6-K 1 igt-9302020xform6k10q.htm 6-K Document



 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of November 2020
 
Commission File Number 001-36906
 
INTERNATIONAL GAME TECHNOLOGY PLC
(Translation of registrant’s name into English)
 
66 Seymour Street, Second Floor
London, W1H 5BT
United Kingdom
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F x      Form 40-F  o
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
 
 
 



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TABLE OF CONTENTS

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PART I.     FINANCIAL INFORMATION

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

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International Game Technology PLC
Condensed Consolidated Balance Sheets
(Unaudited, $ thousands, except par value and number of shares)
 
 NotesSeptember 30, 2020December 31, 2019
Assets  
Current assets:  
Cash and cash equivalents943,346 662,934 
Restricted cash and cash equivalents196,252 231,317 
Trade and other receivables, net4828,459 1,006,127 
Inventories5183,220 161,790 
Other current assets556,607 571,869 
Total current assets2,707,884 2,634,037 
Systems, equipment and other assets related to contracts, net1,180,511 1,307,940 
Property, plant and equipment, net129,636 146,055 
Operating lease right-of-use assets332,121 341,538 
Goodwill5,188,657 5,451,494 
Intangible assets, net1,672,750 1,836,002 
Other non-current assets1,779,807 1,927,524 
Total non-current assets10,283,482 11,010,553 
Total assets12,991,366 13,644,590 
Liabilities and shareholders' equity  
Current liabilities:  
Accounts payable1,116,854 1,120,922 
Current portion of long-term debt6374,656 462,155 
Short-term borrowings63,193 
Other current liabilities1,006,658 882,081 
Total current liabilities2,498,172 2,468,351 
Long-term debt, less current portion67,821,723 7,600,169 
Deferred income taxes272,555 366,822 
Operating lease liabilities305,805 310,721 
Other non-current liabilities372,428 413,549 
Total non-current liabilities8,772,511 8,691,261 
Total liabilities11,270,683 11,159,612 
Commitments and contingencies7
Shareholders’ equity  
Common stock, par value $0.10 per share; 204,856,564 and 204,435,333 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively20,485 20,443 
Additional paid-in capital2,343,095 2,395,532 
Retained deficit(1,678,484)(1,020,238)
Accumulated other comprehensive income8279,054 262,525 
Total IGT PLC’s shareholders’ equity964,150 1,658,262 
Non-controlling interests756,533 826,716 
Total shareholders’ equity1,720,683 2,484,978 
Total liabilities and shareholders’ equity12,991,366 13,644,590 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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International Game Technology PLC
Condensed Consolidated Statements of Operations
(Unaudited, $ and shares in thousands, except per share amounts)
 
 For the three months ended
September 30,
For the nine months ended
September 30,
 Notes2020201920202019
Service revenue9880,133 921,712 2,223,772 2,892,774 
Product sales9101,377 231,535 335,417 639,642 
Total revenue9981,510 1,153,247 2,559,189 3,532,416 
Cost of services541,118 575,594 1,479,605 1,765,519 
Cost of product sales81,516 136,246 239,822 397,217 
Selling, general and administrative180,315 201,416 515,858 616,516 
Research and development48,039 68,804 140,111 200,305 
Restructuring10(98)16,152 46,955 21,853 
Goodwill impairment11— — 296,000 — 
Other operating expense (income), net2,118 1,153 3,721 (24,743)
Total operating expenses853,008 999,365 2,722,072 2,976,667 
Operating income (loss)9128,502 153,882 (162,883)555,749 
Interest expense, net6(101,023)(102,551)(297,284)(309,480)
Foreign exchange (loss) gain, net(149,403)124,068 (153,427)141,609 
Other (expense) income, net(7,031)(308)(39,791)22,687 
Total non-operating (expenses) income(257,457)21,209 (490,502)(145,184)
(Loss) income before (benefit from) provision for income taxes12(128,955)175,091 (653,385)410,565 
(Benefit from) provision for income taxes12(26,617)44,530 (34,806)160,522 
Net (loss) income(102,338)130,561 (618,579)250,043 
Less: Net income attributable to non-controlling interests25,652 26,998 37,315 101,370 
Net (loss) income attributable to IGT PLC13(127,990)103,563 (655,894)148,673 
Net (loss) income attributable to IGT PLC per common share - basic13(0.62)0.51 (3.20)0.73 
Net (loss) income attributable to IGT PLC per common share - diluted13(0.62)0.51 (3.20)0.73 
Weighted-average shares - basic13204,857 204,435 204,680 204,352 
Weighted-average shares - diluted13204,857 204,528 204,680 204,532 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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International Game Technology PLC
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited, $ thousands)
 
