6-K 1 igt-3312021xform6k10q.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 May 2021
 
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, $ in millions and shares in thousands, except per share amounts)
 
 NotesMarch 31, 2021December 31, 2020
Assets  
Current assets:  
Cash and cash equivalents748 907 
Restricted cash and cash equivalents184 199 
Trade and other receivables, net5912 846 
Inventories6167 169 
Other current assets489 480 
Assets held for sale3808 839 
Total current assets3,308 3,440 
Systems, equipment and other assets related to contracts, net1,018 1,068 
Property, plant and equipment, net128 132 
Operating lease right-of-use assets274 288 
Goodwill4,679 4,713 
Intangible assets, net1,531 1,577 
Other non-current assets1,622 1,774 
Total non-current assets9,252 9,552 
Total assets12,560 12,992 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable1,201 1,126 
Current portion of long-term debt7375 393 
Other current liabilities804 847 
Liabilities held for sale3174 250 
Total current liabilities2,554 2,615 
Long-term debt, less current portion77,441 7,857 
Deferred income taxes430 333 
Operating lease liabilities256 266 
Other non-current liabilities330 360 
Total non-current liabilities8,458 8,816 
Total liabilities11,012 11,431 
Commitments and contingencies8
Shareholders’ equity
Common stock, par value $0.10 per share; 204,857 shares issued and outstanding at March 31, 2021 and December 31, 202020 20 
Additional paid-in capital2,351 2,347 
Retained deficit(1,829)(1,920)
Accumulated other comprehensive income9292 330 
Total IGT PLC’s shareholders’ equity835 777 
Non-controlling interests714 784 
Total shareholders’ equity1,548 1,561 
Total liabilities and shareholders’ equity12,560 12,992 

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, $ in millions and shares in thousands, except per share amounts)
 
 For the three months ended
March 31,
 Notes20212020
Service revenue10901 656 
Product sales10114 158 
Total revenue101,015 814 
Cost of services441 415 
Cost of product sales73 92 
Selling, general and administrative186 164 
Research and development55 61 
Goodwill impairment11— 296 
Restructuring12— 
Total operating expenses755 1,032 
Operating income (loss)10260 (218)
Interest expense, net794 100 
Foreign exchange gain, net(145)(70)
Other expense, net25 — 
Total non-operating (income) expenses(27)30 
Income (loss) from continuing operations before provision for (benefit from) income taxes13287 (248)
Provision for (benefit from) income taxes13148 (1)
Income (loss) from continuing operations138 (247)
Income from discontinued operations, net of tax311 13 
Net income (loss)149 (234)
Less: Net income attributable to non-controlling interests from continuing operations59 15 
Less: Net loss attributable to non-controlling interests from discontinued operations3(2)(1)
Net income (loss) attributable to IGT PLC1492 (248)
Net income (loss) from continuing operations attributable to IGT PLC per common share - basic140.39 (1.28)
Net income (loss) from continuing operations attributable to IGT PLC per common share - diluted140.38 (1.28)
Net income (loss) attributable to IGT PLC per common share - basic140.45 (1.21)
Net income (loss) attributable to IGT PLC per common share - diluted140.44 (1.21)
Weighted-average shares - basic14204,857 204,435 
Weighted-average shares - diluted14206,504 204,435 
 
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 Income (Loss)
(Unaudited, $ in millions)
 
 For the three months ended
March 31,
 Notes20212020
Net income (loss)149 (234)
Foreign currency translation adjustments, net of tax9(70)(76)
Unrealized gain on hedges, net of tax9
Other comprehensive loss, net of tax9(68)(74)
Comprehensive income (loss)81 (308)
Less: Comprehensive income (loss) attributable to non-controlling interests27 (4)
Comprehensive income (loss) attributable to IGT PLC54 (304)
 
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, $ in millions)
For the three months ended March 31,
Notes20212020
Cash flows from operating activities  
Net income (loss)149 (234)
Less: Income from discontinued operations, net of tax11 13 
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities from continuing operations:
Deferred income taxes100 (23)
Depreciation82 86 
Amortization of upfront license fees55 50 
Amortization49 56 
Loss on extinguishment of debt724 — 
Debt issuance cost amortization
Stock-based compensation(13)
Goodwill impairment11— 296 
Foreign exchange gain, net(145)(70)
Other non-cash items, net— (5)
Changes in operating assets and liabilities, excluding the effects of acquisitions:  
Trade and other receivables(86)279 
Inventories(15)
Accounts payable115 (195)
Other assets and liabilities(95)(178)
Net cash provided by operating activities from continuing operations251 26 
Net cash (used in) provided by operating activities from discontinued operations(36)132 
Net cash provided by operating activities215 157 
Cash flows from investing activities
Capital expenditures(48)(85)
Proceeds from sale of assets
Other— 11 
Net cash used in investing activities from continuing operations(42)(69)
Net cash used in investing activities from discontinued operations(10)(14)
Net cash used in investing activities(51)(83)
Cash flows from financing activities  
Principal payments on long-term debt(1,387)(432)
Payments in connection with the extinguishment of debt(22)— 
Payments of debt issuance costs(6)— 
Net proceeds from short-term borrowings— 110 
Net receipts from financial liabilities51 
Net proceeds from Revolving Credit Facilities432 988 
Proceeds from long-term debt750 — 
Dividends paid— (41)
Dividends paid - non-controlling interests(69)(16)
Return of capital - non-controlling interests(11)— 
Capital increase - non-controlling interests10 
Other(5)(2)
Net cash (used in) provided by financing activities(301)660 
Net (decrease) increase in cash and cash equivalents and restricted cash and cash equivalents(137)734 
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents(36)(10)
Cash and cash equivalents and restricted cash and cash equivalents at the beginning of the period1,129 894 
Cash and cash equivalents and restricted cash and cash equivalents at the end of the period956 1,618 
Less: Cash and cash equivalents and restricted cash and cash equivalents of discontinued operations24 18 
Cash and cash equivalents and restricted cash and cash equivalents at the end of the period of continuing operations932 1,600 
Supplemental Cash Flow Information
Interest paid166 182 
Income taxes paid11 

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, $ in millions)

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, 202020 2,347 (1,920)330 777 784 1,561 
Net income— — 92 — 92 57 149 
Other comprehensive loss, net of tax — — — (38)(38)(30)(68)
Total comprehensive income (loss) — — 92 (38)54 27 81 
Capital increase— — — — — 11 11 
Stock-based compensation— — — — 
Return of capital— — — — — (20)(20)
Dividends declared/paid— — — — — (89)(89)
Balance at March 31, 202120 2,351 (1,829)292 835 714 1,548 

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 2,396 (1,020)263 1,658 827 2,485 
Net (loss) income— — (248)— (248)14 (234)
Other comprehensive loss, net of tax— — — (55)(55)(18)(73)
Total comprehensive loss— — (248)(55)(303)(4)(307)
Capital increase— — — — — 
Adoption of new accounting standards— — (2)— (2)— (2)
Stock-based compensation— (13)— — (13)— (13)
Dividends declared/paid— (41)— — (41)(16)(56)
Balance at March 31, 202020 2,342 (1,271)208 1,299 809 2,108 

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 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 2020 Form 20-F.

The condensed consolidated financial statements are stated in millions 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. All references to “U.S. dollars,” “U.S. dollar,” “U.S. $, “USD,” and “$” refer to the currency of the United States of America. All references to “euro,” “EUR,” and “€” refer to the currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended.

Amounts reported in millions are computed based on the amounts in thousands. As a result, the sum of the components may not equal the total amount reported in millions due to rounding. Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying unrounded amounts.

During the fourth quarter of 2020, the Company announced that its wholly-owned subsidiary, IGT Lottery S.p.A. (formerly Lottomatica Holding S.r.l) (“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 are classified 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.

