Business context and reporting period
The supplied filing is International Game Technology PLC’s (IGT PLC) audited Form 20-F for the fiscal year ended December 31, 2016—not a quarterly filing. The filing does not identify Brightstar Lottery PLC as the registrant; it names International Game Technology PLC. Results are in U.S. dollars and prepared under U.S. GAAP. The company supplies lottery, gaming, sports betting, and interactive products and services across more than 100 countries. The filing provides annual figures, not separate fourth-quarter results.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $5.154 billion | $4.689 billion |
| Operating income / margin | $660.4 million / 12.8% | $540.0 million / 11.5% |
| Net income (loss) | $264.2 million | $(55.9) million |
| Net income (loss) attributable to IGT PLC | $211.3 million; diluted EPS $1.05 | $(75.6) million; diluted EPS $(0.39) |
| Operating cash flow | $961.9 million | $786.0 million |
| Cash and cash equivalents at year-end | $294.1 million | $627.5 million |
| Total debt at year-end | $7.863 billion | $8.334 billion |
| Total available liquidity | $2.661 billion | $2.715 billion |
| Dividend declared per share | $0.80 | $0.40 |
Service revenue was $4.376 billion (84.9% of revenue); product sales were $778.3 million (15.1%). Cash used in investing activities was $996.5 million, including $665.3 million in upfront payments related to the new Italian Lotto concession and $557.2 million in capital expenditures. Cash used in financing activities was $312.1 million, including $357.5 million of debt principal payments and $161.2 million of dividends paid to shareholders.
Material changes versus the prior comparable period
- Revenue increased 9.9%, while operating income rose 22.3% and the operating margin improved from 11.5% to 12.8%.
- The company returned to consolidated profitability from a 2015 net loss. The 2015 comparison included substantial acquisition-related and refinancing costs and a large, unusually negative effective tax rate.
- Operating cash flow increased by $175.9 million, but cash at year-end declined by $333.4 million, reflecting investing and financing outflows.
- Debt decreased by approximately $471 million. The company reported $2.367 billion of available revolving credit capacity and said it was in compliance with debt covenants.
- North America Gaming and Interactive revenue increased 24.7%, and North America Lottery revenue increased 14.1%. Italy revenue increased 3.4%; International revenue declined 3.0% as reported, but increased 0.8% at constant currency.
- Italy Lotto service revenue benefited from higher 10eLotto and late-number wagers. North America Lottery benefited from record Powerball sales in early 2016 and a $30.6 million New Jersey incentive payment. International operating income fell 12.6% as reported, with currency effects a significant factor.
Outlook, risks, contingencies, and unusual items
- Management said operating cash flow, available funds, and committed borrowing capacity were expected to cover ordinary-course obligations and working-capital needs for at least the next 12 months. The filing gives no quantified earnings or revenue guidance.
- Italy’s concessions are material: approximately 31.7% of 2016 revenue came from ADM concessions. The new Lotto concession runs through 2025; the instant-ticket concession expires in 2019. The Lotto arrangement requires substantial upfront funding and includes partner put/call rights.
- Reported results included a $101.0 million foreign-exchange gain, principally non-cash gains on euro-denominated debt; a $20.4 million gain on the sale of an investment; and $37.7 million of impairment losses, including $30.0 million on DoubleDown-related trademarks. The company also recorded a $30.6 million New Jersey incentive payment.
- The company disclosed an ongoing Italian criminal investigation concerning executives and historical tax matters. The associated tax assessments were settled in 2016, but dismissal of the criminal investigations remained pending. Litigation provisions were $4.0 million at year-end; proceedings included Texas instant-ticket claims, with one group of plaintiffs alleging damages over $500 million, and Mexican tax litigation.
- Key business risks include dependence on government contracts and concessions, contract renewals and performance requirements, high debt and interest expense, currency movements, gaming regulation and taxation, competition, cybersecurity and systems reliability, and customer and player demand.
- After year-end, the company agreed to sell its DoubleDown social casino subsidiary for approximately $825 million in cash, subject to customary closing conditions and regulatory approvals; closing was anticipated in the second quarter of 2017. It also sold its Reno campus for $156.0 million and entered into a 15.5-year lease.
Important facts for investors to verify
- Confirm the intended issuer and period: this source is IGT PLC’s FY 2016 Form 20-F, not a Brightstar Lottery PLC filing or a standalone 2016 Q4 report.
- Review the audited financial statements and notes for debt maturities, covenant terms, cash-flow classification, and the substantial Italian Lotto concession payments and partner arrangements.
- Assess the sustainability of earnings by separating recurring operations from foreign-exchange gains, the investment-sale gain, impairment charges, and incentive payments.
- Check subsequent filings for completion and net proceeds of the DoubleDown sale, and for the use of proceeds and continuing royalty arrangements.
- Monitor concession renewals, pending legal matters and the Italian executive investigation, as well as changes in customer demand, currency exposure, and borrowing costs.