes its ability to generate cash from operations to reinvest in its business, primarily due to the long-term nature of its contracts, is one of its fundamental financial strengths. Combined with funds currently available and committed borrowing capacity, the Company expects to have sufficient liquidity to meet its financial obligations and working capital requirements in the ordinary course of business for at least the next 12 months from the date of issuance of these consolidated financial statements and the ability to maintain compliance with covenants under our borrowing facilities over the same period. Consequently, the Directors believe that the Company is well placed to manage its business risks successfully. Accordingly, we continue to adopt the going concern basis in preparing these Parent financial statements. Summary of 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 for investments in subsidiaries also applies to the Parent financial statements: Investments in subsidiaries are held at cost less accumulated impairment losses, if any. 3. Investments in Subsidiaries ($ thousands) International Game Technology Lottomatica Holding S.r.l. Other Country of December 31, Incorporation 2020 2019 United States 3,673,622 3,540,901 Italy 837,355 275,047 838,825 279,448 4,786,024 4,659,174 For a complete list of the Parent's subsidiaries, refer to Note 28, The Parent's Directly and Indirectly Owned Subsidiaries, in the notes to the consolidated financial statements included herein. Annual Report and Accounts 2020 Page | 169 4. Debt The principal balance of each debt obligation reconciles to the balance sheet is as follows: ($ thousands) 6.250% Senior Secured U.S. Dollar Notes due February 2022 4.750% Senior Secured Euro Notes due February 2023 3.500% Senior Secured Euro Notes due July 2024 Principal 1,000,001 1,043,035 613,550 6.500% Senior Secured U.S. Dollar Notes due February 2025 1,100,000 3.500% Senior Secured Euro Notes due June 2026 6.250% Senior Secured U.S. Dollar Notes due January 2027 2.375% Senior Secured Euro Notes due April 2028 5.250% Senior Secured U.S. Dollar Notes due January 2029 920,325 750,000 613,550 750,000 December 31, 2020 Debt issuance cost, net Swap and other Total (3,039) (4,983) (3,808) (8,359) (6,995) (5,845) (5,150) (6,875) 6,860 1,003,822 — — — — — — 1,038,052 609,742 1,091,641 913,330 744,155 608,400 743,125 Senior Secured Notes, long-term 6,790,461 (45,054) 6,860 6,752,267 Euro Term Loan Facility due January 2023 Euro Revolving Credit Facilities due July 2024 1 U.S. Dollar Revolving Credit Facilities due July 2024 1 Long-term debt, less current portion 1,055,306 (7,439) 8,343 1,056,210 — — — — — — — — 7,845,767 (52,493) 15,203 7,808,477 Euro Term Loan Facility due January 2023 Current portion of long-term debt 392,672 392,672 — — — — 392,672 392,672 Total Debt 8,238,439 (52,493) 15,203 8,201,149 (1) $12.3 million of debt issuance costs, net presented in other non-current assets Annual Report and Accounts 2020 Page | 170 ($ thousands) Principal December 31, 2019 Debt issuance cost, net Swap Total 6.250% Senior Secured U.S. Dollar Notes due February 2022 1,500,000 4.750% Senior Secured Euro Notes due February 2023 954,890 (8,199) (6,508) 3.500% Senior Secured Euro Notes due July 2024 561,700 (4,369) 6.500% Senior Secured U.S. Dollar Notes due February 2025 1,100,000 (10,041) 3.500% Senior Secured Euro Notes due June 2026 842,550 (7,445) 6.250% Senior Secured U.S. Dollar Notes due January 2027 2.375% Senior Secured Euro Notes due April 2028 750,000 561,700 (6,613) (5,297) (473) 1,491,328 — — — — — — 948,382 557,331 1,089,959 835,105 743,387 556,403 Senior Secured Notes, long-term 6,270,840 (48,472) (473) 6,221,895 Euro Term Loan Facility due January 2023 Euro Revolving Credit Facilities due July 2024 1 U.S. Dollar Revolving Credit Facilities due July 2024 1 Long-term debt, less current portion 1,325,612 (8,223) — — — — — — — 1,317,389 — — 7,596,452 (56,695) (473) 7,539,284 4.750% Senior Secured Euro Notes due March 2020 Current portion of long-term debt 435,767 435,767 (978) (978) — — 434,789 434,789 Total Debt 8,032,219 (57,673) (473) 7,974,073 (1) $17.9 million of debt issuance costs, net presented in other non-current assets Principal payments for each debt obligation, excluding short-term borrowings, for the next five years and thereafter are as follows: (thousands): Year 2021 2022 2023 2024 2025 2026 and thereafter Total principal payments U.S. Dollar Denominated Euro Denominated Total $ — $ 392,672 $ 392,672 1,000,001 — — 392,672 1,705,669 613,550 1,392,673 1,705,669 613,550 1,100,000 — 1,100,000 1,500,000 3,033,875 $ 3,600,001 $ 4,638,438 $ 8,238,439 1,533,875 For further information related to debt, refer to Note 17, Debt, in the notes to the consolidated financial statements included herein. 