Use of Estimates
 
The preparation of our consolidated financial statements requires us to make estimates, judgments, and assumptions which affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosure of contingent 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 business and economic uncertainty resulting from the COVID-19 pandemic has made such estimates and assumptions more difficult to calculate. Accordingly, actual results and outcomes could differ from those estimates. Uncertainty still remains about the future impact of the pandemic on global economic conditions. If economic conditions caused by the pandemic do not recover as currently estimated by management, the Company’s financial condition, cash flows and results of operations may further be materially impacted.

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Significant Accounting Policies

There have been no material changes to our significant accounting policies described in Note 2 of our 2020 Form 20-F.

New Accounting Standards - Recently 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. We adopted ASU 2020-06 as of January 1, 2021 using a modified retrospective approach. The adoption did not have a material impact on our condensed consolidated financial statements and had no effect on earnings per share information in the period of adoption.

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. We adopted ASU 2019-12 as of January 1, 2021 and applied it prospectively. The adoption did not have a material impact on our condensed consolidated financial statements.

New Accounting Standards - Not Yet Adopted

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. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), Scope (“ASU 2021-01”) to clarify Topic 848 may apply to certain derivative contracts and hedging relationships affected by changes in the interest rates used for margining, discounting, or contract price alignment in connection with reference rate reform activities. The amendments in ASU 2020-04 and ASU 2021-01 are effective upon issuance through December 31, 2022. We are currently evaluating these optional elections and the timing and impact of adopting this guidance. We do not currently expect that any other recently issued accounting guidance will have a significant effect on the condensed consolidated financial statements.

3.    Discontinued Operations and Assets Held for Sale

On December 7, 2020, the Parent announced that its wholly-owned subsidiary, IGT Lottery S.p.A. (formerly 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 (the “Subsidiaries”), to Gamenet Group S.p.A. for a cash purchase price of €950 million (€725 million of which is payable at closing, €100 million of which is payable on December 31, 2021, and the remaining €125 million of which is payable on September 30, 2022). On May 10, 2021, the Company completed the sale and will use the funds received at closing, net of approximately €94 million in cash transferred (representing the aggregated cash held by the Subsidiaries), to pay transaction expenses and partially fund the May 20, 2021 full redemption of the 4.750% Senior Secured Euro Notes due February 2023 through the exercise of the make-whole call option.

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Summarized financial information for discontinued operations is shown below:
For the three months ended March 31,
($ in millions)20212020
Total revenue53 131 
Operating income (1)
16 21 
Income from discontinued operations before provision for income taxes14 17 
Provision for income taxes
Income from discontinued operations, net of tax11 13 
Less: Net loss attributable to non-controlling interests from discontinued operations(2)(1)
Income from discontinued operations attributable to IGT PLC13 14 
(1) Includes depreciation and amortization of $26.9 million for the three months ended March 31, 2020. There was no depreciation and amortization for the three months ended March 31, 2021.

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:
March 31,December 31,
($ in millions)20212020
Assets:
Trade and other receivables, net54 62 
Other current assets54 58 
Systems, equipment and other assets related to contracts, net83 86 
Goodwill515 520 
Intangible assets, net54 55 
Other non-current assets47 52 
Assets held for sale806 833 
Liabilities:
Accounts payable56 63 
Other current liabilities102 164 
Other non-current liabilities16 23 
Liabilities held for sale174 250 
At March 31, 2021 and December 31, 2020, $2 million and $5 million, respectively, of other disposal groups that meet the requirements to be classified as held for sale are included in assets held for sale in our condensed consolidated balance sheets.

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4.    Revenue Recognition

Contract Balances
 
Information about receivables, contract assets, and contract liabilities is as follows: 
($ in millions) March 31, 2021December 31, 2020Balance Sheet Classification
Receivables, net 912 846 Trade and other receivables, net
Contract assets:
Current78 53 Other current assets
Non-current70 75 Other non-current assets
148 128 
Contract liabilities:
Current(100)(108)Other current liabilities
Non-current(44)(62)Other non-current liabilities
(144)(170)
 
The amount of revenue recognized during the three months ended March 31, 2021 that was included in the contract liabilities balance at December 31, 2020 was $41 million. The amount of revenue recognized during the three months ended March 31, 2020 that was included in the contract liabilities balance at December 31, 2019 was $26 million.

Transaction Price Allocated to Remaining Performance Obligations

At March 31, 2021, 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 $989 million. Of this amount, we expect to recognize as revenue approximately 21% within the next 12 months, approximately 33% between 13 and 36 months, approximately 25% between 37 and 60 months, and the remaining balance through December 31, 2031.

5.    Receivables

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 in 90 days or less.

($ in millions)March 31, 2021December 31, 2020
Trade and other receivables, gross927 862 
Allowance for credit losses (16)(16)
Trade and other receivables, net912 846 

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

($ in millions)March 31, 2021December 31, 2020
Balance at beginning of period(16)(22)
Provisions, net(1)(6)
Amounts written off as uncollectible10 
Foreign currency translation— (1)
Other — 
Balance at end of period(16)(16)

We enter into various factoring agreements with third-party financial institutions to sell certain of our trade receivables. We factored trade receivables of $335 million and $1.5 billion during the three months ended March 31, 2021 and year ended December 31, 2020, 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 March 31, 2021 and December 31, 2020, we had $114 million and $110 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, 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 condensed consolidated balance sheets as follows:
March 31, 2021
($ in millions)Current AssetsNon-Current AssetsTotal
Customer financing receivables, gross264 93 357 
Allowance for credit losses (51)(7)(58)
Customer financing receivables, net213 86 299 

December 31, 2020
($ in millions)Current AssetsNon-Current AssetsTotal
Customer financing receivables, gross275 91 365 
Allowance for credit losses (43)(7)(50)
Customer financing receivables, net232 84 316 

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

($ in millions)March 31, 2021December 31, 2020
Balance at beginning of period(50)(32)
Provisions, net(10)(37)
Amounts written off as uncollectible24 
Foreign currency translation— 
Other
— (6)
Balance at end of period(58)(50)

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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”).

The customer financing receivables at amortized cost by year of origination and the geography credit quality indicator at March 31, 2021 are as follows:
Year of Origination
($ in millions)2021202020192018PriorTotal
North America14 45 — 68 
LAC22 24 103 37 21 206 
EMEA20 25 15 69 
APAC— 14 
44 95 136 53 28 357 

The past due balance, which represents installments that are one day or more past their contractual due date, of customer financing receivables at amortized cost and the geography credit quality indicator at March 31, 2021 is as follows:

($ in millions)North AmericaLACEMEAAPACTotal
Past due107 17 131 
Short-term portion not yet due32 62 28 10 132 
Long-term portion not yet due32 36 24 93 
68 206 69 14 357 

6.    Inventories

($ in millions)March 31, 2021December 31, 2020
Raw materials89 86 
Work in progress24 23 
Finished goods95 103 
Inventories, gross208 212 
Obsolescence reserve(41)(43)
Inventories, net167 169 

The following table presents the activity in the obsolescence reserve:

($ in millions)March 31, 2021December 31, 2020
Balance at beginning of period(43)(34)
Provisions, net(2)(34)
Amounts written off24 
Foreign currency translation(2)
Other— 
Balance at end of period(41)(43)

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7.    Debt
 
The Company’s long-term debt obligations consist of the following: 
March 31, 2021
($ in millions)PrincipalDebt issuance
cost, net
Total
4.750% Senior Secured Euro Notes due February 2023997 (4)992 
5.350% Senior Secured U.S. Dollar Notes due October 202361 — 61 
3.500% Senior Secured Euro Notes due July 2024586 (3)583 
6.500% Senior Secured U.S. Dollar Notes due February 20251,100 (8)1,092 
4.125% Senior Secured U.S. Dollar Notes due April 2026750 (7)743 
3.500% Senior Secured Euro Notes due June 2026879 (6)873 
6.250% Senior Secured U.S. Dollar Notes due January 2027750 (6)744 
2.375% Senior Secured Euro Notes due April 2028586 (5)581 
5.250% Senior Secured U.S. Dollar Notes due January 2029750 (7)743 
Senior Secured Notes6,459 (46)6,413 
Euro Term Loan Facility due January 2023633 (9)624 
Euro Revolving Credit Facility B due July 2024147 (9)137 
U.S. Dollar Revolving Credit Facility A due July 2024280 (13)267 
Long-term debt, less current portion7,519 (78)7,441 
Euro Term Loan Facility due January 2023375 — 375 
Current portion of long-term debt375 — 375 
Total debt7,894 (78)7,817 

