SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|☐||REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934|
|☒||ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the fiscal year ended|
December 31, 2021
|☐||TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|☐||SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
Commission file number 001-36906
INTERNATIONAL GAME TECHNOLOGY PLC
(Exact name of Registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organization)
66 Seymour Street, 2nd Floor
London W1H 5BT
(Address of principal executive offices)
Executive Vice President and General Counsel
Telephone: (401) 392-1000 Fax: (401) 392-4812
IGT Center, 10 Memorial Boulevard, Providence, RI 02903
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class|| ||Trading Symbol||Name of each exchange on which registered|
|Ordinary Shares, nominal value $0.10|| ||IGT||New York Stock Exchange|
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
|203,688,118 ||ordinary shares, nominal value $0.10 per share|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
x Yes o No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934.
o Yes x No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer||x|
|Non-accelerated filer||o||Emerging growth company ||o|
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
|U.S. GAAP||x|| International Financial Reporting Standards as issued|
by the International Accounting Standards Board
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.
o Item 17 or o Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes x No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
o Yes o No
TABLE OF CONTENTS
PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION
International Game Technology PLC (the “Parent”), together with its consolidated subsidiaries, is a global leader in gaming. In this annual report on Form 20-F, unless otherwise specified or the context otherwise indicates, all references to “IGT PLC” and the “Company” refer to the business and operations of the Parent and its consolidated subsidiaries.
This annual report on Form 20-F includes the consolidated financial statements of the Company for the years ended December 31, 2021, 2020, and 2019 (the “Consolidated Financial Statements”) prepared in accordance with United States Generally Accepted Accounting Principles as issued by the Financial Accounting Standards Board.
The financial information is presented in U.S. dollars. 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,” “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. Certain amounts in columns and rows within tables may not foot due to rounding. Percentages and earnings per share amounts presented are calculated from the underlying unrounded amounts.
The language of this annual report on Form 20-F is English. Certain legislative references and technical terms have been cited in their original language so that the correct technical meaning may be ascribed to them under applicable law.
Glossary of Certain Terms and Abbreviations
The glossary is used to define common terms and abbreviations that appear throughout the annual report on Form 20-F. Other, less common, terms and phrases are defined in the sections in which they appear, as they may either be Company or industry-specific. Additionally, definitions in “Item 18. Financial Statements” stand alone and are independently defined in that section.
|ASC||Accounting Standards Codification|
|ASU||Accounting Standards Update|
|BEAT||base-erosion and anti-abuse tax|
|Brexit||the United Kingdom’s withdrawal from the European Union|
|CEO|| ||Chief Executive Officer|
|CFO|| ||Chief Financial Officer|
|Company||the Parent together with its consolidated subsidiaries|
|De Agostini||De Agostini S.p.A.|
|EBITDA|| ||earnings before interest, taxes, depreciation and amortization|
|GAAP|| ||United States Generally Accepted Accounting Principles|
|GDPR||E.U. General Data Protection Regulation|
|GILTI||global intangible low-taxed income|
|iGaming|| ||digital (interactive) gaming|
|IGT PLC|| ||the Parent together with its consolidated subsidiaries|
|Loyalty Plan||the terms and conditions related to the Special Voting Shares|
|Loyalty Register||the register of ordinary shares for which holders thereof have validly elected to exercise the related Special Voting Shares|
|NYSE|| ||New York Stock Exchange|
|Parent||International Game Technology PLC|
|R&D|| ||research and development|
|SEC||United States Securities and Exchange Commission|
|Special Voting Shares||the special voting shares in the Parent, worth U.S.$0.000001 each and carrying 0.9995 votes|
|Tax Act|| ||the Tax Cuts and Jobs Act of 2017|
|U.K.|| ||United Kingdom|
|U.S.|| ||United States of America|
|Wire Act||U.S. Interstate Wire Act of 1961|
This annual report on Form 20-F includes forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning the Company and other matters. These statements may discuss goals, intentions, and expectations as to future plans, trends, events, dividends, results of operations, or financial condition, or otherwise, based on current beliefs of the management of the Company as well as assumptions made by, and information currently available to, such management. Forward-looking statements may be accompanied by words such as “aim,” “anticipate,” “believe,” “plan,” “could,” “would,” “should,” “shall,” “continue,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “will,” “possible,” “potential,” “predict,” “project,” or the negative or other variations of them. These forward-looking statements speak only as of the date on which such statements are made and are subject to various risks and uncertainties, many of which are outside the Company’s control. Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may differ materially from those predicted in the forward-looking statements and from past results, performance, or achievements. Therefore, you should not place undue reliance on such statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include (but are not limited to):
•the possibility that the Parent will be unable to pay dividends to shareholders or that the amount of such dividends may be less than anticipated;
•the length, duration and severity of the COVID-19 pandemic, including any new variants of the coronavirus, and the response of governments, including government-mandated property closures and travel restrictions;
•the effect of the COVID-19 pandemic on our operations or the operations of our customers and suppliers;
•the possibility that the Company may not achieve its anticipated financial results in one or more future periods;
•reductions in customer spending;
•a slowdown in customer payments and changes in customer demand for products and services as a result of changing economic conditions or otherwise;
•unanticipated changes relating to competitive factors in the industries in which the Company operates;
•the Company’s ability to hire and retain key personnel;
•the Company’s ability to attract new customers and retain existing customers in the manner anticipated;
•the impact of supply chain constraints on the Company’s ability to meet demand for its products;
•an increase in costs resulting from supply chain constraints, including, but not limited to, increases in input costs, labor costs and freight costs, among others;
•reliance on and integration of information technology systems;
•changes in legislation, governmental regulations, or the enforcement thereof that could affect the Company;
•enforcement of an interpretation of the Wire Act in such a manner as to prohibit or limit activities in which the Company and its customers are engaged;
•international, national, or local economic, social, or political conditions that could adversely affect the Company or its customers;
•conditions in the credit markets;
•risks associated with assumptions the Company makes in connection with its critical accounting estimates;
•the resolution of pending and potential future legal, regulatory, or tax proceedings and investigations; and
•the Company’s international operations, which are subject to the risks of currency fluctuations and foreign exchange controls.
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the Company’s business, including those described in “Item 3. Key Information—D. Risk Factors” and other documents filed by the Parent from time to time with the SEC. Except as required under applicable law, the Company does not assume any obligation to update these forward-looking statements. Nothing in this annual report is intended, or is to be construed, as a profit forecast or to be interpreted to mean that earnings per share of the Parent for the current or any future financial years will necessarily match or exceed the historical published earnings per share of the Parent, as applicable. All forward-looking statements contained in this annual report on Form 20-F are qualified in their entirety by this cautionary statement.
Item 1. Identity of Directors, Senior Management and Advisors
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
D. Risk Factors
The following risks should be considered in conjunction with “Item 5. Operating and Financial Review and Prospects”, the Consolidated Financial Statements, including the notes thereto, included in this annual report, and the other risks described in the Safe Harbor Statement set forth in Item 5. 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 years ended December 31, 2021 and 2020, approximately 12% and 11%, respectively, of the Company’s total consolidated revenues was earned for service provided for the operation of the Italian Gioco del Lotto game and approximately 11% and 8%, respectively, was earned for service provided for the operation of the Italian Scratch & Win instant ticket game.
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 25% of its total consolidated revenues for the year ended December 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 58% of its total consolidated revenues for the year ended December 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 may continue to have an adverse effect on the Company’s business, operations, financial condition and operating results
The COVID-19 pandemic 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 gaming business. While many casinos and gaming halls have since reopened, some remain closed or have enacted new restrictions, and there can be no assurance that the Company will not be further affected by future shutdowns or other restrictions. 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 increase in COVID-19 cases in the markets in which the Company operates (including as a result of the emergence of new COVID-19 variants), 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, some of the Company’s suppliers have experienced, and may continue to experience, adverse effects of the pandemic, including but not limited to constraints on ability to meet the Company’s supply requirements on schedule, bankruptcy or insolvency, any of which could impact the Company’s supply chain and its ability to meet demand for its products and its contractual commitments.
As a result of the COVID-19 pandemic, the Company has taken measures to reduce the impact of the pandemic on its operations, including requiring most employees to work remotely. The Company may experience lower work efficiency and productivity among teams which require high levels of collaboration and interaction, which may affect service responsiveness and may interfere with the Company’s growth strategies. Further, the Company’s business operations could be disrupted at any time if any of the Company’s employees are suspected of infection, since this may cause its employees to be quarantined and/or its offices to be temporarily shut down.
The current, and uncertain future, impact of the COVID-19 outbreak is expected to continue to impact the Company’s results, operations, outlooks, plans, goals, growth, reputation, cash flows, and liquidity.
Adverse changes in discretionary consumer spending and behavior, 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’s gaming business. 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 gaming business revenue, revenues to lotteries and, therefore, the Company’s lottery business revenue, and revenues to the Company’s online casino and sportsbook 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 in the future 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 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, and could continue to be, 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.
At December 31, 2021, the Company had outstanding performance bonds and letters of credit in an aggregate amount of approximately $1.3 billion. These instruments present a potential expense for the Company and divert financial resources from other uses. Claims on performance bonds, drawings on letters of credit, and payment of liquidated damages could individually or in the aggregate have a material adverse effect on the Company's results of operations, business, financial condition, or prospects.
Slow growth or declines in the lottery and gaming markets could lead to lower revenues for the Company
The Company’s future success will depend, in part, on the success of the lottery and gaming industries in attracting and retaining new players in the face of increased competition in the entertainment and gaming markets, as well as the Company's own success in developing innovative services, products and distribution methods/systems to achieve this goal. In addition, there is a risk that new products and services may replace existing products and services and the Company's customers might acquire or develop competencies that reduce their dependencies on the Company's product and services. The replacement of old products and services with new products and services may offset the overall growth of sales of the Company. A failure by the Company to achieve these goals could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
Brexit has created uncertainty that could impact the Company's operations, business, financial condition, or prospects
The U.K. exited the E.U. on January 31, 2020, which commenced a transition period through December 31, 2020, during which the U.K. continued to apply E.U. laws and regulations and the trading relationship between the U.K. and the E.U. remained the same. In December 2020, the U.K. and E.U. announced they had entered into a post-Brexit deal (the “Post-Brexit Trade Agreement”) on certain aspects of trade and other strategic and political issues and on January 1, 2021, the U.K. left the European Union Single Market and Customs Union. The Post-Brexit Trade Agreement offers U.K. and E.U. companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas; however, economic relations between the U.K. and the E.U. will now be on more restricted terms than existed previously. While the Post-Brexit Trade Agreement provides some clarity regarding the future relationship between the U.K. and the E.U., uncertainties remain and further negotiations are expected. The continued uncertainty following the U.K.’s withdrawal from the E.U. could adversely affect business activity, restrict the movement of capital and the mobility of personnel and otherwise impair political stability and economic conditions in the U.K., the E.U. and elsewhere. Any of these developments could have a material adverse effect on the Company’s business, future operations, operating results and cash flows.
The Company’s success depends in large part on its ability to develop and manage frequent introductions of innovative products and the ability to respond to technological changes
The Company must continually introduce and successfully market new games and technologies to remain competitive and effectively stimulate customer demand. The process of developing new products is inherently complex and uncertain. It requires accurate anticipation of changing customer needs and end-user preferences as well as emerging technological trends. If the Company's competitors develop new game content and technologically innovative products and the Company fails to keep pace, its business could be adversely affected. In addition, if the Company fails to accurately anticipate customer needs and end-user preferences through the development of new products and technologies, the Company could lose business to its competitors, which would adversely affect its results of operations, business, financial condition, or prospects. The Company intends to continue investing resources in research and development. There is no assurance that its investments in research and development will guarantee successful products. The Company invests heavily in product development in various disciplines: platform hardware, platform software, digital services, content (game) design and casino software systems. Because the Company’s newer products are generally more technologically sophisticated than those it has produced in the past, the Company must continually refine its design, development, and delivery capabilities across all channels to ensure product innovation. Newer products also require adequate supply of electronic components and other raw materials, for which the Company relies on third party suppliers. See “The Company faces supply chain risks that could adversely affect its financial results” below. If the Company cannot efficiently adapt its processes and infrastructure to meet the needs of its product innovations, or if the Company is unable to source adequate supplies to manufacture its newer products, its results of operations, business, financial condition, or prospects could be negatively impacted.
If the Company is unable to protect its intellectual property or prevent its unauthorized use by third parties, its ability to compete in the market may be harmed
The Company protects its intellectual property to ensure that its competitors do not use such intellectual property. However, intellectual property laws in the U.S., Italy, and in other jurisdictions may afford differing and limited protection, may not permit the Company to gain or maintain a competitive advantage, and may not prevent its competitors from duplicating its products, designing around its patented products, or gaining access to its proprietary information and technology.
The Company may not be able to prevent the unauthorized disclosure or use of its technical knowledge or trade secrets. For example, there can be no assurance that consultants, vendors, partners, former employees, or current employees will not breach their obligations regarding non-disclosure and restrictions on use. In addition, anyone could seek to challenge, invalidate, circumvent, or render unenforceable any of the Company's patents. The Company cannot provide assurance that any pending or future patent applications it holds will result in an issued patent, or that, if patents are issued, they would necessarily provide meaningful protection against competitors and competitive technologies or adequately protect the Company’s then-current
technologies. The Company may not be able to detect the unauthorized use of its intellectual property, prevent breaches of its cybersecurity efforts, or take appropriate steps to enforce its intellectual property rights effectively. In addition, certain contractual provisions, including restrictions on use, copying, transfer, and disclosure of software, may be unenforceable under the laws of certain jurisdictions.
