Business context and reporting period
This is International Game Technology PLC’s audited Form 20-F for the fiscal year ended December 31, 2015, filed April 29, 2016—not a standalone fourth-quarter report. The supplied filing does not identify Brightstar Lottery PLC as the registrant. The company combined GTECH and International Game Technology (IGT) on April 7, 2015; 2015 results include IGT only from the acquisition date, making comparisons with 2014 materially affected by the transaction. Financial statements are in U.S. dollars and prepared under U.S. GAAP.
IGT operates lottery, gaming-machine, sports-betting, interactive-gaming and commercial transaction-processing businesses in approximately 100 countries. Its four segments are North America Gaming and Interactive, North America Lottery, International and Italy.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $4.689 billion | $3.812 billion |
| Operating income | $540.0 million; 11.5% margin | $715.1 million; 18.8% margin |
| Net income (loss) | $(55.9) million | $99.8 million |
| Net income (loss) attributable to IGT PLC | $(75.6) million; diluted EPS $(0.39) | $86.2 million; diluted EPS $0.49 |
| Cash from operating activities | $786.0 million | $1.066 billion |
| Capital expenditures | $402.6 million | $335.2 million |
| Cash and cash equivalents | $627.5 million | $317.1 million |
| Total debt | $8.334 billion | $2.959 billion |
| Total available liquidity | $2.715 billion | $1.852 billion |
Operating cash flow less capital expenditures was approximately $383 million in 2015; this is a simple calculation, not a company-reported free-cash-flow measure. Available liquidity includes $2.088 billion of undrawn revolving-credit capacity. Service revenue was 84.8% of 2015 revenue. The company paid $209.6 million in dividends in 2015; dividends declared were $0.40 per share.
Material changes versus the prior comparable period
- Revenue rose 23.0%, principally because the acquired IGT business contributed from April 7, 2015. Product sales increased 120.7% to $711.4 million, also largely acquisition-driven.
- Operating income declined 24.5%, and operating margin fell 7.3 percentage points. Higher acquisition-related amortization, corporate support costs, restructuring and transaction costs contributed to the decline.
- Interest expense increased 74.7% to $458.0 million, reflecting higher acquisition-related debt. The company recorded a $55.9 million consolidated net loss, compared with $99.8 million net income in 2014.
- Operating cash flow declined $279.9 million, which management attributed principally to acquisition transaction costs, pre-acquisition liabilities and higher interest payments.
- Italy revenue decreased 19.2% to $1.704 billion, primarily due to unfavorable currency translation; management reported a 3.4% constant-currency decline in Italy service revenue. North America Gaming and Interactive revenue increased substantially with the acquired business.
- The balance sheet expanded following the acquisition: goodwill rose to $6.830 billion from $3.959 billion, and intangible assets to $3.336 billion from $786.3 million. No goodwill impairment was recorded in 2015.
Outlook, risks and unusual items
- Outlook: The filing provides no numerical forward guidance and expressly says it should not be read as a profit forecast. Management expected operating cash flow and committed borrowing capacity to be sufficient for obligations and ordinary working-capital needs for at least the next 12 months.
- Italian Lotto concession: The existing concession was scheduled to expire in June 2016. In April 2016, a consortium led by IGT was provisionally awarded a new nine-year concession; final award was still pending at filing. The bid included €770 million of upfront payments, expected to be paid in installments through April 2017, plus €140 million for technology upgrades. Consortium participation means profits and cash flows will be shared.
- Italian tax matters: Italian authorities assessed approximately €200 million of additional taxes, penalties and interest for 2006–2010. A separate April 2016 tax audit report estimated approximately €275 million for 2011–2014 and raised additional VAT and controlled-foreign-corporation issues. These were disputed matters; the filing says no liability was recorded for certain new claims. The related criminal investigation also involved senior executives and a director.
- Other litigation and contingencies: Provisions for litigation were $17.7 million. Texas lawsuits over an instant-ticket game included claims by nearly 1,000 intervenors alleging damages exceeding $500 million; the company disputed the claims. Outstanding performance, litigation and other bonds totaled $531.1 million, in addition to $711.4 million of letters of credit.
- Integration and leverage: Management identified integration execution, realization of expected synergies, debt service, covenant compliance and refinancing as risks. Debt covenants were reported in compliance at year-end. Senior secured notes were rated Ba2/BB+; ratings downgrades had increased the rates on legacy GTECH notes.
- Other operating risks: The business depends on regulated gaming licenses and time-limited concessions, notably in Italy; it is exposed to foreign-exchange movements, gaming-tax changes, competition, consumer spending, jackpot-related interest-rate sensitivity, and cyber, technology and supply-chain disruptions. A 2015 rate decrease was estimated to reduce operating income by $2.2 million.
- Unusual items: 2015 included $49.4 million of acquisition transaction expense, $76.9 million of restructuring expense, $12.5 million of impairment losses and substantial debt-extinguishment/refinancing costs. The company also sold assets for $230.6 million, including its Las Vegas campus, and redeemed its remaining Capital Securities at par on March 31, 2016.
Important facts for investors to verify
- Confirm the registrant and period: the supplied document is IGT PLC’s full-year 2015 20-F, not a Brightstar Lottery PLC filing or a standalone Q4 filing.
- Check the final status, economics, funding and consortium profit-sharing terms of the replacement Italian Lotto concession.
- Review subsequent developments and accounting exposure for the Italian tax assessments, audit claims and executive investigation.
- Reconcile acquisition-driven revenue growth with underlying performance, integration costs, acquired-intangible amortization and the decline in operating margin.
- Assess debt maturities, interest burden, available revolver capacity, covenants and the impact of the March 2016 Capital Securities redemption.
- Evaluate cash generation after capital expenditures, working-capital movements, dividends and concession commitments.