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December 31, 2020
($ in millions)PrincipalDebt issuance
cost, net
SwapTotal
6.250% Senior Secured U.S. Dollar Notes due February 20221,000 (3)1,004 
4.750% Senior Secured Euro Notes due February 20231,043 (5)— 1,038 
5.350% Senior Secured U.S. Dollar Notes due October 202361 — — 61 
3.500% Senior Secured Euro Notes due July 2024614 (4)— 610 
6.500% Senior Secured U.S. Dollar Notes due February 20251,100 (8)— 1,092 
3.500% Senior Secured Euro Notes due June 2026920 (7)— 913 
6.250% Senior Secured U.S. Dollar Notes due January 2027750 (6)— 744 
2.375% Senior Secured Euro Notes due April 2028614 (5)— 608 
5.250% Senior Secured U.S. Dollar Notes due January 2029750 (7)— 743 
Senior Secured Notes6,851 (45)6,813 
Euro Term Loan Facility due January 20231,055 (11)— 1,044 
Long-term debt, less current portion7,906 (56)7,857 
Euro Term Loan Facility due January 2023393 — — 393 
Current portion of long-term debt393 — — 393 
Total debt8,299 (56)8,250 

As of December 31, 2020, $23.9 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 March 31, 2021 is as follows ($ in millions):
YearU.S. Dollar DenominatedEuro DenominatedTotal
2022— 375 375 
202361 1,630 1,690 
2024280 733 1,013 
20251,100 — 1,100 
2026750 879 1,629 
2027 and thereafter1,500 586 2,086 
Total principal amounts3,691 4,203 7,894 

At March 31, 2021 and December 31, 2020, we were in compliance with all covenants under our debt agreements.

4.125% Senior Secured U.S. Dollar Notes due April 2026

On March 25, 2021, the Parent issued $750 million of 4.125% Senior Secured U.S. Dollar Notes due April 2026 (the “4.125% Notes”) at par. The Parent used the proceeds to partially redeem the 6.250% Senior Secured U.S. Dollar Notes due February 2022.

Interest on the 4.125% Notes is payable semi-annually in arrears.

The 4.125% Notes are guaranteed by certain subsidiaries of the Parent and are secured by ownership interests of the Parent in certain of its direct subsidiaries and certain intercompany loans with principal balances in excess of $10 million.

Prior to April 15, 2023, the Parent may redeem the 4.125% Notes in whole or in part at 100% of their principal amount together with accrued and unpaid interest and a make-whole premium. From April 15, 2023 to April 14, 2024, the Parent may redeem the 4.125% Notes in whole or in part at 102.063% of their principal amount together with accrued and unpaid interest. From
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April 15, 2024 to April 14, 2025, the Parent may redeem the 4.125% Notes in whole or in part at 101.031% of their principal amount together with accrued and unpaid interest. On or after April 15, 2025, the Parent may redeem the 4.125% Notes in whole or in part at 100% of their principal amount together with accrued and unpaid interest. The Parent may also redeem the 4.125% 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 4.125% Notes at a price equal to 101% of their principal amount together with accrued and unpaid interest. In certain events of default, the 4.125% Notes outstanding may become due and payable immediately.

6.250% Senior Secured U.S. Dollar Notes due February 2022

In March 2021, the Parent used the proceeds from the 4.125% issuance and borrowings on the Company’s Revolving Credit Facilities, to redeem $1.0 billion of the 6.250% Senior Secured U.S. Dollar Notes due February 2022 for total consideration, excluding interest, of $1.0 billion. The Company recorded an $18 million loss on extinguishment of debt in connection with the repurchase, of which a $24 million loss is classified in other expense, net and an offsetting gain of $6 million is classified in interest expense, net in the condensed consolidated statement of operations for the three months ended March 31, 2021.

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.

($ in millions)March 31, 2021
December 31, 20201
Carrying value7,817 8,243 
Fair value8,165 8,702 
(1) Excludes swap adjustments

Interest Expense, net
 For the three months ended March 31,
($ in millions)20212020
Senior Secured Notes86 88 
Term Loan Facilities
Revolving Credit Facilities
Other(4)
Interest expense97 101 
Interest income(3)(1)
Interest expense, net94 100 

8.     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. At March 31, 2021, provisions for litigation matters amounted to $4 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.
 
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Texas Fun 5’s Instant Ticket Game

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

(a)Steele, James et al. v. GTECH Corp., filed on December 9, 2014 in Travis County (No. D1GN145114). Through intervenor actions, over 1,200 plaintiffs claim damages in excess of $500 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)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.
(c)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 million.
(d)Campos, Osvaldo Guadalupe et al. v. GTECH Corp., filed on October 20, 2016 in Travis County (No. D1GN16005300). Plaintiffs claim damages in excess of $1 million.

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

Adrienne Benson and Mary Simonson, individually and on behalf of all others similarly situated v. Double Down Interactive LLC, et al.

On April 9, 2018, a plaintiff, Adrienne Benson, filed a putative class action against the Company’s wholly-owned subsidiary, International Game Technology, and Double Down Interactive LLC, a Washington limited liability company in the United States District Court for the Western District of Washington. On July 23, 2018, plaintiff filed a first amended complaint, adding named plaintiff Mary Simonson, and adding allegations to represent a putative class of all persons in the United States who purchased and allegedly lost virtual “chips” while playing games through an online gaming platform called Double Down Casino, which at all times has been operated by Double Down Interactive LLC. On April 26, 2021, plaintiffs filed a second amended complaint naming IGT, a wholly-owned subsidiary of International Game Technology as an additional defendant. Plaintiffs have asserted claims for alleged violations of Washington’s Recovery of Money Lost at Gambling Act, Washington’s Consumer Protection Act, and for unjust enrichment, and seeks unspecified money damages (including treble damages as appropriate), the award of reasonable attorneys’ fees and costs, pre- and post-judgment interest, and injunctive and/or declaratory relief.

International Game Technology acquired Double Down Interactive LLC in 2012 and, effective June 1, 2017, sold Double Down Interactive LLC to DoubleU Games pursuant to a purchase agreement (the “Purchase Agreement”). At all times relevant, Double Down Interactive LLC was the sole operator of the Double Down Casino, and International Game Technology asserts, among other defenses, that it has no liability for the actions of a bona fide subsidiary.

On May 10, 2018, Double Down Interactive LLC and DoubleU Diamond LLC sent a claim notice (the “DDI Claim Notice”) to International Game Technology seeking indemnification and reimbursement of defense costs for all claims against Double U Diamond LLC and its affiliates (the “DoubleU Entities”) in the Benson matter, pursuant to the Purchase Agreement. On June 7, 2018, International Game Technology responded to the DDI Claim Notice, rejecting any obligation to indemnify or pay defense costs of the DoubleU Entities, and sent a claim notice to DoubleU Diamond LLC for indemnification and reimbursement of defense costs for all claims against International Game Technology in the Benson matter pursuant to the terms of certain agreements with DoubleU Diamond LLC. On August 8, 2018, the parties entered into a Standstill and Tolling Agreement (the “Standstill Agreement”) to postpone resolution of their respective indemnification claims. The Standstill Agreement expires on the earlier of September 1, 2021 and 60 days written notice from any party.

On August 20, 2018, International Game Technology filed a motion to compel arbitration under the Federal Arbitration Act. The denial of that motion was appealed to the United States Court of Appeals for the Ninth Circuit, which in turn affirmed the district court by mandate effective February 20, 2020.

International Game Technology filed an answer to the first amended complaint on January 18, 2019, and an amended answer to the first amended complaint on April 21, 2021, denying all material allegations of liability and damages, and further denying that International Game Technology was responsible for the operation of the Double Down Casino.