The Company’s success may depend in part on its ability to obtain trademark protection for the names or symbols under which it markets its products and to obtain copyright protection and patent protection of its technologies and game innovations. The Company may not be able to build and maintain goodwill in its trademarks or obtain trademark or patent protection, and there can be no assurance that any trademark, copyright, or issued patent will provide competitive advantages for the Company or that the Company’s intellectual property will not be successfully challenged or circumvented by competitors.
The Company intends to enforce its intellectual property rights, and from time to time may initiate claims against third parties that it believes are infringing its intellectual property rights. Litigation brought to protect and enforce the Company’s intellectual property rights could be costly, time consuming, and distracting to management, could fail to obtain the results sought, and could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
If the Company is unable to license intellectual property from third parties, its ability to compete in the market may be harmed
The Company licenses intellectual property rights from third parties. If such third parties do not properly maintain or enforce the intellectual property rights underlying such licenses, or if such licenses are terminated or expire without being renewed, the Company could lose the right to use the licensed intellectual property, which could adversely affect its competitive position or its ability to commercialize certain of its technologies, products, or services.
In addition, some of the Company’s most popular games and features are based on trademarks, patents and other intellectual property licensed from third parties. The Company’s future success may depend upon its ability to obtain, retain and/or expand licenses for popular intellectual property rights with reasonable terms in a competitive market. If the Company cannot renew and/or expand existing licenses, it may be required to discontinue or limit its use of the games or gaming machines that use the licensed technology or bear the licensed marks, which could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
Third party intellectual property infringement claims against the Company could limit its ability to compete effectively
The Company cannot provide assurance that its products do not infringe the intellectual property rights of third parties. Infringement and other intellectual property claims and proceedings brought against the Company, whether successful or not, are costly, time consuming and distracting to management, and could harm the Company's reputation. In addition, intellectual property claims and proceedings could require the Company to do one or more of the following: (1) cease selling or using any of its products that allegedly incorporate the infringed intellectual property, (2) pay substantial damages, (3) obtain a license from the third-party owner, which license may not be available on reasonable terms, if at all, (4) rebrand or rename its products, and (5) redesign its products to avoid infringing the intellectual property rights of third parties, which may not be possible and, if possible, could be costly, time consuming, or result in a less effective product. A successful claim against the Company could have a material adverse effect on its results of operations, business, financial condition, or prospects.
The Company’s business may be adversely affected by lower cost of entry into the gaming industry
As a result of developments in digital and internet gaming, the cost of entry to the gaming market has decreased significantly. This has resulted in a highly competitive environment. Digital and internet gaming have emerged as substantial methods of competition from existing competitors and, increasingly, new competitors as a result of the lower cost of entry. The increased competition may result in increased pricing pressures on a number of the Company’s products and services, and may impact the Company’s results and financial position.
Divestitures may materially adversely affect the Company’s financial condition, results of operations or cash flows.
From time to time, the Company may pursue divestitures in support of its strategic goals. For example, on May 10, 2021, the Company completed the sale of its Italian B2C gaming machine, sports betting, and digital gaming businesses to Gamenet Group S.p.A. and on February 25, 2022, a wholly-owned subsidiary of the Company entered into a definitive agreement to sell the Company’s Italian commercial services business, to PostePay S.p.A. – Patrimonio Destinato IMEL. Divestitures involve risks, including difficulties in the separation of operations, services, products and personnel, the diversion of management's attention from other business concerns, the disruption of business, the potential loss of key employees and the retention of uncertain contingent liabilities related to the divested business. The Company may not be successful in managing these or any
other significant risks that it encounters in any divestiture the Company may undertake, and any such divestiture could materially and adversely affect the Company’s business, financial condition, results of operations and cash flows, and may also result in a diversion of management attention, operational difficulties and losses. Further, there can be no assurance whether the strategic benefits and expected financial impact of any divestiture will be achieved.
The Company’s inability to successfully complete and integrate future acquisitions could limit its future growth or otherwise be disruptive to its ongoing business
From time to time, the Company expects it will pursue acquisitions in support of its strategic goals. There can be no assurance that acquisition opportunities will be available on acceptable terms or at all or that the Company will be able to obtain necessary financing or regulatory approvals to complete potential acquisitions. The Company’s ability to succeed in implementing its strategy will depend to some degree upon the ability of its management to identify, complete and successfully integrate commercially viable acquisitions. Acquisition transactions may disrupt the Company’s ongoing business and distract management from other responsibilities. Further, the Company may incur unexpected costs, or fail to realize expected benefits from such acquisitions. In connection with any such acquisitions, the Company could face significant challenges in managing and integrating its expanded or combined operations, including acquired assets, operations, and personnel.
The Company faces reputational risks related to the use of social media
The Company frequently uses social media platforms as marketing tools. These platforms provide the Company, as well as individuals, with access to a broad audience of consumers and other interested persons. Negative commentary regarding the Company or the products it sells may be posted on social media platforms and similar devices at any time and may be adverse to the Company’s reputation or business. Further, as laws and regulations rapidly evolve to govern the use of social media, the failure by the Company, its employees or third parties acting at the Company's direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact the Company’s business, financial condition, and results of operations or subject it to fines or other penalties.
The Company’s results of operations, cash flows and financial condition could be affected by severe weather and other geological events and geopolitical events in the locations where the Company’s customers, suppliers or regulators operate.
The Company may be impacted by severe weather and other geological events (including as a result of climate change), including hurricanes, earthquakes, floods or tsunamis, that could disrupt the Company’s operations or the operations of the Company’s customers, suppliers, data service providers and regulators. Natural disasters or other disruptions at any of the Company’s facilities or the Company’s suppliers’ facilities, may impair or delay the operation, development, provisions or delivery of the Company’s products and services. The Company’s operations could also be impacted by geopolitical events, such as the outbreak of hostilities, and other acts of violence, including escalation of war or terrorism, any of which could adversely affect the Company’s ability to operate and deliver its products and services. While the Company insures against certain business interruption risks, the Company cannot assure that such insurance will compensate the Company for any losses incurred as a result of natural or other disasters. Any serious disruption to the Company’s operations, or those of the Company’s customers, suppliers, data service providers, or regulators, could have a material adverse effect on the Company’s results of operations, cash flows and financial condition.
Legal and Compliance Risks
Changing enforcement of the Wire Act may negatively impact the Company's operations, business, financial condition, or prospects
On January 14, 2019, the U.S. Department of Justice (the “DOJ”) published an opinion (the "2019 Opinion") reversing its previously-issued opinion (the "2011 Opinion") that the Wire Act, which prohibits several types of wager-related communications over a “wire communications facility,” was applicable only to sports betting. The 2019 Opinion interprets the Wire Act as applying to other forms of gambling that cross state lines, though the precise scope of the 2019 Opinion is unclear, and the DOJ has not yet addressed how it plans to enforce the Wire Act in light of the 2019 Opinion. Further, the New Hampshire Lottery Commission and certain private parties commenced litigation in federal district court in New Hampshire challenging the 2019 Opinion. In response to this and other lawsuits, the DOJ issued a memorandum in April 2019 acknowledging that the 2019 Opinion did not consider whether the Wire Act applies to State lotteries and their vendors, and the DOJ is now considering this issue. In connection with such acknowledgment, the DOJ also extended the non-prosecution period for State lotteries and their vendors indefinitely while they consider the question. If the DOJ concludes that the Wire Act does apply to State lotteries and/or their vendors, they would extend the non-prosecution period for an additional period of 90 days after the DOJ publicly announces such position.
On June 3, 2019, the U.S. District Court for the District of New Hampshire ruled in favor of the plaintiffs and opined that the Wire Act applies only to sports betting and related activities (the “NH Decision”). The NH Decision also set aside the 2019
Opinion leaving the 2011 Opinion as the DOJ's only stated opinion on the subject. On August 16, 2019, the DOJ filed a Notice of Appeal with respect to the NH Decision. On January 20, 2021, the United States Court of Appeals for the First Circuit affirmed in part the NH Decision (the “First Circuit Decision”). The First Circuit Decision also vacated the portion of the NH Decision that set aside the 2019 Opinion. The DOJ had until June 21, 2021 to file a petition for writ of certiorari seeking review by the U.S. Supreme Court. However, the DOJ let that deadline pass without filing a writ or seeking an extension. Accordingly, the First Circuit Decision is final and unappealable. It is unclear when the DOJ will conclude its consideration of whether the Wire Act applies to State lotteries and their vendors, or whether other courts would come to the same conclusions set forth in the NH Decision and the First Circuit Decision. If the Wire Act is broadly interpreted and enforced to prohibit activities in which the Company and its customers are engaged, the Company could be subject to investigations, criminal and civil penalties, sanctions and/or other remedial measures and/or the Company may be required to substantially change the way it conducts its business, any of which could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
On November 24, 2021, the Company filed a complaint against the DOJ in the U.S. District Court for the District of Rhode Island. The complaint seeks declaratory relief that the Wire Act applies only to sports betting and related activities. If granted, the Company would enjoy the same relief that the plaintiffs received in the NH Decision, that the Wire Act applies solely to sports betting and related activities wherever the Company’s United States businesses are located, as opposed to the current protection which is currently limited to the First Circuit.
The Company faces risks related to the extensive and complex governmental regulation applicable to its operations
The Company’s activities are subject to extensive and complex governmental regulation, including restrictions on advertising, increases in or differing interpretations by authorities on taxation, limitations on the use of cash, and anti-money laundering compliance procedures. These regulatory requirements are constantly evolving and may vary from jurisdiction to jurisdiction. In particular, the Italian government has recently banned gaming advertising and significantly raised gaming taxes. Any changes in the legal or regulatory framework or other changes, such as increases in the taxation of sports betting or gaming, changes in the compensation paid to licensees, or increases in the number of licenses, authorizations, or licenses awarded to the Company's competitors, could materially affect its profitability.
In addition, in the U.S. and in many international jurisdictions where the Company currently operates or seeks to do business, lotteries, sports betting, and gaming are not permitted unless expressly authorized by law. The successful implementation of the Company’s growth strategy and its business could be materially adversely affected if jurisdictions that do not currently authorize lotteries, sports betting, or gaming do not approve such activities or if those jurisdictions that currently authorize lotteries, sports betting, or gaming do not continue to permit such activities.
Investigations by governmental and licensing entities can result in adverse findings or negative publicity
From time to time, the Company is subject to extensive background investigations, and other investigations of various types are conducted by governmental and licensing authorities with respect to applicable gaming regulations. These regulations and investigations vary from time to time and from jurisdiction to jurisdiction where the Company operates. Because the Company’s reputation for integrity is an important factor in its business dealings with lottery and other governmental agencies, a governmental allegation or a finding of improper conduct by or attributable to the Company in any manner, the prolonged investigation of these matters by governmental or regulatory authorities, and/or the adverse publicity resulting therefrom could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects, including its ability to retain existing contracts or to obtain new or renewed contracts, both in the subject jurisdiction and elsewhere.
Failure to comply with data privacy laws, including the GDPR could result in significant penalties
The GDPR came into effect on May 25, 2018, expanding the rules on using personal data and increasing the risks of processing personal data compared to prior legislation and introducing new obligations on data controllers and rights for data subjects, including, among others:
•accountability and transparency requirements, which will require data controllers to demonstrate and record compliance with the GDPR and to provide more detailed information to data subjects regarding processing;
•enhanced data consent requirements, which includes "explicit" consent in relation to the processing of sensitive data;
•obligations to consider data privacy as any new products or services are developed and limit the amount of information collected, processed, and stored as well as its accessibility;
•constraints on using data to profile data subjects;
•providing data subjects with personal data in a usable format on request and erasing personal data in certain circumstances; and
•reporting of breaches without undue delay (72 hours where feasible).
Other jurisdictions in which the Company operates have implemented, or are considering implementing, data privacy laws similar to the GDPR. Several of the Parent’s subsidiaries deal with a significant amount of employee personal data. There is a risk that the Company's policies and procedures for compliance with data privacy laws, including the GDPR will not be implemented correctly or that individuals within the Company will not be fully compliant with the new procedures. Failure to comply with data privacy laws may have serious financial consequences to the Company. For example, failure to comply with the GDPR may lead to fines of up to the maximum of either €20 million or 4% of worldwide annual revenue, and the Company could face significant administrative sanctions and reputational damage that could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
The Company is exposed to significant risks in relation to compliance with anti-corruption laws and regulations and economic sanction programs
Doing business on a worldwide basis requires the Company to comply with the laws and regulations of various jurisdictions. In particular, the Company's operations are subject to anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act of 2010 and other anti-corruption laws that apply in countries where the Company operates. Other laws and regulations applicable to the Company control trade by imposing economic sanctions on countries and persons and creating customs requirements and currency exchange regulations. The Company's continued global expansion, including in countries which lack a developed legal system or have high levels of corruption, increases the risk of actual or alleged violations of such laws.
The Company cannot predict the nature, scope or effect of future regulatory requirements to which its operations might be subject or the manner in which such laws might be administered or interpreted.
There can be no assurance that the policies and procedures the Company has implemented have been or will be followed at all times or will effectively detect and prevent violations of these laws by one or more of the Company's directors, officers, employees, consultants, agents, joint-venture partners or other third-party partners. As a result, the Company could be subject to investigations, criminal and civil penalties, sanctions and/or other remedial measures that in turn could have a material adverse effect on its business, results of operations and financial condition.
Negative perceptions and publicity surrounding the gaming industry could lead to increased gaming regulation
The popularity and acceptance of gaming is influenced by prevailing social attitudes toward gaming, and changes in social attitudes toward gaming could result in reduced acceptance of gaming as a leisure activity. Further, from time to time, the gaming industry is exposed to negative publicity related to gaming behavior, gaming by minors, the presence of gaming machines in too many locations, risks related to digital gaming and alleged association with money laundering. Publicity regarding problem gaming and other concerns with the gaming industry, even if not directly connected to the Company, could adversely impact its business, results of operations, and financial condition. For example, if the perception develops that the gaming industry is failing to address such concerns adequately, the resulting political pressure may result in the industry becoming subject to increased regulation and restrictions on operations. Such an increase in regulation could adversely impact the Company's results of operations, business, financial condition, or prospects.