 For the three months ended
September 30,
For the nine months ended
September 30,
 Notes2020201920202019
Net (loss) income(102,338)130,561 (618,579)250,043 
Foreign currency translation adjustments, net of tax872,225 (76,885)40,712 (79,486)
Unrealized (loss) gain on hedges, net of tax8(152)654 1,448 771 
Unrealized (loss) gain on other, net of tax8(60)(936)(174)3,708 
Other comprehensive income (loss), net of tax872,013 (77,167)41,986 (75,007)
Comprehensive (loss) income (30,325)53,394 (576,593)175,036 
Less: Comprehensive income (loss) attributable to non-controlling interests55,678 (3,687)62,772 63,351 
Comprehensive (loss) income attributable to IGT PLC(86,003)57,081 (639,365)111,685 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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International Game Technology PLC
Condensed Consolidated Statements of Cash Flows
(Unaudited, $ thousands)
For the nine months ended September 30,
Notes20202019
Cash flows from operating activities  
Net (loss) income(618,579)250,043 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation300,826 315,291 
Goodwill impairment11296,000 — 
Amortization201,581 207,161 
Amortization of upfront license fees155,576 154,630 
Foreign exchange loss (gain), net153,427 (141,609)
Loss on extinguishment of debt628,267 11,964 
Debt issuance cost amortization15,748 17,004 
Loss (gain) on sale of assets455 (65,324)
Stock-based compensation(10,703)20,046 
Deferred income taxes(106,520)2,590 
Other non-cash items, net5,125 48,731 
Changes in operating assets and liabilities, excluding the effects of acquisitions:  
Trade and other receivables198,131 16,546 
Inventories(9,435)23,875 
Accounts payable(23,646)611 
Other assets and liabilities24,060 (72,854)
Net cash provided by operating activities610,313 788,705 
Cash flows from investing activities
Capital expenditures(225,847)(332,716)
Proceeds from sale of assets6,457 100,743 
Other12,437 6,126 
Net cash used in investing activities(206,953)(225,847)
Cash flows from financing activities  
Principal payments on long-term debt(959,275)(1,264,647)
Payments in connection with extinguishment of debt(25,000)(8,598)
Payments of debt issuance costs(21,479)(24,787)
Net payments of short-term borrowings(7,610)(34,519)
Proceeds from long-term debt895,896 1,397,025 
Net receipts from financial liabilities95,698 753 
Dividends paid(40,887)(122,616)
Dividends paid - non-controlling interests(135,892)(135,684)
Return of capital - non-controlling interests— (80,384)
Capital increase - non-controlling interests3,334 1,369 
Other(8,598)(7,798)
Net cash used in financing activities(203,813)(279,886)
Net increase in cash and cash equivalents and restricted cash and cash equivalents199,547 282,972 
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents45,800 (31,091)
Cash and cash equivalents and restricted cash and cash equivalents at the beginning of the period894,251 511,777 
Cash and cash equivalents and restricted cash and cash equivalents at the end of the period1,139,598 763,658 
Supplemental Cash Flow Information
Interest paid(372,127)(371,847)
Income taxes paid(59,432)(138,009)

The accompanying notes are an integral part of these condensed consolidated financial statements.
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International Game Technology PLC
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited, $ thousands)
Common
Stock
Additional
Paid-In
Capital
Retained
Deficit
Accumulated
Other
Comprehensive
Income
Total
IGT PLC
Equity
Non-
Controlling
Interests
Total
Equity
Balance at December 31, 201920,443 2,395,532 (1,020,238)262,525 1,658,262 826,716 2,484,978 
Net (loss) income— — (248,288)— (248,288)14,189 (234,099)
Other comprehensive loss, net of tax — — — (54,529)(54,529)(18,246)(72,775)
Total comprehensive loss — — (248,288)(54,529)(302,817)(4,057)(306,874)
Capital increase— — — — — 2,030 2,030 
Adoption of new accounting standards— — (2,355)— (2,355)— (2,355)
Stock-based compensation— (12,968)— — (12,968)— (12,968)
Dividends declared/paid— (40,887)— — (40,887)(15,558)(56,445)
Other— — — 
Balance at March 31, 202020,443 2,341,677 (1,270,880)207,996 1,299,236 809,136 2,108,372 
Net loss— — (279,616)— (279,616)(2,526)(282,142)
Other comprehensive income, net of tax — — — 29,071 29,071 13,677 42,748 
Total comprehensive (loss) income— — (279,616)29,071 (250,545)11,151 (239,394)
Capital increase— — — — — 1,640 1,640 
Stock-based compensation— 1,162 — — 1,162 — 1,162 
Shares issued under stock award plans42 (1,237)— — (1,195)— (1,195)
Dividends declared/paid— — — — — (76,456)(76,456)
Other— — (2)— (2)(1)
Balance at June 30, 202020,485 2,341,602 (1,550,498)237,067 1,048,656 745,472 1,794,128 
Net (loss) income— — (127,990)— (127,990)25,652 (102,338)
Other comprehensive income, net of tax (Note 8)— — — 41,987 41,987 30,026 72,013 
Total comprehensive (loss) income— — (127,990)41,987 (86,003)55,678 (30,325)
Stock-based compensation— 1,103 — — 1,103 — 1,103 
Capital increase— 390 — — 390 483 873 
Dividends declared/paid— — — — — (45,100)(45,100)
Other— — — — 
Balance at September 30, 202020,485 2,343,095 (1,678,484)279,054 964,150 756,533 1,720,683 