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International Game Technology moved to certify the liability questions to the Washington State Supreme Court, which was denied on August 11, 2020. International Game Technology’s motion to reconsider the question of certification was denied on January 15, 2021.

On August 13, 2020, International Game Technology filed a motion to strike the nationwide class allegations from the amended complaint, which was denied on March 19, 2021.

On September 10, 2020, International Game Technology filed a motion to dismiss and stay the case on the grounds that the federal court should abstain from deciding the liability questions under Washington law. That motion was denied on March 24, 2021. On February 25, 2021, plaintiffs filed a motion for class certification and for preliminary injunction, which remains pending, and has not been set for hearing.

International Game Technology is currently engaged in discovery proceedings and vigorously pursuing its defenses. We are currently unable to estimate the amount or range of reasonably possible loss.

9.    Shareholders' Equity

Accumulated Other Comprehensive Income (“AOCI”)

The following tables detail the changes in AOCI:
For the three months ended March 31, 2021
Unrealized Gain (Loss) on:AOCI
($ in millions)Foreign
Currency
Translation
HedgesOtherTotalAttributable 
to non-controlling
interests
Attributable 
to IGT PLC
Balance at December 31, 2020358 (9)353 (24)330 
Change during period(70)— (68)30 (38)
OCI(70)— (68)30 (38)
Balance at March 31, 2021288 (7)285 292 

For the three months ended March 31, 2020
Unrealized Gain (Loss) on:AOCI
($ in millions)Foreign
Currency
Translation
HedgesOtherTotalAttributable 
to non-controlling
interests
Attributable 
to IGT PLC
Balance at December 31, 2019231 (8)227 36 263 
Change during period(76)— (74)18 (56)
OCI(76)— (74)18 (56)
Balance at March 31, 2020155 (6)153 54 207 


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10.    Segment Information

Our organizational structure focuses on two business segments: Global Lottery and Global Gaming, along with a streamlined corporate support function. We report segmented information based on internal reporting reviewed by the chief operating decision maker for making decisions and assessing performance.

Segment information is as follows:
For the three months ended March 31, 2021
($ in millions)Global LotteryGlobal GamingBusiness Segment TotalCorporate and OtherTotal IGT PLC
Operating and facilities management contracts643 — 643 — 643 
Gaming terminal services— 90 90 — 90 
Systems, software, and other83 86 168 — 168 
Service revenue725 175 901 — 901 
Lottery products23 — 23 — 23 
Gaming terminals— 62 62 — 62 
Gaming other— 29 29 — 29 
Product sales23 91 114 — 114 
Total revenue749 266 1,015 — 1,015 
Operating income (loss) 337 (19)318 (58)260 
Depreciation and amortization110 37 147 39 186 

For the three months ended March 31, 2020
($ in millions)Global LotteryGlobal GamingBusiness Segment TotalCorporate and OtherTotal IGT PLC
Operating and facilities management contracts406 — 406 — 406 
Gaming terminal services— 106 106 — 106 
Systems, software, and other66 77 144 — 144 
Service revenue472 184 656 — 656 
Lottery products32 — 32 — 32 
Gaming terminals— 53 53 — 53 
Gaming other— 73 73 — 73 
Product sales32 126 158 — 158 
Total revenue505 310 814 — 814 
Operating income (loss)144 (6)138 (356)(218)
Depreciation and amortization103 41 144 48 192 

11.     Goodwill

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 million non-cash impairment loss with no income tax benefit, of which $193 million and $103 million was recorded within our former International and North America Gaming and Interactive reporting units, respectively, to reduce the carrying amount of the reporting units to fair value.

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12.    Restructuring

During 2020, we initiated three restructuring plans as described below:

2020 Segment Reorganization
The 2020 segment reorganization plan is a global initiative that simplifies our organizational structure and increases efficiency and effectiveness. During the three months ended March 31, 2021, we revised our cost estimates resulting in a $1 million reduction of expense and during the three months ended March 31, 2020, we incurred $3 million of expense. Since the plan’s inception, we incurred severance and related employee costs within our two segments and corporate support function totaling $15 million. This plan was substantially completed as of March 31, 2021.

2020 Global Supply Chain Optimization
The 2020 global supply chain optimization plan is an initiative that optimizes our global supply chain and footprint resulting in a significant reduction to our primary manufacturing operations. We did not incur any expense related to this plan during the three months ended March 31, 2021 and during the three months ended March 31, 2020, we incurred $1 million of expense. Since the plan’s inception, we incurred severance and related employee costs, and other costs of $9 million, primarily within our Global Gaming segment. This plan was substantially completed as of March 31, 2021.

2020 Technology Organization Consolidation
The 2020 technology organization consolidation plan is an initiative that realigns and consolidates operations, reduces costs, and improves operational efficiencies within our Technology group. We did not incur any expense related to this plan during the three months ended March 31, 2021 and 2020. Since the plan’s inception, we incurred severance and related employee costs of $17 million, primarily within our Global Gaming segment. We expect to incur approximately $18 million of total costs once this plan is substantially completed during the fourth quarter of 2021.

13.    Income Taxes
 For the three months ended March 31,
($ in millions, except percentages)20212020
Provision for (benefit from) income taxes148 (1)
Income (loss) from continuing operations before provision for (benefit from) income taxes287 (248)
Effective income tax rate (determined using an estimated annual effective tax rate)51.8 %0.4 %

The change in the effective income tax rate for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 is primarily related to the following: (i) the three months ended March 31, 2021 had higher foreign exchange gains (subject to a low income tax rate) as compared to the same three-month period in 2020; (ii) the three months ended March 31, 2021 had no goodwill impairment whereas the Company had a $296 million goodwill impairment with no associated tax benefit in the same three-month period in 2020; and, (iii) the three months ended March 31, 2021 had a valuation allowance related to our business interest expense limitation carryforward.

The effective income tax rate for the three months ended March 31, 2021 of 51.8% differed from the expected U.K. statutory rate of 19.0% primarily due to foreign rate differential, valuation allowance related to our business interest expense limitation carryforward, losses with no tax benefit, and the impact of the international provisions of the Tax Act ( BEAT and GILTI).

The effective income tax rate for the three months ended March 31, 2020 of 0.4% differed from the expected U.K. statutory rate of 17.5% primarily due to a goodwill impairment with no associated tax benefit, losses with no tax benefit, foreign rate differential, and the impact of the international provisions of the Tax Act ( BEAT and GILTI).

On a quarterly basis, we evaluate the realizability of deferred income tax assets by jurisdiction and assess the need for a valuation allowance. We considered both positive and negative evidence for each jurisdiction including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. At March 31, 2021, we believe that it is more-likely-than-not that a portion of the deferred income tax asset related to section 163(j) disallowed interest will not be realized. As a result, during the three months ended March 31, 2021, we have recorded an additional valuation allowance of $84 million on this deferred tax asset ($57.9 million valuation allowance was recorded in Q4 2020).

At March 31, 2021 and December 31, 2020, we had $27 million of reserves for uncertain tax positions.
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We recognize interest and penalties related to income tax matters in income tax expense. At March 31, 2021 and December 31, 2020, $20 million and $21 million, respectively, of interest and penalties were accrued for uncertain tax positions.

The Company’s Italian corporate income tax returns for the calendar years ended December 31, 2015 through December 31, 2019 are under examination. On October 19, 2020, the Italian tax authorities issued a final audit report for calendar year 2015 questioning the process the Company undertook to establish the interest rate on an intercompany debt agreement between Lottomatica and IGT PLC. On March 30, 2021, the Italian tax authorities issued a final audit report for calendar year 2016 thru 2019 addressing: (i) the process IGT Lottery S.p.A. undertook to establish interest rates on three intercompany debt agreements; (ii) the application of the withholding tax exemption regime on the loans based on EU Directive no. 2003/49/EC claiming the 26% domestic withholding tax; (iii) the beneficial ownership of IGT PLC in connection with the interest payments on the loans, thus disregarding the application of the exemption regime provided for by EU Directive no. 2003/49/CE and claiming the 26% domestic withholding tax; and (iv) late tax certificates obtained by IGT Lottery S.p.A. to claim exemption from domestic withholding tax applicable to the interest and dividends paid by Lottomatica to IGT PLC. The Company expects to file a comprehensive defense memorandum with the Italian tax authority rejecting all findings.