Changes to U.S. and foreign tax laws could adversely affect the Company
The Company is subject to tax laws in the U.S. and several foreign tax jurisdictions and judgment is required in determining the Company’s global provision for income taxes. While the Company believes its tax positions are consistent with the tax laws in the jurisdictions in which it conducts business, it is possible that these positions may be overturned by tax authorities, which may have a significant impact on the Company’s global provision for income taxes.
Furthermore, changes in tax laws or regulations may be proposed or enacted that could significantly affect the Company’s overall tax expense. For example, on December 22, 2017, the U.S. government enacted comprehensive tax legislation through the Tax Act, which significantly changed the U.S. corporate income tax system and has had a meaningful impact on the Company’s provision for income taxes. The Tax Act made broad changes to the U.S. federal income tax code, including reducing the federal corporate income tax rate from 35% to 21%, imposing limitations on the Company’s ability to deduct interest expense for tax purposes, creating a new minimum tax on GILTI, and creating BEAT, among many other complex provisions.
In 2015, the Organisation for Economic Co-operation and Development (“OECD”) published its final recommendations on base erosion and profit shifting (“BEPS”). These BEPS recommendations propose the development of rules directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world.
Several of the areas of tax law on which the BEPS project has focused have led or will lead to changes in the domestic law of individual OECD jurisdictions. These changes include (amongst others) restrictions on interest and other deductions for tax purposes, the introduction of broad anti-hybrid regimes and reform of controlled foreign company rules. Changes are also expected to arise in the application of certain double tax treaties as a result of the implementation and adoption of the OECD’s Multilateral Instrument, which may restrict the Company’s ability to rely on the terms of relevant double tax treaties in certain circumstances. Further, recent BEPS developments include proposals for new profit allocation and nexus rules and for rules to ensure that the profits of multinational enterprises are subject to a minimum rate of tax, and the OECD/G20 Inclusive Framework (IF) has adopted a two-pillar approach as the basis for this ongoing project. In October 2020, the OECD released "Blueprints" for the so-called Pillar One and Pillar Two, which set out the status with respect to current proposals for consultation. The IF’s stated aim was to resolve outstanding issues by mid-2021, following which implementation of the final recommendations of the project could lead to further amendment of domestic tax laws and bilateral tax treaties; however, this process remains ongoing at present.
In June 2021, the finance ministers of the G7 nations announced an agreement on the principles of the two-pillar solution to tackle the challenges of BEPS. Following the G7 announcement, the IF announced on July 1, 2021 broad agreement on the two pillars. On October 8, 2021, the OECD announced that 130 countries and jurisdictions had agreed to join an international tax framework implementing the two pillars. The announcement provided that regulated financial services are excluded from the application of Pillar One. The announcement also provided that the proposals under Pillar Two would apply to multinational groups with revenues exceeding €750 million and would seek to establish a minimum tax rate of at least 15% by operation of a globally coordinated set of rules, including an Income Inclusion Rule and an Undertaxed Payment Rule.
The IF will work towards an agreement and the release of an implementation plan, which will contemplate bringing Pillar Two into law in 2022 with an effective date in 2023.
If U.S. or other foreign tax authorities change applicable tax laws, the Company’s overall taxes could increase, and its results of operations, business, financial condition, or prospects may be adversely affected.
The Company may be subject to an unfavorable outcome with respect to pending regulatory, tax, or other legal proceedings, which could result in substantial monetary damages or other harm to the Company
The Company is involved in a number of legal, regulatory, tax, and arbitration proceedings including claims by and against it as well as injunctions by third parties arising out of the ordinary course of its business and is subject to investigations and compliance inquiries related to its ongoing operations. It is difficult to estimate accurately the outcome of any proceeding. As such, the amounts of the Company’s provision for litigation risks could vary significantly from the amounts the Company may be asked to pay or ultimately pay in any such proceeding. In addition, unfavorable resolution of or significant delay in adjudicating such proceedings could require the Company to pay substantial monetary damages or penalties and/or incur costs that may exceed any provision for litigation risks or, under certain circumstances, cause the termination or revocation of the relevant license or authorization and thereby have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
The Company depends on its suppliers and faces supply chain risks that could adversely affect its financial results
The Company purchases most of the parts, components, and subassemblies necessary for its lottery terminals and electronic gaming machines from outside sources. The Company outsources the manufacturing and assembly of certain lottery terminals to third-party vendors. The Company’s operating results could be adversely affected if one or more of its manufacturing and assembly outsourcing vendors fails to meet production schedules. Disruptions and delays could adversely affect our suppliers’ ability to meet production schedules.
During 2021 and the beginning of 2022, the Company experienced, and the Company may continue to experience, disruptions throughout its supply chain . In particular, the Company has been adversely impacted by a shortage in the supply of electronic components necessary for the manufacture of gaming machines, which has led to delays in the delivery of electronic components and has caused long lead times to be associated with new orders for electronic components. These shortages have required the Company to adjust some of its delivery and production schedules, and could cause the Company to be unable to meet demand for its products or to introduce new products on schedule, leading to a reduction in potential sales. The Company cannot provide assurance as to how long it will be impacted by the shortage in electronic components, or whether it will in the future face shortages of other parts, components or subassemblies necessary for the manufacture of any of its finished products. Furthermore, global supply chain constraints have also generally led to an increase in costs, including supply costs, freight costs, energy costs and labor costs, among others. The Company may not be able to pass these increased costs on to customers, which may lead to decreased profit margins. As a result, the Company's results of operations, business, financial condition, or prospects could be adversely affected by these supply chain disruptions, or any future supply chain disruptions.
In the Company’s lottery business, the Company transmits data using cellular technology and satellite transponders, generally pursuant to long-term contracts. The technical failure of any of these cellular or satellite services would require the Company to obtain other communication services, including other cellular or satellite access. In some cases, the Company employs backup systems to limit the Company’s exposure in the event of such a failure. Therefore, the Company cannot assure access to such other cellular services or satellites or, if available, the ability to obtain the use of such other cellular services or satellites on favorable terms or in a timely manner. While cellular and satellite failures are infrequent, the operation of each is outside of the Company’s control.
In the Company’s digital gaming business, the Company often relies on third-party data center providers to, among other things, host the Company’s remote game servers. The digital gaming business could be adversely impacted by breaches of or disruptions to these third-party data centers, including potential service level penalties with respect to the Company’s customers, reputational harm, the disclosure of proprietary information or the theft of the Company’s assets.
The Company’s management believes that if a supply contract with one of its vendors were to be terminated or breached, it may take time to replace such vendor under some circumstances and any replacement parts, components, or subassemblies may be more expensive, which could reduce the Company’s margins. Depending on a number of factors, including the Company’s available inventory of replacement parts, components or subassemblies, the time it takes to replace a vendor may result in a delay for a customer. Further, supply chain constraints and shortages could cause the Company’s existing vendors to be unable to meet supply commitments, which may cause delays in the Company’s ability to meet its contractually committed delivery schedules. Generally, if the Company fails to meet its delivery schedules under its contracts, it may be subject to substantial penalties or liquidated damages, or contract termination, which in turn could adversely affect the Company's results of operations, business, financial condition, or prospects.
Failure to attract, retain and motivate personnel may adversely affect the Company's ability to compete
The Company's ability to attract and retain key management, product development, finance, marketing, and research and development personnel, and its ability to attract and maintain a diverse workforce, is directly linked to the Company's continued success. In all of the industries in which the Company operates, the market for qualified executives and highly-skilled technical workers is intensely competitive, and increasing competition for talent and changing expectations of current and prospective employees pose new challenges relating to the attraction and retention of key personnel. The loss of key employees or an inability to hire a sufficient number of technical staff could limit the Company's ability to develop successful products and could cause delays in getting new products to market.
The Company’s business prospects and future success rely heavily upon the integrity of its employees, directors and agents
The Company strives to set exacting standards of personal integrity for its employees and directors and its reputation in this regard is an important factor in its business dealings with lottery, gaming, and other governmental agencies. For this reason, an allegation or a finding of improper conduct on the Company’s part, or on the part of one or more of its current or former employees, directors or agents, or the failure to detect fraudulent activity by employees in a timely manner, could have a material adverse effect upon the Company’s results of operations, business, financial condition, or prospects, including its ability to retain or renew existing contracts or obtain new contracts.
For example, in October 2020, the Italian Tax Police announced that it is investigating alleged misconduct by a small number of the Company’s former employees. The alleged misconduct involved unauthorized access to the Company’s lottery system in Italy in order to identify and redeem winning scratch-off lottery tickets. The investigation has since progressed with the Italian prosecutor commencing criminal proceedings against several of the Company’s former employees. The investigation also has led to the initiation of other governmental reviews and inspections, including by the Italian lottery regulator. The Company is fully cooperating with the Italian Tax Police and other regulators in order to facilitate their reviews and has taken proactive steps to ensure the integrity of the Company’s games and to protect the interests of the Company’s customers. The Company has also taken measures to review its operational systems and processes designed to prevent fraudulent activities and remains focused on ensuring its business is conducted at the highest levels of integrity. Nevertheless, the investigation and other governmental reviews and inspections (including any resulting adverse impact on the perceived integrity and security of the Company’s products and systems) could have a material adverse effect upon the Company’s results of operations, business, financial condition, or prospects, including its ability to retain or renew existing contracts or obtain new contracts.
The success of the Company’s business is dependent on customers’ confidence in the integrity of the Company’s products and systems
The real and perceived integrity and security of the Company’s products and systems are critical to its ability to attract customers and players. In the event of an actual or alleged defect in a Company product or unauthorized access of a Company system, the Company’s existing and prospective customers may lose confidence in the integrity and security of the Company’s
products and systems. Such a failure could have a material adverse effect upon the Company’s results of operations, business, financial condition or prospects, including its ability to attract new customers and retain its existing customers.
The Company and its operations are subject to cyber attacks and cybersecurity risks which may have an adverse effect on its business and results of operations and result in increasing costs to minimize these risks
The Company's business involves the storage and transmission of confidential business and personal information, and theft and security breaches may expose the Company to a risk of loss of, or improper use and disclosure of, such information, which may result in significant litigation expenses and liability exposure. Cyber attacks on businesses are becoming more frequent, and increasingly more difficult to anticipate and prevent due to their rapidly evolving nature. The Company continues to experience cyber attacks of varying degrees and phishing attacks on a regular basis. The Company's internal policies and procedures may not be able to prevent or detect every cyber attack or reduce all negative effects they may cause. In addition, the Company's insurance policies may not be sufficient to mitigate all potential negative effects of a cyber attack.
Any systems failure or compromise of the Company's security that results in the release of confidential business or personal information could seriously harm the Company's reputation and have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
The Company's security measures may also be breached due to employee error, malfeasance, system errors or vulnerabilities, including vulnerabilities of the Company's subcontractors, vendors, suppliers, or otherwise. Such breach could result in significant reputational, legal, and financial liability, and may potentially have a material adverse effect upon the Company’s business, results of operations and financial condition. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, become more sophisticated, and often are not recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventative measures. Additionally, cyber attacks could also compromise trade secrets and other sensitive information and result in such information being disclosed to others and becoming less valuable, which could have a material adverse effect upon the Company’s results of operations, business, financial condition, or prospects.
Failures in technology may disrupt the Company’s business and have an adverse effect on its results of operations
The Company’s success depends on its ability to avoid, detect, replicate, and correct software and hardware defects and fraudulent manipulation of its products. The Company incorporates security features into the design of its products which are designed to prevent its customers and players from being defrauded. The Company also monitors its software and hardware in an effort to avoid, detect and correct any technical errors. However, there can be no guarantee that the Company’s security features or technical efforts will continue to be effective in the future.
In addition, any disruption in the Company’s network or telecommunications services, or those of third parties that the Company uses in its operations, could affect the Company’s ability to operate its systems, which could result in reduced revenues and customer downtime. The Company’s network and databases of business and customer information, including intellectual property and other proprietary business information and those of third parties the Company uses, are susceptible to outages due to fire, floods, power loss, break-ins, cyber attacks, network penetration, data privacy or security breaches, denial of service attacks, and similar events, including inadvertent dissemination of information due to increased use of social media. Disruptions with such systems could result in a wide range of negative outcomes, including devaluation of the Company’s intellectual property, increased expenditures on data security, and costly litigation and potential payment of liquidated damages, each of which could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
Covenants in the Company’s debt agreements may limit its ability to pay dividends, repurchase shares and operate its business, and the Company’s breach of such covenants could materially and adversely affect its results of operations, business, financial condition, or prospects
Certain of the Company’s debt agreements require it to comply with covenants that may limit the Company’s ability to:
•pay dividends and repurchase shares;
•acquire assets of other companies or acquire, merge or consolidate with other companies;
•dispose of assets;
•incur indebtedness; and
•grant security interests in its assets.