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Common
Stock
Additional
Paid-In
Capital
Retained
Deficit
Accumulated
Other
Comprehensive
Income
Total
IGT PLC
Equity
Non-
Controlling
Interests
Total
Equity
Balance at December 31, 201820,421 2,534,134 (1,008,193)261,537 1,807,899 944,030 2,751,929 
Net income— — 40,254 — 40,254 40,241 80,495 
Other comprehensive loss, net of tax— — — (6,827)(6,827)(16,213)(23,040)
Total comprehensive income (loss)— — 40,254 (6,827)33,427 24,028 57,455 
Stock-based compensation— 9,590 — — 9,590 — 9,590 
Capital increase— — — — — 333 333 
Return of capital— — — — — (28,888)(28,888)
Dividends declared/paid— (40,842)— — (40,842)(128,868)(169,710)
Other— — 86 — 86 4,167 4,253 
Balance at March 31, 201920,421 2,502,882 (967,853)254,710 1,810,160 814,802 2,624,962 
Net income— — 4,856 — 4,856 34,131 38,987 
Other comprehensive income, net of tax — — — 16,321 16,321 8,879 25,200 
Total comprehensive income — — 4,856 16,321 21,177 43,010 64,187 
Stock-based compensation— 2,912 — — 2,912 — 2,912 
Capital increase— — — — — 742 742 
Shares issued under stock award plans22 (1,617)— — (1,595)— (1,595)
Return of capital— — — — — (41,465)(41,465)
Dividends declared/paid— (40,887)— — (40,887)(706)(41,593)
Other— — (23)— (23)(1,987)(2,010)
Balance at June 30, 201920,443 2,463,290 (963,020)271,031 1,791,744 814,396 2,606,140 
Net income— — 103,563 — 103,563 26,998 130,561 
Other comprehensive loss, net of tax (Note 8)— — — (46,482)(46,482)(30,685)(77,167)
Total comprehensive income (loss)— — 103,563 (46,482)57,081 (3,687)53,394 
Stock-based compensation— 7,544 — — 7,544 — 7,544 
Capital increase— — — — — 294 294 
Return of capital— — — — — (10,005)(10,005)
Dividends declared/paid— (40,887)— — (40,887)(6,290)(47,177)
Other— — 6,917 — 6,917 (64)6,853 
Balance at September 30, 201920,443 2,429,947 (852,540)224,549 1,822,399 794,644 2,617,043 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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International Game Technology PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
 
1.    Description of the 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.
 
2.    Summary of Significant Accounting Policies
 
Basis of Preparation

The accompanying condensed consolidated financial statements and notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these interim financial statements do not include all of the information and note disclosures required by GAAP for complete financial statements, but reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the interim period results. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2019 Form 20-F.

The condensed consolidated financial statements are stated in thousands of U.S. dollars (except share and per share data) unless otherwise indicated. We have reclassified certain prior period amounts to align with the current period presentation and recast certain prior period amounts, as discussed below. All references to “U.S. dollars,” “U.S. dollar,” “USD,” and “$” refer to the currency of the United States of America. All references to “euro,” “EUR,” and “€” refer to the currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended.

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, beginning in the third quarter of 2020, we report our financial performance based on our new business segments described in Note 9 – 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 change primarily impacted Note 4 - Receivables, Note 9 – Segment Information, Note 10 - Restructuring Expense, and Note 11 - Goodwill, with no impact on consolidated revenue, net income, or cash flows.

Use of Estimates
 
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that may 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. 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 COVID-19, 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.

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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 condensed 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 September 30, 2020, and borrowing capacity under our amended Revolving Credit Facilities due July 2024 as described in Note 6, 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.

Significant Accounting Policies

There have been no material changes to our significant accounting policies described in Note 2 of our 2019 Form 20-F other than the allowance for credit losses policy, as described below, due to the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and amendments.

Allowance for Credit Losses

We maintain an allowance for credit losses on receivables resulting from the expected failure or inability of our customers to make required payments. The allowance is regularly reviewed by considering factors such as the creditworthiness of our customers, historical experience, aging of receivables, and current market and economic conditions, as well as management’s expectations of future conditions when appropriate. The allowance is deducted from the amortized cost basis of the receivable to present the net amount expected to be collected.

We estimate expected credit losses on receivables on a collective (pool) basis when similar risk characteristics exist. Trade and other receivables and customer financing receivables represent the initial pools which are segregated further by business segment, geography, internal risk rating, and aging. The risk of loss is assessed over the contractual life of the receivables and we adjust historical loss rates for current and future conditions based on qualitative considerations. The expected loss rate for each receivable pool is applied to the aggregate receivable balance to determine the allowance requirement. Receivables are written off against the allowance in the period they are determined to be uncollectible.

We determine delinquency based on the contractual payment terms. An account may be considered delinquent if there are unpaid balances remaining on the account the day after the contractual due date.

For amounts due from U.S. and Canadian government customers, 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.

New Accounting Standards - Recently Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). In 2018, 2019, and 2020, the FASB amended ASU 2016-13. ASU 2016-13 and subsequent amendments (collectively “ASC 326”) replace the incurred loss impairment methodology in prior GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, we are required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.

We adopted ASC 326 as of January 1, 2020 using the modified retrospective approach, which resulted in a cumulative effect adjustment to retained deficit upon adoption with no restatement of prior periods. The adoption did not have a material impact on our condensed consolidated financial statements.

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In April 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-04, Codification improvements to Topic 326, Financial instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”). This update clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01 respectively). We adopted ASU 2019-04 in the first quarter of 2020 and applied it prospectively. The adoption did not have a material impact on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which provides guidance around disclosure requirements for fair value measurement of investments. We adopted ASU 2018-03 in the first quarter of 2020 and applied its provisions prospectively and retrospectively in accordance with the guidance. The adoption did not have a material impact on our condensed consolidated financial statements.

New Accounting Standards - Not Yet Adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) (“ASU 2020-06”). This update simplifies the convertible debt accounting framework by reducing the number of accounting models used to account for convertible debt and preferred stock instruments. It also amends the accounting for certain contracts in an entity's own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies the diluted earnings per share calculations for convertible debt instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the timing and impact of adopting this guidance.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective as of March 12, 2020 through December 31, 2022. We are currently evaluating these optional elections and the timing and impact of adopting this guidance.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This update provides, among other things, simplifications for accounting for income taxes by removing certain exceptions. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. We will adopt ASU 2019-12 upon the effective date and do not expect it to have a material impact upon adoption.