14.    Earnings Per Share
 
The following table presents the computation of basic and diluted income per share of common stock: 

 For the three months ended March 31,
($ in millions and shares in thousands, except per share amounts)20212020
Numerator:  
Net income (loss) from continuing operations attributable to IGT PLC79 (262)
Net income from discontinued operations attributable to IGT PLC13 14 
Net income (loss) attributable to IGT PLC92 (248)
Denominator:  
Weighted-average shares - basic204,857 204,435 
Incremental shares under stock-based compensation plans1,647 — 
Weighted-average shares - diluted206,504 204,435 
Net income (loss) per share from continuing operations attributable to IGT PLC - basic0.39 (1.28)
Net income (loss) per share from continuing operations attributable to IGT PLC - diluted0.38 (1.28)
Net income per share from discontinued operations attributable to IGT PLC - basic0.06 0.07 
Net income per share from discontinued operations attributable to IGT PLC - diluted0.06 0.07 
Net income (loss) attributable to IGT PLC per common share - basic0.45 (1.21)
Net income (loss) attributable to IGT PLC per common share - diluted0.44 (1.21)

Stock options and unvested restricted stock awards totaling 0.6 million for the three months ended March 31, 2020 were excluded from the computation of diluted earnings per share because including them would have had an antidilutive effect. There were no stock options and unvested restricted stock awards with an antidilutive effect for the three months ended March 31, 2021.

15.    Leases

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 condensed consolidated statements of operations. Total lease income was approximately 6% and 11% of total revenue for the three months ended March 31, 2021 and 2020, respectively.
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Item 2.            Operating and Financial Review and Prospects
 
A.       Management’s Discussion and Analysis

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, included in this report, as well as “Item 5. Operating and Financial Review and Prospects” and “Item 18. Financial Statements” in the Company's 2020 Form 20-F.

The following discussion includes information for the three months ended March 31, 2021 and 2020.

The following discussion includes certain forward-looking statements. Actual results may differ materially from those discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this report and in “Item 3.D. Risk Factors” and “Item 5.F. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995” included in the Company's 2020 Form 20-F. As used in this Item 2, the terms “we,” “our,” “us,” and the “Company” refer to International Game Technology PLC together with its consolidated subsidiaries.

Amounts reported in millions within Item 2 are computed based on the amounts in thousands. As a result, the sum of the components may not equal the total amount reported in millions due to rounding. Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying unrounded amounts.

B.            Operating Results

Business Overview

The Company 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. Leveraging compelling content, substantial investment in innovation, player insights, operational expertise, and leading-edge technology, the Company’s solutions deliver gaming experiences that engage players and drive growth. The Company has a well-established local presence and 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.

Discontinued Operations

The discussion that follows in this Item 2 has been prepared on a continuing operations basis and excludes results from our discontinued operations, discussed in detail in “Item 1. Notes to the Condensed Consolidated Financial Statements (Unaudited)—Note 3. Discontinued Operations and Assets Held for Sale”, included herein.

Key Factors Affecting Operations and Financial Condition

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: The COVID-19 pandemic ("COVID-19") has disrupted and may continue to disrupt our business. We began experiencing a significant decline in our operations due to COVID-19 towards the end of our first quarter of fiscal 2020 and continuing throughout the fiscal year. The pandemic and its consequences, including the closure of almost all casinos and gaming halls globally in the first half 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 in our facilities, and enabling our employees to work from home where possible.

The ongoing impact of COVID-19 on our longer-term operational and financial performance will depend on future developments, including the continued widespread distribution of safe and effective COVID-19 vaccines. Many of these future developments are outside of our control.

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Critical Accounting Estimates

The Company’s consolidated financial statements are prepared in conformity with GAAP which require the use of estimates, judgments, and assumptions that affect the carrying amount of assets and liabilities and the amounts of income and expenses recognized. The estimates and underlying assumptions are based on information available at the date that the financial statements are prepared, on historical experience, judgments, and assumptions considered to be reasonable and realistic. There have been no material changes to the critical accounting estimates previously disclosed in the Company’s 2020 Form 20-F.
 
The areas that require greater subjectivity of management in making estimates and judgments and where a change in such underlying assumptions could have a significant impact on the Company’s consolidated financial statements are fully described in “Item 1. Notes to the Condensed Consolidated Financial Statements (Unaudited)—Note 2. Summary of Significant Accounting Policies” included herein.
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Results of Operations

Comparison of the three months ended March 31, 2021 and 2020

 For the three months ended
 March 31, 2021March 31, 2020Change
($ millions)$% of
Revenue
$% of
Revenue
$%
Service revenue by segment
Global Lottery725 72 472 58 253 54 
Global Gaming175 17 184 23 (8)(5)
Total service revenue901 89 656 81 245 37 
Product sales by segment
Global Lottery23 32 (9)(28)
Global Gaming91 126 15 (35)(28)
Total product sales114 11 158 19 (45)(28)
Total revenue1,015 100 814 100 200 25 
Operating expenses
Cost of services441 44 415 51 26 
Cost of product sales73 92 11 (20)(21)
Selling, general and administrative186 18 164 20 22 13 
Research and development55 61 (6)(10)
Goodwill impairment— — 296 36 (296)(100)
Restructuring— — (4)(111)
Total operating expenses755 74 1,032 127 (278)(27)
Operating income (loss)260 26 (218)(27)478 > 200
Interest expense, net94 100 12 (6)(6)
Foreign exchange gain, net(145)(13)(70)(8)(75)(107)
Other expense, net25 — — 25 > 200.0
Total non-operating (income) expenses(27)(2)30 (57)(188)
Income (loss) from continuing operations before provision for (benefit from) income taxes287 28 (248)(31)535 > 200
Provision for (benefit from) income taxes148 14 (1)— 149 > 200
Income (loss) from continuing operations138 14 (247)(31)385 156 
Income from discontinued operations, net of tax11 13 (2)(17)
Net income (loss)149 15 (234)(29)383 164 

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Revenue
Total revenue for the three months ended March 31, 2021 increased $200 million, or 25%, to $1,015 million from $814 million for the prior corresponding period. Total service revenue increased due primarily to favorable same store sales increases in our Global Lottery Segment, principally in Italy and North America. Global Gaming service revenue was adversely affected by continued social distancing restrictions imposed by governmental authorities, including casino and gaming hall capacity restrictions and closures, in an effort to mitigate the spread of COVID-19. Total product sale declines were primarily caused by continued COVID-19 customer budgetary constraints, social distancing restrictions, and timing of major system and software sales in Global Lottery. 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 three months ended March 31, 2021 increased $26 million, or 6%, to $441 million from $415 million for the prior corresponding period. This increase is primarily attributable to a $42 million increase within our Global Lottery segment, principally the result of the increase in revenues, and includes increases of $14 million and $13 million in point of sale (“POS”) consumables and fees, respectively. These increases were partially offset by an $11 million reduction in cost of services in our Global Gaming segment, primarily the result of a $4 million reduction in licensing and royalty fees. In addition, there was a $5 million decrease in Corporate and Other, principally associated with a decrease in amortization of acquired intangible assets.

Cost of product sales

Cost of product sales for the three months ended March 31, 2021 decreased $20 million, or 21%, to $73 million from $92 million for the prior corresponding period. This decrease is primarily attributable to a $23 million decrease within our Global Gaming segment, principally resulting from the $35 million decrease in product sales. Cost of product sales for our Global Lottery segment increased $6 million, primarily related to product mix.

