Brightstar Lottery PLC (filing names International Game Technology PLC) — 2017 Form 20-F
Period and entity: The supplied filing is International Game Technology PLC’s audited annual report for the fiscal year ended December 31, 2017, not a standalone 2017 fourth-quarter report. The filing does not identify Brightstar Lottery PLC as the registrant; verify the company mapping before relying on this summary. Financial statements are U.S. GAAP and in U.S. dollars.
Business context
IGT provides lottery management and technology, gaming machines and systems, sports betting, interactive gaming, and transaction-processing services in more than 100 countries. Its four segments are North America Gaming and Interactive, North America Lottery, International, and Italy. Most revenue is recurring service revenue, including long-term contracts and concessions.
Financial results and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $4.939 billion | $5.154 billion |
| Operating income (loss) | $(51.1) million | $660.4 million |
| Net income (loss) | $(947.5) million | $264.2 million |
| Net income (loss) attributable to IGT PLC | $(1.069) billion | $211.3 million |
| Basic and diluted EPS attributable to IGT PLC | $(5.26) | $1.05 |
| Cash from operating activities | $685.9 million | $281.3 million, restated |
| Capital expenditures | $698.0 million | $541.9 million |
| Cash and cash equivalents, year-end | $1.057 billion | $294.1 million |
| Debt, balance-sheet carrying amount | $8.377 billion | $7.863 billion |
| Total available liquidity, including revolver availability | $3.032 billion | $2.661 billion |
| Dividends declared per ordinary share | $0.80 | $0.80 |
Operating margin was approximately negative 1.0%, versus 12.8% in 2016. The filing does not present a single consolidated gross-margin figure. Service revenue was $4.137 billion (83.8% of revenue); product sales were $802.4 million. Year-end total assets were $15.159 billion and total equity was $2.355 billion. The company reported compliance with its debt covenants at year-end and stated it expected available cash and committed borrowing capacity to cover ordinary-course needs for at least 12 months.
Material changes versus 2016
- Revenue fell 4.2%, mainly because service revenue declined 5.5%. North America Gaming and Interactive revenue fell 15.7%, including the effect of selling DoubleDown in June 2017. Italy revenue declined 3.2%, primarily due to lower Lotto revenue; International revenue increased 7.5%.
- The $714.0 million non-cash goodwill impairment in North America Gaming and Interactive, together with other impairment charges, drove operating results from profit to loss. The impairment reflected weaker-than-expected performance and delayed recovery in that reporting unit.
- A $444.0 million net foreign-exchange loss, principally non-cash and related to euro-denominated debt, compared with a $101.0 million gain in 2016. Interest expense remained high at $458.9 million.
- Operating cash flow rose by $404.6 million year over year, primarily because 2016 included $665.3 million in upfront Italian concession payments. The company restated 2016 cash flows to classify that payment as operating, rather than investing, activity; reported 2016 operating cash flow is therefore $281.3 million.
- The DoubleDown sale generated $823.8 million net cash proceeds and a $27.2 million gain after selling costs. Proceeds supported debt repayment and other funding needs; the company also raised a €1.5 billion term loan maturing in 2023 and repaid or refinanced other borrowings.
Outlook, risks, contingencies, and unusual items
- Outlook: The filing provides no formal consolidated revenue, earnings, or cash-flow guidance. Management expected improved performance from new games and hardware in North America Gaming and Interactive, with a normalized long-term growth rate of 3% from a lower base; this depends on execution and market acceptance.
- Italy concessions: ADM-awarded concessions represented 31.9% of 2017 revenue. The Italian Scratch & Win concession was extended through 2028 with an €800 million upfront fee; €750 million remained payable in 2018 at year-end (reported as $899.5 million). The Lotto concession runs through 2025 and is operated through a consortium, with partner rights and distributions affecting the company’s share of economics.
- Tax: The 2017 Tax Act produced a provisional net $114.2 million income-tax benefit, including a $174.7 million deferred-tax benefit and $60.5 million transition-tax expense. Estimates remained subject to further analysis and guidance. The 2017 effective tax rate was 3.0%.
- Legal and tax matters: Litigation provisions were $4.7 million at year-end, but outcomes could exceed recorded provisions. Matters included Texas Fun 5’s ticket lawsuits, Illinois Lottery litigation, and a Mexican tax assessment; the company disputed several claims. The filing also describes ongoing tax audits and proceedings.
- Financial reporting controls: The company restated 2016 cash-flow classification and reported a material weakness in controls over evaluating and documenting cash-flow classification judgments. Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2017; remediation work had begun but was not yet validated as complete.
- Other exposures: Risks include substantial debt and refinancing needs, foreign-exchange and interest-rate movements, customer and concession concentration, contract renewals and performance penalties, regulation, cybersecurity and systems disruption, and competition. Outstanding performance, WAP, bid, and other bonds totaled $746.7 million; separate disclosures cite approximately $1.258 billion of performance bonds and letters of credit in aggregate.
Most important facts for investors to verify
- Confirm that International Game Technology PLC is the intended issuer for the Brightstar Lottery PLC request and that the desired period is fiscal-year 2017 rather than Q4 alone.
- Review the audited statements and notes for the $714 million goodwill impairment, non-cash euro-debt foreign-exchange loss, debt balances, maturities, and 2018 concession payment.
- Check the restated 2016 cash-flow presentation and subsequent filings for progress in remediating the material weakness.
- Assess the assumptions and current status of the Italian Lotto and Scratch & Win concessions, including consortium economics and payment obligations.
- Track the resolution of disclosed legal and tax matters, and any subsequent updates to the provisional Tax Act accounting or liquidity outlook.