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

3.    Revenue Recognition

Contract Balances
 
Information about receivables, contract assets, and contract liabilities is as follows: 
($ thousands) September 30, 2020December 31, 2019Balance Sheet Classification
Receivables, net  828,459 1,006,127 Trade and other receivables, net
Contract assets: 
Current55,814 47,499 Other current assets
Non-current87,385 76,188 Other non-current assets
143,199 123,687 
 
Contract liabilities: 
Current(94,146)(67,816)Other current liabilities
Non-current(48,193)(65,855)Other non-current liabilities
(142,339)(133,671)
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The amount of revenue recognized during the three and nine months ended September 30, 2020 that was included in the contract liabilities balance at December 31, 2019 was $7.4 million and $42.0 million, respectively. The amount of revenue recognized during the three and nine months ended September 30, 2019 that was included in the contract liabilities balance at December 31, 2018 was $7.7 million and $42.1 million, respectively.

Transaction Price Allocated to Remaining Performance Obligations

At September 30, 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 $982.8 million. Of this amount, we expect to recognize as revenue approximately 19% within the next 12 months, approximately 29% between 13 and 36 months, approximately 25% between 37 and 60 months, and the remaining balance through December 31, 2031.

4.    Receivables

Trade and Other Receivables

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 in 90 days or less.

($ thousands)September 30, 2020December 31, 2019
Trade and other receivables, gross879,520 1,057,489 
Allowance for credit losses (51,061)(51,362)
Trade and other receivables, net828,459 1,006,127 

The following table presents the activity in the allowance for credit losses:

($ thousands)September 30, 2020December 31, 2019
Balance at beginning of period(51,362)(59,424)
(Provisions) recoveries, net(11,357)2,920 
Amounts written off as uncollectible9,748 4,119 
Foreign currency translation(1,545)729 
Other (1)
3,455 294 
Balance at end of period(51,061)(51,362)
(1) Includes the adoption of ASC 326 as of January 1, 2020

We enter into various factoring agreements with third-party financial institutions to sell certain of our trade receivables. We factored trade receivables of $1,202.4 million and $2,629.4 million during the nine months ended September 30, 2020 and year ended December 31, 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 condensed consolidated statements 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 September 30, 2020 and December 31, 2019, we had $136.0 million and $50.2 million, respectively, that was collected on behalf of the financial institutions and recorded as other current liabilities in the condensed consolidated balance sheets. The net cash flows relating to these collections are reported as financing activities in the condensed consolidated statements of cash flows.

Customer Financing Receivables

Customers' payment terms for customer financing receivables are confirmed with a written financing 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. Customer financing interest income is recognized based on market rates prevailing at issuance.
13

Customer financing receivables are recorded at amortized cost, net of any allowance for credit losses, and are classified in the condensed consolidated balance sheets as follows:
September 30, 2020
($ thousands)Current AssetsNon-Current AssetsTotal
Customer financing receivables, gross268,768 88,483 357,251 
Allowance for credit losses (27,569)(11,300)(38,869)
Customer financing receivables, net241,199 77,183 318,382 

December 31, 2019
($ thousands)Current AssetsNon-Current AssetsTotal
Customer financing receivables, gross255,221 125,542 380,763 
Allowance for credit losses (28,242)(3,418)(31,660)
Customer financing receivables, net226,979 122,124 349,103 

The following table presents the activity in the allowance for credit losses:

($ thousands)September 30, 2020December 31, 2019
Balance at beginning of period(31,660)(29,209)
Provisions, net(24,405)(2,477)
Amounts written off as uncollectible21,391 11 
Foreign currency translation2,218 15 
Other (1)
(6,413)— 
Balance at end of period(38,869)(31,660)
(1) Includes the adoption of ASC 326 as of January 1, 2020

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. Within the Global Gaming business segment, North America customers have different risk profiles and are pooled separately from the Europe, Middle East and Africa (“EMEA”), Asia Pacific (“APAC”), and Latin America and the Caribbean (“LAC”) regions.

The balance and past due status of customer financing receivables at amortized cost based on the geography credit quality indicator at September 30, 2020 is as follows:
September 30, 2020
($ thousands)North AmericaEMEA, APAC, and LAC
Short-term portion not yet due43,724 104,954 
Long-term portion not yet due18,450 70,033 
Past due7,508 112,582 
Customer financing receivables at amortized cost (1)
69,682 287,569 
(1) At September 30, 2020, 45% and 55% of our North America customer financing receivables originated in the years 2020 and 2019, respectively. For EMEA, APAC, and LAC, 24%, 53%, and 13% originated in the years 2020, 2019, and 2018, respectively, with the remaining 10% in prior years

5.    Inventories

($ thousands)September 30, 2020December 31, 2019
Raw materials90,691 86,877 
Work in progress29,396 11,663 
Finished goods105,572 96,895 
Inventories, gross225,659 195,435 
Obsolescence reserve(42,439)(33,645)
Inventories, net183,220 161,790 
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The following table presents the activity in the obsolescence reserve:

($ thousands)September 30, 2020December 31, 2019
Balance at beginning of period(33,645)(39,885)
Provisions, net(26,849)(28,970)
Amounts written off14,469 23,375 
Foreign currency translation648 (130)
Other2,938 11,965 
Balance at end of period(42,439)(33,645)

6.    Debt
 
The principal balance of each debt obligation reconciles to the condensed consolidated balance sheets as follows:

September 30, 2020
($ thousands)PrincipalDebt issuance
cost, net
PremiumSwapTotal
6.250% Senior Secured U.S. Dollar Notes due February 20221,000,001 (3,660)— 8,321 1,004,662 
4.750% Senior Secured Euro Notes due February 2023995,180 (5,271)— — 989,909 
5.350% Senior Secured U.S. Dollar Notes due October 202360,567 — 244 — 60,811 
3.500% Senior Secured Euro Notes due July 2024585,400 (3,866)— — 581,534 
6.500% Senior Secured U.S. Dollar Notes due February 20251,100,000 (8,790)— — 1,091,210 
3.500% Senior Secured Euro Notes due June 2026878,100 (6,949)— — 871,151 
6.250% Senior Secured U.S. Dollar Notes due January 2027750,000 (6,042)— — 743,958 
2.375% Senior Secured Euro Notes due April 2028585,400 (5,067)— — 580,333 
5.250% Senior Secured U.S. Dollar Notes due January 2029750,000 (6,996)— — 743,004 
Senior Secured Notes6,704,648 (46,641)244 8,321 6,666,572 
Euro Term Loan Facility due January 20231,006,888 (12,053)— — 994,835 
U.S. Dollar Revolving Credit Facility A due July 2024175,000 (14,684)— — 160,316 
Euro Revolving Credit Facility B due July 2024(1)
— — — — — 
Long-term debt, less current portion7,886,536 (73,378)244 8,321 7,821,723 
Euro Term Loan Facility due January 2023374,656 — — — 374,656 
Current portion of long-term debt374,656 — — — 374,656 
Short-term borrowings— — — 
Total debt8,261,196 (73,378)244 8,321 8,196,383 
(1) $10.4 million of debt issuance costs, net presented in other non-current assets
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December 31, 2019
($ thousands)PrincipalDebt issuance
cost, net
PremiumSwapTotal
6.250% Senior Secured U.S. Dollar Notes due February 20221,500,000 (8,199)— (473)1,491,328 
4.750% Senior Secured Euro Notes due February 2023954,890 (6,508)— — 948,382 
5.350% Senior Secured U.S. Dollar Notes due October 202360,567 — 318 — 60,885 
3.500% Senior Secured Euro Notes due July 2024561,700 (4,369)— — 557,331 
6.500% Senior Secured U.S. Dollar Notes due February 20251,100,000 (10,041)— — 1,089,959 
3.500% Senior Secured Euro Notes due June 2026842,550 (7,445)— — 835,105 
6.250% Senior Secured U.S. Dollar Notes due January 2027750,000 (6,613)— — 743,387 
2.375% Senior Secured Euro Notes due April 2028561,700 (5,297)— — 556,403 
Senior Secured Notes6,331,407 (48,472)318 (473)6,282,780 
Euro Term Loan Facility due January 20231,325,612 (8,223)— — 1,317,389 
U.S. Dollar Revolving Credit Facility A due July 2024 (1)
— — — — — 
Euro Revolving Credit Facility B due July 2024 (1)
— — — — — 
Long-term debt, less current portion7,657,019 (56,695)318 (473)7,600,169 
4.750% Senior Secured Euro Notes due March 2020435,767 (978)— — 434,789 
5.500% Senior Secured U.S. Dollar Notes due June 202027,311 — 74 (19)27,366 
Current portion of long-term debt463,078 (978)74 (19)462,155 
Short-term borrowings3,193 — — — 3,193 
Total debt8,123,290 (57,673)392 (492)8,065,517 
(1) $20.5 million of debt issuance costs, net presented in other non-current assets
  
The principal amount of long-term debt maturing over the next five years and thereafter as of September 30, 2020 is as follows ($ thousands):
YearU.S. Dollar DenominatedEuro DenominatedTotal
2021— 374,656 374,656 
20221,000,001 374,656 1,374,657 
202360,567 1,627,412 1,687,979 
2024175,000 585,400 760,400 
20251,100,000 — 1,100,000 
2026 and thereafter1,500,000 1,463,500 2,963,500 
Total principal amounts3,835,568 4,425,624 8,261,192 

At September 30, 2020 and December 31, 2019, we were in compliance with all covenants under our debt agreements.

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 condensed consolidated statement of operations for the nine months ended September 30, 2020.

Interest on the 5.250% Notes is payable semi-annually in arrears.
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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.

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%.

17

Fair Value of Debt

Debt is categorized within Level 2 of the fair value hierarchy. Senior Secured Notes are valued using quoted market prices or dealer quotes for the identical financial instrument when traded as an asset in markets that are not active. All other debt is valued using current interest rates, excluding the effect of debt issuance costs.

($ thousands)September 30, 2020December 31, 2019
Carrying value (1)
8,188,058 8,062,816 
Fair value (1)
8,285,903 8,589,939 
(1) Excludes short-term borrowings and swap adjustments

Interest Expense, Net
 For the three months ended September 30,For the nine months ended September 30,
($ thousands)2020201920202019
Senior Secured Notes(86,224)(87,863)(258,340)(260,389)
Term Loan Facilities(10,254)(9,646)(26,309)(28,601)
Revolving Credit Facilities(8,741)(5,583)(25,007)(23,690)
Other(343)(3,785)462 (6,785)
Interest expense(105,562)(106,877)(309,194)(319,465)
Interest income4,539 4,326 11,910 9,985 
Interest expense, net(101,023)(102,551)(297,284)(309,480)

7.     Commitments and Contingencies

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. The following matters were described in Note 16 within the Company's 2019 Form 20-F.

Texas Fun 5’s Instant Ticket Game

Five lawsuits have been filed against IGT Global Solutions Corporation (f/k/a GTECH Corporation) in Texas state court arising out of the Fun 5’s instant ticket game sold by the Texas Lottery Commission (“TLC”) from September 14, 2014 to October 21, 2014. Plaintiffs allege each ticket’s instruction for Game 5 provided a 5x win (five times the prize box amount) any time the “Money Bag” symbol was revealed in the “5X BOX”. However, TLC awarded a 5x win only when (1) the “Money Bag” symbol was revealed and (2) three symbols in a pattern were revealed.