Selling, general and administrative

Selling, general and administrative for the three months ended March 31, 2021 increased $22 million, or 13%, to $186 million from $164 million for the prior corresponding period. This increase is primarily attributable to a $25 million increase related to the reinstatement of incentive compensation plans that were cancelled in 2020 in Corporate and Other, Global Gaming, and Global Lottery of $14 million, $6 million, and $5 million, respectively. The lower incentive plan expenses experienced in the prior year were related to management’s decision to suspend the plans due to uncertainties associated with the COVID-19 pandemic. Additionally, there was a $14 million increase in expected credit losses on long-term customer financing receivables within our Global Gaming segment, resulting principally from the impact of COVID-19 closures within the Latin America and the Caribbean (“LAC”) region. As pandemic related lockdowns and restrictions are lifted, management has been renegotiating the financing terms with LAC customers and has included within the first quarter allowance for expected credit losses the effects of expected future refinancing. These decreases were partially offset by savings related to structural changes, including the reduction of overall headcount.

Research and development

Research and development for the three months ended March 31, 2021 decreased $6 million, or 10%, to $55 million from $61 million for the prior corresponding period. This decrease was primarily the result of a $6 million decrease in our Global Gaming segment, principally as a result of a $3 million decrease in costs associated with external game testing. Additionally, there was a global decrease in salaries, benefits, and other personnel related costs of $6 million associated with the reduction in headcount. These decreases were partially offset by a global increase of $7 million related to the reinstatement of incentive compensation plans that were cancelled in 2020.

Goodwill impairment

There was no goodwill impairment for the three months ended March 31, 2021. Goodwill impairment for the three months ended March 31, 2020 was $296 million. 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
26

the estimated impact of COVID-19, we recorded $193 million and $103 million non-cash impairment losses within the former International and North America Gaming and Interactive reporting units, respectively, to reduce the carrying amount of these reporting units to fair value.

Restructuring

Restructuring for the three months ended March 31, 2021 was nominal compared to $4 million for the prior corresponding period. Management initiated 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. The restructuring plans associated with simplifying our organizational structure and optimizing our global supply chain were substantially complete as of March 31, 2021. Our restructuring plan related to consolidating our global technology organization is expected to be substantially completed by the fourth quarter of 2021.

Non-operating expenses

Interest expense, net

Interest expense, net for the three months ended March 31, 2021 decreased $6 million, or 6%, to $94 million from $100 million for the prior corresponding period. This decrease was primarily due to a $6 million gain related to the settlement of certain interest rate swaps.

Foreign exchange gain, net

Foreign exchange gain, net for the three months ended March 31, 2021 was $145 million, compared to foreign exchange gain, net of $70 million for the prior corresponding period. Foreign exchange gain, net is principally related to fluctuations in the euro to U.S. dollar exchange rate on euro-denominated debt.

Other expense, net

Other expense, net for the three months ended March 31, 2021 increased $25 million, from a nominal amount in the prior corresponding period. During the current period, we incurred $22 million of expense related to a redemption premium on the 6.250% Senior Secured U.S. Dollar Notes due February 2022.

Provision for (benefit from) income taxes

Provision for income taxes for the three months ended March 31, 2021 was $148 million, compared to a benefit from income taxes of $1 million for the prior corresponding period. The increase is primarily due to the level of pre-tax income and increases in our valuation allowances related to our business interest expense limitation carryforward. In the first quarter of 2021, our effective tax rate was higher than the U.K. statutory rate of 19.0% primarily due to increases in valuation allowances related to our business interest expense limitation, losses with no tax benefit, the impact of the international provisions of the Tax Act (BEAT and GILTI), and foreign rate differences. In the first quarter of 2020, our effective tax rate was higher than the U.K. statutory rate of 17.5% primarily due to a goodwill impairment with no associated tax benefit, losses with no tax benefit, foreign rate differences, and the impact of the international tax provisions of the Tax Act (BEAT and GILTI).

Income from discontinued operations, net of tax

Income from discontinued operations, net of tax for the three months ended March 31, 2021 remained relatively flat when compared to the prior corresponding period. Discontinued operations reflect the operating activities of our Italian B2C gaming machine, sports betting, and digital gaming businesses. Refer to “Item 1. Notes to the Condensed Consolidated Financial Statements (Unaudited)—Note 3. Discontinued Operations and Assets Held for Sale” included herein for further information.

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Segment Revenues and Key Performance Indicators

Global Lottery
 For the three months ended March 31,Change
($ millions)20212020$%
Service revenue
Operating and facilities management contracts643 406 237 58 
Systems, software, and other83 66 16 24 
725 472 253 54 
Product sales
Lottery products23 32 (9)(28)
23 32 (9)(28)
Global Lottery segment revenue749 505 244 48 
For the three months ended March 31,
(% on a constant-currency basis)20212020
Global same-store sales growth (%)
Instant ticket & draw games27.4 %(4.8)%
Multi-jurisdiction jackpots94.7 %(30.0)%
Total32.4 %(7.2)%
North America & Rest of world same-store sales growth (%)
Instant ticket & draw games20.9 %0.3 %
Multi-jurisdiction jackpots94.7 %(30.0)%
Total27.8 %(3.5)%
Italy same-store sales growth (%)
Instant ticket & draw games52.5 %(19.8)%

Operating and facilities management contracts

Service revenue from Operating and facilities management contracts for the three months ended March 31, 2021 increased $237 million, or 58%, to $643 million from $406 million for the prior corresponding period. This increase was primarily the result of a $176 million increase in instant, draw-based, and multi-jurisdiction jackpot ticket sales that experienced a 32.4% increase in global same-store sales in the aggregate. Italy same-store sales grew 52.5%, primarily as a result of a shift in consumer discretionary income spending to lottery in lieu of other forms of entertainment due to social distancing restrictions imposed causing a reduction of entertainment options available to consumers. Italy also experienced increases in same-store sales due to certain lottery games being temporarily shut down in the prior year. North America and rest of world experienced a 27.8% increase in same-store sales, primarily as a result of increased instant and draw-based growth and higher jackpots from multi-state lotteries in North America as well as a shift in consumer discretionary income spending to lottery. Same-store sales also experienced increases from the prior corresponding period due to the timing of the COVID-19 outbreak in the middle of March 2020. Additionally, there was a $57 million increase in lottery management agreement revenues, primarily attributable to expected incentives from increased sales in the current year compared to an expected net penalty position in the prior corresponding period.

Systems, software, and other

Service revenue from Systems, software, and other for the three months ended March 31, 2021 increased $16 million, or 24%, to $83 million from $66 million for the prior corresponding period. This increase was primarily the result of a $17 million increase from our Italian commercial service offerings due to expanded offerings and increased volumes.

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Lottery products

Lottery products revenue for the three months ended March 31, 2021 decreased $9 million, or 28%, from $32 million for the prior corresponding period. This decrease was primarily the result of a decrease in lottery software sales, principally due to a $15 million software license to a customer in Europe in the prior corresponding period. This decrease was partially offset by higher demand for instant ticket products.

Global Gaming
 For the three months ended March 31,Change
($ millions, except yields)20212020$%
Service revenue
Gaming terminal services90 106 (16)(16)
Systems, software, and other86 77 11 
175 184 (8)(5)
Product sales
Gaming terminals62 53 17 
Gaming other29 73 (45)(61)
91 126 (35)(28)
Global Gaming segment revenue266 310 (44)(14)
For the three months ended March 31,Change
20212020Units / $%
Installed base units
Total installed base units49,365 49,828 (463)(1)
Total yields(1)
$22.93$25.67$(2.74)(11)
Global machine units sold
Total machine units sold4,405 3,682 723 20 
(1) Total yields represent revenue per day for the average installed base units. Install base units included active and inactive units deployed to a customer location.
Gaming terminal services

Service revenue from Gaming terminal services for the three months ended March 31, 2021 decreased $16 million, or 16%, to $90 million from $106 million for the prior corresponding period. This decrease was principally driven by an 11% reduction in yields attributable to the social distancing measures implemented by government authorities to mitigate the spread of COVID-19 that began in March 2020. These measures included the shutdown of most casinos and gaming halls beginning in the first quarter of 2020, and upon re-opening the removal or powering down of a portion of gaming machines from casino floors to maintain social distancing. Additionally, gaming terminal services revenue was higher in the prior corresponding period resulting from a higher number of active units in the installed based prior to the COVID-19 pandemic outbreak in March 2021. Total yields decreased from the prior period primarily as a result of install base units that were inactive due to COVID.