The Company’s ability to comply with these covenants may be affected by events beyond its control, such as prevailing economic, financial, regulatory and industry conditions. These covenants may limit its ability to react to market conditions or take advantage of potential business opportunities. Further, a breach of such covenants could, if not cured or waived, result in acceleration of its indebtedness, result in the enforcement of security interests or force the Company into bankruptcy or liquidation. Such a breach or any failure to otherwise timely repay outstanding indebtedness could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
The Company may incur additional impairment charges
The Company reviews its long-lived and amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. The Company tests goodwill and other indefinite-lived intangible assets for impairment at least annually. Factors that may indicate a change in circumstances, such that the carrying value of the Company’s goodwill, amortizable intangible assets, or other non-amortizing assets may not be recoverable, include a decline in the Company’s stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in industry segments in which the Company participates. The Company may be required to record a significant charge in its consolidated financial statements during the period in which any impairment of goodwill or intangible assets is determined, which would negatively affect the Company’s results of operations. In light of the COVID-19 pandemic and the resulting unfavorable social, political, economic, and financial conditions, the Company performed an interim goodwill impairment assessment in the three months ended March 31, 2020, which resulted in a $296 million goodwill impairment charge reducing the value of its former International and North America Gaming and Interactive segments. While during the year ended December 31, 2021, the Company did not identify any events or circumstances that would indicate that it is more likely than not that the fair value of any reporting unit was less than its carrying amount, the Company cannot provide assurance that future changes will not require additional material impairment charges in any of its business segments in the future. For more information on the assessment and the goodwill impairment charge, see “Item 5.E. Critical Accounting Estimates” and “Notes to the Consolidated Financial Statements - 13. Goodwill” included in Item 18. “Financial Statements”.
The discontinuation of USD LIBOR, and the establishment and utilization of alternative reference rates, may increase the amount of interest the Company pays with respect to floating rate indebtedness denominated in U.S. dollars
The principal reference rate for U.S. dollar denominated indebtedness has been USD LIBOR and the expected discontinuation of USD LIBOR on June 30, 2023 may increase the amount of interest the Company pays with respect to floating rate indebtedness denominated in U.S. dollars. As of December 31, 2021, $20 million of the Company’s outstanding indebtedness had an interest rate which was calculated with reference to USD LIBOR. To the extent an interest rate is calculated with reference to USD LIBOR at the time of its discontinuation, such interest rate will be calculated pursuant to the relevant provisions of the Senior Facilities Agreement dated November 4, 2014, as amended (the “RCF Agreement”) (and of the agreements governing any other floating rate indebtedness denominated in U.S. dollars that the Company may incur prior to discontinuation). The Secured Overnight Financing Rate (“SOFR”) is expected to be the principal replacement reference rate for USD LIBOR. Because SOFR is based on overnight funding transactions secured by U.S. Treasury securities, it differs fundamentally from USD LIBOR. SOFR has a limited history, having been first published in April 2018. There is no assurance that SOFR will perform in the same or similar way as USD LIBOR would have performed, that SOFR will be a suitable replacement for USD LIBOR or that the replacement of USD LIBOR with SOFR will not increase the amount of interest that the Company pays with respect to floating rate indebtedness denominated in U.S. dollars.
Risks related to the Loyalty Voting Structure
The concentrated voting power held by De Agostini S.p.A., and the Parent’s loyalty voting structure, may limit other shareholders' ability to influence corporate decisions
At February 24, 2022, De Agostini S.p.A. had an economic interest in the Parent of approximately 50.75% (excluding treasury shares) and, due to its election to exercise the Special Voting Shares associated with its ordinary shares pursuant to the loyalty plan, a voting interest in the Parent of approximately 65.29% of the total voting rights (excluding treasury shares). See “Item 7. Major Shareholders and Related Party Transactions” for additional information. This shareholder may make decisions with which other shareholders may disagree, including, among other things, delaying, discouraging, or preventing a change of control of the Company or a potential merger, consolidation, tender offer, takeover, or other business combination and may also prevent or discourage shareholders’ initiatives aimed at changes in the Parent’s management.
The tax consequences of the loyalty voting structure are uncertain
No statutory, judicial, or administrative authority has provided public guidance in respect of the Special Voting Shares of the Parent and as a result, the tax consequences of owning such shares are uncertain. The fair market value of the Parent's Special Voting Shares, which may be relevant to the tax consequences of owning, acquiring, or disposing of such shares, is a factual
determination and is not governed by any guidance that directly addresses such a situation. Because, among other things, (i) the Special Voting Shares are not transferable (other than in very limited circumstances as provided for in the loyalty voting structure), (ii) on a winding up or otherwise, the holders of the Special Voting Shares will only be entitled to receive out of the Parent's assets available for distribution to its shareholders, in aggregate, $1, and (iii) loss of the entitlement to instruct the nominee on how to vote in respect of Special Voting Shares will occur without consideration, the Parent believes and intends to take the position that the value of each special voting share is minimal. However, the relevant tax authorities could assert that the value of the Special Voting Shares as determined by the Parent is incorrect. Shareholders are urged to consult their own tax advisors with respect to treatment of Special Voting Shares. See “Item 10.E Taxation” for additional information.
The loyalty voting structure may affect the liquidity of the Parent's ordinary shares and reduce their ordinary share price
The loyalty voting structure may limit the liquidity and adversely affect the trading prices of the Parent's ordinary shares. The loyalty voting structure is intended to reward shareholders for maintaining long-term share ownership by granting persons holding ordinary shares continuously for at least three years the option to elect to receive Special Voting Shares. The Special Voting Shares cannot be traded and, immediately prior to the deregistration of ordinary shares from the register of loyalty shares, any corresponding Special Voting Shares shall cease to confer any voting rights in connection with such Special Voting Shares. This loyalty voting structure is designed to encourage a stable shareholder base, but it may deter trading by those shareholders who are interested in gaining or retaining the Special Voting Shares. Therefore, the loyalty voting structure may reduce liquidity in the Parent's ordinary shares and adversely affect their trading price.
Item 4. Information on the Company
A. History and Development of the Company
The Parent is organized as a public limited company under the laws of England and Wales. The Parent’s principal office is located at 66 Seymour Street, 2nd Floor, London W1H 5BT, United Kingdom, telephone number +44 (0) 207 535 3200. The Parent’s agent for service in the United States is CT Corporation System, 701 S. Carson Street - Suite 200, Carson City, Nevada 89701 (telephone number: +1 518 433 4740). The Company operates under the Companies Act 2006, as amended.
The Parent was formed as a business combination shell company on July 11, 2014 under the name “Georgia Worldwide Limited.” On September 16, 2014, it changed its name to “Georgia Worldwide PLC,” and on February 26, 2015, it changed its name to “International Game Technology PLC.”
The Company is a product of the acquisition of International Game Technology by GTECH S.p.A., which was completed on April 7, 2015, through mergers of the prior businesses into the Parent and a subsidiary of the Parent. Prior to the mergers, the Parent did not conduct any material activities other than those incident to its formation, the making of certain required securities law filings, and the preparation of the proxy statement/prospectus filed in connection with the acquisition and mergers. For more information on the mergers, see “Item 4.A” of the Parent’s annual report on Form 20-F for 2015, filed with the SEC on April 29, 2016.
Capital Expenditures and Divestitures
For a description, including the amount invested, of the Company’s principal capital expenditures (including interests in other companies) for the years ended December 31, 2021, 2020 and 2019, see “Item 5. B. Liquidity and Capital Resources—Capital Expenditures.”
For a description of the Company’s principal divestitures for the years ended December 31, 2021, 2020, and 2019, see “Item 5.A. Operating Results.”
On February 25, 2022, the Parent’s wholly-owned subsidiary, IGT Lottery S.p.A. entered into a share sale and purchase agreement to sell 100% of the share capital of Lis Holding S.p.A., a wholly-owned subsidiary of IGT Lottery S.p.A. that conducts the Company’s Italian commercial services business, to PostePay S.p.A. – Patrimonio Destinato IMEL, an entity of the Italian postal service provider group, for a purchase price of €700 million. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close during the third quarter of 2022.
To date, the Company has not made any other capital expenditures or divestitures in calendar year 2022 that were not in the ordinary course of business.
The SEC maintains an internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The Company’s SEC filings can be found there and on the Company’s website: www.igt.com.
B. 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 a wealth of compelling content, substantial investment in innovation, player insights, operational expertise, and leading-edge technology, the Company’s solutions deliver gaming experiences that responsibly 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.
The Company operates and provides 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, digital lottery, and commercial services. The Company is headquartered in London, with principal operating facilities located in Providence, Rhode Island; Las Vegas, Nevada; and Rome, Italy. The Company had approximately 10,500 employees at December 31, 2021.
Effective September 1, 2021, the Company adopted a new business segment structure focused on three business segments: Global Lottery, Global Gaming and Digital & Betting. This resulted in a change in our operating segments and reporting units.
The Company's operations for the periods presented herein are reported under this new business segment structure.
Products and Services
The Company has three broad categories of products and services: (1) Lottery, (2) Gaming, and (3) Digital & Betting.
The Company supplies a unique set of lottery solutions to approximately 80 customers worldwide, including to 36 of the 46 U.S. lotteries through its Global Lottery segment. Lottery customers frequently designate their revenues for particular purposes, such as education, economic development, conservation, transportation, programs for senior citizens and veterans, health care, sports facilities, capital construction projects, cultural activities, tax relief, and others. Many governments have become increasingly dependent on their lotteries as revenues from lottery ticket sales are often a significant source of funding for these programs.
Lottery products and services are provided through operating contracts, facilities management contracts (“FMCs”), lottery management agreements (“LMAs”), and product sales contracts. In the majority of jurisdictions, lottery authorities award contracts through a competitive bidding process. Typical service contracts are five to 10 years in duration, often with multi-year extension options. After the expiration of the initial or extended contract term, a lottery authority generally may either seek to negotiate further extensions or commence a new competitive bidding process. Certain customers may require the Company to pay an upfront fee for the right to exclusively manage their lottery.
The Company designs, sells, leases, and operates a complete suite of point-of-sale machines that are electronically linked with a centralized transaction processing system that reconciles lottery funds between the retailer and the lottery authority. The Company provides and operates highly secure, online lottery transaction processing systems that are capable of processing over 500,000 transactions per minute. The Company provides more than 475,000 point-of-sale devices to lottery customers and lotteries that it supports worldwide. The Company also produces high-quality instant ticket games and provides printing
services such as instant ticket marketing plans and graphic design, programming, packaging, shipping, and delivery services.
The Company has developed and continues to develop new lottery games, licenses new game brands from third parties, and installs a range of new lottery distribution devices, all of which are designed to drive responsible same-store sales growth for its customers. In connection with its delivery of lottery services, the Company actively advises its customers on growth strategies. Depending on the type of contract and the jurisdiction, the Company also provides marketing services, including retail optimization and lottery brand awareness campaigns. The Company works closely with its lottery customers and retailers to help retailers sell lottery games more effectively. These programs include product merchandising and display recommendations, a selection of appropriate lottery product mix for each location, and account reviews to plan lottery sales growth strategies. The Company leverages years of experience accumulated from being the exclusive licensee for the Italian Scratch & Win instant lottery game and the Italian Lotto, one of the world’s largest lotteries. This lottery B2C expertise in Italy, which includes management of all the activities along the lottery value chain, allows the Company to better serve B2B customers.
The Company also provides a complete suite of iLottery solutions and services. This, coupled with its professional expertise, allows lotteries to fully engage their players on any digital channel in regulated markets. Existing lottery game portfolios are extended to the digital channel to provide a spectrum of engaging content such as e-Instant tickets.
The Company’s primary competitors in the Lottery business include Intralot, Neogames, Pollard, SAZKA, Scientific Games, Sisal, and Tabcorp.
The primary types of lottery agreements are outlined below:
Operating and Facilities Management Contracts
The majority of the Company’s revenue in the Lottery business comes from operating contracts and FMCs.
Since 1998, and for a term expiring in 2025, the Company has been the exclusive licensee for the Italian Lotto game (management of operations commenced in 1994). Beginning in November of 2016, the Company’s exclusive license for the Italian Lotto includes partners as part of a joint venture. Lottoitalia s.r.l. (“Lottoitalia”), a joint venture company among IGT Lottery S.p.A., Italian Gaming Holding a.s., Arianna 2001 (an entity associated with the Federation of Italian Tobacconists), and Novomatic Italia, is the exclusive manager of the Italian Lotto game. Lottoitalia is 61.5% owned by IGT Lottery S.p.A. The Company, through Lottoitalia, manages the activities along the lottery value chain, such as creating games, determining payouts, collecting wagers through its network, paying out prizes, managing all accounting and other back-office functions, running advertising and promotions, operating data transmission networks and processing centers, training staff, providing retailers with assistance, and supplying materials including play slips, tickets and receipts, and marketing and point-of-sale materials for the game. Since 2004, and for a term expiring in 2028, the Company also has been the exclusive licensee for the instant ticket lottery (“Gratta e Vinci” or “Scratch & Win”) through Lotterie Nazionali S.r.l., a joint venture 64.0% owned by the Parent’s subsidiary IGT Lottery S.p.A., with the remainder directly and indirectly owned by Scientific Games Corporation and Arianna 2001. As of December 31, 2021, the revenue weighted-average remaining term of the Company’s existing lottery contracts in Italy was 5.4 years.
The Company’s FMCs typically require the Company to design, install, and operate the lottery system and retail terminal network for an initial term, which is typically five to 10 years. The Company’s FMCs are granted on an exclusive basis, and usually contain extension options under the same or similar terms and conditions, generally ranging from one to five years. Under a typical FMC, the Company maintains ownership of the technology and equipment, and is responsible for capital investments throughout the duration of the contract, although the investments are generally concentrated during the early years. The Company provides a wide range of services to lottery customers related to the technology, equipment, and facilities such as hosting, maintenance, marketing, and other support services. The Company generally provides its lottery customers retailer terminal and communication network equipment through operating leases. In return, the Company typically receives fees based upon a percentage of the sales of all lottery tickets, including draw-based and/or instant ticket games, though under certain of its agreements, the Company may receive fixed fees for certain goods or services. In limited instances, the Company provides instant tickets and online lottery systems and services under the same facilities management contract. As of February 24, 2022, the Company had FMCs with or for the benefit of 22 U.S. jurisdictions. As of December 31, 2021, the Company’s largest FMCs by annual revenue were Texas, California, Florida, New York, and Michigan, and the revenue weighted-average remaining term of the Company’s existing FMCs (excluding Italy) was 5.3 years (7.3 years including available extensions). Also, as of February 24, 2022, the Company operated under operating contracts or FMCs in 17 international jurisdictions, excluding Italy.