(a)Steele, James et al. v. GTECH Corp., filed on December 9, 2014, in Travis County (No. D1GN145114). Through intervenor actions, over 1,200 plaintiffs claim damages in excess of $500.0 million. GTECH Corporation’s plea to the jurisdiction for dismissal based on sovereign immunity was denied. GTECH Corporation appealed. The appellate court ordered that plaintiffs' sole remaining claim should be reconsidered.
(b)Nettles, Dawn v. GTECH Corp. et al., filed on January 7, 2015, in Dallas County (No. 051501559CV). Plaintiff claims damages in excess of $4.0 million. GTECH Corporation and the TLC won pleas to the jurisdiction for dismissal based on sovereign immunity. Plaintiff lost her appeal and petitioned for Texas Supreme Court review. On April 27, 2018, IGT Global Solutions Corporation petitioned 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.
(c)Guerra, Esmeralda v. GTECH Corp. et al., filed on June 10, 2016, in Hidalgo County (No. C277716B). Plaintiff claims damages in excess of $0.5 million.
18

(d)Wiggins, Mario & Kimberly v. IGT Global Solutions Corp., filed on September 15, 2016, in Travis County (No. D1GN16004344). Plaintiffs claim damages in excess of $1.0 million.
(e)Campos, Osvaldo Guadalupe et al. v. GTECH Corp., filed on October 20, 2016, in Travis County (No. D1GN16005300). Plaintiffs claim damages in excess of $1.0 million.

We dispute the claims made in each of these cases and continue to defend against these lawsuits.

Disposition of Previously Disclosed Matters

Illinois State Lottery

On February 2, 2017, putative class representatives of retailers and lottery ticket purchasers alleged the Illinois Lottery collected millions of dollars from sales of instant ticket games and wrongfully ended certain games before all top prizes had been sold. Raqqa, Inc. et al. v. Northstar Lottery Group, LLC, was filed in Illinois state court, St. Clair County (No. 17L51) against Northstar Lottery Group LLC, a consortium in which the Parent indirectly holds an 80% controlling interest. The claims 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 and the case was dismissed in September 2020.

8.    Shareholders' Equity

Accumulated Other Comprehensive Income (“AOCI”)

The following tables detail the changes in AOCI:
For the three months ended September 30, 2020
Unrealized Gain (Loss) on:AOCI
($ thousands)Foreign
Currency
Translation
HedgesOtherTotalAttributable 
to non-controlling
interests
Attributable 
to IGT PLC
Balance at June 30, 2020199,322 (6,609)3,939 196,652 40,415 237,067 
Change during period72,225 (228)(60)71,937 (30,026)41,911 
Reclassified to operations (1)
— 26 — 26 — 26 
Tax effect— 50 — 50 — 50 
OCI72,225 (152)(60)72,013 (30,026)41,987 
Balance at September 30, 2020271,547 (6,761)3,879 268,665 10,389 279,054 

For the three months ended September 30, 2019
Unrealized Gain (Loss) on:AOCI
($ thousands)Foreign
Currency
Translation
HedgesOtherTotalAttributable 
to non-controlling
interests
Attributable 
to IGT PLC
Balance at June 30, 2019244,761 (6,641)5,637 243,757 27,274 271,031 
Change during period(76,885)1,758 (935)(76,062)30,685 (45,377)
Reclassified to operations (1)
— (1,026)— (1,026)— (1,026)
Tax effect— (78)(1)(79)— (79)
OCI(76,885)654 (936)(77,167)30,685 (46,482)
Balance at September 30, 2019167,876 (5,987)4,701 166,590 57,959 224,549 
(1) Unrealized gain (loss) on hedges were reclassified into service revenue in the condensed consolidated statements of operations for the three months ended September 30, 2020 and 2019

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For the nine months ended September 30, 2020
Unrealized Gain (Loss) on:AOCI
($ thousands)Foreign
Currency
Translation
HedgesOtherTotalAttributable 
to non-controlling
interests
Attributable 
to IGT PLC
Balance at December 31, 2019230,835 (8,209)4,053 226,679 35,846 262,525 
Change during period40,712 1,856 (174)42,394 (25,457)16,937 
Reclassified to operations (1)
— (443)— (443)— (443)
Tax effect— 35 — 35 — 35 
OCI40,712 1,448 (174)41,986 (25,457)16,529 
Balance at September 30, 2020271,547 (6,761)3,879 268,665 10,389 279,054 

For the nine months ended September 30, 2019
Unrealized Gain (Loss) on:AOCI
($ thousands)Foreign
Currency
Translation
HedgesOtherTotalAttributable 
to non-controlling
interests
Attributable 
to IGT PLC
Balance at December 31, 2018247,362 (6,758)993 241,597 19,940 261,537 
Change during period(79,440)2,630 3,712 (73,098)38,019 (35,079)
Reclassified to operations (1)
(46)(1,758)— (1,804)— (1,804)
Tax effect— (101)(4)(105)— (105)
OCI(79,486)771 3,708 (75,007)38,019 (36,988)
Balance at September 30, 2019167,876 (5,987)4,701 166,590 57,959 224,549 
(1) Unrealized gain (loss) on hedges were reclassified into service revenue in the condensed consolidated statements of operations for the nine months ended September 30, 2020 and 2019

9.    Segment 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 requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. This resulted in a change in our operating segments and reporting units. As a result, beginning in the third quarter of 2020, we report our financial performance based on our two 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.