Systems, software, and other

Service revenue from Systems, software, and other for the three months ended March 31, 2021 increased $8 million, or 11%, to $86 million from $77 million for the prior corresponding period. This increase was primarily due to an $18 million increase in digital gaming and sports betting revenue resulting from expanding player base in existing markets. These increases were partially mitigated by a $9 million decrease in system and software revenue, principally related to inactive machines resulting from COVID-19 social distancing requirements.

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Gaming terminals
Product sales from Gaming terminals for the three months ended March 31, 2021 increased $9 million, or 17%, to $62 million from $53 million for the prior corresponding period. This increase was primarily associated with an increase of 723 in machine units sold, primarily driven by new and expansion machine units in the United States and Canada. Additionally, there was a pause in gaming terminal sales near the end of the first quarter of 2020 related to the outbreak of COVID-19, causing decreased customer demand due to uncertainties surrounding the pandemic.

Gaming other

Product sales from Gaming other for the three months ended March 31, 2021 decreased $45 million, or 61%, to $91 million from $126 million for the prior corresponding period, primarily related to a $23 million decrease in sales-type lease revenues, and a $16 million reduction in the sale of AWP kits in Italy.

Operating income (loss)
 For the three months ended March 31,Change
($ millions)20212020$%
Operating income (loss)
Global Lottery337 144 193 133
Global Gaming(19)(6)(13)> 200
Corporate and Other(58)(356)298 84
260 (218)478 > 200
Operating margin - Global Lottery45.0 %28.6 %
Operating margin - Global Gaming(7.2)%(2.0)%

Global Lottery

Segment operating margin for the three months ended March 31, 2021 increased to 45.0% from 28.6% for the prior corresponding period. This increase is primarily the result of the 48% increase in the segment’s revenues, as the Global Lottery segment has significant fixed-costs which increases operating leverage as sales increase.

Global Gaming

Segment operating margin for the three months ended March 31, 2021 decreased to (7.2)% from (2.0)% for the prior corresponding period primarily due to a decrease in revenues of $44 million resulting from the global impacts of COVID-19, of which $35 million was related to product sales which were impacted at a greater rate than service revenue due to continued capital constraints within the market.

Liquidity and Capital Resources

Overview

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.

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
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requirements in the ordinary course of business for at least the next 12 months from the date of issuance of these condensed 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 March 31, 2021 and December 31, 2020, the Company's total available liquidity was as follows, respectively:

($ millions)March 31, 2021December 31, 2020
Revolving Credit Facilities due July 20241,356 1,817 
Cash and cash equivalents748 907 
Total Liquidity2,104 2,724 

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 2021 and 2020. Refer to the “Item 1. Notes to the Condensed Consolidated Financial Statements (Unaudited)—7. Debt” included herein 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 March 31, 2021 and December 31, 2020, approximately 18% and 23% 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.

The following table summarizes the Company’s USD equivalent cash balances by currency:

March 31, 2021December 31, 2020
($ millions)$%$%
Euros534 71 659 73 
U.S. dollars117 16 135 15 
Other currencies97 13 113 12 
Total Cash748 100 907 100 
 
The Company holds insignificant amounts of cash in countries where there may be restrictions on transfer due to regulatory or governmental bodies. Based on the Company's review of such transfer restrictions and the cash balances held in such countries, it does not believe such transfer restrictions have an adverse impact on its ability to meet liquidity requirements at March 31, 2021 and December 31, 2020.

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Cash Flow Summary
The following table summarizes the condensed consolidated statements of cash flows. A complete condensed consolidated statement of cash flows is provided in the Condensed Consolidated Financial Statements included herein. 
For the three months ended March 31,
($ millions)20212020$ Change
Net cash provided by operating activities from continuing operations251 26 226 
Net cash used in investing activities from continuing operations(42)(69)27 
Net cash (used in) provided by financing activities(301)660 (960)
Net cash flows of continuing operations(91)616 (707)

Analysis of Cash Flows
 
Net Cash Provided by Operating Activities from Continuing Operations

During the three months ended March 31, 2021, the Company generated $251 million of net cash provided by operating activities from continuing operations, an increase of $226 million compared to the prior corresponding period. The increase was principally attributed to an increase in operating income of $478 million.

Non-cash adjustments to net income for the three months ended March 31, 2021 were $175 million, compared to $382 million for the prior corresponding period. The principal drivers of the decrease in non-cash adjustments are related to a $296 million goodwill impairment incurred in the prior period, and an increase of foreign exchange gain of $75 million for the three months ended March 31, 2021 compared to the prior corresponding period. These decreases were partially offset by a $124 million increase in deferred income taxes, $24 million loss on the extinguishment of debt, and a $17 million increase in share-based compensation in the current period.

Changes in operating assets and liabilities resulted in cash outflows of $62 million and $109 million for the three months ended March 31, 2021 and 2020, respectively.

Net Cash Used in Investing Activities from Continuing Operations

During the three months ended March 31, 2021, the Company used $42 million of net cash for investing activities, a decrease of $27 million from the prior corresponding period. The decrease in net cash used in investing activities was principally attributed to a reduction of capital expenditures of $38 million, primarily attributable to timing of expenditures.

Net Cash (Used in) Provided by Financing Activities
During the three months ended March 31, 2021, the Company used $301 million of net cash for financing activities, compared to cash provided by financing activities of $660 million for the prior corresponding period.

During the three months ended March 31, 2021, cash flows used in financing activities primarily included principal payments of long-term debt of $1.4 billion, dividends paid to non-controlling interests of $69 million, $22 million of payments in connection with the early extinguishment of debt, proceeds from long-term debt of $750 million, and net proceeds from the Revolving Credit Facilities due July 2024 of $432 million.

During the three months ended March 31, 2020, cash flows provided by financing activities primarily included net proceeds from the Revolving Credit Facilities due July 2024 and short-term borrowings of $988 million and $110 million, respectively, net receipts from financial liabilities of $51 million, principal payments on long-term debt of $432 million, dividends paid to shareholders of $41 million, and dividends paid to non-controlling interests of $16 million.

Off-Balance Sheet Arrangements

At March 31, 2021, we did not have any significant changes to off-balance sheet arrangements from those disclosed within our 2020 Form 20-F.

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Dividends

No dividends were paid to shareholders during the three months ended March 31, 2021. As part of the amendments to the Senior Facilities Agreement for the Revolving Credit Facilities due July 2024 and the Senior Facility Agreement for the Euro Term Loan Facility due January 2023, the Company agreed to prohibit 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.

Historical payment of dividends is not an indication that dividends will be paid on any future date after June 30, 2021. The Company has not implemented a formal policy on dividend distributions, and any future dividend payment is subject to Board approval.

Contractual Obligations

There have been no material changes to our contractual obligations disclosed under “Item 5.C. Liquidity and Capital Resources” in our 2020 Form 20-F, except as disclosed in the “Item 1. Notes to the Condensed Consolidated Financial Statements (Unaudited)—7. Debt” included herein.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk
 
There have been no material changes to the disclosure under “Part I, Item 11. Quantitative and Qualitative Disclosures About Market Risk” included in our 2020 Form 20-F.

Item 4.      Controls and Procedures

There were no changes in our internal control over financial reporting during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.     OTHER INFORMATION             

Item 1.    Legal Proceedings

Please see “Item 1. Notes to the Condensed Consolidated Financial Statements (Unaudited)— Note 8. Commitments and Contingencies” included herein.
Item 1A.    Risk Factors

The following risks should be considered in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the consolidated financial statements and the related notes and the other risks described in the Safe Harbor Statement set forth in Item 5.F of the Company’s 2020 Form 20-F. These risks may affect the Company's operating results and, individually or in the aggregate, could cause its actual results to differ materially from past and anticipated future results. The following discussion of risks may contain forward-looking statements which are intended to be covered by the Safe Harbor Statement. Except as may be required by law, the Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. The Company invites you to consult any further related disclosures made by the Parent from time to time in materials filed with or furnished to the SEC.