5. Income Taxes The provision for income taxes consists of: ($ thousands) Current: Withholding tax Current tax on profit for the year For the year ended December 31, 2020 2019 341 — 341 80 777 857 Annual Report and Accounts 2020 Page | 171 Income taxes paid, net of refunds, were $0.5 million and $3.0 million for 2020 and 2019, respectively. There were no deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019. The Parent is a tax resident in the United Kingdom ("U.K."). A reconciliation of the provision for income taxes, with the amount computed by applying the weighted average rate of the U.K. statutory main corporation tax rates enacted in each of the Parent's calendar year reporting periods to income before provision for income taxes is as follows: ($ thousands) (Loss) income before provision for income taxes United Kingdom statutory tax rate Statutory tax (benefit) expense Change in unrecognized deferred tax asset Non-deductible debt costs Unrealized foreign exchange Foreign withholding taxes Non-taxable dividend income Earnout investment adjustment Other Effective tax rate For the year ended December 31, 2020 (344,436) 2019 380,768 19.00 % 19.00 % (65,443) 72,346 46,155 24,365 14,386 341 (20,367) — 904 341 (584) — (3,744) 80 (67,187) (95) 41 857 (0.1) % 0.2 % The Parent's effective income tax rate was (0.1)% in 2020 compared to 0.2% in 2019. The principal drivers of the tax rate reduction is the level of pretax income/(loss) in 2020 versus 2019. 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, which include reductions to the main tax rate to 17% on April 1, 2020, have been superseded by the 2020 Finance Bill with the result that the UK corporate tax rate remains at 19% for 2020. Deferred taxes at the balance sheet date have been measured using the 19% enacted tax rate and are reflected in these financial statements. Net Operating Losses At December 31, 2020 and 2019, the Parent had gross tax loss carryforwards of $638.0 million and $394.0 million, respectively, that relate to the U.K. No deferred tax assets were recorded for these tax loss carryforwards as realization is not probable. These tax loss carryforwards may be carried forward indefinitely notwithstanding that they offset only 50% of taxable income (above a £5.0 million full allowance threshold) in a given year. 6. Leases The Parent has a lease for its registered office in London that is effective from March 25, 2015 to March 25, 2025 and a lease for another location in London that is utilized entirely by a subsidiary, which is effective from January 14, 2016 to January 13, 2026. Leasehold improvements made to the Parent's registered office in London are capitalized and depreciated from the date placed in service through March 25, 2025, in accordance with the Company's depreciation policy. Annual Report and Accounts 2020 Page | 172 The classification of our leases in the balance sheet are as follows: ($ thousands) Assets ROU asset, net (1) Total lease assets Liabilities Lease liability, current Lease liability, non-current Total lease liabilities Balance Sheet Classification Right-of-use assets Other current liabilities Lease liabilities December 31, 2020 December 31, 2019 9,300 9,300 10,952 10,952 2,388 9,133 11,521 2,240 11,173 13,413 (1) ROU assets are recorded net of accumulated amortization of $4.0 million and $1.9 million at December 31, 2020 and December 31, 2019, respectively. Maturities of lease liabilities at December 31, 2020 are as follows ($ thousands): Year 2021 2022 2023 2024 2025 Thereafter Total lease payments Less: Imputed interest Present value of lease liabilities 7. Stock-Based Compensation Total 2,727 2,727 2,727 2,727 1,493 — 12,401 (880) 11,521 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 new 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. 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 2020 or 2019. Annual Report and Accounts 2020 Page | 173 Stock Awards Stock awards are principally made in the form of performance share units ("PSUs") and restricted share units ("RSUs"). PSUs are stock awards where the number of shares ultimately received by the employee depends on the Company’s performance against specified targets, which may include Adjusted EBITDA, Adjusted Net Debt and Total Shareholder Return ("TSR") relative to the Russell Mid Cap Market Index. 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 or modification date, based on the Company’s stock price, adjusted for the exclusion of dividend equivalents, and assumes that performance targets will be achieved. Over the performance period, the number of shares of stock that will be issued is adjusted based upon the probability of achievement of performance targets. The ultimate number of shares issued and the related compensation cost recognized as expense is based on a comparison of the final performance metrics to the specified targets. In 2020, no PSUs were granted. RSUs are stock awards granted to directors that entitle the holder to shares of common stock as the award vests, typically over a one-year period, and have a contractual term of 10 years. Dividend equivalents are not paid under the Plan. In 2020, RSUs were also granted to employees, which will vest in approximately one- and two-year vesting periods. 8. Employee Information Employee Benefit Expense ($ thousands) Social security and other benefits Wages and salaries Stock-based compensation Incentive compensation For the year ended December 31, 2020 2019 5,563 2,015 1,817 (420) 8,975 5,265 1,784 6,905 4,255 18,209 The Parent had 10 and eight people employed in corporate support roles as of December 31, 2020 and 2019, respectively. 9. Auditors' Remuneration Aggregate fees for audit services rendered by PricewaterhouseCoopers LLP were $75,000 and $75,000 for the years ended December 31, 2020 and 2019, respectively. Audit services consist of professional services performed in connection with the Parent's annual financial statements. Annual Report and Accounts 2020 Page | 174 

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