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Global Lottery

Our Global Lottery segment provides lottery products and services primarily to governmental organizations through operating contracts, facilities management contracts (“FMCs”), lottery management agreements (“LMAs”), and product sales contracts.

As part of our lottery product and services, we provide instant and draw-based lottery products, point-of-sale machines, central processing systems, software, commercial services, instant ticket printing services, and other related equipment and support services.

We categorize revenue from operating contracts, FMCs, and LMAs as “Operating and facilities management contracts” and revenue from commercial services, software hosting, software maintenance, and other services not included within operating contracts, FMCs, or LMAs as service revenue from “Systems, software, and other”. Revenue included within “Operating and facilities management contracts” include all services required by the contract, including iLottery and instant ticket printing.

We categorize sales or sales-type leases of lottery terminals, lottery systems, software licenses, and instant tickets not part of “Operating and facilities management contracts” as product sales from “Lottery products”.

Global Gaming

Our Global Gaming segment provides gaming products and services including software and game content, casino gaming management systems, video lottery terminals (“VLTs”), amusement with prize machines (“AWPs”), VLT central systems, sports betting, iGaming, and other related equipment and support services to commercial and tribal casino operators.

We categorize revenue from Wide Area Progressive services, and operating leases for VLTs, AWPs, and other gaming machines as service revenue from “Gaming terminal services.” We categorize revenue from iGaming services, sports betting, software intellectual property licenses, and systems as service revenue from “Systems, software, and other”.

Revenue from the sale or sales-type lease of gaming machines, systems, component parts, and other miscellaneous equipment and services are categorized as product sales from “Gaming terminals” and revenue from systems, software, casino gaming management systems, game content, iGaming products, and spare parts as product sales from “Gaming other”.

Segment revenue and operating income (loss) is as follows:
For the three months ended September 30, 2020
($ thousands)Global LotteryGlobal GamingBusiness Segment TotalCorporate and OtherTotal IGT PLC
Operating and facilities management contracts473,796 — 473,796 — 473,796 
Gaming terminal services— 192,769 192,769 — 192,769 
Systems, software, and other75,539 138,029 213,568 — 213,568 
Service revenue549,335 330,798 880,133 — 880,133 
Lottery products20,295 — 20,295 — 20,295 
Gaming terminals— 49,431 49,431 — 49,431 
Gaming other— 31,651 31,651 — 31,651 
Product sales20,295 81,082 101,377 — 101,377 
Total revenue569,630 411,880 981,510 — 981,510 
Operating income (loss) 195,766 (7,550)188,216 (59,714)128,502 
Depreciation and amortization113,403 66,185 179,588 42,843 222,431 
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For the three months ended September 30, 2019
($ thousands)Global LotteryGlobal GamingBusiness Segment TotalCorporate and OtherTotal IGT PLC
Operating and facilities management contracts453,880 — 453,880 — 453,880 
Gaming terminal services— 276,381 276,381 — 276,381 
Systems, software, and other65,803 125,648 191,451 — 191,451 
Service revenue519,683 402,029 921,712 — 921,712 
Lottery products32,523 — 32,523 — 32,523 
Gaming terminals— 139,105 139,105 — 139,105 
Gaming other— 59,907 59,907 — 59,907 
Product sales32,523 199,012 231,535 — 231,535 
Total revenue552,206 601,041 1,153,247 — 1,153,247 
Operating income (loss)160,820 68,025 228,845 (74,963)153,882 
Depreciation and amortization107,637 69,575 177,212 49,463 226,675 

For the nine months ended September 30, 2020
($ thousands)Global LotteryGlobal GamingBusiness Segment TotalCorporate and OtherTotal IGT PLC
Operating and facilities management contracts1,247,158 — 1,247,158 — 1,247,158 
Gaming terminal services— 410,385 410,385 — 410,385 
Systems, software, and other212,335 353,894 566,229 — 566,229 
Service revenue1,459,493 764,279 2,223,772 — 2,223,772 
Lottery products74,389 — 74,389 — 74,389 
Gaming terminals— 146,060 146,060 — 146,060 
Gaming other— 114,968 114,968 — 114,968 
Product sales74,389 261,028 335,417 — 335,417 
Total revenue1,533,882 1,025,307 2,559,189 — 2,559,189 
Operating income (loss)446,965 (124,787)322,178 (485,061)(162,883)
Depreciation and amortization324,637 199,396 524,033 133,950 657,983 

For the nine months ended September 30, 2019
($ thousands)Global LotteryGlobal GamingBusiness Segment TotalCorporate and OtherTotal IGT PLC
Operating and facilities management contracts1,452,138 — 1,452,138 — 1,452,138 
Gaming terminal services— 829,853 829,853 — 829,853 
Systems, software, and other186,672 424,111 610,783 — 610,783 
Service revenue1,638,810 1,253,964 2,892,774 — 2,892,774 
Lottery products86,354 — 86,354 — 86,354 
Gaming terminals— 392,930 392,930 — 392,930 
Gaming other— 160,358 160,358 — 160,358 
Product sales86,354 553,288 639,642 — 639,642 
Total revenue1,725,164 1,807,252 3,532,416 — 3,532,416 
Operating income (loss)542,913 239,940 782,853 (227,104)555,749 
Depreciation and amortization320,265 208,580 528,845 148,237 677,082 


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10.    Restructuring Expense

During 2020, we initiated three restructuring plans as described below and during 2019, we expanded existing restructuring plans initiated in the prior year. 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 9 – 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 fourth quarter of 2020. We did not incur any significant severance and related employee costs during the three months ended September 30, 2020. We incurred $16.2 million in severance and related employee costs during the nine months ended September 30, 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 nine months ended September 30, 2020:
($ thousands)Severance and Related Employee Costs
Balance at beginning of period— 
Restructuring expense, net16,208 
Cash payments(7,612)
Other adjustments, net259 
Balance at end of period8,855 

2020 Global Supply Chain Optimization
During the first quarter of 2020, we initiated a restructuring plan to optimize our global supply chain and footprint resulting in a significant reduction to our primary manufacturing operations. We will utilize contract manufacturers that are worldwide experts in manufacturing and excel at sourcing and assembly activities. We intend to utilize these third-party contract manufacturers to reduce costs and achieve efficiencies in fulfilling future demand for our products.