Risks related to the Company's Business and Industry

The Company has a concentrated customer base in certain business segments, and the loss of any of its larger customers (or lower sales from any of these customers) could lead to significantly lower revenue

A substantial portion of the Company’s revenues is derived from exclusive licenses awarded to the Company by Agenzia delle Dogane e Dei Monopoli ("ADM"), the governmental authority responsible for regulating and supervising gaming in Italy. For the three months ended March 31, 2021, approximately 13% of the Company’s total consolidated revenues was earned for service provided for the operation of the Italian Gioco del Lotto game and approximately 12% was earned for service provided for the operation of the Italian Scratch & Win instant ticket game.

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The Company expects that a significant portion of its revenues and profits will continue to depend upon the licenses awarded to the Company by ADM. Licenses may be terminated prior to their expiration dates upon the occurrence of certain events of default affecting the Company, or if such licenses are deemed to be against the public interest, or terminated or annulled if successfully challenged by competitors. The law providing the extension of the license for instant tickets in Italy has been challenged from two operators (Sisal and Stanleybet) and the European Court of Justice ("ECJ") has been asked to express an opinion on the compatibility of that law within the E.U. law principles. In addition, the conditions for any new license will be established by law and included in the rules of the new license. Any material reduction in the Company’s revenues from these licenses, including as a result of an annulment, early termination, or non-renewal of these licenses following their expiration, could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.

In addition, recurring revenues from the Company’s top 10 customers outside of Italy accounted for approximately 26% of its total consolidated revenues for the three months ended March 31, 2021. If the Company were to lose any of these larger customers, or if these larger customers experience lower sales and consequently reduced revenues, which are primarily service revenues, there could be a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.

The Company’s operations are dependent upon its continued ability to retain and extend its 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 (equal to approximately 63.4% of its total consolidated revenues for the three months ended March 31, 2021), 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, such as the failure by a state legislature to approve the required budget appropriations, and many of these contracts in the U.S. permit the lottery authority to terminate the contract at will with limited notice and do not specify the compensation to which the Company would be entitled were such termination to occur.

In the event that the Company is unable or unwilling to perform certain lottery contracts, such contracts permit the lottery authority a right to use the Company's system-related equipment and software necessary for the performance of the contract until the expiration or earlier termination of the contract.

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 operations, business, financial condition, or prospects.

The outbreak of the novel coronavirus COVID-19 (“COVID-19”) has had and will likely continue to have an adverse effect on the Company’s business, operations, financial condition and operating results

In January 2020, an outbreak of a new strain of coronavirus, COVID-19, was identified. COVID-19 has since 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 and rapidly evolving, with governments, public institutions and other organizations imposing or recommending, and businesses and individuals implementing, restrictions on various activities or other actions to combat its spread, such as restrictions and bans on travel or transportation, stay-at-home directives, limitations on 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 pandemic and its consequences, including the closure of almost all casinos and gaming halls globally in the first half of 2020, dramatically reduced demand for gaming products and services, which had a negative impact on all aspects of the Company’s business. While many casinos and gaming halls have since reopened (particularly in the U.S.), some remain closed, and there can be no assurance that the Company will not be further affected by future shutdowns. The extent and duration of the COVID-19 pandemic and its impact on the Company’s future financial and operational performance remains uncertain, and will depend on future developments, including the duration and spread, and any recurrence of the pandemic, and related actions taken by U.S. and international governments, state and local officials to prevent and contain disease spread, all of which are uncertain and cannot be predicted. Furthermore, the Company’s suppliers may experience adverse effects of the pandemic, including but not limited to constraints on supplier ability to meet the Company’s supply requirements, bankruptcy or insolvency, which could impact the Company’s supply chain and its ability to operate at the same level as prior to the COVID-19 crisis.

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.

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Adverse changes in discretionary consumer spending and behavior, including as a result of the COVID-19 pandemic, or other similar health epidemics, may adversely affect the Company's business

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, may adversely impact customers, suppliers and business partners in a variety of ways.

The revenue generated by the Company's business depends on consumers’ discretionary income and their level of gaming activity. Economic factors resulting in a reduction of such discretionary income could result in fewer lottery ticket sales and fewer patrons visiting casinos or engaging in online or digital gaming. 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. A decline in casino visits may also have an adverse impact on the businesses of casino customers and their ability to purchase or lease products and services from the Company.

The COVID-19 pandemic, and the public perception thereof, has contributed to consumer unease and decreased discretionary spending and consumer travel, which have had, and may continue to have, a negative effect on the Company. Other future health epidemics or contagious disease outbreaks could do the same. The Company cannot predict the effects that the continuing COVID-19 pandemic, and any resulting unfavorable social, political, and economic conditions and decrease in discretionary spending or travel may have on the Company, as they would be expected to impact the Company’s customers, suppliers, and business partners in different ways. Further, the COVID-19 pandemic, and the perception of risk of infection may affect consumer behavior as people may feel uncomfortable traveling or being in crowded environments such as casinos and gaming halls while the virus remains a threat. This may result in fewer patrons visiting casinos and gaming halls and fewer players purchasing lottery and sports betting products, and lower amounts spent per casino visit or lottery purchase, or reduced spend on sports betting and other online gambling activities. Any of these factors may negatively impact the results of operations, cash flows, and financial condition of the Company’s casino customers, their ability to purchase or lease the Company’s products and services and therefore the Company’s machine gaming business revenue, revenues to lotteries and, therefore, the Company’s lottery business revenue, and revenues to the Company’s online casino and sports book partners and, therefore, the Company’s sports betting and digital business revenue.

The outbreak of COVID-19 and the resulting unfavorable economic conditions have also impacted and could continue to impact, the ability of the Company’s customers to make timely payments. These unfavorable conditions have caused, and could continue to or may cause, some of the Company’s customers to close casinos and gaming halls, decrease spending on marketing of or purchases of products or declare bankruptcy, which would adversely affect the Company’s business. The COVID-19 pandemic has also resulted in significant volatility in both the credit and equity markets, negatively impacting general economic conditions. The difficulty or inability of the Company’s customers to generate or obtain adequate levels of capital to finance their ongoing operations may reduce their ability to purchase the Company’s products and services. In the Company’s lottery business, difficult economic conditions may contribute to reductions in spending on marketing by customers and, in certain instances, less favorable terms under contracts, as many of the Company’s customers face budget shortfalls and seek to cut costs.

Slow growth or declines in the replacement of gaming machines, slow growth of new gaming jurisdictions or slow addition of casinos and gaming halls in existing jurisdictions may have an adverse impact on the Company

Demand for the Company’s machine gaming products and services is driven by the replacement of existing gaming machines in casinos and gaming halls, the establishment of new jurisdictions, the opening of additional casinos and gaming halls in existing jurisdictions, and the expansion of existing casinos and gaming halls. Slow growth or declines in the replacement cycle of gaming machines resulting from the COVID-19 pandemic have reduced and may continue to reduce the demand for the Company’s products and negatively impact the Company’s results of operations, cash flows, and financial condition.

The opening of new casinos and gaming halls, expansion of existing casinos and gaming halls, and replacement of existing gaming machines in existing casinos and gaming halls fluctuate with demand, economic conditions, regulatory approvals, and the availability of financing and have been adversely affected by the COVID-19 pandemic. In addition, the expansion of gaming into new jurisdictions can be a protracted process. Any of these factors could delay, restrict, or prohibit the expansion of the Company’s business and negatively impact the Company’s results of operations, cash flows, and financial condition.

The Company is subject to substantial 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.
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At March 31, 2021, the Company had outstanding performance bonds and letters of credit in an aggregate amount of approximately $1.6 billion. These instru