Another form of operating contract is an LMA. Under an LMA, the Company manages, within parameters determined by the lottery customer, the core lottery functions, including the lottery systems and the majority of the day-to-day activities along the lottery value chain. This includes collecting wagers, managing accounting and other back-office functions, running advertising and promotions, operating data transmission networks and processing centers, training staff, providing retailers with assistance, and supplying materials for the games. LMAs also include a separate FMC, pursuant to which the Company leases certain hardware and equipment, and provides access to software and support services. The Company provides lottery management services in New Jersey as part of a joint venture and in Indiana through a wholly-owned subsidiary of the Parent. The Company’s revenues from LMAs include incentives based on achievement of contractual metrics, and, with respect to the supply agreements, are based generally on a percentage of wagers. The Company is also subject to penalties for failure to achieve contractual metrics under its LMAs. The Company categorizes revenue from LMAs as service revenue from “Operating and facilities management contracts” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
Operating contracts and FMCs often require the Company to pay substantial monetary liquidated damages in the event of non-performance by the Company. The Company’s revenues from operating contracts and FMCs are generally service fees paid to the Company directly by the lottery authority based on a percentage of such lottery’s wagers or ticket sales. The Company categorizes revenue from operating contracts and FMCs as service revenue from “Operating and facilities management contracts” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
Instant Ticket Services
As an end-to-end provider of instant tickets and related services, the Company produces high-quality instant ticket games and provides ancillary printing services such as instant ticket marketing plans and graphic design, programming, packaging, shipping, and delivery services. Instant tickets are sold at numerous types of retail outlets but most successfully in grocery and convenience stores.
Instant ticket contracts are priced based on a percentage of ticket sales revenues or on a price per unit basis and generally range from two to five years with extension opportunities. Government-sponsored lotteries grant printing contracts on both an exclusive and non-exclusive basis where there is typically one primary vendor and one or more secondary vendors. A primary contract permits the vendor to supply the majority of the lottery’s ticket printing needs and includes the complete production process from concept development through production and shipment. It also typically includes marketing and research support. A primary printing contract can include any or all of the following services: warehousing, distribution, telemarketing, and sales/field support. A secondary printing contract includes providing backup printing services and alternate product sources. It may or may not include a guarantee of a minimum or maximum number of games. As of February 24, 2022, the Company provided instant ticket printing products and services to 31 customers in North America and 22 customers in international jurisdictions. The Company categorizes revenue from instant ticket printing contracts, that are not part of an operator or LMA contract, as product sales from “Lottery products” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.” The instant ticket production business is also highly competitive and subject to strong, price-based competition.
Product Sales and Services Contracts
Under product sales and services contracts, the Company assembles, sells, delivers, and installs turnkey lottery systems or lottery equipment, provides related services, and licenses related software. The lottery authority maintains, in most instances, responsibility for lottery operations. The Company sells additional machines and central computers to expand existing systems and/or replace existing equipment and provides ancillary maintenance and support services related to the systems, equipment sold, and software licensed. The Company categorizes revenue from product sales and services contracts on a case-by-case basis as either service revenue or product sales from “Systems, software, and other” or “Lottery products” respectively, as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
The Company develops innovative technology and offers commercial and payment services over a standalone network. Leveraging its distribution network and secure transaction processing experience, the Company offers high-volume processing of commercial and payment transactions including: prepaid cellular telephone recharges, bill payments, e-vouchers, electronic tax payments, stamp duty services and prepaid card recharges. These services are primarily offered outside of North America. In Italy, the Company’s commercial payment and eMoney services network comprises points-of-sale such as tobacconists, bars,
petrol stations and newspaper stands. The Company categorizes revenue from commercial services as service revenue from “Systems, software, and other” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
The Company designs, develops, assembles or orders the assembly of, and provides cabinets, games, systems, and software for customers in regulated gaming markets throughout the world under fixed fee, participation and product sales contracts. As of February 24, 2022, the Company holds more than 440 global gaming licenses and does business with commercial casino operators, tribal casino operators, and governmental organizations (primarily consisting of Lottery operators). The Company provides social casino content as part of a multi-year strategic partnership with DoubleU Games. Gaming products and services are provided through the Global Gaming business segment.
The Company’s primary global competitors in Gaming are Aristocrat, Everi, Konami, Novomatic, PlayAGS and Scientific Games.
Gaming Machines and Game Content
The Company offers a diverse range of gaming machine cabinets from which land-based casino customers can choose to maximize functionality, flexibility, and player comfort. In addition to cabinets, the Company develops a wide range of casino games taking into account local jurisdictional requirements, market dynamics, and player preferences. The Company combines elements of math, play mechanics, sound, art, and technological advancements with a library of entertainment licenses and a proprietary intellectual property portfolio to provide gaming products designed to provide a high degree of player appeal and entertainment. The Company offers a wide array of casino-style slot machines in a variety of multi-line, multi-coin, and multi-currency configurations.
The Company’s slot games typically fall into two categories: premium games and core games.
Premium games include:
•Wide Area Progressives - games that are linked across several casinos and/or jurisdictions and share a large common jackpot, including The Wheel of Fortune® franchise; and
•Multi-Level Progressives - games that are linked to a number of other games within the casino itself and offer players the opportunity to win different levels of jackpots, such as Fortune Coin™ Boost.
Core games, which include video reel, mechanical reel, and video poker, are typically sold and in some situations leased to customers. Some of the Company’s most popular core games in 2021 included Regal Riches, Dragons vs Pandas, Stinkin’ Rich–Skunks Gone Wild, Superstar Poker II, Superstar Poker and Super Times Pay Poker.
The Company produces other types of games including:
•“Centrally Determined” games which are games connected to a central server that determines the game outcome;
•Class II games which are electronic video bingo machines that can be typically found in North American tribal casinos and certain other jurisdictions like South Africa; and
•Random-number-generated and live dealer electronic table games, including baccarat and roulette.
Gaming service revenue is primarily generated through providing premium game content and cabinets on short duration leases to customers. The pricing of these arrangements is largely variable where the casino customer pays fees to the Company based on a percentage of amounts wagered, net win, or a daily fixed fee for use of the game content, cabinets, and related support services.
Gaming product sales revenues are generated from the sales of land-based gaming machines (equipment and game content), systems, component parts (including game conversion sales), other equipment and services. The Company categorizes revenue from gaming machines as product sales from “Gaming terminals” and revenue from game content as product sales from “Other” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
Video Lottery Terminal (“VLT”)
The Company provides VLTs, VLT central systems, and VLT games worldwide. VLTs are gaming machines which are regulated by lotteries, and are usually connected to a central system.
The Company provides systems and machines to other gaming licensees, either as a product sale or with long-term, fee-based contracts where the service revenue earned is generally based on a percentage of wagers, net of applicable gaming taxes. The Company categorizes revenue from VLTs as either service revenue from “Gaming terminal services” or product sales from “Gaming terminals”, depending on the nature of the transaction, as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
Gaming Management Systems
The Company offers a comprehensive range of system modules and applications for all areas of casino management. Gaming systems products include infrastructure and applications for casino management, customer relationship management, patron management, and server-based gaming. The Company’s main casino management system offering is the Advantage® System, which offers solutions and modules for a wide-range of activities from accounting and payment processing to patron management and regulatory compliance.
The Company’s systems feature customized player messaging, tournament management, and integrated marketing and business intelligence modules that provide analytical, predictive, and management tools for maximizing casino operational effectiveness. The server-based solutions enable electronic game delivery and configuration for slot machines, as well as providing casino operators with opportunities to increase profits by enhancing the players’ experience, connecting with players interactively, and creating operational efficiencies. Service Window enables operators to market to customers more effectively by leveraging an additional piece of hardware onto existing machines for delivering in-screen messaging. The Company’s systems portfolio also extends to encompass mobile solutions such as the Resort Wallet™, which is a cardless, cashless loyalty solution for casino players. Resort Wallet™ includes IGTPay™, a fully cashless land-based offering for casino operators which provides a direct link to external funding. Mobile solutions that drive efficiencies and enable floor monitoring for operators while decreasing response time to player needs include Mobile Host, Mobile Responder, and Mobile Notifier. The Company categorizes revenue from gaming management systems as product sales from “Other” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
3. Digital & Betting
Digital gaming enables game play via the internet for real money on mobile or the web. The Company, through its PlayCasino brand, designs, assembles, and distributes a full suite of configurable products, systems, content, and services, and holds more than 35 licenses, 17 of which are specific to digital gaming only, that authorize the provision of digital gaming products and services worldwide, including digital products such as blackjack, roulette, slot games, poker, bingo, and other casino card games with features such as single and multiplayer options with branded titles and select third-party content.
The Company’s iGaming systems and digital platforms offer customers an integrated system that provides player account management, advanced marketing and analytical capabilities, improved player engagement tools and a highly reliable and secure payment system. The Company also offers a remote game server, which is a fast gateway to extensive casino content, and digital gaming services that enhance player experiences and create marketing opportunities around either the Company’s games or third-party games.
The Company’s diverse iGaming B2B customer base includes Caesars Interactive Entertainment, FanDuel, Loto-Quebec, Ontario Lottery and Gaming and Penn National Gaming, among others. The Company faces competition from broad-based traditional B2B providers, such as Playtech plc and Microgaming as well as from in-house game development by some operators and an increasing number of content providers entering the market. The Company also faces competition in the digital space from other gaming suppliers, such as Scientific Games and GAN.
The Company categorizes revenue from digital gaming products as product sales from “Other”and revenue from digital gaming services as service revenue from “Digital and betting services” as described in “Notes to the Consolidated Financial Statements— 4. Revenue Recognition” included in “Item 18. Financial Statements.”
The Company provides sports betting technology and management services, branded as PlaySports, to licensed sports betting operators in over 20 states in the U.S., holding 43 licenses that authorize the provision of sports betting products and services, 18 of which are specific to sports betting only. The Company does not operate direct to consumer sports betting in the U.S.
The Company offers a combination of technology and services to U.S. licensed sportsbook operators in each state where sports betting is legal. The offering may be different in each market in order to comply with local regulations and market conditions. The Company currently packages services in two ways:
•“Sports betting platform” solutions offer modular services hosted and maintained in each U.S. state or tribal jurisdiction where sports betting is legal. These solutions provide certified and managed sports betting software made available for customers to operate retail and account-based interactive sports as well as retail components such as self-service betting kiosks and employee operated betting terminals, and integrate with pari-mutuel race wagering in a particular jurisdiction; and;
•“Turnkey” managed service solutions combine the Company’s end-to-end sports betting management technology with a portfolio of value-added services, principally trading and trading support services, but that also may include offer management, payments, fraud management, advisory functions, and interactive components such as mobile web and desktop applications, all of which support the operations of land-based, digital, and omni-channel sports betting operators.
Sports betting operators who are customers of the Company in the U.S. include: FanDuel (Flutter plc), PointsBet, Delaware North, Boyd Gaming Corporation, Resorts World and the Rhode Island Lottery. The Company’s primary competitors in the U.S. sports betting market include Scientific Games, Amelco and Kambi, and may in the future include OpenBet.
The Company categorizes revenue from sports betting as service revenue from “Digital and betting services” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
Evaluation of Potential Separate Public Listing
As a part of its ongoing commitment to ensuring appropriate strategic flexibility for its Digital & Betting business segment, the Company is currently undertaking a legal entity and organizational realignment designed to provide the Digital & Betting business segment with dedicated management, a more nimble organization and governance structure and the ability to pursue organic and inorganic growth opportunities. As part of this process, the Company may evaluate a potential separate public listing of its Digital & Betting business segment to further enhance its strategic flexibility while maintaining a controlling interest following the consummation of any such potential separate public listing. There can be no assurances as to the form and timing of any separate public listing or other strategic activity that may result from this evaluation or if any such listing or activity will be consummated at all.
Business Segment Revenue
Revenues for the Company by business segment are as follows:
| ||For the year ended December 31,|
|($ in millions)||2021||2020||2019|
|Service revenue||2,690 ||2,043 ||2,183 |
|Product sales||123 ||121 ||110 |
|Global Lottery||2,812 ||2,164 ||2,293 |
|Service revenue||630 ||483 ||842 |
|Product sales||482 ||354 ||806 |
|Global Gaming||1,112 ||837 ||1,648 |
|Service revenue||163 ||114 ||76 |
|Product sales||1 ||1 ||15 |
|Digital & Betting||165 ||115 ||91 |
|Total revenue||4,089 ||3,115 ||4,032 |
For a further description of the principal services and products the Company provides by business segment, including a breakdown of the Company’s revenues by geographic market, see “Item 5. Operating and Financial Review and Prospects” and “Notes to the Consolidated Financial Statements—21. Segment Information” included in Item 18. “Financial Statements”.
In general, the Company’s business is not materially affected by seasonal variation. In the lottery business, consumption may decrease over the summer months due to the tendency of consumers to be on vacation during that time, while consumption may increase around Christmas. Seasonal gaming trends generally show higher play levels in the spring and summer months and lower levels in the fall and winter months. Gaming product sales may be uneven throughout the year, and can be affected by factors including the timing of large transactions and new casino openings. In the sports betting business, the volume of bets that are collected over the year can be affected by the schedules of sporting events and the particular season of such sports. The volume of bets collected may also be affected by schedules of significant sporting events that occur at regular, but infrequent, intervals, such as the Super Bowl and the NCAA basketball tournament.
Source of Materials
The Company uses a variety of raw materials to assemble gaming devices (e.g., metals, wood, plastics, glass, electronic components, and LCD screens). Moreover, there is significant paper, toner, and ink consumption at our two ticket printing facilities. A large portion of the materials used involve packaging, most of which is cardboard and paper.