We expect to incur up to $16 million in total costs under this plan, comprised of approximately $5 million in severance and related employee costs, up to $8 million in asset impairment costs, and approximately $3 million in other costs. The plan is expected to be substantially completed by the end of the first quarter of 2021. We did not incur any restructuring expenses during the three months ended September 30, 2020. The following table summarizes restructuring expense during the nine months ended September 30, 2020 under this plan by type of cost:
($ thousands)For the nine months ended September 30, 2020
Severance and related employee costs5,125 
Asset impairment costs (1)
460 
Other3,116 
Total (2)
8,701 
(1) The offset is Property, plant and equipment, net in the condensed consolidated balance sheet at September 30, 2020
(2) Primarily incurred in the Global Gaming segment

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Rollforward of Restructuring Liability

The following table presents the activity in the restructuring liability under this plan for the nine months ended September 30, 2020:
($ thousands)Severance and Related Employee CostsOther CostsTotal
Balance at beginning of period— — — 
Restructuring expense, net5,125 3,116 8,241 
Cash payments(3,632)(1,916)(5,548)
Balance at end of period1,493 1,200 2,693 

2020 Technology Organization Consolidation
During the second quarter of 2020, we initiated a restructuring plan to realign and consolidate operations, reduce costs, and improve operational efficiencies within our Technology group. We expect to incur approximately $21 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 did not incur any severance and related employee costs during the three months ended September 30, 2020. We incurred $20.0 million in severance and related employee costs during the nine months ended September 30, 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 nine months ended September 30, 2020:
($ thousands)Severance and Related Employee Costs
Balance at beginning of period— 
Restructuring expense, net20,026 
Cash payments(2,073)
Balance at end of period17,953 

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Restructuring Expense

The following table summarizes consolidated restructuring expense by segment and type of cost:
For the three months ended September 30, 2020
($ thousands)Severance & related employee costsAsset impairment costsOtherTotal
Global Lottery(52)— — (52)
Global Gaming85 — (513)(428)
Corporate and Other385 — (3)382 
Total418 — (516)(98)
For the three months ended September 30, 2019
($ thousands)Severance & related employee costsAsset impairment costsOtherTotal
Global Lottery209 — 211 
Global Gaming548 15,500 235 16,283 
Corporate and Other(1,204)— 862 (342)
Total(447)15,500 1,099 16,152 
For the nine months ended September 30, 2020
($ thousands)Severance & related employee costsAsset impairment costsOtherTotal
Global Lottery5,332 — — 5,332 
Global Gaming32,326 460 2,644 35,430 
Corporate and Other6,227 — (34)6,193 
Total43,885 460 2,610 46,955 
For the nine months ended September 30, 2019
($ thousands)Severance & related employee costsAsset impairment costsOtherTotal
Global Lottery998 — 1,003 
Global Gaming1,817 15,500 (359)16,958 
Corporate and Other1,573 — 2,319 3,892 
Total4,388 15,500 1,965 21,853 

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11.     Goodwill

As discussed in Note 9 – 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 reporting units. Prior to this change, we had four reporting units: North America Gaming and Interactive, North America Lottery, International, and Italy.

During the first quarter of 2020, we determined there was an interim goodwill impairment triggering event caused by COVID-19. As a result of the identified triggering event, we estimated the fair value of each of our former reporting units using an income approach based on projected discounted cash flows. Based principally on lower forecasted revenue and operating profits caused by lower demand for our commercial gaming products, we recorded a $296.0 million non-cash impairment loss with no income tax benefit, of which $193.0 million and $103.0 million was recorded within our former International and North America Gaming reporting units, respectively, to reduce the carrying amount of the reporting units to fair value. Management determined there was no goodwill impairment within our former North America Lottery and Italy reporting units.

As a result of the change in reporting units, at July 1, 2020, we allocated goodwill to our new reporting units using a relative fair value approach. The goodwill allocated to the new Global Lottery and Global Gaming reporting units was $2,942.2 million and $2,208.7 million, respectively, and the estimated fair values were determined to exceed the carrying values, which indicated no impairment existed. In addition, we completed an assessment for any potential goodwill impairment for all the former reporting units immediately prior to the reallocation and determined that no impairment existed.

Our assessment of goodwill for impairment includes various inputs, including forecasted revenue, forecasted operating profits, terminal growth rates, and weighted-average costs of capital. The projected cash flows used in calculating the fair value of our reporting units, using the income approach, considered historical and estimated future results and general economic and market conditions, as well as the impact of planned business and operational strategies.

12.    Income Taxes
 For the three months ended September 30,For the nine months ended September 30,
($ thousands, except percentages)2020201920202019
(Benefit from) provision for income taxes(26,617)44,530 (34,806)160,522 
(Loss) income before (benefit from) provision for income taxes(128,955)175,091 (653,385)410,565 
Effective income tax rate (determined using an estimated annual effective tax rate)20.6 %25.4 %5.3