During 2021 and the beginning of 2022, the Company experienced shortages in the availability of electronic components necessary for the manufacture of gaming machines. See “Item 3.D. Risk Factors - Operational Risks - The Company depends on its suppliers and faces supply chain risks that could adversely affect its financial results.” The ongoing global supply chain crisis may lead to further shortages in 2022 and beyond. Supply chain constraints have also led to an increase in prices for most of the Company’s principal raw materials. The Company generally has global material suppliers and uses multi-sourcing practices to promote component availability.
The Company devotes substantial resources to research and development and incurred $238 million, $191 million, and $266 million of related expenses in 2021, 2020, and 2019, respectively. The Company’s research and development efforts cover multiple creative and engineering disciplines for its lottery, gaming and digital businesses, including creative game content, hardware, and software; and land-based, online social, and digital real-money applications. These products are created primarily by employee designers, engineers, and artists, as well as third-party content creators. Third-party technologies are used to improve the yield from development investment and concentrate increased resources on product differentiation engineering.
Product assembly operations primarily involve the configuration and assembly of electronic components, cables, harnesses, video monitors, and prefabricated parts purchased from outside sources.
The Company’s intellectual property (“IP”) portfolio of patents, trademarks, copyrights, and other licensed rights is significant. At December 31, 2021, the Company held approximately 4,100 patents and 9,200 trademarks filed and registered worldwide. The Company’s IP portfolio is widely diversified with patents related to a variety of products, including game designs, bonus and secondary embedded game features, device components, systems features, and web-based or mobile functionality. The Company also relies on trade secret protection, believing that its technical “know-how” and the creative skills of its personnel are of substantial importance to its success.
Most of the Company’s products are marketed under trademarks and copyrights that provide product recognition and promote widespread acceptance. The Company seeks protection for its copyrights and trademarks in the U.S. and various foreign countries, where applicable, and uses IP assets offensively and defensively to protect its innovation. The Company also has a program where it licenses its patents to others under terms designed to promote standardization in the gaming industry.
In addition, some of the Company’s most popular games and features, including Wheel of Fortune®, are based on trademarks, patents and/or other intellectual property licensed from third parties. The Company routinely obtains, retains, and expands licenses for popular intellectual property.
The Company has developed software for use in the management of a range of lottery, gaming, and betting functions and products, including leveraging integration with third-party software components. Software developed by the Company is used in a variety of applications including (i) in centralized systems for the management of lotteries, gaming (including digital gaming) and betting, and other commercial services; (ii) to enhance functions connected to services provided through websites and mobile applications including lotteries, sports betting, instant win, and casino style games; and (iii) in a variety of back-office functions. Software developed by the Company is also used in machines for: management of lotteries, gaming, betting and online payments; provision of gaming and non-gaming content; and integration with other devices such as mobile phones and tablets.
The gaming and lottery industries are subject to extensive and evolving governmental regulation in the U.S. and other jurisdictions. Gaming laws are based upon declarations of public policy designed to ensure that gaming is conducted honestly, competitively, and free of criminal and corruptive elements. While the regulatory requirements vary from jurisdiction to jurisdiction, the majority typically require some form of licensing or regulatory suitability of operators, suppliers, manufacturers and distributors as well as their major shareholders, officers, directors and key employees. Regulators review many aspects of an applicant including financial stability, integrity and business experience. Additionally, the Company’s gaming and lottery products and technologies require certification or approval in most jurisdictions where the Company conducts business.
A comprehensive network of internal and external resources and controls is required to achieve compliance with the broad governmental oversight of the Company’s business. The Company has a robust internal compliance program designed to ensure compliance with applicable requirements imposed in connection with its gaming and lottery activities, as well as legal requirements generally applicable to all publicly traded companies. The Company employs more than 100 people to support global compliance which is directed on a day-to-day basis by the Company’s Senior Vice President, Chief Compliance and Risk Management Officer. Legal advice is provided by attorneys from the Company’s legal department as well as outside experts. The compliance program, accountable to the Parent’s board of directors, is overseen by the Global Compliance Governance Committee, which comprises employee and non-employee directors and a non-employee gaming law expert. Through these efforts, the Company seeks to assure both regulators and investors that all its operations maintain the highest levels of integrity.
Lotteries in the U.S. are regulated by state or other applicable law. There are currently 46 U.S. jurisdictions (including the District of Columbia) that authorize the operation of lotteries. Additionally, a few state lotteries offer internet instant game sales to in-state lottery customers and several states allow subscription sales of draw games over the internet. The ongoing operations of lotteries and lottery operators are typically subject to extensive and broad regulation, which vary state-by-state. The awarding of lottery contracts and ongoing operations of lotteries in international jurisdictions are also extensively regulated, although international regulations typically vary from those prevailing in the U.S. Lottery regulatory authorities generally exercise significant discretion, including with respect to the determination of the types of games played, the price of each wager, the manner in which the lottery is marketed and the selection of suppliers of equipment, technology, and services, as well as the retailers of lottery products. To ensure the integrity of contract awards and lottery operations, most jurisdictions require detailed background disclosure on a continuous basis from vendors and their officers, directors, subsidiaries, affiliates, and principal stockholders. Background investigations of the vendors’ employees who will be directly responsible for the operation of lottery systems are also generally conducted. Certain jurisdictions also require extensive personal and financial disclosure and background checks from persons and entities beneficially owning a specified percentage of a vendor’s securities.
The assembly, sale and distribution of gaming devices, equipment, and related technology and services are subject to federal, state, tribal, and local regulations in the U.S. and foreign jurisdictions. The initial regulatory requirement in most jurisdictions is to obtain the privileged licenses that allow the Company to participate in gaming activities. The Company’s operating entities and key personnel have obtained or applied for all known government licenses, permits, registrations, findings of suitability, and approvals necessary to assemble, distribute and/or operate gaming products in all jurisdictions where it does business. Although many gaming regulations across jurisdictions are similar or overlapping, the Company must satisfy all conditions individually for each jurisdiction. Obtaining the required licenses at a corporate and individual level is a thorough process, in which the authorities review detailed information about the companies and individuals applying for suitability, as well as the
processes used in the assembly, sale, and distribution of gaming devices. Once the license has been granted, regulatory oversight is designed to ensure that the licensee continues to operate with honesty and integrity.
Frequently, gaming regulators not only govern the activities within their jurisdiction or origin, but also monitor activities in other jurisdictions to ensure that the Company complies with local standards on a worldwide basis. A violation in one jurisdiction could result in disciplinary action in another.
The Company holds over 480 gaming, digital and sports betting licenses across approximately 350 jurisdictions. Key regulatory authorities that have licensed the Company include, among others, the United Kingdom Gambling Commission, the Nevada State Gaming Control Board and the New Jersey Division of Gaming Enforcement. The Company has never been denied a gaming related license, nor had any of its licenses suspended or revoked.
Digital and Sports Betting
In 2021, there was continued growth in sports wagering across the U.S., with more states legalizing and adopting regulations to govern sports wagers, and others expected to launch in 2022 and beyond. The channels for offering sports wagering differ from state to state, with most states seeking to offer sports wagering both in person and through some electronic means, such as via a mobile phone app.
In the U.S., the Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) prohibits, among other things, the acceptance by a business of a wager by means of the internet where such wager is prohibited by any applicable law where initiated, received or otherwise made. Under UIGEA, severe criminal and civil sanctions may be imposed on the owners and operators of such systems and on financial institutions that process wagering transactions. The law contains a safe harbor for wagers placed within a single state (disregarding intermediate routing of the transmission) where the method of placing the bet and receiving the bet is authorized by that state’s law, provided the underlying regulations establish appropriate age and location verification.
Also in the U.S., the Wire Act prohibits several types of wager-related communications over a “wire communications facility.” In 2011, the DOJ issued the 2011 Opinion, interpreting the Wire Act as applicable only to sports wagering and that UIGEA does not supersede or otherwise limit the scope of the Wire Act. In January 2019, the DOJ published the 2019 Opinion, concluding that the Wire Act was applicable to other forms of gambling that cross state lines, though the precise scope of the 2019 Opinion is unclear, and the DOJ has not yet addressed how it plans to enforce the Wire Act. The DOJ initially issued a memorandum stating that it will not enforce the 2019 Opinion prior to June 14, 2019. Further, the New Hampshire Lottery Commission and certain private parties (the “Plaintiffs”) commenced litigation in federal district court in New Hampshire challenging the 2019 Opinion. In response to this and other lawsuits, the DOJ issued a memorandum in April 2019 acknowledging that the 2019 Opinion did not consider whether the Wire Act applies to State lotteries and their vendors, and the DOJ is now considering this issue. In connection with such acknowledgment, the DOJ also extended the non-prosecution period for State lotteries and their vendors indefinitely while they consider the question. If the DOJ concludes that the Wire Act does apply to State lotteries and/or their vendors, they would extend the non-prosecution period for an additional period of 90 days after the DOJ publicly announces such position (the “Lottery Forbearance”).
On June 3, 2019, the U.S. District Court for the District of New Hampshire issued the NH Decision, ruling in favor of the Plaintiffs and opining that the Wire Act applies only to sports betting and related activities. The NH Decision also set aside the 2019 Opinion leaving the 2011 Opinion as DOJ’s only stated position on the subject. In response to the NH Decision, the DOJ extended the forbearance period to December 31, 2019; such forbearance period was further extended through December 1, 2020. The Lottery Forbearance remains unchanged. The DOJ appealed the NH Decision to the United States Court of Appeal for the First Circuit, and on January 20, 2021, the United States Court of Appeal for the First Circuit of Appeal affirmed the NH Decision in part through issuance of the First Circuit Decision. The First Circuit Decision also vacated the portion of the NH Decision which set aside the 2019 Opinion. It is unclear whether the DOJ will appeal the First Circuit Decision to the Supreme Court of the United States, when the DOJ will conclude its consideration of whether the Wire Act applies to State lotteries and their vendors, or whether other courts would come to the same conclusions set forth in the NH Decision. On November 24, 2021, the Company filed a complaint against the DOJ in the U.S. District Court for the District of Rhode Island. The complaint seeks declaratory relief that the Wire Act applies only to sports betting and related activities. If granted, the Company would enjoy the same relief that the plaintiffs received in the NH Decision, that the Wire Act applies solely to sports betting and related activities wherever the Company’s United States businesses are located, as opposed to the current protection which is currently limited to the First Circuit.
Michigan has been added to the list of states that have authorized internet casino gaming, alongside Delaware, New Jersey, Pennsylvania and West Virginia, and Nevada has authorized online poker.
The Company participates in digital gaming and sports wagering in the U.S. as a content and technology provider within fully regulated gaming and lottery frameworks.
Digital gaming in the E.U. is characterized by diverse regulatory frameworks with some E.U. countries having monopolistic regimes run by a sole operator and others having established licensing systems for more than one operator. The Company carefully evaluates each E.U. jurisdiction to ensure adherence to applicable laws and regulations. As local regulations and related guidance from authorities change, the Company re-evaluates its position in any given country. In 2018, the E.U. Court of Justice announced that it was dropping all enforcement proceedings related to gambling which allows the individual E.U. country rulings to stand, regardless of whether or not they violate E.U. laws. As a result, the Company has made adjustments to its strategy, to respect the individual E.U. country rulings.
Italian Gaming Regulations
The Company is subject to regulatory oversight by the Agenzia delle Dogane e Dei Monopoli (“ADM”) in Italy. At December 31, 2021, the Company held licenses for (1) the activation and operation of the network for Italy’s Lotto game and (2) the operation of instant and traditional lotteries.
Gaming in Italy is an activity reserved to the State. Any game that is carried out without proper authorization is illegal and subject to criminal penalties. Italian law grants the Ministry of Economy and Finance, through ADM, the power to introduce games and to manage gaming and betting activities directly or by granting licenses to qualified operators selected by means of public tenders as further explained below. The process of creating and granting gaming and betting licenses in Italy is heavily regulated.
Gaming and betting licenses are granted pursuant to a public tender procurement process. The license provides for all of the licensee’s requirements, in accordance with the provisions of Italian law and regulation, activities and duties, including collection of the game’s revenues, the payment of winnings, the payment of the point of sale, payment of gaming taxes and all the other amounts due to the State, the drawings and the management of all of the technological assets to operate gaming, requirements of the technological infrastructure and the relevant service levels. Licenses are for a determined time period, generally nine years, and are not renewable unless indicated in the licensing agreement; in such event, the renewal is not guaranteed to be on the same terms. In certain cases, the license may be extended at the option of the ADM on the same terms. Under other circumstances, which are typically defined in the licensing agreement, the license may be revoked or terminated. Most cases of early termination are related to the breach of the terms of the licensing agreement or the non-fulfillment of conditions of that agreement as well as the loss of the requirements prescribed by Italian law and regulation for the assignment and the maintenance of gaming licenses. In some cases, the early termination of the license allows the State to draw upon the entire amount of the performance bond presented by the licensee. Upon governmental request, the licensee has an obligation to transfer, free of charge, the assets subject of the license to the State at the end of the term of the license or in the event of its revocation or early termination. Each single license contains specific provisions enacting such general obligation.
IGT’s significant commitment to sustainability represents the Company’s long-term ambition to serve the global gaming market according to disciplined ethical and integrity principles. This commitment was further advanced in early 2021 by the establishment of the IGT Sustainability Steering Committee (SSC), chaired by the Senior Vice President, Marketing, Communications and Sustainability reporting directly to the Parent’s CEO, and comprising IGT senior management and global sustainability team members.
The SSC focuses upon carrying out programs and initiatives that contribute to IGT’s sustainability strategy, from energy use to wider environmental and human rights issues, to the implementation of policies and strategic initiatives such as establishing the Company’s Supplier Code of Conduct. Among the objectives pursued, the SSC aims at establishing a long-term vision and related objectives on sustainability, fostering a consistent sustainability approach across all regions and businesses, and increasing communication on sustainability practices by sharing best practices at a global and local level.
In order to pursue these objectives and design the path necessary to their achievement, during 2021 the SSC approved the definition of a Sustainability Plan aimed at identifying areas for improvement in the Company’s sustainability performance with respect to external and internal drivers and at defining initiatives and actions to bridge the identified gaps accordingly. Moreover, as part of the development of its Sustainability Plan, the Company is strengthening its efforts to limit its climate change impact through a specific carbon neutrality project that started this year with the Greenhouse Gas Inventory Calculation (consisting of a list of emissions by scope as per the Greenhouse Gas Protocol) and is expected to result in the Company developing specific emission reduction targets and decarbonization trajectories.
The Company’s ongoing pledge to sustainable growth within the gaming industry includes the guiding principles set forth by the 2030 United Nations (UN) Agenda for Sustainable Development and its 17 Sustainable Development Goals. Based on its business activities and its sustainability priorities, IGT has identified nine Sustainable Development Goals as key areas of focus: no poverty, good health and well-being, quality education, gender equality, affordable and clean energy, decent work and economic growth, industry innovation and infrastructure, reduced inequalities, and climate action.
In addition, in early 2019, the Company joined the United Nations Global Compact (UNGC), the largest corporate responsibility initiative in the world for the development, implementation, and disclosure of responsible corporate policies and practices.
The Company’s global sustainability strategy is centered on four key priorities:
Valuing and Protecting Our People - The organizational climate of a business is how employees at all levels perceive the workplace environment. Many factors can contribute to an employee’s perception, and the Company strives to develop initiatives and programs that support a positive organizational climate. This is evidenced through IGT’s Modern Slavery Act statement, and a variety of other initiatives to support this pillar in daily work life including employee Diversity and Inclusion Groups.
Advancing Responsibility - The Company maintains certifications in responsible gaming through both the Global Gaming Guidance Group and World Lottery Association. Responsible gaming capabilities and features are part of our core products and we are positioned to assist customers achieve their responsible gaming goals. In 2021, IGT created and released to the public its global Responsible Gaming Policy to promote transparency and best practices in the industry.
Supporting Our Communities - The Company supports the community through corporate and employee driven programs. The flagship After School Advantage Program is designed to bring technology and skill development in STEAM education to youth. Since 1999, the Company has placed over 340 digital learning centers. The Company also supports communities financially through a charitable giving program that aligns with the Company’s Sustainable Development Goals. Employee programs support the unique passions of employees and promote volunteerism.
Fostering Sustainable Operations - The Company’s commitment to sustainability represents its long-term ambition to serve the global gaming market according to the highest level of ethical and integrity principles. The Company has also committed to continually working to increase its environmental, social and governance (“ESG”) performance. For example, IGT’s instant ticket printing facility in Lakeland, Florida has been acknowledged for its commitment to developing sustainable solutions that reduce the environmental impact of printing while improving workers’ health and safety.
The Company is invested in creating a path to sustainability that is inspired by its five fundamental corporate values (Passionate, Responsible, Authentic, Collaborative, and Pioneering). The Company’s commitment aligns with high standards of integrity and ethical conduct, diversity and inclusion, and professional development.
ESG factors concur in the evaluation process of the Company according to the degree of sustainability integrated into the business. IGT has continually committed to improving the quality of information disclosed about the conduct of its business.
In 2021, IGT released its global Responsible Gaming Policy. The policy was created to transparently inform and educate all relevant stakeholders about IGT's worldwide programs and solutions designed to promote fair play and comply with requirements and regulations on responsible gaming in all jurisdictions in which the Company operates. IGT counts a strong governance model, innovation and collaboration with internal and external partners as success drivers for its responsible gaming initiatives. Topic-focused working groups created through this new policy have been developed to explore emerging trends and best practices related to responsible gaming. IGT's approach to responsible gaming includes the three primary goals of promoting protective tools to prevent problem gambling, supporting responsible gaming organizations that address problem gambling, and preventing underage gambling.
The Company’s sustainability efforts have been rewarded with the following recognition:
•Jade Luchauer, IGT Senior Manager Global Sustainability, won the “Outstanding Individual Contribution to Responsible Gaming” award in the Global Regulatory Awards 2021. The independently judged, annual awards program is coordinated by Gambling Compliance and is designed to recognize and reward individuals and teams who work tirelessly to set new standards in compliance and responsibility across the global gambling industry; and
•IGT’s lottery operations, including iLottery, have been recertified by the World Lottery Association (“WLA”) for WLA’s Corporate Social Responsibility Standards and Responsible Gaming Framework for Suppliers.
Finally, IGT recently announced the submission of the Science Based Target Commitment Letter, with which the Company officially pledges to set targets to reduce GHG emissions, contributing to low-carbon emissions growth and furthering the Company's ESG impact. The Company also recently published its Human Rights Policy Statement, which makes clear the Company’s commitment to human dignity and to civil rights. The policy contains information about commitment, responsibilities, and behaviors in relation to human rights, required from all employees, directors, officers, and consultants, and expected from third parties, agents or representatives who deal with or act on behalf of IGT and its controlled affiliates.
C. Organizational Structure
A listing of the Parent’s directly and indirectly owned subsidiaries at February 24, 2022 is set forth in Exhibit 8.1 to this annual report on Form 20-F. At February 24, 2022, De Agostini had an economic interest of approximately 50.75% (excluding treasury shares) and, due to its election to exercise the Special Voting Shares associated with its ordinary shares pursuant to the Loyalty Plan, a voting interest in the Parent of approximately 65.29% of the total voting rights (excluding treasury shares). See “Item 7. Major Shareholders and Related Party Transactions.
The following is a diagram of the Parent and certain of its subsidiaries and associated companies at February 24, 2022:
D. Property, Plant and Equipment
The Parent’s principal office is located at Marble Arch House, 66 Seymour Street, 2nd Floor, London W1H 5BT, U.K., telephone number +44 (0) 207 535 3200. At February 24, 2022, the Company leased approximately 112 properties in the U.S. under approximately 130 leases and approximately 101 properties outside of the U.S. under approximately 125 leases. Certain properties leased by the Company are subject to multiple leases (e.g., buildings where each floor leased by the Company is under a separate lease). As of February 24, 2022, the Company owned a number of facilities and properties, including:
•An approximately 113,000 square foot production and research and development office building in Moncton, New Brunswick, Canada;
•An approximately 51,000 square foot production and assembly facility and office in Gross St. Florian, Austria (listed for sale in January 2021); and
•An approximately 13,050 square foot enterprise data center in West Greenwich, Rhode Island.
The following table shows the Company’s material properties at February 24, 2022:
|Use and Productive Capacity||Extent of|
9295 Prototype Drive,
|1,251,179||Office; Warehouse; Game Studios; Hardware/Software Engineering; Global Production Center; Electronic Gaming Machine and Instant Ticket Vending Machine Production||93 ||%||Leased|
6355 S. Buffalo Drive,
Las Vegas, NV(2)
|222,268||U.S. Principal Operating Facility; Game Studio; Systems Software; Showroom||100 ||%||Leased|
|55 Technology Way,|
West Greenwich, RI
|170,000||WG Technology Center: Office; Research and Testing; Storage and Distribution||100 ||%||Leased|
|4000 South Frontage Road, Suite 101|
|174,720||Printing Plant: Printing facility; Storage and Distribution; Office||100 ||%||Leased|
|10 Memorial Boulevard,|
|124,769||U.S. Principal Operating Facility||100 ||%||Leased|
300 California Street, Floor 8,
San Francisco, CA(3)
|15,457||PlayDigital HQ: Office||100 ||%||Leased|
|8520 Tuscany Way, Bldg. 6, Suite 100,|
|81,933||Texas Warehouse and National Response Center: Contact Center; Storage and Distribution; Office||95 ||%||Leased|
|8200 Cameron Road, Suite E120,|
|41,705||Data Center of the Americas: Data Center; Network Operations; Office||80 ||%||Leased|
|5300 Riata Park Court, Bldg. E, Suite 100,|
|26,759||Austin Tech Campus: Research and Test; Office||59 ||%||Leased|
|47 Technology Way,|
West Greenwich, RI
|13,050||Enterprise Data Center: Data Center; Network Operations||100 ||%||Owned|
(1) 88,305 sq. ft. of this property will be sub-leased to a sub-tenant from March 1, 2022.
(2) 120,586 sq. ft. of this property has been sub-leased to a sub-tenant.
(3) The Company will be vacating this property as of February 28, 2022.
|Use and Productive Capacity||Extent of|
|Via delle Monachelle S.N.C.|
Pomezia, Rome, Italy
|129,167||Instant Ticket Warehouse; Instant Ticket Production||100 ||%||Leased|
1046 AW Amsterdam, Netherlands
|125,128||Electronic Gaming Machine Production; Gaming Distribution/Repair; Research and Test; Office||90 ||%||Leased|
|Viale del Campo Boario 56/D 00154|
|174,526||Principal Operating Facility in Italy; Office; Italy Data Center: Data Center; Network Operations||100 ||%||Leased|
|328 Urquhart Ave,|
Moncton, New Brunswick, Canada
|113,000||Canada HQ; Office; Research and Testing; VLT Production||100 ||%||Owned|
|78,082||Austria Gaming HQ; Office; Research and Test||90 ||%||Leased|
|29 Suzhoujie Street, Viva Plaza, Haidian District, Room No. 1-20, 11th and 18th Floors, Beijing 100080, China||28,382||Game Studio; Systems Software; Office||85 ||%||Leased|
|Al. Jerozolimskie, 92|
|48,283||Global Tech Hub; Office; Research and Test||95 ||%||Leased|
Bulevar Mihajla, Pupina No. 6
|42,764||Software Development Office, Lottery and Gaming Products||95 ||%||Leased|
|11 Talavera Rd.|
|27,432||Office; Sales & Marketing; Financial Support||100 ||%||Leased|
10 Finsbury Square, 3rd Floor London EC2A 1AD, United Kingdom(1)
|17,340||Global Management HQ, PlayDigital ||100 ||%||Leased|
|Marble Arch House,|
66 Seymour Street, 2nd Floor,
London W1H 5BT, United Kingdom*
|11,495||Registered Global Headquarters of the Parent||75 ||%||Leased|
* This property has been listed for sub-lease.
(1) 4,600 sq. ft. of this property has been sub-leased to a sub-tenant.
All of the Company’s facilities have remained open for critical workers during the COVID-19 pandemic, although the majority of employees are currently working remotely.
The Company’s facilities are in good condition and are adequate for its present needs and there are no known environmental issues that may affect the Company’s utilization of its real property assets.
The Company does not have any plans to construct, expand or improve its facilities in any material manner other than general maintenance of facilities. As such, no increase in productive capacity is anticipated.
None of the Company’s properties are subject to mortgages or other material security interests.
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
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 Consolidated Financial Statements, including the notes thereto, included in this annual report, as well as “Presentation of Financial and Certain Other Information,” “Item 3.D. Risk Factors,” and “Item 4. B. Business Overview.”
The following discussion includes information for the fiscal years ended December 31, 2021, 2020 and 2019.
A. Operating Results
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.
During the third quarter of 2021, we established a dedicated Digital & Betting business segment, comprising our iGaming and sports betting activities that were previously included within our Global Gaming business segment. Our Global Lottery business segment and corporate support functions were unchanged. As a result, we now manage and report our operating results through three business segments: Global Lottery, Global Gaming, and Digital & Betting, along with a corporate support function (“Corporate and Other”).
The Company's operations for the periods presented herein are reported under this organizational structure.
On May 10, 2021, the Company completed the sale of its Italian B2C gaming machine, sports betting, and digital gaming businesses to Gamenet Group S.p.A. for a cash sale price of €950 million. The sale of the businesses met the criteria to be reported as a discontinued operation and, as a result, the discussion that follows in this Item 5 has been prepared on a continuing operations basis and excludes results from discontinued operations, discussed in detail in Notes to the Consolidated Financial Statements - Note 3 Discontinued Operations and Assets Held for Sale, included in “Item 18. Financial Statements.”
In connection with the 2020 introduction of our global product organizations, we identified opportunities to optimize our portion of the value chain across businesses and regions and launched the “OPtiMa” program. We anticipated that the program would yield over $200 million in structural cost savings and capital expenditure reductions relative to a 2019 run rate with 75% of the savings benefiting the consolidated statement of operations and 25% arising from reductions in capital expenditures. At the segment level, approximately 85% of the expected savings related to Global Gaming, with the balance split between Global Lottery, Digital & Betting, and Corporate and Other.
The OPtiMa program was comprised of the following three main initiatives:
1.Operational excellence: included the optimization of procurement and assembly processes as well as the supply chain and logistics. This represented about 30% of the anticipated savings at a 2019 run rate with a ramp-up phase that depended on the level of production volume.
2.Product simplification: efforts aimed at reducing the complexity of our product offering and geographic mix. This included a return-driven ranking assessment of products and markets, a reassessment of structural support cost, and the reallocation of resources from high-cost to low-cost jurisdictions. These initiatives represented another 30% of the anticipated savings at run rate.
3.Margin improvement: efforts to optimize back-office functions, reduce our global facilities footprint, and continue with disciplined cost controls implemented in 2020. This accounts for the remaining 40% of the savings at run rate, and of the
three initiatives, was the category with the quickest implementation time as it built on the robust COVID-19 induced cost controls.
In 2021, we achieved the anticipated savings and reductions related to the OptiMa program.
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 has disrupted our business. We began experiencing a significant decline in operations due to COVID-19 towards the end of the first quarter of fiscal 2020 and continuing throughout the 2020 fiscal year. The pandemic and its consequences, including lockdowns and the closure of almost all casinos and gaming halls globally in the first half of 2020, dramatically reduced demand for gaming products and services. While most casinos and gaming halls have since reopened, some capacity restrictions still remain in place and some remain closed.
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. The Company continues to take measures to protect the health and safety of its employees by enabling employees who could work remotely to do so, while maintaining critical on-site operations with enhanced health and safety measures such as instituting mask requirements, practicing social distancing, contact tracing, and performing regular deep cleaning in each facility.
Product Sales: Product sales fluctuate from year to year due to the mix, volume, and timing of the transactions. Product sales amounted to $606 million, $476 million and $931 million, or approximately 15%, 15%, and 23% of total revenues for the years ended December 31, 2021, 2020, and 2019, respectively.
Jackpots: The Company believes that the performance of lottery products is influenced by the size of available jackpots in jurisdictions that offer such jackpots. In general, when jackpots increase, sales of lottery tickets also increase, further increasing the jackpot.
Non-Cash Goodwill Impairments: In 2019, the Company determined that there was an impairment in the former International reporting unit’s goodwill due to the results being lower than forecasted along with higher weighted-average cost of capital. As a result, a $99 million non-cash goodwill impairment loss with no income tax benefit was recorded to reduce the carrying amount of the former International reporting unit to fair value. During the first quarter of 2020, we determined there was an interim goodwill impairment triggering event caused by COVID-19 and as a result, 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. During the fourth quarter of 2021, the Company performed a qualitative assessment, commonly referred to as “Step 0”, to determine whether it was more likely than not that the fair value of our reporting units was less than their respective carrying values. As a result of this analysis, the Company did not identify any events or circumstances that would indicate that it was more likely than not that the fair value of any of our reporting units was less than their respective carrying amounts.
Effects of Foreign Exchange Rates: The Company is affected by fluctuations in foreign exchange rates (i) through translation of foreign currency financial statements into U.S. dollars for consolidation, which is referred to as the translation impact, and (ii) through transactions by subsidiaries in currencies other than their own functional currencies, which is referred to as the transaction impact. Translation impacts arise in the preparation of the consolidated financial statements; in particular, the consolidated financial statements are prepared in U.S. dollars while the financial statements of each of the Company’s subsidiaries are generally prepared in the functional currency of that subsidiary. In preparing consolidated financial statements, assets and liabilities measured in the functional currency of the subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date, while income and expenses are translated using the average exchange rates for the period covered. Accordingly, fluctuations in the exchange rate of the functional currencies of the Company’s subsidiaries against the U.S. dollar impacts the Company’s results of operations. The Company is particularly exposed to movements in the euro/U.S. dollar exchange rate. Although the fluctuations in exchange rates have had a significant impact on the Company’s
revenues, net income, and net debt, the impact on operating income and cash flows is less significant as revenues are typically matched to costs denominated in the same currency.
Given the impact of foreign exchange rates on our consolidated results, certain key performance indicators (such as same store sales) are reported on a constant-currency basis in order to facilitate period-to-period comparisons of our results without regard to the impact of fluctuating foreign currency exchange rates. We calculate constant-currency amounts by applying the prior-year/period exchange rates (i.e., the exchange rates used in preparing the financial statements for the prior year) to current financial data expressed in local currency.
Results of Operations
Comparison of the years ended December 31, 2021 and 2020
| ||For the year ended|
| ||December 31, 2021||December 31, 2020||Change|
|($ in millions)||$||% of|
|Service revenue by segment|
|Global Lottery||2,690 ||66 ||2,043 ||66 ||647 ||32 |
|Global Gaming||630 ||15 ||483 ||16 ||147 ||30 |
|Digital & Betting||163 ||4 ||114 ||4 ||50 ||44 |
|Total service revenue||3,483 ||85 ||2,640 ||85 ||844 ||32 |
|Product sales by segment|
|Global Lottery||123 ||3 ||121 ||4 ||1 ||1 |
|Global Gaming||482 ||12 ||354 ||11 ||128 ||36 |
|Digital & Betting||1 ||— ||1 ||— ||1 ||55 |
|Total product sales||606 ||15 ||476 ||15 ||130 ||27 |
|Total revenue||4,089 ||100 ||3,115 ||100 ||974 ||31 |
|Cost of services||1,754 ||43 ||1,634 ||52 ||120 ||7 |
|Cost of product sales||377 ||9 ||346 ||11 ||31 ||9 |
|Selling, general and administrative||810 ||20 ||707 ||23 ||103 ||15 |
|Research and development||238 ||6 ||191 ||6 ||48 ||25 |
|Restructuring||6 ||— ||45 ||1 ||(39)||(87)|
|Goodwill impairment||— ||— ||296 ||10 ||(296)||(100)|
|Other operating expense, net||1 ||— ||4 ||— ||(3)||(66)|
|Total operating expenses||3,187 ||78 ||3,223 ||103 ||(36)||(1)|
|Operating income (loss)||902 ||22 ||(107)||(3)||1,009 ||> 200.0|
|Interest expense, net||341 ||8 ||398 ||13 ||(57)||(14)|
|Foreign exchange (gain) loss, net||(66)||(2)||309 ||10 ||(375)||(121)|
|Other expense, net||98 ||2 ||33 ||1 ||64 ||193 |
|Total non-operating expenses||373 ||9 ||740 ||24 ||(367)||(50)|
|Income (loss) from continuing operations before provision for income taxes||529 ||13 ||(848)||(27)||1,376 ||162 |
|Provision for income taxes||274 ||7 ||28 ||1 ||246 ||> 200.0|
|Income (loss) from continuing operations||255 ||6 ||(875)||(28)||1,130 ||129 |
|Income from discontinued operations, net of tax||24 ||1 ||37 ||1 ||(13)||(34)|
|Gain on sale of discontinued operations, net of tax||391 ||10 ||— ||— ||391 ||— |
|Income from discontinued operations||415 ||10 ||37 ||1 ||378 ||> 200.0|
|Net income (loss)||670 ||16 ||(839)||(27)||1,508 ||180 |
|Less: Net income attributable to non-controlling interests from continuing operations||190 ||5 ||64 ||2 ||126 ||197 |
|Less: Net loss attributable to non-controlling interests from discontinued operations||(2)||— ||(5)||— ||3 ||57 |
|Net income (loss) attributable to IGT PLC||482 ||12 ||(898)||(29)||1,379 ||154 |
Total revenue for the year ended December 31, 2021 increased $974 million, or 31%, to $4.1 billion from $3.1 billion for the prior corresponding period. Total service revenue increased $844 million primarily due to Global Lottery experiencing a 20.1% increase in same-store sales, principally in Italy and North America, as well as an 11% increase in our commercial services offering primarily in Italy. Global Gaming service revenue increased 30% primarily due to an increase in total yields from total installed base units, principally as a result of more installed base units becoming available to players as COVID-19 induced social distancing restrictions were lifted. Digital & Betting service revenue increased 44% and was primarily attributable to expansion into new markets and increases to the customer base in existing markets. Total product sales increases of $130 million were primarily attributable to a higher number of machines units sold in our Global Gaming segment, principally due to casino operators returning to more moderate levels of investments. See “Segment Revenues and Key Performance Indicators” section below for further discussion related to the principal drivers of these changes.
Cost of services
Cost of services for the year ended December 31, 2021 increased $120 million, or 7%, to $1.8 billion from $1.6 billion for the prior corresponding period. The primary contributor was related to $55 million of increases across the business in payroll, benefits and variable compensation, of which $35 million and $18 million was attributable to our Global Lottery and Global Gaming segments, respectively. The increase in variable compensation was related to the reinstatement of the Company’s incentive compensation plans that were temporarily suspended in 2020 due to uncertainties associated with COVID-19, discretionary bonuses that were paid during the fourth quarter of 2021 to current employees who worked for the Company at June 30, 2020 and who were not covered by existing incentive compensation plans, and stock-based compensation expense for awards granted in 2020. In addition, our Global Lottery segment had increases of $31 million in point of sale (“POS”) consumables, $29 million in POS fees, $19 million in freight, $12 million in marketing and advertising, and $8 million in non-deductible value-added tax (“VAT”). These increases were partially offset by a $15 million reduction in depreciation. Cost of services in our Digital & Betting segment increased by $8 million, principally attributable to a $4 million increase in royalties, and our Global Gaming segment experienced a $15 million reduction in depreciation.
As a percentage of service revenue, cost of services decreased by approximately 1200 basis points driven by an approximate 1900 basis point decrease in our Global Gaming segment resulting from disciplined cost management, benefits from costs savings initiatives, and increased operating leverage. Global Lottery had an approximate 900 basis point decrease driven by higher sales and increased operating leverage. Digital & Betting had an approximate 800 basis point decrease driven by higher revenues and increased operating leverage.
Cost of product sales
Cost of product sales for the year ended December 31, 2021 increased $31 million, or 9%, to $377 million from $346 million for the prior corresponding period. This increase was primarily the result of a $128 million increase in product sales partially offset by a $33 million decrease in inventory obsolescence reserves, within our Global Gaming segment.
As a percentage of product revenue, cost of product sales declined by approximately 1000 basis points driven primarily by an approximate 1600 basis point decrease in our Global Gaming segment, principally as a result of a decrease in inventory obsolescence reserves and favorable product mix.
Selling, general and administrative
Selling, general and administrative for the year ended December 31, 2021 increased $103 million, or 15%, to $810 million from $707 million for the prior corresponding period. This was primarily attributable to a $98 million increase (of which $34 million is non-cash equity-based compensation) in variable compensation across the business, of which $51 million, $26 million, $19 million, and $2 million, was attributable to Corporate and Other, Global Gaming, Global Lottery, and Digital & Betting, respectively. The increase in variable compensation was related to the reinstatement of incentive compensation plans that were temporarily suspended in 2020 due to uncertainties associated with COVID-19, discretionary bonuses that were paid during the fourth quarter of 2021 to current employees who worked for the Company at June 30, 2020 and who were not covered by existing incentive compensation plans, and stock-based compensation expense related to awards granted in 2020. In addition, the Company experienced a $16 million increase in outside services and decreases of $13 million and $5 million in bad debt expense and lease expense, respectively.
Research and development
Research and development for the year ended December 31, 2021 increased $48 million, or 25%, to $238 million from $191 million for the prior corresponding period. This was primarily attributable to a $29 million increase in variable compensation related to the reinstatement of incentive compensation plans that were cancelled in 2020 and discretionary bonuses that were paid during the fourth quarter of 2021 to current employees who worked for the Company at June 30, 2020 and who were not covered by existing incentive compensation plans in Global Gaming, Global Lottery, and Digital & Betting of $16 million, $9 million, and $4 million, respectively. Additionally, as anticipated as part of the 2020 restructuring plan consolidating our global technology organization, Global Gaming experienced a $9 million increase in outside services related to casino systems development and the continued growth in Digital & Betting resulted in a $5 million increase in employee payroll and benefits.
Restructuring for the year ended December 31, 2021 decreased $39 million, or 87%, to $6 million from $45 million for the prior corresponding period. This decrease was primarily due to management initiating restructuring plans in 2020 to achieve long-term structural cost savings by simplifying our organizational structure, optimizing our global supply chain, and consolidating our global technology organization.
There were no goodwill impairments for the year ended December 31, 2021. Goodwill impairment was $296 million for the year ended December 31, 2020. During the first quarter of 2020, we determined there was an interim goodwill triggering event caused by COVID-19. Based principally on management’s financial projections, which included 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.
Interest expense, net
Interest expense, net for the year ended December 31, 2021 decreased $57 million, or 14%, to $341 million from $398 million for the prior corresponding period. This decrease was primarily due to the Company maintaining a lower average aggregate outstanding principal balance of our Senior Secured Notes compared to the prior corresponding period, as well as reductions in the average cost of debt primarily due to the refinancing activity executed in the first half of 2021.
Foreign exchange (gain) loss, net
Foreign exchange gain, net for the year ended December 31, 2021 was $66 million, compared to foreign exchange loss, net of $309 million for the prior corresponding period. Foreign exchange movements are principally related to fluctuations in the euro to U.S. dollar exchange rate on internal and external debt.
Other expense, net
Other expense, net for the year ended December 31, 2021 increased $64 million, or 193%, to $98 million from $33 million for the prior corresponding period. The increase was primarily related to the premium paid on the full redemption of the 4.750% Senior Secured Euro Notes due February 2023, through the exercise of the make-whole call option.
Provision for income taxes
Provision for income taxes for the year ended December 31, 2021 increased $246 million to $274 million from $28 million for the prior corresponding period. The increase was primarily due to the level of pre-tax income and increases in our valuation allowances related to our business interest expense limitation carryforward.
Income from discontinued operations, net of tax
Income from discontinued operations, net of tax for the year ended December 31, 2021 decreased $13 million, or 34%, to $24 million from $37 million for the prior corresponding period. Discontinued operations reflects the operating activities of our Italian B2C gaming machine, sports betting, and digital gaming businesses through the date of the sale in the second quarter of 2021. Refer to “Notes to the Consolidated Financial Statements—3. Discontinued Operations and Assets Held for Sale” included in “Item 18. Financial Statements” for further information.
Gain on sale of discontinued operations, net of tax
During the second quarter of 2021, the Company recorded a $391 million gain, net of tax, upon the completion of the sale of its Italian B2C gaming machine, sports betting, and digital gaming businesses. Refer to “Notes to the Consolidated Financial Statements—Note 3. Discontinued Operations and Assets Held for Sale” included in Item 18. “Financial Statements”.
Segment Revenues and Key Performance Indicators
| ||For the year ended December 31,||Change|
|($ in millions)||2021||2020||$||%|
|Operating and facilities management contracts||2,363 ||1,744 ||619 ||35 |
|Systems, software, and other||327 ||299 ||29 ||10 |
|2,690 ||2,043 ||647 ||32 |
|Lottery products||123 ||121 ||1 ||1 |
|123 ||121 ||1 ||1 |
|Global Lottery segment revenue||2,812 ||2,164 ||649 ||30 |